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..................................................................................... 12-2 

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............................................................................. 12-3 

12.2.3.1 Manufacturer Interviews.................................................................. 12-3 

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...................................................... 12-4 

12.2.3.5 Manufacturing Capacity Impact ...................................................... 12-4 

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

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

12.3 INDUSTRY OVERVIEW.............................................................................................12-4 

12.3.1 Industry Cost Structure ...................................................................................... 12-5 

12.3.2 Inventory Levels and Capacity Utilization Rates .............................................. 12-5 

12.4 INTERVIEW TOPICS AND PRELIMINARY FINDINGS.........................................12-6 

12.4.1 Market Shares and Industry Consolidation........................................................ 12-6 

12.4.1.1 Market Assessment .......................................................................... 12-7 

12.4.1.2 Impact on Small Manufacturers....................................................... 12-7 

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

12.4.2.1 Impact on Product Mix .................................................................... 12-7 

12.4.2.2 Product Utility.................................................................................. 12-8 

12.4.3 Conversion Costs ............................................................................................... 12-8 

12.4.4 Cumulative Regulatory Burden ......................................................................... 12-8 

12.5 OVERALL KEY ISSUES .............................................................................................12-9 

12.5.1 Impacts on Profitability...................................................................................... 12-9 

12.5.2 Product Conversion Costs/Diminishing Returns to Consumers ........................ 12-9 

12.5.3 Product Innovation............................................................................................. 12-9 

LIST OF TABLES 

Table 12.3.1 Fluorescent Lamp Ballast Industry Employment and Earnings ....................12-5
 

Table 12.3.2 Fluorescent Lamp Ballast Industry Material and Payroll Costs ....................12-5
 

Table 12.3.3 Fluorescent Lamp Ballast Industry End-of-Year Inventory ..........................12-6
 

Table 12.3.4 Full Production Capacity Utilization Rates ...................................................12-6
 

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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 amended energy conservation standards on manufacturers. The Process Rulea 

provides guidance for conducting this analysis with input from manufacturers and other 

interested parties. The U.S. Department of Energy (DOE) applies this methodology to its 

evaluation of amended energy conservation standards for fluorescent lamp ballasts to the extent 

that it is appropriate for this rulemaking. The Process Rule gives guidelines for considering 

financial impacts and a wide range of quantitative and qualitative industry impacts that might 

occur due to an amended energy conservation standard. For example, a particular standard level 

could require changes in manufacturing practices for fluorescent lamp ballasts. DOE identifies 

and analyzes these impacts through interviews with manufacturers and other interested parties 

during the notice of proposed rulemaking (NOPR) stage of analysis. 

DOE announced changes to the 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)), 

entitled “Energy Conservation Standards Activities.”b Previously, DOE did not report any MIA 

results before the NOPR phase; however, under this new format, DOE collects, evaluates, and 

reports preliminary information and data in the Preliminary Analysis. Such information includes 

market data, key issues, product mixes, conversion costs, foreign competition, market shares, 

industry consolidation, and cumulative regulatory burden information. DOE solicits this 

information during the preliminary manufacturer interviews and reports the results in this 

chapter. Appendix 12A includes a copy of the interview guide that DOE distributed to 

manufacturers. 

12.2 METHODOLOGY 

DOE conducts the MIA in three phases. In Phase I, DOE creates an industry profile to 

characterize the industry and conducts preliminary MIA interviews to identify important issues 

that require consideration. Section 12.3 of this chapter presents initial findings of the Phase I 

analysis. In Phase II, DOE prepares an industry cash flow model and an interview questionnaire 

to guide subsequent discussions with manufacturers. In Phase III, DOE interviews manufacturers 

and assesses the impacts of amended energy conservation standards both quantitatively and 

qualitatively. DOE assesses industry and subgroup cash flow impacts and the industry net 

present value (INPV) using the Government Regulatory Impact Model (GRIM). DOE then 

a

 On July 15, 1996, the Department published a Process Improvement Rule establishing procedures, interpretations 

and policies to guide the Department in the consideration of new or revised appliance efficiency standards 

(Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products). 61 FR 

36974. 

b

 This report is available on the DOE website at 

www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html. 

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assesses impacts on competition, manufacturing capacity, employment, and regulatory burden 

based on manufacturer interviews and discussions. The Federal Register NOPR and technical 

support document (TSD) will both 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 wages, employment, and industry costs for fluorescent lamp 

ballasts. 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 

cost analysis, and consumer price analysis to characterize the fluorescent lamp ballast 

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 a 

questionnaire, or interview guide, for interviewing manufacturers. 

12.2.2.1 Industry Cash-Flow Analysis 

DOE uses the GRIM to analyze the financial impacts of amended energy conservation 

standards. Amended energy conservation standards may require additional investment, raise 

production costs, and/or affect revenue through higher prices and possibly lower shipments. The 

GRIM uses several factors to determine a series of annual cash flows for the year that amended 

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. 

Financial information is developed based on publicly available data and confidentially submitted 

manufacturer information. DOE compares the GRIM results for standards case at each trial 

standard level against the results for the base case in which no amended energy conservation 

standards are in place. The financial impact of amended energy conservation standards is the 

difference between the two sets of discounted annual cash flows. 

12.2.2.2 Interview Guide 

DOE conducts interviews with manufacturers to gather information on the effects of 

amended energy conservation standards on revenues and finances, direct employment, capital 

assets, and industry competitiveness. These interviews take place during Phase III of the MIA. 

Before the interviews, DOE distributes an interview guide that will help identify the impacts of 

amended energy conservation standards on individual manufacturers or subgroups of 

manufacturers. The interview guide covers production costs; shipment projections and market 

share; product mix; conversion costs; markups and profitability; assessment of the impact on 

competition, manufacturing capacity; and other topics that are relevant to assessing the impacts 

of amended energy conservation standards on the fluorescent lamp ballast industry. 

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12.2.3 Phase III: Subgroup Analysis 

Phase III activities occur after publication of the preliminary analysis. These activities 

include manufacturer interviews; revision of the industry cash-flow analysis; a manufacturer 

subgroup analysis; an assessment of the impacts on industry competition, manufacturing 

capacity, direct employment, and the cumulative regulatory burden; and other qualitative 

impacts. 

12.2.3.1 Manufacturer Interviews 

DOE supplements the information gathered in Phase I and the cash-flow analysis 

performed in Phase II with information gathered through interviews with manufacturers during 

Phase III. The interview process has a key role in the MIA because it provides an opportunity for 

interested parties to express their views privately on important issues. 

DOE conducts detailed interviews with manufacturers to gain insight into the potential 

impacts of amended energy conservation standards on sales, direct employment, capital assets, 

and industry competitiveness. Interviews are scheduled well in advance to provide every 

opportunity for key individuals to be available for 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. 

 A non-disclosure agreement allows DOE to consider confidential or sensitive 

information in the decision-making process. However, confidential information is not made 

available in the public record. At most, sensitive or confidential information may be aggregated 

and presented in industry-wide representations. 

12.2.3.2 Revised Industry Cash-Flow Analysis 

During the interviews, DOE requests information about profitability impacts, necessary 

plant changes, and other manufacturing impacts. Following the interviews, DOE revises the 

preliminary GRIM prepared in Phase II based on the feedback it receives. 

12.2.3.3 Manufacturer Subgroup Analysis 

Using average cost assumptions to develop an industry cash-flow estimate does 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 

manufacturers 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. 

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12.2.3.4 Competitive Impact Assessment 

Section 342 (6)(B)(i)(V) of the Energy Policy Act of 1992 (EPCA) directs DOE to 

consider any lessening of competition likely to result from imposition of standards. EPCA 

further directs the U.S. Attorney General to determine the impacts, if any, of any decrease in 

competition. DOE makes a determined effort to gather firm-specific financial information and 

impacts and report the results in the competitive impact assessment. The competitive impact 

assessment is based on manufacturer cost data and information collected from the manufacturer 

interviews. The interviews focus on assessing asymmetrical cost increases to some 

manufacturers, the potential increase in business risks from an increased proportion of fixed 

costs, and potential barriers to market entry (e.g., proprietary technologies). The competitive 

impact analysis also focuses on assessing any differential impacts to smaller manufacturers. 

12.2.3.5 Manufacturing Capacity Impact 

One of the significant outcomes of amended energy conservation standards can be the 

obsolescence of existing manufacturing assets, including tooling and other investments. The 

manufacturer interview guide has a series of questions to help identify impacts on manufacturing 

capacity, specifically capacity utilization and plant location decisions in North America with and 

without an amended energy conservation standard; the ability of manufacturers to upgrade or 

remodel existing facilities to accommodate the new requirements; the nature and value of 

stranded assets, if any; and estimates for any one-time restructuring or other charges, where 

applicable. 

12.2.3.6 Employment Impact 

The impact of amended energy conservation standards on employment is an important 

consideration in the rulemaking process. To assess how domestic employment patterns might be 

affected, the manufacturer interviews explore current employment trends in the fluorescent lamp 

ballast industry and solicits manufacturer views on changes 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 amended 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 of energy conservation 

standards and other regulatory actions affecting the same products or companies. DOE analyzes 

and considers the impact on manufacturers of multiple, product-specific regulatory actions. 

12.3 INDUSTRY OVERVIEW 

The following section summarizes publicly available industry data. 

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12.3.1 Industry Cost Structure 

DOE developed the fluorescent lamp ballast industry cost structure from the U.S. Census 

Bureau, Annual Survey of Manufacturers, Statistics for Industry Groups and Industries from 

2003 to 2006. Fluorescent lamp ballast manufacturing is classified under the North American 

Industry Classification System (NAICS) code 335311 (Power, Distribution, and Specialty 

Transformer Manufacturing). 

Table 12.3.1 presents the fluorescent lamp ballast employment levels and earnings from 

2003 to 2006. The statistics illustrate a 3-percent increase in the number of production workers 

from 2003 to 2006; however, there was no major change in the overall number of employees in 

the industry. 

Table 12.3.1 Fluorescent Lamp Ballast Industry Employment and Earnings 

Year Production Workers All Employees Payroll for All Employees thousand 

2006 dollars 

2003 14,966 20,546 755,635 

2004 13,635 18,692 720,767 

2005 14,471 19,427 779,246 

2006 15,438 20,642 863,266 

U.S. Census Bureau. 2006 Annual Survey of Manufacturers: 2006 and Earlier Years. December 2006. 

Table 12.3.2 presents the costs of materials and industry payroll as a percentage of 

shipment value from 2003 to 2006. The cost of materials has increased slightly from 2003 to 

2006. The cost of payroll for production workers and the cost of total payroll declined by 5.4 

percent and 8.5, percent respectively. 

Table 12.3.2 Fluorescent Lamp Ballast Industry Material and Payroll Costs 

Year Cost of Materials 

percent of shipment value 

Cost of Payroll 

for Production Workers 

percent of shipment value 

Cost of Total Payroll: 

Production + Administration 

percent of shipment value 

2003 49.5 11.0 18.8 

2004 51.1 11.8 19.4 

2005 51.7 11.1 18.2 

2006 51.8 10.4 17.2 

U.S. Census Bureau. 2006 Annual Survey of Manufacturers: 2006 and Earlier Years. December 2006. 

12.3.2 Inventory Levels and Capacity Utilization Rates 

Table 12.3.3 shows the year-end inventory for the fluorescent lamp ballast industry 

obtained from the U.S. Census Bureau, Annual Survey of Manufacturers, Statistics for Industry 

Groups and Industries from 2003 to 2006. The industry’s end-of-year inventory from 2002 to 

2005 experienced an overall increase when expressed both in dollars and as a percentage of 

shipment value. 

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Table 12.3.3 Fluorescent Lamp Ballast Industry End-of-Year Inventory 

Year End-of-Year Inventory 

million 2006 dollars 

End-of-Year Inventory 

percent of shipment value 

2003 502,089 12.5 

2004 427,802 11.5 

2005 511,504 12.0 

2006 637,235 12.7 

U.S. Census Bureau. 2006 Annual Survey of Manufacturers: 2006 and Earlier Years. December 2006. 

DOE obtained full production capacity utilization rates from the U.S. Census Bureau, 

“Current Industrial Reports,” Survey of Plant Capacity from 2002 to 2006. Table 12.3.4 presents 

production capacity utilization rates for NAICS code 335311. 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 Full Production Capacity Utilization Rates 

Year Power, Distribution, and Specialty Transformer Manufacturing 

Percent 

2002 63 

2003 61 

2004 63 

2005 66 

2006 69 

U.S. Census Bureau. 2007 Current Industrial Reports: Table 1a – Full Production Capacity 

Utilization Rates by Industry: Fourth Quarters 2002 through 2006. November 2007. 

12.4 INTERVIEW TOPICS AND PRELIMINARY FINDINGS 

The following section summarizes information gathered during interviews held during 

the last quarter of 2008 for the preliminary MIA. 

12.4.1 Market Shares and Industry Consolidation 

Amended energy 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 interview questions asked manufacturers to share their 

perspectives on industry consolidation both in the absence of amended energy conservation 

standards and assuming amended standards at various efficiency levels. The interview questions 

focused on gathering information that assessed: 

 disproportionate cost increases to some manufacturers; 

 increased proportion of fixed costs potentially increasing business risks; and 

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

The need to assess anti-competitive effects of proposed amended energy conservation 

standards comes from the need to protect consumer interests. During the interviews, DOE 

solicited information to determine whether amended energy conservation standards could result 

in disproportionate economic or performance penalties for particular consumer or user 

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subgroups. Manufacturers were also asked if amended energy conservation standards could 

result in products that will be more or less desirable to consumers due to changes in product 

functionality, utility, or other features. 

12.4.1.1 Market Assessment 

As described in preliminary TSD chapter 3, four manufacturers hold the majority of the 

domestic market share of fluorescent lamp ballasts: 

• GE Consumer and Industrial of General Electric, Inc. 

• OSRAM Sylvania of Siemens AG 

• Advance Transformer of Philips Lighting 

• Universal Lighting Technologies 

The lighting divisions of some of these companies manufacture products other than 

fluorescent lamp ballasts, such as fluorescent lamps, high intensity discharge lamps, light 

emitting diode (LED) lighting, and compact fluorescent lamps (CFL). During interviews, 

manufacturers stated that the vast majority of ballast production takes place abroad. 

12.4.1.2 Impact on Small Manufacturers 

 The Small Business Administration (SBA) defines small business manufacturing 

enterprises for fluorescent lamp ballast as having 750 employees or fewer. SBA lists small 

business size standards that are matched to industries as they are described in the NAICS. A size 

standard is the largest that a for-profit entity can be and still qualify as a small business for 

Federal programs. These size standards are generally the average annual receipts or the average 

employment of a firm. For fluorescent lamp ballasts, the size standard is matched to NAICS code 

33511, Power, Distribution, and Specialty Transformer Manufacturing, which has a size 

standard of 750 employees. DOE will study the potential impacts on these small businesses in 

detail as part of the NOPR analysis. 

12.4.2 Production and Product Mix 

DOE requested manufacturers’ feedback on what they perceived to be the possible 

impact of amended energy conservation standards on cash flow and profitability. For instance, 

the capital and product conversion outlays needed to upgrade or redesign products before they 

have reached the end of their useful life may create significant conversion costs, resulting in 

reduced cash flow and stranded investments. Higher energy conservation standards could also 

result in higher per-unit costs that could cause consumers to shift to less expensive products. 

12.4.2.1 Impact on Product Mix 

Manufacturers believed that amended energy conservation standards would affect the 

product mix of fluorescent lamp ballasts. Some manufacturers commented that changes in 

energy conservation standards could consolidate product offerings and lower profits by 

eradicating up-selling opportunities. Certain manufacturers commented that if the rulemaking 

increases efficiency levels significantly, they might exit the fluorescent lamp ballast market, 

citing an unwillingness to put resources into fixed output ballasts. Additionally, because 

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residential ballasts are extremely price sensitive, an amended energy conservation standard could 

encourage consumers to switch to low-efficiency products such as incandescent lighting. 

12.4.2.2 Product Utility 

Certain manufacturers expressed concern that amended energy conservation standards 

might require changes in product functionality, utility, and other features that would make 

products less desirable to consumers. The major area of concern related to ballasts used in harsh 

environments and in applications where complete reliability is required. For example, specialty 

applications, like critical healthcare areas and airport runways, may be better served by magnetic 

ballasts. 

12.4.3 Conversion Costs 

In some instances, manufacturers may be able to meet proposed standard levels by 

modifying existing products. In other cases, the necessary changes may entail a complete 

product-line redesign. In these situations, a higher amended energy conservation standard would 

cause manufacturers to incur one-time capital and product conversion costs. Capital conversion 

costs are one-time investments in property, plant and equipment. Product conversion costs 

include one-time investments in research, product development, testing and marketing. DOE will 

study the potential impact of conversion costs in more detail as part of the NOPR analysis. 

12.4.4 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 individual 

manufacturers, groups of manufacturers, or entire industries. Assessing the impact of a single 

regulation may overlook this cumulative regulatory burden. 

Expenditures associated with meeting other regulations are an important aspect of DOE’s 

consideration of the cumulative regulatory burden the industry faces. The interviews helped 

DOE identify the level and timing of investments manufacturers are expecting to incur because 

of these regulations. Manufacturers were also asked under what circumstances they might be 

able to make expenditures related to regulations and energy conservation standards. 

Several Federal and international regulatory programs may affect the markets for 

fluorescent lamp ballasts. The market and technology assessment discusses some of the notable 

initiatives that characterize recent developments in the lighting market. See chapter 3 for a list 

and description of the regulatory requirements DOE identified. 

Specifically, certain manufacturers expressed concern about regulations on 4- and 8-foot 

residential fluorescent lamps because those standards may drive price-sensitive consumers to 

other, less-efficient technologies, which would affect ballast sales. At the same time, 

manufacturers also expressed concern that failure to regulate residential ballasts would create a 

loophole for inefficient ballasts to enter the market from offshore. Manufacturers noted that they 

would prefer that DOE set a final date for ballast production rather than one for final sell because 

it would mitigate the negative effect of obsolescent inventory. Manufacturers are also concerned 

about system interconnect issues, implementation of hazardous material regulations, and how 

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these issues may lead to ballast requirements that could lower ballast efficiency and affect 

payback calculations. Manufacturers also mentioned the impact of international standards on 

ballast redesign. 

12.5 OVERALL KEY ISSUES 

Perhaps 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 amended energy 

conservation standards. During preliminary interviews manufacturers identified three major areas 

of concern: (1) impacts on profitability, (2) conversion costs, and (3) product innovation. 

12.5.1 Impacts on Profitability 

Some manufacturers commented that profit margins would decrease with the 

implementation of amended energy conservation standards, especially for the original equipment 

manufacturer (OEM) distribution channels. For example, a higher standard could cause 

consumers to switch from residential ballasts, which are more price sensitive, to less efficient 

products. According to the manufacturers interviewed, consistent profitability is not common 

across all types of fluorescent lamp ballasts. Manufacturers also expressed concern that pricing is 

extremely variable depending on the application (commodities, old products, new products, 

niche, etc). Some products are sold at a loss, some are sold at cost, and some are sold for a profit. 

12.5.2 Product Conversion Costs/Diminishing Returns to Consumers 

Certain manufacturers commented that amended energy conservation standards would 

force them to invest in more expensive and energy efficient components, improve existing 

product lines, and design new product lines. The majority of these product conversion costs 

would be attributed to engineering and consumer education. Those manufacturers that expected 

significant product conversion costs commented that the large investment could result in more 

expensive products for consumers. However, other manufacturers did not expect substantial 

product conversion costs. 

12.5.3 Product Innovation 

Manufacturers also expressed concern over the impact of amended energy conservation 

standards on product innovation. Because employees may need to spend more time redesigning 

products to comply with standards, the resources available for the development of new products 

would significantly decrease. 

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