APPENDIX J. MANUFACTURER IMPACT ANALYSIS INTERVIEW GUIDE AND GOVERNMENT REGULATORY IMPACT MODEL (GRIM)

TABLE OF CONTENTS

J.1 MANUFACTURER IMPACT ANALY SIS INTERVIEW GUIDE

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J.2 GOVERNMENT REGULATORY IMPACT MODEL

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J.2.1 Introduction and Purpose

................................................................................... J-17
J.2.2 Model Description

............................................................................................. J-17
J.2.3 Detailed Cash Flow Example

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J-iJ-iiAPPENDIX J. MANUFACTURER IMPACT ANALYSIS INTERVIEW GUIDE AND
GOVERNMENT REGULATORY IMPACT MODEL

J.1 MANUFACTURER IMPACT ANALYSIS INTERVIEW GUIDE



## Commercial Refrigeration Equipment Rulemaking Manufacturer Impact Anal ysis Interview Guide

October 15, 2007

J-11 KEY ISSUES

The Department of Energy (DOE) is currently reviewing five efficiency levels for the commercial refrigeration equipment (CRE) rule making analyses. In responding to this questionnaire, please refer to the values described below.

Table 1.1 CRE Efficiency Levels Equipment Class Efficiency
Metric Baseline Efficiency
Level 1 Efficiency
Level 2 Efficiency
Level 3 Efficiency
Level 4

VOP.RC.M CDEC/TDA kWh/day/ft 2 1.08 0.90 0.75 0.70 0.64

VOP.RC.L CDEC/TDA kWh/day/ft 2 2.93 2.61 2.47 2.46 2.39

SVO.RC.M CDEC/TDA kWh/day/ft 2 1.05 1.00 0.90 0.80 0.74

HZO.RC.M CDEC/TDA kWh/day/ft 2 0.16 0.16 0.14 0.11 0.10

HZO.RC.L CDEC/TDA kWh/day/ft 2 0.83 0.75 0.70 0.65 0.62

VCT.RC.M CDEC/TDA kWh/day/ft 2 0.54 0.42 0.38 0.24 0.19

VCT.RC.L CDEC/TDA kWh/day/ft 2 1.06 0.90 0.75 0.65 0.55

SOC.RC.M CDEC/TDA kWh/day/ft 2 0.95 0.76 0.74 0.71 0.60

VOP.SC.M TDEC/TDA kWh/day/ft 2 2.55 2.23 2.07 1.84 1.65

SVO.SC.M TDEC/TDA kWh/day/ft 2 2.24 1.99 1.87 1.62 1.54

HZO.SC.M TDEC/TDA kWh/day/ft 2 0.78 0.61 0.56 0.54 0.48

HZO.SC.L TDEC/TDA kWh/day/ft 2 2.05 1.80 1.52 1.33 1.32

VCT.SC.I TDEC/TDA kWh/day/ft 2 1.58 1.24 0.77 0.69 0.63

VCS.SC.I TDEC/V kWh/day/ft 3 0.27 0.19 0.18 0.17 0.17

HCT.SC.I TDEC/TDA kWh/day/ft 2 1.63 1.28 0.73 0.61 0.57

1.1 What are the key issues for your company regarding energy conser vation standards for CRE and this rulemaking?

1.2 For the issues identified, how significa nt are they for each efficiency level?

1.3 How can we most effectively incorporate these issues in the Manufacturer Impact Analysis (MIA)?

J-22 COMPANY OVERVIEW AND ORG ANIZATIONAL CHARACTERISTICS

DOE is interested in understan ding manufacturer impact at th e plant or profit center level directly pertinent to CRE productio n. However, the context within which the plant operates and the details of plant production and costs are not readily available from the published literature. Therefore, DOE invites you to provide these deta ils confidentially in yo ur own words to the extent possible and practical. Understanding the organizational setting around the CRE industry profit center will help DOE understand the probabl e future of the CRE manufacturing activity with and without energy conservation standards.

2.1 Do you have a parent company, and/or any subsidiaries relevant to the CRE industry?

2.2 Do you manufacture any equipment other than CRE? If so, what other equipment do you
manufacture?

2.3 What percentage of your tota l manufacturing corresponds to CRE?

2.4 Where are your production facili ties located, and what type of equipment is manufactured at each location? Could you provi de figures for your company’s manufacturing at each location by equipment type (CRE or other) , size, and efficiency (i.e., pr ovide the equipment mix for each location).

2.5 At a particular facility, woul d potential CRE redesigns be diffi cult to implement? If so, would your company modify the existing facility or devel op a new facility?

2.6 What are your employment leve ls at each of th ese facilities?

2.7 What are your company’s total CRE production volumes (i.e., units per year, linear feet per year) for the past 5 years? What are th e production volumes of your five highest volume equipment classes?

2.8 What are your equipment lines, niches, and relative strengths in the CRE market?

2.9 The Small Business Association (SBA) denotes a small business in the CRE industry as having less than 750 employees. By this defi nition, is your company considered a small
business?

J-32.10 Are there any niche manufacturers, small bus inesses, and/or component manufacturers (i.e., compressors) for which the adoption of new st andards would have a se vere impact? If so, would manufacturers of this equipment have di fferent incremental impacts from implemented energy efficiency standards than from the rest of the industry?

3 FINANCIAL PARAMETERS

Navigant Consulting, Inc. (NCI) has develope d a “strawman” model of the CRE industry financial performance called the Government Re gulatory Impact Model (GRIM), using publicly
available data on CRE manufacturer s. This section attempts to understand how your company’s
financial situation differs from our industry aggregate picture.

3.1 Please compare your financial parameters to the GRIM parameters tabulated below.

Table 3.1 Financial Parameters for CRE Manufacturers GRIM Input Definition CRE GRIM
Estimated
Value Your Actual (if significantly
different from our estimate)
Income Tax Rate Corporate (average) effective income tax paid

(percentage of earnings before taxes, EBT) 22.1%

Discount Rate Weighted average cost of capital (inflation-adjusted weighted average of corporate cost of debt and return on equity) 11.5%

Working Capital Current assets less current liabilities (percentage of revenues) 8.6%

SG&A Selling, general, and administrative expenses (percentage of revenues) 16.5%

R&D Research and development expenses (percentage of revenues) 2.3%

Depreciation Amortization of fixed assets (percentage of revenues) 2.6%

Capital Expenditures Outlay of cash to acquire or improve capital assets (percentage of revenues, not including acquisition or sale of business units) 2.0%

J-43.2 How would you expect new energy conser vation standards impact your company’s financial parameters?

4 PRODUCTION COST BREAKDOWN

DOE estimated the full production costs of variou s CRE units of different efficiencies for all equipment classes. With the combined data, DOE calculated the industry average percentage of each cost in the full production cost.

4.1 Please compare your full production cost pe rcentages to the estimated GRIM full production cost percentages tabulated below. Are the different percentages of each cost representative of your company or the CRE industry? Please explain any differences.

Table 4.1 Breakdown by Percentage of Full Production Costs for Baseline CRE Components of Full

Production Costs Estimated % of Full Production
Cost Your Actual (if different from our estimate)
Materials 86.16%

Labor 9.61%
Overhead 2.83% Depreciation 1.39%

5 SHIPMENT PROJECTIONS AND MARKET SHARES

A new energy conservation standard can cha nge overall shipments by changing equipment attributes, marketing approaches, equipment avai lability, and price. The GRIM bases revenue projections on shipment projec tions obtained from the Nationa l Energy Savings Spreadsheet (NES) prepared by the Pacific Northwest National Laboratory (PNNL). The NES includes shipment forecasts for the baseline (absent new standards) and new standards at each efficiency level being analyzed.

5.1 Please compare DOE’s projections of i ndustry-wide shipments for CRE with your company’s projections of i ndustry-wide shipments?

J-5Table 5.1 2012 Industry-Wide Shipment Proj ections for CRE (Number of Units) Equipment Class Baseline Shipments Comments or Your Company’s Projection

VOP.RC.M 42300

VOP.RC.L

- SVO.RC.M 32300

HZO.RC.M 5000

HZO.RC.L 15600

VCT.RC.M 3000

VCT.RC.L 42000

SOC.RC.M 10125

VOP.SC.M 7000

SVO.SC.M 10750

HZO.SC.M 1000

HZO.SC.L 2000

VCT.SC.I 2000

VCS.SC.I 600

HCT.SC.I 10000

5.2 Based on the shipment data DOE received from ARI, the VOP.RC.L equipment class was listed as having 0 shipments. Manufacturers recomm ended that this equipm ent class be included in DOE’s analysis because they do, in fact, ship un its that would fall into this equipment class. Are there any additional equipment classes, no t listed in Table 5.1, for which DOE may have inaccurate shipment data?

5.3 DOE assumed that total indus try shipments for 2012 would not be affected by increasing standard levels (i.e., total industry shipments remain constant at the various analyzed standard levels in comparison to the base case). Could you provide your company’s estimates and/or any qualitative information on expected changes in total industry shipme nts at the different analyzed efficiency levels?

J-6Table 5.2 Changes in Remote Condensin g CRE Shipments versus Baseline in 2012 Efficiency Level VOP.RC.M VOP.RC.L SVO.RC.M HZO.RC.M

CDEC/TDA kWh/day/ft 2 % Change CDEC/TDA kWh/day/ft 2 % Change CDEC/TDA kWh/day/ft 2 % Change CDEC/TDA kWh/day/ft 2 % Change Efficiency Level 1 0.90 2.61 1.00 0.16 Efficiency Level 2 0.75 2.47 0.90 0.14 Efficiency Level 3 0.70 2.46 0.80 0.11 Efficiency Level 4 0.64 2.39 0.74 0.10
HZO.RC.L VCT.RC.M VCT.RC.L SOC.RC.M

CDEC/TDA kWh/day/ft 2 % Change CDEC/TDA kWh/day/ft 2 % Change CDEC/TDA kWh/day/ft 2 % Change CDEC/TDA kWh/day/ft 2 % Change Efficiency Level 1 0.75 0.42 0.90 0.76 Efficiency Level 2 0.70 0.38 0.75 0.74 Efficiency Level 3 0.65 0.24 0.65 0.71 Efficiency Level 4 0.62 0.19 0.55 0.60

Table 5.3 Changes in Open Self Contai ned CRE Shipments versus Baseline in 2012 Efficiency Level VOP.SC.M SVO.SC.M HZO.SC.M HZO.SC.L

TDEC/TDA kWh/day/ft 2 % Change TDEC/TDA kWh/day/ft 2 % Change TDEC/TDA kWh/day/ft 2 % Change TDEC/TDA kWh/day/ft 2 % Change Efficiency Level 1 2.23 1.99 0.61 1.80 Efficiency Level 2 2.07 1.87 0.56 1.52 Efficiency Level 3 1.84 1.62 0.54 1.33 Efficiency Level 4 1.65 1.54 0.48 1.32

Table 5.4 Changes in Ice-Cream Freezer Shipments versus Baseline in 2012 Efficiency Level VCT.SC.I VCS.SC.I HCT.SC.I

TDEC/TDA kWh/day/ft 2 % Change TDEC/V kWh/day/ft 3 % Change TDEC/TDA kWh/day/ft 2 % Change Efficiency Level 1 1.24 0.19 1.28 Efficiency Level 2 0.77 0.18 0.73 Efficiency Level 3 0.69 0.17 0.61 Efficiency Level 4 0.63 0.17 0.57

5.4 What is your company’s approximate market share of the CRE industry?

5.5 Would you expect your market share to change once higher energy conservation
standards become effective?

6 EQUIPMENT MIX

Current differences in equipment mix (distributi on of equipment sales by efficiency level) among
manufacturers can lead to different reactions to and impacts from new energy conservation
standards.

J-76.1 If your company offers multiple equipment lin es with different efficiency levels, how does your mix of CRE sales by equipment effici ency compare to our projected 2012 Industry Average distribution for the baseline case as sh own in Table 6.1 – Table 6.15? If your company does not offer multiple equipment lines with different efficiency levels, are the projected distributions representati ve of the CRE industry? A new ener gy conservation standard affects the equipment mix by eliminating the sale of equipm ent below the minimum efficiency level. The NES forecasts the distribution of CRE sales by ef ficiency level after standards. Are the NES
forecasts described in the tables below for the year 2012 consistent with your own expectations for the industry?

Table 6.1 Percentage of Total Shipments by Efficiency Level for VOP.RC.M in 2012 Proposed Standard Level (CDEC/TDA - kWh/day/ft 2 ) 1.08 0.90 0.75 0.70 0.64

Baseline (1.08) 23.2% 43.0% 19.3% 7.9% 6.6% Level 1 (0.90) 66.2 19.3% 7.9% 6.6% Level 2 (0.75) 85.5% 7.9% 6.6% Level 3 (0.70) 93.4% 6.6% Level 4 (0.64) 100%

Table 6.2 Percentage of Total Shipments by Efficiency Level for VOP.RC.L in 2012 Proposed Standard Level (CDEC/TDA - kWh/day/ft 2 ) 2.93 2.61 2.47 2.46 2.39

Baseline (2.93) 17.6% 36.9% 16.9% 16.5% 12.1% Level 1 (2.61) 54.5% 16.9% 16.5% 12.1% Level 2 (2.47) 71.4% 16.5% 12.1% Level 3 (2.46) 87.9% 12.1% Level 4 (2.39) 100%

Table 6.3 Percentage of Total Shipments by Efficiency Level for SVO.RC.M in 2012 Proposed Standard Level (CDEC/TDA - kWh/day/ft 2 ) 1.05 1.00 0.90 0.80 0.74

Baseline (1.05) 20.3% 17.0% 29.4% 23.7% 9.6% Level 1 (1.00) 37.3% 29.4% 23.7% 9.6% Level 2 (0.90) 66.7% 23.7% 9.6% Level 3 (0.80) 90.4% 9.6% Level 4 (0.74) 100%

Table 6.4 Percentage of Total Shipments by Efficiency Level for HZO.RC.M in 2012 Proposed Standard Level (CDEC/TDA - kWh/day/ft 2 ) 0.16 0.14 0.11 0.10

Baseline (0.16) 24.8% 25.4% 25.2% 24.6% Level 1 (0.14) 50.2% 25.2% 24.6% Level 2 (0.11) 75.4% 24.6% Level 3 (0.10) 100%

J-8Table 6.5 Percentage of Total Shipments by Efficiency Level for HZO.RC.L in 2012 Proposed Standard Level (CDEC/TDA - kWh/day/ft 2 ) 0.83 0.75 0.70 0.65 0.62

Baseline (0.83) 18.3% 35.2% 16.2% 15.4% 14.9% Level 1 (0.75) 53.5% 16.2% 15.4% 14.9% Level 2 (0.70) 69.7% 15.4% 14.9% Level 3 (0.65) 85.1% 14.9% Level 4 (0.62) 100%

Table 6.6 Percentage of Total Shipments by Efficiency Level for VCT.RC.M in 2012 Proposed Standard Level (CDEC/TDA - kWh/day/ft 2 ) 0.54 0.42 0.38 0.24 0.19

Baseline (0.54) 15.7% 35.4% 34.7% 9.1% 5.1% Level 1 (0.42) 51.1% 34.7% 9.1% 5.1% Level 2 (0.38) 85.8% 9.1% 5.1% Level 3 (0.24) 94.9% 5.1% Level 4 (0.19) 100%

Table 6.7 Percentage of Total Shipments by Efficiency Level for VCT.RC.L in 2012 Proposed Standard Level (CDEC/TDA - kWh/day/ft 2 ) 1.06 0.90 0.75 0.65 0.55

Baseline (1.06) 17.6% 30.7% 24.8% 19.6% 7.3% Level 1 (0.90) 48.3% 24.8% 19.6% 7.3% Level 2 (0.75) 73.2% 19.6% 7.3% Level 3 (0.65) 92.7% 7.3% Level 4 (0.55) 100%

Table 6.8 Percentage of Total Shipments by Efficiency Level for SOC.RC.M in 2012 Proposed Standard Level (CDEC/TDA - kWh/day/ft 2 ) 0.95 0.76 0.74 0.71 0.60

Baseline (0.95) 16.5% 43.4% 16.4% 15.9% 16.7% Level 1 (0.76) 51.0% 16.4% 15.9% 16.7% Level 2 (0.74) 67.4% 15.9% 16.7% Level 3 (0.71) 83.3% 16.7% Level 4 (0.60) 100%

Table 6.9 Percentage of Total Shipments by Efficiency Level for VOP.SC.M in 2012 Proposed Standard Level (TDEC/TDA - kWh/day/ft 2 ) 2.55 2.23 2.07 1.84 1.65

Baseline (2.55) 14.5% 30.1% 28.7% 21.6% 5.1% Level 1 (2.23) 44.6% 28.7% 21.6% 5.1% Level 2 (2.07) 73.3% 21.6% 5.1% Level 3 (1.84) 94.9% 5.1% Level 4 (1.65) 100%

J-9Table 6.10 Percentage of Total Shipments by Efficiency Level for SVO.SC.M in 2012 Proposed Standard Level (TDEC/TDA - kWh/day/ft 2 ) 2.24 1.99 1.87 1.62 1.54

Baseline (2.24) 13.9% 28.4% 27.2% 22.9% 7.6% Level 1 (1.99) 42.2% 27.2% 22.9% 7.6% Level 2 (1.87) 69.5% 22.9% 7.6% Level 3 (1.62) 92.4% 7.6% Level 4 (1.54) 100%

Table 6.11 Percentage of Total Shipments by Efficiency Level for HZO.SC.M in 2012 Proposed Standard Level (TDEC/TDA - kWh/day/ft 2 ) 0.78 0.61 0.56 0.54 0.48

Baseline (0.78) 12.7% 38.8% 25.6% 12.3% 10.7% Level 1 (0.61) 51.5% 25.6% 12.3% 10.7% Level 2 (0.56) 77.0% 12.3% 10.7% Level 3 (0.54) 89.3% 10.7% Level 4 (0.48) 100%

Table 6.12 Percentage of Total Shipments by Efficiency Level for HZO.SC.L in 2012 Proposed Standard Level (TDEC/TDA - kWh/day/ft 2 ) 2.05 1.80 1.52 1.33 1.32

Baseline (2.05) 12.1% 25.0% 39.9% 11.6% 11.3% Level 1 (1.80) 37.1% 39.9% 11.6% 11.3% Level 2 (1.52) 77.1% 11.6% 11.3% Level 3 (1.33) 88.7% 11.3% Level 4 (1.32) 100%

Table 6.13 Percentage of Total Shipments by Efficiency Level for VCT.SC.I in 2012 Proposed Standard Level (TDEC/TDA - kWh/day/ft 2 ) 1.58 1.24 0.77 0.69 0.63

Baseline (1.58) 12.5% 29,0% 41.4% 10.1% 6.8% Level 1 (1.24) 41.6% 41.4% 10.1% 6.8% Level 2 (0.77) 83.0% 10.1% 6.8% Level 3 (0.69) 93.2% 6.8% Level 4 (0.63) 100%

Table 6.14 Percentage of Total Shipments by Efficiency Level for VCS.SC.I in 2012 Proposed Standard Level (TDEC/V - kWh/day/ft 3 ) 0.27 0.19 0.18 0.17 0.17

Baseline (0.27) 11.2% 51.2% 13.3% 13.0% 11.3% Level 1 (0.19) 62.4% 13.3% 13.0% 11.3% Level 2 (0.18) 75.7% 13.0% 11.3% Level 3 (0.17) 88.7% 11.3% Level 4 (0.17) 100%

J-10Table 6.15 Percentage of Total Shipments by Efficiency Level for HCT.SC.I in 2012 Proposed Standard Level (TDEC/TDA - kWh/day/ft 2 ) 1.63 1.28 0.73 0.61 0.57

Baseline (1.63) 17.2% 36.0% 16.0% 15.5% 15.2% Level 1 (1.28) 53.3% 16.0% 15.5% 15.2% Level 2 (0.73) 69.3% 15.5% 15.2% Level 3 (0.61) 84.8% 15.2% Level 4 (0.57 100%

6.2 Do you expect the equipment mix to change over time absent any new energy conservation standards? If so, please explain how it will change.

7 CONVERSION COSTS

An increase in energy conserva tion standards may cause your company to incur one-time capital and equipment conversion costs. DOE calls these conversion costs because they are the costs of changing your business to comply with new energy conservation standards.

7.1 What level of conversion costs do you anticip ate incurring under the different efficiency levels? What portion of your capital convers ion expenditures do you expect to go towards replacing existing assets, which would become obsolete under a new energy conservation standard? Refer to the tables below to provi de your company’s estimates. Please provide additional qualitative information to help DOE understand the nature of your investments.

J-11Table 7.1 Remote Condensing CRE Conversion Costs Efficiency
Level (EL) VOP.RC.M VOP.RC.L Capital Conv. Exp. a Product Conv. Exp. b Stranded
Assets Capital Conv. Exp. Product Conv. Exp. Stranded
Assets
Baseline

EL 1

EL 2
EL 3

EL 4
SVO.RC.M HZO.RC.M
Baseline

EL 1

EL 2
EL 3

EL 4
HZO.RC.L VCT.RC.M
Baseline

EL 1

EL 2
EL 3

EL 4
VCT.RC.L SOC.RC.M
Baseline

EL 1

EL 2
EL 3

EL 4

a Capital Conversion Expenditures - One- time investments in plant, property, and equipment (PPE) necessitated by an energy conservation standard. These may be completely incremental to existing PPE or they could involve replacement of existing PPE.

b Product Conversion Expenditures - One-time expenses in research, product development, testing, and marketing necessitated by an appliance energy conservation standard.

J-12Table 7.2 Open Self Contai ned CRE Conversion Costs Efficiency
Level (EL) VOP.SC.M SVO.SC.M Capital Conv. Exp. Product Conv. Exp. Stranded
Assets Capital Conv. Exp. Product Conv. Exp. Stranded
Assets
Baseline

EL 1

EL 2
EL 3

EL 4
HZO.SC.M HZO.SC.L
Baseline

EL 1

EL 2
EL 3

EL 4

Table 7.3 Ice-Cream Freezer Conversion Costs Efficiency
Level (EL) VCT.SC.I VCS.SC.I Capital Conv. Exp. Product Conv. Exp. Stranded
Assets Capital Conv. Exp. Product Conv. Exp. Stranded
Assets
Baseline

EL 1

EL 2
EL 3

EL 4
HCT.SC.I
Baseline

EL 1

EL 2
EL 3

EL 4

7.2 What is your depreciation period for the cap ital expenditures (build ing, equipment, and tooling)?

8 MARKUPS AND PROFITABILITY

One of the primary objectives of the MIA is to as sess the impact of efficiency levels on industry profitability. In this secti on, DOE would like your assistance u nderstanding how the efficiency levels would impact your compa ny’s markups and profitability.

J-138.1 Do profit levels vary by equipment class? Do profit levels vary by efficiency level? Please explain why or why not?

8.2 The equipment price markup DOE calculate d for the Engineering Analysis was 1.39. The equipment price markup DOE calculated for the Notice of Proposed Rulemaking (NOPR) Analysis was 1.44. Do these numbers seem accurate, or are they too high or low?

8.3 Do you expect changes in your estimated profitability following the new energy
conservation standard? If so, please explain why.

9 CUMULATIVE REGULATORY BURDEN

Cumulative regulatory burden refers to the burden that industry fa ces from overlapping effects of new or revised DOE standards, voluntary standards, and/or other regulatory actions affecting the same equipment or industry.

9.1 Are there other recent or impending regulati ons, excluding the refrig erant phase-out, that CRE manufacturers face (from DOE or otherwise)? What level of expense are you expecting to
incur as a result of these regulations?

9.2 Under what circumstances would you be able to coordinate any e xpenditures related to these other regulations thereby lessening the cumulative burden?

10 EXPORTS / FOREIGN COMP ETITION / OUTSOURCING

Disparity between domestic and foreign energy c onservation standards could impact exports or imports. Labor content and material changes, resulting from energy conservation standards, may impact sourcing decisions.

10.1 What percentage of your company’s CRE sa les are domestic? Absent standards, are production facilities being relocated to fore ign countries? Would new energy conservation standards impact your domestic vs. foreign manufacturing decision?

10.2 If applicable, to what foreign countries or regions do you export your equipment? What percentage of sales can be attributed to each?

10.3 Would a new standard be expected to affect your export sales? What would the resulting impact be, if any, on your manufact uring operations and profitability?

J-1410.4 Are your foreign exports affected by energy efficiency standards in other countries?

10.5 What percentage of the U.S. market for CRE has been captured by foreign competition? Would standards have an impact on foreign competition?

10.6 What is your outlook for the future oper ation of your company and the CRE industry with regard to exports?

11 DIRECT EMPLOYMENT IMPACT ASSESSMENT

The impact of new energy conservation standards on employment is an important consideration in the rulemaking process. This section of the interview guide seek s to explore current trends in CRE production employment and solicit manufac turer views on how domestic employment patterns might be affected by new energy conservation standards.

11.1 Would your domestic employment levels be expected to change significantly under new energy conservation standards? If so, please explain how they would change.

11.2 Would the workforce skills necessary under new energy conservation standards require extensive retraining or replacement of employees?

11.3 Would mandating higher efficiency levels resu lt in larger sized equipment to compensate for larger, more efficient components? Have you found direct labor cost s to be proportional to
material costs?

12 CONSOLIDATION

New energy conservation standards can alter the competitive dynamics of the market. This can include prompting companies to enter or exit the market, or to merge. DOE and the Department
of Justice are both interested in any potential reduction in comp etition that would result from a new energy conservation standard.

12.1 Please comment on industry consolidation a nd related trends over the last 5 years.

12.2 In the absence of new standards, do you e xpect any further industry consolidation? Please describe your expectations.

J-1512.3 How would new standards aff ect your ability to compete?

13 BASELINE PRODUCTS AND DESIGN OPTIONS

13.1 What lighting configurations are generall y incorporated into baseline open cases (vertical, semivertical, and horizontal)? Canopy, fr ont ledge, shelf, other?

13.2 Should electric defrost be included in base line open cases (verti cal, semivertical, and horizontal)?

13.3 Is insulation thickness increase a feasible design option? What equipment classes that your company makes would this be vi able for? Would there be a sign ificant issues with a 1/4" or
1/8” insulation thickness increase?

13.4 DOE intends to develop offset factors fo r all standard equations to account for the disproportionate energy use of sma ll cases. These factors will be based on “end effects” such as conduction through end panels and fixed lighting level in door cas es such that an equitable
standard level in terms of CDEC or TDEC (equating to a similar set of component changes to the baseline model) is defined across different length equipment of th e same basic design. Is this approach reasonable?

13.5 Does your company have data that would he lp DOE develop factors to extend standards to low-shipment equipment classes using the methodology described in section 5.8 of the CRE
TSD?

J-16J.2 GOVERNMENT REGULATORY IMPACT MODEL

J.2.1 Introduction and Purpose

The purpose of the Government Regulatory Imp act Model (GRIM) is to help quantify the impacts of energy conservation standards and other regulations on manufacturers. The basic mode of analysis is to estimate the change in value of the industry or manufacturers(s) following a regulation or a series of regulations. The mode l structure also allows an analysis of multiple equipment types with regulations taking effect ove r a period of time, and of multiple regulations on the same equipment.

Industry net present value is defined, for the purpose of this analysis, as the discounted sum of industry free cash flows plus a discounted terminal valu e. The model calculates the actual cash flows by year and then determines the present value of those cash flows both without an energy conservation standard (i.e., the base case) and under different trial standard levels (TSLs).

Output from the model consists of summary fi nancial metrics, graphs of major variables, and, when appropriate, access to th e complete cash flow calculation.

J.2.2 Model Description

The basic structure of the GRIM is a standa rd annual cash flow analysis that uses manufacturer selling prices, manu facturing costs, a shipments forecast, and financial parameters as inputs and accepts a set of regulatory conditions as changes in costs and investments. The cash flow analysis is separated into two majo r blocks: income and cash flow. The income calculation determines net operating profit after ta xes. The cash flow ca lculation converts net operating profit after taxes into an annual cash fl ow by including investment and non-cash items. Below are definitions of listed items on the printout of the output sheet (see Section I.3).

(1) Unit Sales: Total annual shipments for the indus try were obtained from the National Energy Savings Spreadsheet. The distributi on of shipments by efficiency level was
modified based on feedback from manufacturer s regarding the ability to sell baseline and premium products depending on th e standard level proposed;

(2) Revenues: Annual revenues - computed by multip lying equipment unit price at each efficiency level by the appropr iate manufacturer markup;

(3) Labor: The portion of cost of goods sold (COGS) that includes direct labor, commissions, dismissal pay, bonuses, vacation, sick leave, so cial security contributions, fringe, and assembly labor up-time;

(4) Material : The portion of COGS that includes materials;

J-17(5) Overhead: The portion of COGS that includes indirect labor, indi rect material, energy use, maintenance, depreciation, property taxes, and insurance related to assets. While included in overhead, the depreciation is shown as a separate line item;

(6) Depreciation: Annual depreciation computed as a per centage of COGS. While included in overhead, the depreciation is s hown as a separate line item;

(7) Stranded Assets: In the year the standard become s effective, a one time write-off of stranded assets is accounted for;

(8) Standard SG&A: Selling, general, and administrative costs are computed as a percentage
of Revenues (2) ;

(9) R&D: GRIM separately accounts for ordinary research and development (R&D) as a percentage of Revenues (2) ;

(10) Equipment Conversion Expense: Equipment conversion expenses are one-time investments in research, development, te sting, and marketing focused on making product designs comply with the new efficiency sta ndard. GRIM allocate s these costs over the period between the standard’s anno uncement and effective dates;

(11) Earnings Before Interest and Taxes (EBIT): Includes profits before deductions for interest paid and taxes;

(12) EBIT as a Percentage of Sales: GRIM calculates EBIT as a percentage of sales to compare with the industry’s average reported in financial statements;

(13) Taxes: Taxes on EBIT (11) are calculated by multiplying the tax rate contained in Major Assumptions by EBIT (11)

.

(14) Net Operating Profits After Taxes (NOPAT): Computed by subtracting Cost of Goods Sold ((3) to (6))

, SG&A (8)

, R&D (9)

, Equipment Conversion Expense (10) , and Taxes (13) from Revenues (2)

.

(15) NOPAT repeated : NOPAT is repeated in the Statement of Cash Flows;

(16) Depreciation repeated : Depreciation is added back in the Statement of Cash Flows including stranded assets because both are non-cash expenses;

(17) Change in Working Capital : Change in cash tied up in accounts receivable, inventory, and other cash investments necessary to suppor t operations is calculated by multiplying working capital (as a percenta ge of revenues) by the cha nge in annual revenues.

(18) Cash Flow From Operations : Calculated by taking NOPAT (15) , adding back non-cash
items such as a Depreciation (16) , and subtracting out Change in Working Capital (17) ;

(19) Ordinary Capital Expenditures: Ordinary investments in pr operty, plant, and equipment to maintain and replace existing production assets, computed as a percentage of Revenues (2) ;

J-18(20) Conversion Capital Expenditures: Conversion capital expenditures are one-time investments in property, plant, and equipm ent to adapt or change existing production facilities so that new equipment designs can be fabricated and assembled under the new regulation;

(21) Capital Investment: Total investments in property, plant, and equipment are computed by adding Ordinary Capital Expenditures (19) and Conversion Capital Expenditures (20) ;

(22) Free Cash Flow: Annual cash flow from operations and investments; computed by subtracting Capital Investment (21) from Cash Flow from Operations (18) ;

(23) Terminal Value: Estimate of the continuing value of the industry after 2042. Computed by growing the Free Cash Flow in year 2042 at a constant rate in perpetuity;

(24) Present Value Factor: Factor used to calculate an es timate of the present value of an amount to be received in the future;

(25) Discounted Cash Flow: Free Cash Flows (22) multiplied by the Present Value Factor (24) . For 2042 the discounted cas h flow includes the discounted Terminal Value (23) ; and

(26) Industry Value thru 2042: The sum of Discounted Cash Flows (25)

.

J-19J.2.3Detailed Cash Flow ExampleJ-20