12 -i CHAPTER 12

. PRELIMINARY MANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS

12.1 INTRODUCTION ............................................................................................................ 12-1

12.2 METHODOLOGY ........................................................................................................... 12-1

12.2.1 Phase I: Industry Profile........................................................................................ 12-1

12.2.2 Phase II: Industry Cash -Flow Analysis and Interview Guide ............................... 12-2

12.2.2.1 Industry Cash- Flow Analysis .............................................................. 12-2

12.2.2.2 Interview Guide .................................................................................. 12-2

12.2.3 Phase III: Subgroup Analysis................................................................................ 12-2

12.2.3.1 Manufacturer Interviews ..................................................................... 12-2

12.2.3.2 Revised Industry Cash- Flow Analysis ................................................ 12-3

12.2.3.3 Manufacturer Subgroup Analysis ....................................................... 12-3

12.2.3.4 Competitive Impact Assessment ......................................................... 12-3

12.2.3.5 Manufacturing Capacity Impact ......................................................... 12-3

12.2.3.6 Employment Impact ............................................................................ 12-4

12.2.3.7 Cumulative Regulatory Burden .......................................................... 12-4

12.3 PRELIMINARY MANUFACTURER IMPACT ANALYSIS RESULTS ...................... 12-4

12.3.1 Industry Overview ................................................................................................ 12-4

12.3.1.1 Industry Cost Structure ....................................................................... 12-4

12.3.1.2 Inventory Levels ................................................................................. 12-5

12.3.2 Interview Topics and Preliminary Findings .......................................................... 12-6

12.3.2.1 Market Shares and Industry Consolidation ......................................... 12-7

12.3.2.2 Production and Product Mix ............................................................... 12-7

12.3.2.3 Cumulative Regulatory Burden .......................................................... 12-8

12.3.3 Overall Key Issues ................................................................................................ 12-9

12.3.3.1 Certification, Complia nce, and Enforcement ...................................... 12-9

12.3.3.2 Testing Burden .................................................................................. 12-10

12.3.3.3 Customer Impact ............................................................................... 12-10

12.3.3.4 Refrigerants ....................................................................................... 12-10

12.3.3.5 Conflicts with Other Certifications ................................................... 12-11

12.3.3.6 Impact on Small Manufacturers ........................................................ 12-11

LIST OF TABLES

Table 12.3.1 Employment and Earnings for the Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment

M anufacturing Industry ..................................................................................... 12-5 Table 12.3.2 Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry Material and Payroll

Costs ................................................................................................................... 12-5
Table 12.3.3 End-of- Year Inventory for the Air -Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry

................................ ................................ ............................................................ 12-612

- ii Table 12.3.4 Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry Full Production Capacity Utilization Rates ................................................................................. 12-612 -1 CHAPTER 12. PRELIMINARY MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION

The purpose of the manufacturer impact analysis (MIA) is to identify and quantify the likely impacts of energy conservation standards on manufacturers. In the n otice of proposed

ru lemaking (NOPR) stage of the analysis

, the U.S. Department of Energy ( DOE ) considers a wide range of quantitative and qualitative industry impacts that might occur due to an energy conservation standard. For example, a particular standard level could requi re changes in manufacturing practices, equipment, raw materials, etc. DOE fully analyzes these impacts during the NOPR stage.

DOE announced changes to the preliminary analysis MIA format through a report issued to Congress on January 31, 2006 (as required by section 141 of the Energy Policy Act of 2005 (EPACT 2005), titled Energy Conservation Standards Activities

. 1 As a result, DOE collects, evaluates, and reports preliminary MIA information in the preliminary analysis (as opposed to waiting for the NOPR s tage). Such preliminary information includes market data, market shares, industry consolidation, product mix, key issues, conversion costs, foreign competition, and cumulative regulatory burden information, if available. DOE solicits this information durin g the preliminary manufacturer interviews and reports the results in this chapter.

To the extent appropriate for this rulemaking, DOE applies the methodology described below to evaluate energy conservation standards for commercial refrigeration equipment

.

12.2 METHODOLOGY

DOE conducts the MIA in three phases. In Phase I, DOE creates an industry profile to characterize the industry and conducts a preliminary MIA to identify important issues that require consideration. Section 12.3.1 of this chapter presents initial findings of the Phase I analysis. In Phase II, DOE prepares an industry cash flow model and a detailed interview questionnaire to guide subsequent discussions with manufacturers. In Phase III, DOE interviews manufacturers and assesses the impacts of energy conservation standards both quantitatively and qualitatively. DOE assesses industry and subgroup cash flow impacts and industry net present value using the Government Regulatory Impact Model (GRIM). For add itional details on the GRIM, see section 12.2.2.1

. DOE also assesses impacts on competition, manufacturing capacity, employment, and regulatory burden based on manufacturer interviews and discussions. The

NOPR a nd technical support document present results of the Phase II and III analyses.

12.2.1 Phase I: Industry Profile

In Phase I of the MIA, DOE collects pertinent qualitative and quantitative financial and
market information. This includes data on wages, employment , industry costs , and capacity
utilization rates for manufacturers of commercial refrigeration equipment . Sources of information include reports published by industry groups, trade journals, the U.S. Census Bureau, and Securities Exchange Commission (SEC) 10-K filings. In addition, DOE relies on information from its market and technology assessment, engineering analysis, life

- cycle cost12 -2 analysis, and consumer price analysis to characterize the commercial refrigeration equipment manufacturing industry.

12.2.2 Phase II: Industry Cash -Flow Analysis and Interview Guide

In Phase II, DOE performs a preliminary industry cash- flow analysis and prepares written guidelines for interviewing manufacturers.

12.2.2.1 Industry Cash -Flow Analysis

The GRIM is a financial model that analyze s the impacts of energy conservation standards. Energy conservation standards may affect investment, production costs, and revenue through changes in prices and, possibly, shipments. The GRIM uses several factors to determine a series of annual cash flows for the year that energy conservation standards become effective and for several years after implementation. These factors include annual expected revenues, costs of sales, selling and general administration costs, taxes, and capital expenditures. Inputs to the GRIM include financial information, manufacturing costs, shipment forecasts, and price forecasts developed in other analyses. The financial information is developed from publicly available data and confidentially submitted manufacturer information. DOE compares the results of the GRIM against baseline projections in which no energy conservation standards are in place. The financial impact of energy conservation standards is the difference between the two sets of
discounted annual cash flows.

12.2.2.2 Interview G uide

DOE conducts interviews with manufacturers to gather information on the effects of energy conservation standards on revenues, costs, direct employment, capital assets, and industry competitiveness. Before the interviews, which occur in Phase III, DOE distributes an interview guide to help identify the impacts of energy conservation standards on individual manufacturers or subgroups of manufacturers. Interview guide topics include production costs, shipment projections, market share , product mix, conversion co sts , markups and profitability, competition

, manufacturing capa city , cumulative regulatory burden, and other relevant topics.

12.2.3 Phase III: Subgroup Analysis

Phase III activities take place after publication of the preliminary analysis. These
activitie s include manufacturer interviews; revision of the industry cash- flow analysis; a manufacturer subgroup analysis; and an assessment of the impacts on industry competition, manufacturing capacity, direct employment, cumulative regulatory burden, as well as other qualitative impacts.

12.2.3.1 Manufacturer Interviews

DOE conducts detailed interviews with manufacturers to gain insight into the potential impacts of energy conservation standards on sales, direct employment, capital assets, and industry competitiveness. T he interview process is critical to the MIA because it provides an opportunity for manufacturers to privately express their views on important issues. Interviews are scheduled well in advance to provide every opportunity for manufacturers to be available f or12 -3 comment. Although a written response to the questionnaire is acceptable, DOE prefers interactive interviews, which help clarify responses and provide the opportunity to identify additional issues not specifically addressed in the interview questionnaire. A non-disclosure
agreement allows confidential or sensitive information to be considered in DOE’s decisionmaking process. Confidential information will not be made available in the public record. At most, sensitive or confidential information may be aggregated and presented in industry- wide representations.

DOE supplements the information gathered in Phase I and the cash- flow analysis performed in Phase II with information gathered during manufacturer interviews.

12.2.3.2 Revised Industry Cash -Flow Analysis

As discussed, DOE requests information about profitability impacts, necessary plant changes, and other manufacturing impacts during the interview process. DOE revises its industry cash flow model based on the feedback it receives in comments and during interv iews.

12.2.3.3 Manufacturer Subgroup Analysis

Using average cost assumptions to develop an industry cash flow estimate will not adequately assess differential impacts among manufacturer subgroups. Smaller manufacturers, niche players, and manufacturers exhibiting a cost structure that differs largely from the industry average could be more negatively affected. Ideally, DOE would consider the impact on every firm individually; however, it typically uses the results of the industry characterization to group
manufactur ers with similar characteristics. During the interviews, DOE discusses the potential subgroups that have been identified for the analysis. DOE asks manufacturers and other interested parties to suggest what subgroups or characteristics are most appropriate for the analysis.

12.2.3.4 Competitive Impact Assessment

Section 342(6)(B)(i)(V) of the Energy Policy Act of 1992 (EPACT 1992), modifying the Energy Policy and Conservation Act ( EPCA ), directs DOE to consider any lessening of competition likely to result from the imposition of standards. EPCA further directs the U.S. Attorney General to determine the impacts, if any, of any decrease in competition. DOE attempts to gather and report firm- specific financial information and impacts wherever possible . DOE bases the competitive impact assessment on manufacturer cost data and other information collected from interviews. When assessing competitive impacts, DOE’s interviews generally focus on assessing asymmetrical cost increases, the potential increase in business risks fr om an increased proportion of fixed costs, and potential barriers to market entry ( e.g ., proprietary technologies). The competitive analysis will also focus on assessing any differential impacts to
smaller manufacturers.

12.2.3.5 Manufacturing Capacity Impact

One of the significant outcomes of energy conservation standards can be the obsolescence of existing manufacturing assets, including tooling and other investments. The manufacturer interview guide presents a series of questions to help identify impacts on12 -4 manu facturing capacity, specifically capacity utilization and plant location decisions in the
United States with and without energy conservation standards. The interview guide also addresses the ability of manufacturers to upgrade or remodel existing facilitie s to accommodatethe new requirements; the nature and value of stranded assets, if any; and estimates for any onetime restructuring or other charges, where applicable.

12.2.3.6 Employment Impact

The impact of energy conservation standards on employment is an impor tant consideration in the rulemaking process. To assess how domestic employment patterns might be affected, the interview process explores current employment trends in the commercial refrigeration equipment industry and solicits manufacturer views on chang es in employment patterns that may result from increased standard levels. The employment impacts section of the interview guide focuses on current employment levels at production facilities, expected future employment levels with and without an energy conservation standard, differences in workforce
skills

, and employee retraining.

12.2.3.7 Cumulative Regulatory Burden

DOE seeks to mitigate the overlapping effects on manufacturers due to energy conservation standards and other regulatory actions. DOE analyzes and con sider s the impact on manufacturers of multiple, product- specific regulatory actions.

12.3 PRELIMINARY MANUFACTURER IMPACT ANALYSIS RESULTS

During the preliminary activities phase, DOE conducted a preliminary evaluation of the impact of potential energy conservation standards on the commercial refrigeration equipment industry.

The primary sources of information for this analysis are the U.S. Census, industry reports, and interviews with manufacturers of commercial refrigeration equipment, conducted during the summer and fall of 2010. To maintain confidentiality, DOE only reports aggregated information here. DOE does not disclose company- specific information, nor does it identify the
individual manufacturers that disclosed information.

12.3.1 Industry Overview

The following section summarizes publicly available industry data.

12.3.1.1 Industry Cost Structure

DOE is unaware of any publicly available industry- wide cost data specific to only manufacturers of commercial refrigeration equipment. DOE examined the North American Industry Classification System (NAICS) codes for small business sizes and determined that commercial refrigeration equipment manufacturing is classified as a subset under NAICS code 333415, Air -Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing

. 2 Therefore, DOE presents the data below as a broader12 -5 industry proxy for the commercial refrigeration industry, which, in combination with information gained in interviews, inform DOE’s analysis of the industry cost structure.

DOE obtained the below data from U.S. Census Bureau, Annual Survey of Manufacturers, Statistics for Industry Groups and Industries 3 from 2002

− 2008.

Table 12.3.1 presents the industry employment levels and earnings from 2002 to 2008. The statistics illustrate approximately a 12 -percent decrease in production workers and an 11- percent decrease in overall number of employees from 2002 to 2008.

Table 12.3.1 Em ployment and Earnings for the Air -Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry

Year Production Workers All Employees Annual Payroll $000s

2002 80,400 108,252 3,815,129

2003 77,4 71 104,646 3,775,799

2004 73,559 99,669 3,707,969

2005 76,011 102,354 3,942,808

2006 74,909 98,097 4,019,813

2007 74,728 101,485 4,034,043

2008 70,772 96,502 4,010,045

Source: U.S. Census Bureau. Annual Survey of Manufacturers , 2002

- 2008

.

Table 12.3.2 presents the costs of materials and industry payroll as a percentage of shipment value from 2002 to 2008. The cost of materials as a percentage of shipment value has steadily increased from 2002 to 2008. The cost of payroll for production workers and the cost of total payroll have declined by approximately 17 percent and 15 percent, respectively.

Table 12.3.2 Air

- Conditioning and Warm Air Heating Equipment and Com mercial and Industrial Refrigeration Equipment Manufacturing Industry Material and Payroll Costs

Year Cost of Materials % of shipment value Cost of Payroll

for Production Workers % of shipment value Cost of Total Payroll % of shipment value

2002 49.36 9. 83 15.85

2003 50.59 9.53 15.39

2004 51.81 8.99 14.57

2005 53.78 8.52 13.78

2006 53.17 8.87 13.80

2007 55.59 8.17 13.43

2008 54.83 8.13 13.50

Source: U.S. Census Bureau. Annual Survey of Manufacturers , 2002

- 2008

.

12.3.1.2 Inventory Levels

Table 12.3.3 shows the year -end inventory for the Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing industry obtained from the U.S. Census Bureau, Annual Survey of Man ufacturers, Statistics for Industry Groups and Industries from 2002 to 2008. Year-end inventory refers to the amount of12 -6 inventory a manufacturer has on hand at year end, which includes work- in -progress and finished goods. Again, DOE presents these data as a broader measure of the commercial refrigeration equipment industry. The industry’s end-of-year inventory from 2002 to 2008 increased when expressed both in dollars and as a percentage of shipment value.

Table 12.3.3 End -of- Year Inventory for the Air -Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry

Year End

- of

- Year Inventory

$000s End

- of

- Year Inventory % of shipment value

2002 2,302,012 9.57

2003 2,376,827 9.69

2004 2,473,932 9.72

2005 2,687,441 9.39

2006 2,887,139 9.91

2007 3,036,616 10.11

2008 2,888,034 9.72

Source: U.S. Census Bureau. Annual Survey of Manufacturers , 2002

- 2008

.
DOE obtained full production capacity utiliz ation rate s from the U.S. Census Bureau, Current Industrial Reports, Survey of Plant Capacity from 2002 to 2009. 4 Table 12.3.4 presents production capacity utilization rates for NAICS code 3334. Full production capacity is defined as the maximum level of production an establishment could attain under normal operating
conditions. In the Survey of Plant Capacity report, the full production utilization rate is a ratio of the actual level of operations to the full production level.

Table 12.3.4 Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry Full Production Capacity

Utilization Rates

Year Air Cond itioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing
%

2002 60

2003 62

2004 60

2005 66

2006 63

2007 58

2008 64

2009 57

Source: U.S. Census Bureau. 2007 Current Industrial Reports: Table 1a

- Full Production Capacity Utilization Rates by Industry: Fourth Quarters 2002 through 2009

.

12.3.2 Interview Topics and Preliminary Findings

The following section summarizes information gathered during interviews held during
the summer and fall of 20 10 for the pr eliminary MIA.12 -7 12.3.2.1 Market Shares and Industry Consolidation

E nergy conservation standards can alter the competitive dynamics of the marketplace, prompting companies to enter the market, exit the market, or merge with other companies. The preliminary MIA interv iew questions asked manufacturers to share their perspectives on industry
consolidation both in the presence of current energy conservation standards , as well as in the case of future, potentially more stringent standard levels. The interview questions focused on gathering information that assessed:

• current and anticipated market share in the event of standards;

• disproportionate cost increases to some manufacturers;

• likelihood of industry consolidation;

• increased proportion of fixed costs potentially increa sing business risks; and

• potential barriers to market entry ( e.g. , proprietary technologies).

The need to assess anti

- competitive effects of potential amended energy conservation
standards derives from the need to protect consumer interests. During the int erviews, DOE also
solicited information to determine whether amended energy conservation standards could result in disproportionate economic or performance penalties for pa rticular consumer or user subgroups. Manufacturers were also asked if energy conservation standards could result in products that would be more or less desirable to consumers due to changes in product functionality, utility, or other features.

Market Shares

. DOE inquired regarding current market shares of manufacturers in the
commercial r efrigeration equipment industry and about how those shares might change after potential amendment of energy conservation standards. Most manufacturers interviewed stated that changes to the market shares of manufacturers and the distribution of sales betwe en different companies would likely remain fairly static even in the presence of amended standards. One area
of concern was that, if DOE is not strict in its enforcement of standards, then companies knowingly producing noncompliant units could see increases in market share due to their costs being lower than those companies that comply with DOE standards. Some companies also stated that manufacturers that produce large numbers of doored cases might stand to gain from more stringent standards.

Industry Conso lidation

. The commercial refrigeration equipment industry is relatively
stable

, with few entrants and exits . The industry has seen some consolidation in recent years

, such as the exit of Tyler Refrigeration from the market and the sale of its assets to Hil l-Phoenix. However, manufacturers interviewed as part of the preliminary MIA indicated that they did not feel that amended DOE energy conservation standards would be likely to lead to further consolidation within the commercial refrigeration equipment indu stry.

12.3.2.2 Production and Product Mix

DOE requested manufacturers’ feedback on the possible impact of energy conservation standards on profitability. For instance, the capital and product conversion outlays may be required to upgrade or redesign products befor e they have rea ched the end of their useful life, which could result in reduced cash flow and stranded investments. Higher energy conservation12 -8 standards could also result in higher per-unit costs that could cause consumers to shift to less expensive produc ts, if available.

Product Mix. Currently, a significant percentage of the overall market ’s production is customized to the customer’s needs. Most manufacturers produce a set of standard models, but allow for customization of features such as doors, lighting, trim types, and other features. Some manufacturers expressed a willingness to design new equipment to customer specifications, even for orders of only a few units. Others stated that their product lineups comprised several hundred distinct models at any given time. Nearly all the manufacturers interviewed conveyed concern
that more stringent standards may affect their abili ty to customize their products. Some of these
manufacturers further asserted that DOE’s current “basic model” definition was not broa d enough to subsume several of their different units into a single grouping, as the only changes that the current definition allows for within a given basic model are essentially cosmetic. As a result, manufacturers stated that they believe that many small er -production-volume or custom units will be discontinued or obsolete due to the cost of compliance, and that production runs of only a few
units may no longer be cost- effective.

Product Utility

. Some manufacturers expressed concern s that energy conservat ion standards might require changes in product functionality, utility, and other features that would make products less desirable to consumers. For instance, one manufacturer mentioned that in an
effort to reduce the anti -sweat power of glass doors, manufacturers could end up selling units with doors that perform across a much narrower range of ambient conditions, and which could produce condensation if store ambients were to deviate from these design conditions. Another
manufacturer stated that some models of open cases might go away in light of more stringent standards, as it would be disproportionally difficult to increase the efficiency of those units as compared to doored cases. A reduction in the offerings of open cases would reduce the availability of the utility features associated with those equipment types. Manufacturers also expressed concern that the servic ing and installation of commercial refrigeration equipment would be more expensive with the increasingly complex systems which manufacturers ma y develop to meet more stringent standards. This would require additional training and certification of field installers and technicians to install and service the equipment. M anufacturer s s tated that

new , unproven technologies required by any new standard s could challenge product reliability.

12.3.2.3 Cumulative Regulatory Burden

While any one regulation may not impose a significant burden on manufacturers, the combined effects of several impending regulations may have serious consequences for some manufacturers, g roups of manufacturers, or an entire industry. Assessing the impact of a single regulation may overlook this cumulative regulatory burden. For the cumulative regulatory burden analysis, DOE describes other significant equipment- specific regulations that could affect commercial refrigeration equipment manufacturers or their parent companies.

Based on its own research and discussions with manufacturers, DOE identified several regulations relevant to commercial refrigeration equipment , including:

• Refrigerant s witch

• Testing costs12 -9 • Other regulations and certification programs

Refrigerants

. Due to the phase-out of chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons ( HCFCs ), the commercial refrigeration equipment industry had to transition to non-ozone-depleting refrigerants. As a result, the industry has transitioned to hydrofluorocarbon (HFC)

- based refrigerants in its commercial refrigeration equipment. However, manufacturers expressed concern regarding the use of even HFC refrigerants, as they suspect that reg ulations reducing the availability of HFC refrigerants may come into effect in the future. Additionally, the need for larger refrigerant charges to meet stricter energy consumption standards may conflict with manufacturers’ desires to meet other environmen tal certifications

.

Testing Costs

. Several manufacturers expressed concern with the potential costs of meeting testing requirements or performing outside testing. Manufacturers stated that this was largely due to the highly customized nature of their pro duct line offerings, where in many cases they may not even produce a certain model for months, but would be required to build it specifically for certification purposes

.

Other Regulations and Certification Programs

. Several manufacturers we re concerned by the fact that changes in the DOE energy efficiency standards, and the resulting re

- design of their equipment, would require them to re- certify all of their equipment with other organizations
aside from DOE . This would include re- testing and certification by Underwriters Laboratories (UL) and NSF, which these manufacturers asserted to be a more complex process than the requirements for meeting the DOE energy conservations standards.

12.3.3 Overall Key Issues

P erhaps the most important aspect of the preliminary MIA is the opportunity it creates for DOE to identify key manufacturer issues early in the development of energy conservation standards. During preliminary interviews, manufacturers identified several major issues

, which are detailed in the following section s.

12.3.3.1 Certification, Compliance, and Enforcement

D uring the preliminary manufacturer impact analysis interview process, manufacturers consistently brought up the issues of certification, compliance, and enforcement. These parties expressed a wide range of con cerns regarding these topics. Representatives of one manufacturer stated that they had heard explicit intent from other manufacturers to remain noncompliant with
DOE standards in the future due to the lack of enforcement mechanisms for those standards.
Oth er manufacturers expressed a desire to conform to current and future energy conservation standards, but were confused by the lack of a standardized system for certification and compliance. Overall, manufacturers were concerned about potentially losing market share to companies offering noncompliant equipment at lower costs. By and large, manufacturers seemed less concerned with the direct impacts of more stringent standards than they were with ensuring that a system for certification, compliance, and enforc ement was put into place that would provide an equal footing for all of the entities in the market.12

- 10 12.3.3.2 Testing Burden

Burden of testing was a nother issue of great importance to the manufacturers interviewed. Most of the manufacturers interviewed during the p reliminary MIA period stated that the cost of testing would be the source of the greatest impact of standards on their business.

Most of th e se manufacturers perform their testing in -house, and several stated that they have already made large investments in capital and labor in preparation for compliance with the 2012 DOE standards and for compliance with the EPACT 2005 standard. Manufacturers also stated
that , including the time to set up a unit for testing, achieve stable test conditions, perform the
test, verify the data, and tear down the test setup, performing a test of a single unit can take up to
a few weeks.

Moreover, the parties that offer large products lines or build custom units to customer specifications were concerned about being required to c ertify every unit in their catalog as being compliant with the DOE standards. Some of these models, they continued, may only be produced once in a long while per a customer request, and thus would not be kept in stock at the production facility. These manu facturers were concerned that they may have to build specimens
of these models for the sole purpose of compliance testing, which would extend the burden beyond the cost of simply performing the test, to include the cost of producing units for testing

purpo ses as well

.

12.3.3.3 Customer Impact

Tied to the aforementioned concern about the burden of testing were issues regarding the potential impacts on customers in the form of more limited product line offerings. Some manufacturers stated that they offered severa l hundred models at any given time, while others responded that they would be willing to design and build anything a customer desired, even if the production run were of just a few units. However, if manufacturers are required to test all of
these units fo r DOE energy conservation standard compliance, as well as for other certifications such as UL and NSF, manufacturers expressed that it would likely not be cost- effective to continue production of those extremely low-production-volume models. This could res ult in a consolidation of models and the trimming of product lines, which could in turn limit the variety of product offerings available to customers and end users.

12.3.3.4 Refrigerants

The subject of refrigerant regulation and the availability of refrigerants was another issue of concern to the manufacturers interviewed. Manufacturers in this industry expressed general concern with the potential of future refrigerant regulations. With CFCs and HCFCs having already been phased out, the variety of available refrigerants for use in commercial refrigeration equipment has decreased in recent years. This amplifies the effect of refrigerant cost fluctuations
on manufacturers. According to manufacturers, this is further exacerbated by the fact that more stringent energy c onservation standards generally result in units being designed with larger coils, and thus needing larger refrigerant charges. As a result, manufacturers stated that the need to improve efficiency often conflicts with other regulations on the availability of refrigerants, and that efforts to develop units utilizing other refrigerants such as carbon dioxide or propane are hindered by additional outside regulations.12

- 11 12.3.3.5 Conflicts with Other Certifications

In addition to DOE requirements for energy usage, equipment used for food service and sales is also subject to certification through other mandatory or voluntary programs concerning food safety and energy use. These programs include UL certification , NSF certification, U.S. Environmental Protection Agency ENERGY STAR  certification, and various certifications required for sale in some foreign countries. Therefore, re -design of a piece of equipment to meet DOE energy efficiency standards can also result in that piece of equipment having to be re- tested
and re- cert ified for the other programs, multiplying the burden. Manufacturers also noted some direct potential conflicts with these other programs. One mentioned that equipment that had to meet a more stringent DOE energy use requirement would have difficulty attain ing certification by NSF for Type II conditions, in which the unit is tested at more extreme ambient temperature and humidity conditions than are presented by the DOE test. Another manufacturer noted that some of their customers wish to use the equipment in buildings that have been certified by the U.S. Green Building Council to achieve a Leadership in Energy and Environmental Design (LEED) rating. However, the use of large amounts of high global warming potential HFC refrigerants in high

- efficiency units w orks against their efforts to attain these ratings

.

12.3.3.6 Impact on Small Manufacturers

Due to the highly customized nature of this industry, smaller companies may not necessarily offer fewer models than the larger firms in the market. However, a requirement on compliance with each basic model with DOE standards would mean that the testing requirement and associated burden would be equally large on a small manufacturer as it would be on a manufacturer with high market share. Therefore, smaller manufacturers wer e concerned that enforcement of certification and compliance testing requirements could impact their companies disproportionately.12

- 12 References

1 U.S. Department of Energy. Energy Conservation Standards Acti vities . 2006. (Last accessed March 15, 2011.)

< http://www1.eere.energy.gov/buildings/appliance_standards/schedule_setting.html >

2 North American Industry Classification System (NAICS) code 333415. “ Air -Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing.” 2007. U.S. Census Bureau. Washington, D.C. < www.census.gov/cgibin/sssd/naics/naicsrch?code=333415&search=2007 NAICS Search >

3 U.S. Census Bureau. Annual Survey of Manufacturers, Statistics for Industry Groups and
Industries . (Last accessed Novemb er 2, 2010.)

< www.census.gov/manufacturing/asm/index.html >



### 4 U.S. Census Bureau. Current Industrial Reports

, Survey of Plant Capacity. 2002 to 2009

. Washington, D.C.