Market&Tech,Screening,andEngineeringAnalysis2Market&Tech,Screening,andEngineeringAnalysisMethodologyManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldCosts at EachEfficiency LevelModelIndustryMarketPricingandEconomicsAverageIncrementalMSPMarkupAnalysisModelMPC andBaselineMarkups3Market&TechandScreening AnalysisManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldModelIndustryMarketPricingandEconomicsAverageIncrementalMSPModelMPC andBaselineMarkups4Initial Technology Options to Improve EfficiencyAninitiallistoftechnologyoptionsweregatheredbasedonindustryresearchanddirectstakeholderinput•NOTE:Thislistisnotscreenedfortechnologicalfeasibility,practicabilitytomanufacture,impactsonproductutilityoravailabilitytoconsumers,orImpactonhealthandsafetyTheAvailableTechnologyOptionsarelistedbelow,andwillbeexplainedindetailinthefollowingslides:•Improvedsurfacefinish•Improvedhydraulicdesign•Reducedrunningclearances•Reducedmechanicalfrictioninseals•Reducedvolumetricloses(removalofthrustbalanceholes)MarketandTechnologyAssessment5Details on Technology OptionsImprovedSurfaceFinish•ImprovedCastingTechniques-Investment,Die,LostFoam,etc.•Surfacepolishingorhoning•SurfacecoatingorplatingImprovedHydraulicDesign•Impellerand/orvolutemayberedesignedtoahigherefficiencyusingmoderncomputeraideddesignandanalysismethods.ReducingRunningClearances•Reducingrunningclearancesmayreduceleakageandbackflowinthepump,thusincreasingefficiency.MarketandTechnologyAssessment6Details on Technology Options (Continued)ReducedMechanicalFrictioninSeals•Sealfrictionisaparasiticloadonthepump.Reducingfrictiondirectlymayimproveefficiencyofthepump.Reducedvolumetricloses(removalofthrustbalanceholes)•Thrustbalanceholesusepartofthepumpedflowtoensurethatthepumpisdynamicallybalanced.Reducingthislossofflowcanresultinimprovedefficiency.MarketandTechnologyAssessment7ScreeningAnalysisPurpose:ScreenouttechnologyoptionsthatDOEwillnotconsiderintheengineeringanalysisforcommercialandindustrialpumpsMethod:DOEevaluatesthetechnologyoptionspresentedinthepreviousslidesbasedonthefollowingcriteria:•Technologicalfeasibility•Practicabilitytomanufacture,installandserviceonacommercialscaleatthetimecompliancewithanyfinalstandardswouldberequired•Impactsonproductutilityoravailabletoconsumers•Impactonhealthandsafety8ScreeningAnalysisScreened Out Technologies:ReducedRunningClearances•Anysignificantreductionofrunningclearanceswilldirectlyreducethereliabilityofapump.ReducedMechanicalFrictioninSeals•Sealsrequiremechanicalfrictiontoworkproperly.Reducingfrictioncanresultinimpairedsealperformanceandleaks.•Higher‐end,lowerfrictionmaterialcombinationsareavailable,butpotentialefficiencygainsarenotsignificant.Reducedvolumetricloses(removalofthrustbalanceholes)•Thrustbalanceholesareusedtoreducewearonrubsurfacesandbearings.Removaloftheseholeswouldrequirethepumptoberedesignsinalessreliableform.Surfacecoatingorplating•Industryhasvoicedconcernsoverthereliabilityanddurabilityofcoatings,whenusedincleanwaterapplications.9Design Options to Improve EfficiencyTherearethreeremainingdesignoptionstoimprovepumpefficiency.However,eachdesignoptionmaybeapplicableonlytoacertainsubsetofmarket(moredetailinthefollowingslides).•HydraulicRedesignOptions-HydraulicRedesign-HydraulicRedesignw/ChangetoAdvancedCastingTechnique(Investment,Die,Lost‐Foam,etc)•SurfaceFinishImprovementOptions-SurfacePolishingofImpellerand/orvolutesMarketandTechnologyAssessmentSource:http://www.pumpfundamentals.com10Hydraulic Redesign OptionsHydraulicRedesign•Impellerand/orvolutegeometrymayberedesignedtoahigherefficiencyusingmoderncomputeraideddesignandanalysismethods.•Applicabilityrestrictions:-NoneHydraulicRedesignw/ChangetoAdvancedCastingTechnique•Impellerand/orvolutemayberedesignedtoahigherefficiencyusingmoderncomputeraideddesignandanalysismethods.•Impellerisalsocastusingadvancedtechniques,suchasdie,investment,orlostfoamcasting,creatingasmoother,lower‐friction,surfacefinish.-Advancedcastingtechniquewillingeneraladdconversioncost,butwillnotimpactMPC.•Applicabilityrestrictions:-Bronzeandstainlesssteelimpelleronly-Mustcurrentlybesandcast.MarketandTechnologyAssessment11Surface Finish Improvement OptionsSurfacePolishingofImpellerand/orVolutes•Impellerand/orvolutemaybehandpolishedormachinepolishedtosmoothfinish,whichresultsinreducedfriction•Applicabilityrestrictions:-CastBronzeandStainlesssteelonly-Likelytobeusedonlyforsmallefficiencygaps,sincehydraulicredesignwouldotherwisebeusedtoachievealloftherequiredefficiencygainMarketandTechnologyAssessment12AdditionalConsiderationsModelDroppedfromtheMarket•Manufacturershaveindicatedthatmanylowperforming,lowsalesvolumespumpswillbedroppedfromthemarketiftheydonotpassastandard.Somemaybereplacedwithexistingmodelsfromotherbrandsownedbythemanufacturers.•Applicabilityrestrictions:-NoneMarketandTechnologyAssessment13PurposeDetermineincrementalchangesinManufacturerSellingPrice(MSP)ateachproposedefficiencylevel.Thecost‐efficiencyrelationshipisakeyinputforthefollowingdownstreamrulemakinganalyses:•Life‐CycleCostandPaybackPeriodAnalysis•ManufacturerImpactAnalysis•EmploymentImpactAnalysisEngineeringAnalysis14EngineeringAnalysisManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldModelIndustryMarketPricingandEconomicsAverageIncrementalMSPModelMPC andBaselineMarkups15EngineeringAnalysisEfficiency Improvements: Hydraulic RedesignHydraulicdesignisthemaindriverwhenitcomestodeterminingapump’sefficiency.•Differinghydraulicdesignsarewhatdifferentiatethemostefficientproductsonthemarketfromthelowefficiencyproductsonthemarket.Givenenoughtimeandmoney(discussedinthenextsection),anypumpcantheoreticallybebroughttomax‐techefficiency.IndustryconsensusisthatmanufacturerswilltargetanefficiencylevelofMEI/PER40foranyproposedstandardlessthanorequaltoMEI/PER40.•ForstandardlevelsaboveMEI/PER40,theywilltargettheactualstandardlevel.Notethatsomemanufacturersmaychoosetoswitchtoanadvancedcastingtechniqueasapartoftheirhydraulicredesign.TheseredesignswillalsotargetMEI/PER40(orhigher,dependingonEL)butcostswillbeconsideredseparately.16EngineeringAnalysisEfficiency Improvements: Surface Finish ImprovementHI20.3‐2010providesguidanceontheefficiencythatcanbegainedbyimprovingsurfacefinish.Theseimprovementsaredefinedasafunctionofapump’sSpecificSpeed(Ns).Theimprovementsonthischartrepresentachangefromasandcastsurfacetoapolished,coated,orinvestmentcastsurface.Source:HI20.3‐2010,Figure20.3hAvailableatwww.pumps.org17EngineeringAnalysisManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldModelIndustryMarketPricingandEconomicsAverageIncrementalMSPModelMPC andBaselineMarkups18EngineeringAnalysisCosts: Hydraulic Redesign up to MEI/PER 40HIconductedasurveyontheall‐inclusiveConversionCostsrequiredtoredesignapumptomeetastandardlevelofMEI40•Costswerespecifiedforgeneric1,50,and200HPpumps•CostwereapplicabletoallESCC,ESFM,IL,RS‐V,andVT‐Sequipmentclasses.HydraulicRedesignsnotexpectedtoimpactMPCAverageCost,permodel,toHydraulicallyRedesignaPumptoMeet MEI/PER40ClassAVG BEPShaftHP(ForRefOnly)AVG CostESCC/ESFM27.7HP $209,065Inline 24.4HP $206,893ESCC, ESFM, IL[50HP][200HP][1HP]19EngineeringAnalysisCosts: Hydraulic Redesign up to MEI/PER 4020EngineeringAnalysisCosts: Hydraulic Redesign Beyond MEI/PER 40Duetoincreasesindesignandtestlaborcosts,redesignsbeyondtheMEI40levelwillcostthemanufacturersmoretocompleteManufacturersweresurveyedonthecosttoredesigntoMEI70,butthereisinsufficientdataprovidedtoaggregateandcharacterizethemarketInstead,theEULot11preparatorystudyonCostofRedesigntomanufacturerswasleveragedtoestimatetheadditionalcosttogobeyondMEI40.•EUmanufacturerssubmitteddataindicatingitwillcost1.6xmoretoredesignamodeltoMEI80vs.MEI50.•AfterdiscussionwithHI,wehaveadjustedthismultiplierto1.8x,toaccountfortheincreasedcostburdensforsmallermanufacturers.Webelievethat1.8xisrepresentativeoftheincreasefromMEI40toMEI70.1.8xPer‐ModelRedesignCostsIncreasesLinearlyfromMEI40toMEI7021EngineeringAnalysisCosts: Hydraulic Redesign w/ change to Advanced CastingTheHIredesignsurveyspecificallycategorizedcostsrelatedtoPatternsandToolingat1,50,and200HPoCostsrepresentablendofallcastingmethodsusedinthemarket(Sand,Die,Investment,etc)Industryresearchsuggestsadvancedcastingtoolingare2.4xthecostofsandcasttooling,andthatadvancedcastingmethodsmakeup60%ofthemarket.WiththisdatawecanextrapolatetheadditionalcostincurredbyswitchingtoAdvancedCasting:PatternandToolingCostsPump Size(1800RPM)HISurveyToolingCost(Actual IndustryAverage)AdvancedCastingToolingCost(Estimated)Sand CastingToolingCost(Estimated)1HP$44,329 $57,820 $24,09250HP$51,280 $66,887 $27,870200HP$72,862 $95,037 $39,599%Of SurveyCost‐130%54%22EngineeringAnalysisCosts: Hydraulic Redesign w/ change to Advanced CastingAnincreaseof30%tothetoolingcoststranslatestoa7%increaseovertheindustryaveragetotalhydraulicredesigncost.HydraulicRedesignCost(HRD)Pump ShaftHPatBEPHISurveyHRDCost(Actual IndstAvg)Additional Adv.ToolingCostHRD w/ ChangetoAdv.Casting(Estimated)1HP$188,752 $13,491 $202,24350HP$228,252 $15,607 $243,859200HP$268,203 $22,175 $290,378Average,perModel,HRD CostClassHISurveyHRDCostAdditionalToolingCostHRD w/ ChangetoAdvancedCasting%CostIncreaseESCCESFM$209,065 $14,648 $223,713 7%Inline$206,893 $14,503 $221,396 7%ESCC,ESFM, IL++==+++===23EngineeringAnalysisCosts: Surface PolishingSurfacepolishingwasdeterminedtocostapproximately45%ofthefinishedimpellercostforEndSuctionandInlinepumps.•Theseareeitherpurchasedpartorlaborcosts,andimpacttheMPCFinishedimpellercostsweretrendedbasedonaggregatedmanufacturer‐supplieddataShipment‐Weighted AverageCosttoPolishorCoatanImpellerClassAVG BEP ShaftHP(ForRefOnly)AVGCostESCC/ESFM27.7HP $46Inline 24.4HP $50Shipment-WeightedAverage Cost forESCC, ESFM, IL24EngineeringAnalysisSummary of Engineering CostsModelWeightedAverageCostShipment‐WeightedAverageCost≤MEI40≥MEI70 AllLevelsClassHydraulicRedesignCostHydraulicRedesignw/Adv.CastingHydraulicRedesignCostHydraulicRedesignw/InvestmentCastingImpellerPolishorCoatESCC/ESFM$209,065 $223,713 $376,317 $402,683 $46Inline $206,893 $221,396 $372,407 $398,513 $5025EngineeringAnalysisManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldModelIndustryMarketPricingandEconomicsAverageIncrementalMSPModelMPC andBaselineMarkups26OverviewofMethodologyForeachequipmentclass,theengineeringanalysiswillattempttomodeltheredesignchoicesthatwillbemadebytheindustrywhenfacedwithvariousefficiencylevels(ELs).OurcostmodelwillstartwiththetotalnumberofpumpmodelsfailingatagivenEL,andwillthenassigndesignoptionstoeachfailure,basedonmarketdataanddirectindustryresearch.EngineeringAnalysisAllModelsintheEquipmentClass#PassingModels#FailingModels#HydraulicallyRedesigned#HydraulicallyRedesignedw/changetoInvestment#PolishedChosen EfficiencyLevelIndustry Research & ModelDistribution#ModelsDroppedandnotRedesigned27OverviewofMethodologyForeachequipmentclass,theengineeringanalysiswillattempttomodeltheredesignchoicesthatwillbemadebytheindustrywhenfacedwithvariousefficiencylevels(ELs).OurcostmodelwillstartwiththetotalnumberofpumpmodelsfailingatagivenEL,andwillthenassigndesignoptionstoeachfailure,basedonmarketdataanddirectindustryresearch.EngineeringAnalysisAllModelsintheEquipmentClass#PassingModels#FailingModels#HydraulicallyRedesigned#HydraulicallyRedesignedw/changetoInvestment#PolishedChosen EfficiencyLevelIndustry Research & ModelDistribution#ModelsDroppedandnotRedesigned28DetailedMethodology:[ESCC/ESFM 2/4Pole]&[IL2/4Pole]EngineeringAnalysis#FailingModelsfromHI/NEMA BIS SurveyRemove Models Dropped &Not redesigned#ModelsRequiringRedesign#FabricatedSSModels#InvestmentorDieCastModels#SandCastModelsHydroRedesignHydroRedesignEligibletobePolished*NotEligibletobePolishedHydroRedesignHydroRedesignw/InvestmentHydroRedesignPolished*SandCast,Ns<1200,andcanmeettheELstandardbysurfacefinishimprovementonly29DetailedMethodology:[ESCC/ESFM 2/4Pole]&[IL2/4Pole]EngineeringAnalysis#FailingModelsfromHI/NEMA BIS SurveyRemove Models Dropped &Not redesigned#ModelsRequiringRedesign#FabricatedSSModels#InvestmentorDieCastModels#SandCastModelsHydroRedesignHydroRedesignEligibletobePolished*NotEligibletobePolishedHydroRedesignHydroRedesignw/InvestmentHydroRedesignPolished*SandCast,Ns<1200,andcanmeettheELstandardbysurfacefinishimprovementonly30DeterminingNumberofPumpModelsNotRedesignedFormanyfailingmodelsinourpumpdatabase,themanufacturermaychoosetonotredesignthepump,droppingthatmodelfromthemarketCommonreasonsforthisdecisioninclude:•Lowsales,leadingtopoorbusinesscaseforaredesign-Manypumpsinthedatabasehavezerosales•Thecompanymayalreadyhaveahydraulicallyoverlapping,passingmodelthatitcanleverage-OftentimeproducedbyadifferentbrandwithinthesamecompanyBasedondirectindustryresearch,weestimate60%offailingmodelswillbedroppedatlowerELs,taperingdownto40%athigherELs.EngineeringAnalysis31SummaryofAdditionalModelInputsModelinputscanbebrokendownintotwocategories:1.StatisticaloInputsbasedonprimarydatasourcessuchastheNavigant/LBNL surveyandtheHI/NEMA BIS survey.Keydata‐driveninputsarelistedbelow.•Total#ofmodels•Total#ofshipments/#ofshipmentsfailing•StatisticalDistributionsofHP,Flow,Ns,etc.2.GeneralIndustryResearchoInputsbasedmanufacturerinterviews,marketdata,independentdiscussionswithmanufacturers,andestimatesprovidedbyHIandotherindustryexperts.•%ofmodelsdroppedfrommarketandnotredesigned•CurrentbreakdownofSandCastimpellersvsAdvancedCastImpellers•%ofmodelsthatarefabricatedstainlesssteel•%ofmarketthatwillswitchfromsandcastingtoinvestment/diecasting•%ofeligiblepumpsthatwillbepolished,ratherthanredesigned.EngineeringAnalysis32SummaryofInputsforESCC/ESFM andILEngineeringAnalysisESCC/ESFM InlineTotalModels*2,050 739TotalShipments215,498 50,424%ModelsDroppedatPER10 60% 60%%ModelsDroppedat PER 40 40% 40%%ofCastingInvest/Die Cast 60% 60%%ofCastingsSandCast 40% 40%%ofCastingsswitchedtoInvest/DieCast 10% 10%%of ModelsFabricatedStainlessSteel 7.4% 0.0%%ofPumpsEligible**tobePolished 60% 6.5%%Eligible PumpsPolished 50% 50%*CurrentlyScaledupbyshipments.AwaitingupdatesfromHI/NEMA BIS survey.**SandCast,Ns<1200,andcanmeettheELstandardbysurfacefinishimprovementonly33SummaryofResults:ESCC/ESFM PumpsEngineeringAnalysisPer‐Model RedesignOptionsPER10PER25PER40PER55PER70PER85Total#ModelsFailing 205 512 820 1127 1435 1742Of ThosethatareFailingModels%ModelsDropped 60% 50% 40% 40% 40% 40%#ModelsDropped 123 256 328 451 574 697#ModelsReq.Redesign 82 256 492 676 861 1045OfThosethatWillbeRedesigned#PumpsPolished 2 8 15 20 26 31#PumpsHydroRedesignonly72 225 432 594 755 917#PumpsHydroRedesignw/ChangetoAdvancedCast8 24 46 63 80 9734SummaryofResults:InlinePumpsEngineeringAnalysisPer‐Model RedesignOptionsPER10PER25PER40PER55PER70PER85Total#ModelsFailing 74 185 296 406 517 628OfThosethatareFailingModels%ModelsDropped 60% 50% 40% 40% 40% 40%#ModelsDropped 44 92 118 163 207 251#ModelsReq.Redesign 30 92 177 244 310 377OfThosethatWillbeRedesigned#PumpsPolished 1 3 6 8 10 12#PumpsHydroRedesignonly26 80 154 212 269 327#PumpsHydroRedesignw/ChangetoAdvancedCast3 9 18 24 31 3835SummaryofResults:ESCC/ESFMEngineeringAnalysisShipment‐WeightedResultsPER10 PER25 PER40 PER55 PER 70 PER85Total#ShipmentsFailing 15,510 38,889 73,738 92,207 108,874 133,825%TotalShipmentsFailing 7% 18% 34% 43% 51% 62%%FailingShipmentsPolished 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%#ShipmentsPolished 465 1,167 2,213 2,767 3,267 4,016SummaryofResults:InlineShipment‐WeightedResultsPER10 PER25 PER40 PER55 PER 70 PER85Total#ShipmentsFailing 8,730 16,945 21,815 26,917 32,226 40,980%TotalShipmentsFailing 17% 34% 43% 53% 64% 81%%FailingShipmentsPolished 3.2% 3.2% 3.2% 3.2% 3.2% 3.2%#ShipmentsPolished 283 549 707 872 1044 1,32836EngineeringAnalysisManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldModelIndustryMarketPricingandEconomicsAverageIncrementalMSPModelMPC andBaselineMarkups37MethodForeachequipmentclassandEL,theindustryshipmentsweightedaveragecosttopolishanimpellerismultipliedbythenumberofshipments thatwillfeatureapolishedimpeller.Thiscreatesthetotalaggregateincrementalcostfortheindustry.EngineeringAnalysis#ShipmentsPolishedAverageIncrementalMPC PerUnitSoldAggregateincrementalcostfortheindustryDivide by Total Numberof Failing ShipmentsShipmentweightedaveragecosttopolishaunitMultiply38Results:IncrementalCostsEngineeringAnalysisAllEfficiencyLevelsAverageIncrementalMPCperFailingShipmentsAverageShipmentMPC (PumpOnly)AverageMPCPercentIncreaseESCC/ESFM $1.36 $477 0.3%IL $1.60 $673 0.2%Total $1.45 $514 0.3%39EngineeringAnalysisManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldModelIndustryMarketPricingandEconomicsAverageIncrementalMSPModelMPC andBaselineMarkups40Method:AggregateIndustryConversionCostForeachequipmentclassandEL,theadjustedindustryaverageredesigncostsaremultipliedbythenumberofmodelsrequiringeachredesign.Thiscreateanaggregateconversioncostfortheindustry.EngineeringAnalysis#ModelsHydraulicallyRedesignedAggregateConversionCosttoIndustryCostperModeltoHydraulicallyRedesignAccount for Cost SharingBetween Shared ModelPlatformsADJUSTEDCostperModeltoHydraulicallyRedesignMultiply41EngineeringAnalysis#ModelsHydraulicallyRedesignedAggregateConversionCosttoIndustryCostperModeltoHydraulicallyRedesignAccount for Cost SharingBetween Shared ModelPlatformsADJUSTEDCostperModeltoHydraulicallyRedesignMultiplyMethod:AggregateIndustryConversionCostForeachequipmentclassandEL,theadjustedindustryaverageredesigncostsaremultipliedbythenumberofmodelsrequiringeachredesign.Thiscreateanaggregateconversioncostfortheindustry.42EngineeringAnalysisAccounting for Redesign Cost Sharing BetweenShared Model PlatformsBecauseESCC/ESFM and2/4‐Polepumpmodelssharesignificanthydraulicsandhardware,wedonotexpecteverymodelinthedatabasetoincurthecostofafullhydraulicredesign.Toaccountforthesesharedcostswequantified:1.StatisticsonSharedPlatformsNumberofHydraulicallyIdenticalESCC/ESFMpumpmodelsNumberof2‐and4‐polepumpssharingthesamemodelname2.AllocationofSharedRedesignCosts43EngineeringAnalysisStatistics on Shared PlatformsESCC &ESFM Combined InlineUniqueModel“Duplicate”ModelUniqueModel“Duplicate”ModelPumpType:ESCC vsESFM54% 46%N/A N/APumpSpeed:2‐Polevs.4‐Pole77% 23%80% 20%Allocation of Shared Redesign CostsPercentofOriginalRedesignCostAttributed tothe“Duplicate”ModelESCC/ESFM(Type)2/4 Pole(Speed)Redesign,Prototype&InitialTest50% 50%Pattern,Tooling34% 66%Testing75% 75%Marketing100% 100%Total(WeightedAveragebyCostCategory)59% 68%44DeterminingthePerModelCostAdjustment:ESCC/ESFMEngineeringAnalysis#FailingModelsAtEachEfficiencyLevelUniqueModelsESCC vs.ESFM54%“Duplicate”ModelsESCC vs.ESFM46%“Duplicate”Models2/4‐Pole23%“Duplicate”Models2/4‐Pole23%“Duplicate”Speed68%ofCost“Duplicate”TypeandSpeed(68%x59%)=40%UniqueModels2/4‐Pole77%UniqueModels2/4‐Pole77%UniqueModels100%ofCost“Duplicate”Type59%ofCost12%ofPopulation11%ofPopulation42%ofPopulation35%ofPopulationPopulationStatisticsCostSharingSum the Product of Each CategoryPer‐ModelRedesignCostAdjustment:75%45DeterminingthePerModelCostAdjustment:InlineEngineeringAnalysis#FailingModelsAtEachEfficiencyLevelUniqueModels2/4‐Pole80%“Duplicate”Models2/4‐Pole20%UniqueModels100%ofCost“Duplicate”Speed68%ofCostPopulationStatisticsCostSharingSum the Product of Each CategoryPer‐ModelRedesignCostAdjustment:94%46EngineeringAnalysis#ModelsHydraulicallyRedesignedAggregateConversionCosttoIndustryCostperModeltoHydraulicallyRedesignAccount for Cost SharingBetween Shared ModelPlatformsADJUSTEDCostperModeltoHydraulicallyRedesignMultiplyMethod:AggregateIndustryConversionCost47Results:ConversionCostEngineeringAnalysisAggregateConversionCosttoIndustry($MM)EfficiencyLevelPER 10($MM)PER25($MM)PER40($MM)PER55($MM)PER70($MM)PER85($MM)ESCC/ESFM$12.6 $39.3 $75.5 $145.3 $237.8 $288.7IL$5.6 $17.4 $33.5 $64.4 $105.4 $128.0Total$18.2 $56.4 $109.0 $209.7 $343.2 $416.7AggregateConversionas aPercentofRevenues(PumpOnlyRevenues)EfficiencyLevelPER 10($MM)PER25($MM)PER40($MM)PER55($MM)PER70($MM)PER85($MM)ESCC/ESFM 9% 29% 55% 106% 173% 210%IL11% 36% 69% 132% 216% 262%Total10% 30% 58% 112% 184% 223%48SummaryTheprecedinganalysisclearlyindicatesthatconversioncostssignificantlyoutweighanyincrementalcostsarisingfromthesmallpercentageofpolishedpumpsAssuch,onlyconversioncostsduetohydraulicredesignwillbepassedontotheLCC anddownstreamanalysesThenextsectionwilldiscussthehowthebaselineMPC isestablishedanalytically.ThesectionfollowingthatwilldiscusshowtheconversioncostsderivedinthissectionmaybeappliedtothebaselineMPC.EngineeringAnalysis49EngineeringAnalysisManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldModelIndustryMarketPricingandEconomicsAverageIncrementalMSPModelMPC andBaselineMarkups50IntroductionThissectionoftheengineeringanalysistakesamarket‐basedapproachtomodelingthebasecaseMPC,MSP,andCost‐EfficiencyRelationship.Thismarket‐basedapproachreliesondetailedmanufacturer‐suppliedsalesandperformancedata.•DatarepresentsapproximatelyhalfoftheEndSuctionandInlinemarket,byshipments•Datacollectedundernon‐disclosureconfidentialityagreementandcanonlybesharedintheaggregateformspresentedinthisanalysis.EngineeringAnalysis51SourceDataManufacturerssuppliedthefollowingsourcedatadirectlytoNavigantandLBNL.Foreachmodelintheircatalogue:•ModelName/Number•DOEPumpType•ANSI/HIPumpType•NumberofStages•MotorSpeed•NetSalesRevenues($)•UnitVolume(Shipments)•Flow,Head,Efficiency,andShaftHPatBEP,50%BEP,75%BEP,and110%BEP•MotorCosts•Markups•PercentofShipmentssoldwithMotorsEngineering Analysis52ScalingParameterInordertomodelMSP overthefullrangeofproductsofferedbyallmanufacturers,ascalingparameter,orparametersmustbechosen.TheefficiencyrelationshiphasalreadybeendeterminedtobeafactorofFlow(Q)andSpecificSpeed(Ns),soitmakessensetoworkwiththesetwoparameters.Notwantingtodevelopacomplexthree‐dimensionalpolynomialrelationship,(asisdonewithefficiency)wedecidedtoworkwithanormalizedfactor:•Ns/Q‐‐whichworksquitewellNormalizingformotorspeed,withabaseRPMof1800,weget:•(Ns/Q) x (n/1800)TakingtheLog()ofthisfactorandshiftingitbyoneunitontheX‐axisallowsforeasypowerseriesregression,resultingin:•Log[(Ns/Q) x (n/1800)] + 1EngineeringAnalysis53Pleasenote,asmallvalueofLog[(Ns/Q)x(n/1800)]+1representsaphysicallylargerpump,whilealargevalueoftheparameterrepresentsaphysicallysmallerpump.Forreference,thefollowingchartshowstheroughrelationshipbetweenaverageBEPShaftHP(Normalizedto1800RPM)andLog[(Ns/Q)x(n/1800)]+1EngineeringAnalysis54WecantakeaquicklookathowthisparameterperformsbydividingNetSalesRevenuesbyUnitVolumetogetaper‐unitcost,andthenplottingthisversusLog[(Ns/Q)x(n/1800)]+1.•Notingthatthisisforroughassessmentpurposesonly,astheserepresenttotalcost,includingmotors,andsomemodelsdidnotalwaysshipwithmotors.EngineeringAnalysis55Method:ModelPumpCostwithoutMotor1.CalculatethePer‐UnitMSPforeachmodela.DivideTotalRevenuesbyTotalUnits2.Estimatetheactualmotorcostforeachmodelinthedatabasea.EstimatemotorHPas120%ofBEP requiredshaftHPb.Usemanufacturer‐specificmotorcostcurvestoestimateactualmotorcost3.CreateAdjustedMotorCostbytakingintoaccountmarkupandpercentofpumpsnotsoldwithmotorsa.Multiplybaselinemotorcostbymanufacturer‐specificmarkupb.Multiplymarked‐upmotorcostbymanufacturer‐specificpercentofshipmentssoldwithmotors,toaccountforsomepumpsnotbeingsoldwithmotors.4.FindPump‐OnlyMSPbysubtractingAdjustedMotorCostfromPer‐UnitMSP5.AveragethePump‐OnlyMSPoverdiscreterangesofthescalingparameterLog[(Ns/Q)x(n/1800)]+16.RegressontheseaveragePump‐OnlyMSPineachrangeEngineeringAnalysis56InlineMSP ModelResultsPleasenotethefollowing:•2‐Poleand4‐Polespeedpumpswereevaluatedasonepopulation‐ScalingfactorcorrectsforspeedandrepresentsphysicalsizeEngineeringAnalysis57EngineeringAnalysisAveragePump‐Only MSPin eachrangeLog[(Ns/Q)x(n/1800)]+1AverageMSP perModel[NoMotor]0.90 $3,1261.20 $2,0051.50 $1,5141.80 $1,1662.10 $8752.40 $8122.70 $792PopulationAverage $1,383InlineResults:ModelPumpCostwithoutMotor58EngineeringAnalysisInlineResults:ModelPumpCostwithoutMotor59WecanevaluatetheaverageperformanceoftheMSP modelbyseeinghowwellthemodelpredictsMSP,onaverage,forall287modelsthathadshipments.Thisresultindicatesthatthemodel,onaverageslightlyunderpredictscostofamodel,givenitsFlow,SpecificSpeed,andMotorSpeed.EngineeringAnalysisAveragePercentError‐0.5%AverageError‐$12InlineResults:ModelPumpCostwithoutMotor60Visuallywecanseehowwellthemodelrecreatesoursamplemanufacturerper‐unitcostdata.EngineeringAnalysis61BriefReviewofEndSuctionMSP ResultsPleasenotethefollowing:•ESCCandESFMwereevaluatedasonepopulationduetosimilarcostsandpricing•2‐Poleand4‐Polespeedpumpswereevaluatedasonepopulation‐ScalingfactorcorrectsforspeedandrepresentsphysicalsizeEngineeringAnalysis62EngineeringAnalysisEndSuctionResults:ModelPumpCostwithoutMotor63Visuallywecanseehowwellthemodelrecreatesoursamplemanufacturerper‐unitcostdata.EngineeringAnalysis64FindingandApplyingtheBaselineCost‐EfficiencyRelationshipEngineeringAnalysis65Introduction:BaselineCost‐EfficiencyRelationshipBasedonindustryresearch,wehavefoundthefollowing•MPCdoesnotchangeappreciablywithefficiency-Hydraulicdesignistheprimefactorindeterminingapump’sefficiency-Hydraulicdesigndoesnotappreciablyaffectthethematerialandlaborcosts.•Forindividualmanufacturers,MSPdoesnotchangewithefficiency-IndividualManufacturersdonocarrytieredproductlines,nordotheytargethighermarkupsforspecifichigherefficiencymodels.•ManyotherdesignfactorssignificantlyinfluenceMPCandMSP-Durability,reliability,etc.Acost‐efficiencyrelationshipmayexistintheoverallmarketifamanufacturer’spricingcorrelatestotheirrelativeefficiencyinthemarket•ThefollowinganalysiswillinvestigatethisEngineering Analysis66FindingandApplyingtheBaselineCost‐EfficiencyRelationshipThecostmodeldevelopedonthepreviousslidesrepresentedtheaverageper‐modelMSP ofapumpatagivenLog[(Ns/Q)x(n/1800)]+1.•Thisisanefficiency‐independantMSP,andcanbetranslatedtoanMPCmodel,simplybybackingouttheappropriateindustryaveragemarkup.Inthiscostmodel,wecanevaluateeachpumptoseehowmuchmoreorlessthantheaverageitcostsWecanthenlooktoseeifthereisarelationshipbetweenanMSPpremiumandefficiency.Forthisanalysis,efficiencyisrepresentedbyapump’sfailingPERC‐ValueThereforewecangroupshipmentsbyC‐valueranges(efficiency)andseehowthepricepremiumvaries.SeenextslideforresultsEngineeringAnalysis67InlineResults:BaselineCost‐EfficiencyRelationshipEngineeringAnalysis68Engineering Analysis%PumpsFailing(PER)C‐Value[PER]AveragePer‐ModelCostPremium88% 121.5‐3.5%67% 124.5 2.5%41% 127.5 0.6%21% 130.5 5.3%11% 133.5 0.8%6% 136.5‐12.5%4% 139.5‐30.8%InlineResults:BaselineCostEfficiency69EngineeringAnalysis%PumpsFailing(PER)C‐Value[PER]AveragePer‐ModelCostPremiumSmoothedResults88% 121.5‐3.5% 1.9%67% 124.5 2.5% 1.9%41% 127.5 0.6% 1.9%21% 130.5 5.3% 1.9%11% 133.5 0.8%‐2.4%6% 136.5‐12.5%‐12.5%4% 139.5‐30.8%‐30.8%InlineResults:CostEfficiencySmoothedforAnalysis70Athird‐orderpolynomialwasfittothecostpremiumvs.C‐valuerelationship,andthisrelationshipwasappliedtothebaselinemodel,tocreateanMSP vs.C‐Valuerelationship.Visuallywecanseehowwellthemodelrecreatesoursamplemanufacturerper‐unitcostdata.EngineeringAnalysisVisualizingMSP withCost‐Efficiency71EngineeringAnalysisESCC/ESFM CostEfficiencyTheEndSuctionavailabledataarenotsuitableforthepreviouscost‐efficiencyanalysis•70%ofthepumpsinourdatabasearesoldwithmotors,ascomparedto93%ofinlinepumps•Thiscreatestoomuchvariabilitywhenestimatedtheindividualper‐unitMSPwithoutmotorcostTheInlinecost‐efficiencyresultsweremappedtotheEndSuctionpopulation•InlineandEndSuctionpumpsaresimilarinconstructionandoftenconsideredsubsititutesinthemarketplace•Marketandpricingdynamicsshouldbesimilar.72EngineeringAnalysis%PumpsFailing(PER)C‐Value[PER]SmoothedResults91% 119.501.9%77% 122.501.9%53% 125.501.9%28% 128.50‐2.4%11% 131.50‐12.5%3% 134.50‐30.8%BaselineInlineresultsweremappedtotheEndSuctionBaselineEndSuctionResults:BaselineCostEfficiency73Athird‐orderpolynomialwasfittothecostpremiumvs.C‐valuerelationship,andthisrelationshipwasappliedtothebaselinemodel,tocreateanMSP vs.C‐Valuerelationship.Visuallywecanseehowwellthemodelrecreatesoursamplemanufacturerper‐unitcostdata.EngineeringAnalysisVisualizingMSP withCost‐Efficiency74SummaryBasedonmarketdata:oThebottom20%to30%ofmodelsshowastrongMSP vs.Efficiencyrelationship,withlessefficientmodelscostingless.oBeyondthis,thecost‐efficiencyrelationshipisflat,withmoreefficientpumpscostnomorethanlessefficientpumps.MPC isindependentofefficiencyoInthestandardscase,thenewmarkupswillbeappliedtoanMPCmodelthatisidenticaltothebaselinemodelthatwasjustderived‐‐Thiscreatesthecost‐efficiencyrelationshipforthestandardscase.oBecausethestandardscasewillrelyonchangesinmarkupsratherthanchangesinMPC,themarkupsinthebasecasewillbedifferentfromthemarkupsinthestandardscase– thisdiffersfromtheusualrulemakingprocess– butisnecessarygiventhestructureofthepumpindustryEngineeringAnalysis75EngineeringAnalysisManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldModelIndustryMarketPricingandEconomicsAverageIncrementalMSPModelMPC andBaselineMarkups76GoalDetermineMSPbasedontheassumptionthatmanufacturerscanincreasetheirmarkuptorecoverportionsoftheconversioncoststhatresultfromstandards.MSP =MPCxManufacturerMarkupDeterminemanufacturermarkupscenariosthatreflecttheindustry’sabilitytopassonconversioncostPricing&MarkupsSideNoteMarkup=MSP/MPCGrossMargin=(MSP‐MPC)/MSPMarkup=grossmargin/(1‐grossmargin)77ManufacturerMarkupScenariosChangeinmanufacturermarkupreflectstheindustry’sabilitytoincreasepricestorecoverconversioncostinvestmentsLowerBound•Minimalcostrecovery•Manufacturersarenotabletoraisepricesduetomarketfactors•Minimalchangeinend‐userpricingUpperBound•Highcostrecovery•ManufacturersareabletoincreaseMSP•Maximumincreaseinend‐userpricingPricing&Markups78ManufacturerMarkupScenariosLowerBound•Minimumrecovery:manufacturersmaintaintheirexistingmanufacturermarkupUpperBound•Fullcostrecoveryoverallunits:manufacturersrecoverconversioncostsbyincreasingthemanufacturermarkuponallequipment•Fullcostrecoveryoverredesignedunits:manufacturersrecoverconversioncostsbyincreasingthemanufacturermarkuponcostoffailedpumpsthatrequireredesignPricing&Markups79KeyDriversMPCsConversioncostsBaselinemarkupBaselineMSPPricing&Markups80MarkupManufacturerMarkup=MSP/MPCAnnuityCalculation•Conversioncost=Σ(annualpaymentsxdiscountfactor)•IncreasedCostCalculation•AnnualPayment/AnnualShipments=IncreasedcostperunitRevisedMarkupCalculation•RevisedMarkup=(baselineMSP+Increasedcost)/MPCPricing&Markups81BaselineMSPPricing&MarkupsEquipmentCategoryMSPESCC+ESFM$677.77IL$984.74RS‐VTBDVT‐STBD82BaselineMarkupPricing&MarkupsEquipmentCategoryMarkupESCC+ESFM1.34IL1.44RS‐V1.38VT‐S1.3583UpperBoundScenariosMarketPricing&MarkupsESCC+ESFM CostRecoveryOverRedesignedShipments CostRecoveryOverAllShipmentsPERStandardsMarkupStandardsMSP%MSPIncreaseStandardsMarkupStandardsMSP%MSPIncrease10 1.51 $761.68 12% 1.35 $683.81 1%25 1.55 $782.35 15% 1.38 $696.64 3%40 1.55 $783.67 16% 1.41 $714.01 5%50 1.62 $821.07 21% 1.45 $735.14 8%55 1.66 $840.79 24% 1.48 $747.52 10%70 1.79 $903.70 33% 1.57 $791.91 17%85 1.78 $900.96 33% 1.61 $816.37 20%IL CostRecoveryOverRedesignedShipments CostRecoveryOverAllShipmentsPERStandardsMarkupStandardsMSP%MSPIncreaseStandardsMarkupStandardsMSP%MSPIncrease10 1.59 $1,084.94 10% 1.45 $991.95 1%25 1.62 $1,109.63 13% 1.47 $1,007.28 2%40 1.62 $1,111.20 13% 1.50 $1,028.01 4%50 1.69 $1,155.87 17% 1.54 $1,053.26 7%55 1.72 $1,179.42 20% 1.56 $1,068.04 8%70 1.83 $1,254.54 27% 1.64 $1,121.05 14%85 1.83 $1,251.27 27% 1.68 $1,150.26 17%84EngineeringAnalysisManufacturerInterviewsIndustryResearchDeterminecostofapplyingdesignoptionsAggregateConversionCosttoIndustryDetermineAvailableEfficiencyImprovementsModelIndustry‐wideimplementationofdesignoptionsateachELSelectDesignOptions[Market&Tech/ScreeningAnalysis]AverageIncrementalMPC PerUnitSoldModelIndustryMarketPricingandEconomicsAverageIncrementalMSPModelMPC andBaselineMarkups85AverageIncrementalMSP(Markups)UsedintheLCCFortheLCC,welookedatascenarioinwhichtheindustryrecovered100%oftherequiredconversioncostsover30yearswithadiscountrateof10.15%.•Thisresultsinanannualvalueofadditionalrevenuethatmustbebroughtin.•Wedistributedthisvalueacrossshipmentsofpumpsthatfailedtomeetthestandard.ApercentageincreaseisappliedtothebaseMSPforeachshipmentofafailedmodel:EngineeringAnalysisPER10 PER25 PER40 PER55 PER70 PER85Inline13% 15% 16% 24% 33% 33%EndSuction12% 13% 14% 21% 28% 28%86SummaryTheengineeringanalysishascompletedthefollowing:•Modeledaggregateconversioncostsexpectedacrosstheindustry•ModeledMPC fortheindustry•ModeledthebaselinecasemarkupsandMSP Model•ModeledthestandardscasemarkupsandMSP ModelThesemodelsarepassedonastheinputstotheLCC analysis,aswellasotherdownstreamanalyses.EngineeringAnalysis87Appendix88AdditionalSlidesManufacturerImpactAnalysis89FinancialMetricsGRIMInput DefinitionIndustryEstimatedValueIncomeTaxRateCorporateeffectiveincometaxpaid(percentageofearningsbeforetaxes,EBT)31.4DiscountRate Weightedaveragecostofcapital11.8WorkingCapitalCurrentassetslesscurrentliabilities(percentageofrevenues)18.6SG&ASelling,general,andadministrativeexpenses(percentageofrevenues)24.4R&DResearchanddevelopmentexpenses(percentageofrevenues)2.1DepreciationAmortizationoffixedassets(percentageofrevenues)1.7CapitalExpendituresOutlayofcashtoacquireorimprovecapitalassets(percentageofrevenues,notincludingacquisitionorsaleofbusinessunits)2.4CostofGoodsSoldIncludesmaterial,labor,overhead,anddepreciation(percentageofrevenues)55.0ManufacturerImpactAnalysis90AnnuityCalculationPV(A)isthevalueoftheannuityattime=0.Itistheconversioncostinannouncementyear.Aisthevalueoftheindividualpaymentsineachcompoundingperiod.i equalstheinterestratethatwouldbecompoundedforeachperiodoftimenisthenumberofpaymentperiodsManufacturerImpactAnalysis