12A

- i APPENDIX 12A. MANUFACTURER INTERVIEW GUIDE

TABLE OF CO NTENTS

12A.1 COMMERCIAL CLOTHES W ASHERS

................................ ................................ ..... 112A

- 1 APPENDIX 12A. MANUFACTURER INTERVIEW GUIDE

12A.1 COMMERCIAL CLOTHES W ASHERS



## Commercial Clothes Washer Rulemaking Manufacturer Impact Analysis Interview Guide for

Commercial Clothes Washers

May 1 , 201312A

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T he U.S. Department of Energy (DOE) conducts the manufacturer impact analysis (MIA) a s part of the rulemaking process for amended energy conservation standards for commercial clothes washers (CCWs) . In this analysis, DOE uses publicly available information and information provided by manufacturers during interviews to assess possible impac ts on manufacturers due to amended energy conservation standards.

The DOE is currently reviewing a set of efficiency levels for front

- loading CCWs . The efficiency levels are presented below as they apply to the front

- loading CCWs. For top

- loading
CCWs, the DOE is seeking input relative to the range of efficiency levels that have been certified in the DOE’s Compliance Certification Database since the previous standard went into effect on January 8 th , 2013 . In responding to this questionnaire, please refe r to the modified energy factor ( M EF) and Water Factor (WF) values described below.

DOE is requesting information on the product classes in the table below

.

Table 1.1 Efficiency Levels Under Consideration for Front

- Loading Commercial Clothes

Washer Anal ysis

Efficiency Level Efficiency Level

Source MEF

ft 3 /kwh/cycle WF

gal/cycle/ft 3

Baseline DOE Standard 2 5.5

1 CEE Tier 2 2.2 4.5

2 CEE Tier 3 2.4 4

3 Maximum Available 2.6 3.7

Table 1.2 Efficiency Levels for Top

- Loading Commercial Clothes Washers Listed in DOE Compliance Certification Database

Efficiency Levels Listed in DOE Certification

Database MEF ft 3 /kwh/cycle WF

gal/cycle/ft 3

Baseline 1.6 8.5

1 1.65 8.4

2 1.7 8.4

3 1.75 8.4

4 1.85 6.85

1 KEY ISSUES

1.1 In general, what are the key issues for your company regarding amended energy

conservation standards for commercial clothes washers ?12A

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1.2 Are any of the issues more or less significant for the front

- loading versus top

- loading product classes?

1.3 Do any of the issues become more significant at higher efficiency levels?

1.4 Do you have any suggestions for incorporating any of these issues into the DOE’s engineering analysis or manufacturing impact model?

2 COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

DOE is interest ed in understanding manufacturer impacts at the plant or profit center level directly pertinent to commercial clothes washer production. However, the context within which

th is profit center operates and the details of plan t production are not always readily available

from public sources. Understanding the organizational setting around the commercial clothes washer industry profit center will help DOE understand the probable future of the manufacturing activity with and with out amended energy conservation standards.

2.1 What percentage of your commercial clothes washer manufacturing corresponds to each product class, in terms of both revenue and shipments? Please indicate if you do not manufacture products in any given prod uct class. Please also indicate whether you purchase your commercial

clothes wa sher s from other manufacturers, and whether the factory that supplies the product s is

located in the United States.

Table 12

. 1 Commercial Clothes Washer Revenue and Shipment Volumes by Product Class

Product Class

Number Product

Type 2012

Revenue 2012

Shipments %

Made %

Bought % Made in

U.S.

1 Front

Loading

2 Top

Loading

2.2 What is your company’s approximate market share in the commercial clothes washer

market , for each product class ?

3 ENGINEERING AND LIFE

- CYCLE COST ANALYSIS

3.1 Please describe the key design features associated with products at the baseline efficiency

level as well as design features and associated costs that would be necessary to reach the incremental efficiency levels listed below.12A

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Front

- Loading Commercial Clothes Washer Increment al Costs

MEF (ft 3 /kWh/cycle) WF

( gal/cycle/

ft 3 ) Estimated

Incremental

Cost Description of Design Options

2.0 5.5

-- 2.2 4.5

2.4 4

2.6 3.7

Top

- Loading Commercial Clothes Washer Incremental Costs (Exploratory Efficiency Levels*)

MEF (ft 3 /kWh/cycle) WF

( gal/cycle/

ft 3 ) Estimated

Incremental

Cost Description of Design Options

1.60 8.5

--

1.65 8.4

1.7 8.4

1.75 8.4

1.85 6.85

* These top

- loading efficiency levels are exploratory only. Since the effective date of new standards on January 8, 2013, top

- loading models at these efficiency levels have been certified to DOE and listed in DOE’s Compliance Certification Database . Informat ion obtained for each of these efficiency levels will help DOE define the specific top

- loading efficiency levels to be considered during this rulemaking.

3.1.a Are th e proposed efficiency levels appropriate?

3.1.b Are the “max tech” efficiency levels appropriate? If not, can you suggest more appropriate max

- tech levels?

DOE published a revised clothes washer test procedure, “Appendix J2”, which will be required for use beginning March 7, 2015. Among other changes, Appendix J2 does the following:

 Incorporates standby power energy into a new metric, Integrated Modified Energy Factor (IMEF)

 Incorporates the water consumption of all wash cycle temperatures into a new metric, Integrated Water Factor (IWF)

 Amends the capacity measurement for top

- loading clothes washers

 Amends the definition of the energy test cycle

DOE has proposed to translate current MEF/WF standards into their equivalent IMEF/IWF values based on comparison testing of clothes washer models currently on the market. Any new standards as a result of this rulemaking will be defined in terms of IMEF and IWF.12A

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3.2 Please comment on any issues related to the new DOE clot hes washer test procedure as applied to commercial clothes washers :

3.2.a Standby Power Is the standby power measurement procedure in Appendix J2 appropriate for measuring the standby power associated with all types of control systems available on commerc ial

clothes washers?

Is there a relationship between standby power energy consumption and the overall efficiency level? (i.e. Does standby power energy consumption tend to increase or decrease as overall machine efficiency increases?)

Will the inclusion of standby power affect the design options currently used to reach

h igher efficiencies?

3.2.b Capacity Measurement Method

Will the revised capacity measurement method for top

- loading clothes washers affect the design options you use to reach higher eff iciencies?

3.2.C Energy Test Cycle Definition How will the changes to the energy test cycle definition change how your clothes washers are tested? Will this revised definition limit the design options available for reaching higher efficiencies?

3.2.d Co nsumer Use Factors

Are the consumer usage factors within the test procedure consistent with actual consumer

use of commercial clothes washers ? These include the following:

 Temperature use factors

 Load usage factors

 Dryer usage factor

Can you provide any non

- proprietary data related to consumer use of different cycles?

4 MARKUPS AND PROFITABILITY

One of the primary objectives of the MIA i s to assess the impact of amended energy

conservation standards on industry pro fitability. In this section, DOE would like to understan d the current markup structure of the industry and how amended energy conservation standards would impact your company’s markup structure and profitability.

DOE will estimate the manufacturer production costs for the two product c lasses of commercial

clothes washers. DOE defines manufacturer production cost as all direct costs associated with manufacturing a product : direct labor, direct materials, overhead , and depreciation

. The12A

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manufacturer markup is a multiplier applied to manuf a cturer production cost to cover non

production costs, such as SG&A and R&D, as well as profit. It does not reflect a “profit margin.”

The manufacturer production cost times the manufacturer markup equals the manufacturer selling price. Manufacturer s e lling price is the price manufacturers charge their first customers

, but does not include additional costs along the distribution channels.

DOE estimated a baseline markup of 1.27 for commercial clothes washers

.

4.1 Is the 1.27 baseline markup representative of an average industry markup?

4.2 Please comment on the baseline markups DOE calculated as compared to your company’s baseline markups for the commercial clothes washer product classes.

Table 4

. 2 Commercial Clothes Washer Baseline Manufacturer Markups by Product Class

Product

Class Product Type Estimated

Ba seline Markup Manufacturer Comments or Revised Estimates

1 Top

- Loading 1. 2 7

2 Front

- Loading 1.2 7

4.3 How are markups and margins determined in this industry? How would revised standards potentially impact this pricing/margin structure? Please indicate if profit levels vary between product classes or product line. If yes, please explain why.

4.4 One of the possible scenarios DOE uses to model impacts on industry profitability is the impact of commoditization of premium products. Because the market disruption caused by standards can alter the pricing of premium products, DOE is interested in understanding if efficiency is a feature that earns a premium. Within each product class, do markups vary by efficiency level? If yes, please provide estimates for your markups by product class and efficiency level in Table 4.2 and Table 4.3.

Table 4 .2 Estimated Markups for Front

- Loading Commercial C lothes W ashers

Efficiency

Level MEF

ft 3 /kwh/cycle WF

gal/cycle/ft 3 Estimated Markup Manufacturer Comments

1 2.2 0 4.5 0

2 2.4 0 4 .00

3 2.6 0 3.7 012A

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Table 4 .3 Estimated Markups for Top

- Loading Commercial C lothes W ashers (Exploratory Efficiency Levels)

Efficiency

Level MEF

ft 3 /kwh/cycle WF

gal/cycle/ft 3 Estimated Markup Manufacturer Comments

1 1.65 8.4

2 1.7 8.4

3 1.75 8.4

4 1.85 6.85

4.5 What factors or product attributes besides efficiency affect the profitability of

commercial clothes washers within a product class?

4.6 Would you expect changes in your estimated profitabil ity following an amended energy

conservation standard? If so, ple ase explain why.

4.7 What is the structure of your distribution channels and how does that influence your markup? Does that change between product classes or across the industry?

5 FINANCIAL PARAMETERS

DOE’s contractor has developed a draft model of the commercial clothes washer industry financial performance called the Government Regulatory Impact Model (GRIM) , using publicly available data. However, this public information might not be reflective of manufacturing at the

commercial clothes washer profit center. This section attempts to understand the financial parameters for commercial clothes washer manufacturing a nd how your company’s financial

situation could differ from the industry aggregate picture.

5.1 In order to accurately collect informatio n about commercial clothes washer manufacturing, p lease compare your financial parameters to the GRIM parameters tabulated

below.12A

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Table 5

. 3 Financial Parameters for Commercial Clothes Washer Manufacturing

GRIM Input Definition Industry

Estimated

Value (%) Your Actual (If

Different from

DOE’s Estimate)

Income Tax

Rate Corporate effective income tax paid (percentage of

earnings before taxes, EBT) 29. 2 %

Discount Rate Weighted average cost of capital (inflation

adjusted weighted average of corporate cost of

debt and return on equity) 8.0%

Working Capital Current assets less current liabilities (percentage of revenues) 9.5%

Net PPE Net plant property and equipment (percentage of revenues) 16.0%

SG &A Selling, general, and administrative expenses (percentage of revenues) 11.7%

R&D Research and development expenses (percentage of revenues) 2.5%

Depreciation Amortization of fixed assets (percentage of revenues) 3.7%

Capital Expenditures Outlay of cash to acquire or improve capital assets

(percentage of revenues, not including acquisition

or sale of business units) 2.1%

Cost of Goods

Sold Includes material, labor, overhead, and

depreciation (percentage of revenues) 79.5%

5.2 D o any of the financial parameters in Table 5

. 3 change based on product class? Please describe any differences.

5.3 Do any of the financial parameters in Table 5

. 3 change for a p articular subgroup of manufacturers? Please describe any differences.

5.4 DOE accounts for one time product and capital conversion costs including research and development, as well as capital expenditures for facility changes and the depreciation of thes e fixed assets. Beyond these short term changes in cost structure, h ow would you expect an amended energy conservation standard to impact any of the financial parameters for the industry

over time ?12A

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6 CONVERSION COSTS

A mended energy conservation standards may cause your company to incur capital and product
conversion costs to redesign existing products and make changes to existing production lines to be compliant with the amended energy conservation standard

. Depending on their magnit ude, the conversion costs can have a substantial impact on the outputs used by DOE to evaluate the industry impacts. Understanding the nature and magnitude of the conversion costs is critical portion of the MIA. The MIA considers two types of conversion co sts:

 Capital conversion costs are o ne

- time investments in plant, property, and equipment (PPE) necessitated by an amended energy conservation standard. These may be

incremental changes to existing PPE or the replacement of existing PPE. Included are

expen ditures on buildings, equipment, and tooling.

 Product conversion costs are costs related research, pr oduct development, testing, marketing and other costs for redesigning products necessitated by an amended energy

conservation standard

.

DOE asks a number of questions to understand the nature and magnitude of your expected capital and product conversion costs.

Table 6.1 through Table 6.4 show the MEF and WF for the different efficiency levels analyzed in the Engineering Analysis for the product categories covered by this rulemaking.

6.1 Please provide estimates for your capital conversion costs by product class and efficiency

level in Table 6.1 and Table 6.2

. In the description column, DOE is interested in understanding the kinds of changes that would need to be implemented to production lines and production facilities at each efficiency level. Where applicable, please quantify the number and cost of new production equipment, etc. that would be required to implement the specified design changes.12A

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Tabl e 6. 4 Expected Capital Conversion Costs for Front

- Loading Commercial Clothes

Washers

Efficiency

Level MEF

ft 3 /kwh/cycle WF

gal/cycle/ft 3 Total Capital

Conversion Costs Description

1 2.2 0 4.5 0

2 2.4 0 4 .00

3 2.6 0 3.7 0

Table 6. 5 Expected Capital Conversion Costs for Top

- Loading Commercial Clothes Washers (Exploratory Efficiency Levels)

Efficiency

Level MEF

ft 3 /kwh/cycle WF

gal/cycle/ft 3 Total Capital

Conversion Costs Description

1 1.65 8.4

2 1.7 8.4

3 1.75 8.4

4 1.85 6.85

6.2 Would the changes in question 6.1 be similar across all of your production lines and factories for each product class?

6.3 Are there certain efficiency levels that would require relatively minor changes to existing products? Are there certain efficiency levels where the capital or product conversion costs significantly increase over the previous efficiency levels? Would your a nswer change for different product classes? Please describe these changes qualitatively.

6.4 For each of the product categories shown in Table 6.1 and Table 6.2 , which efficiency level changes could be made within existing platform designs and which woul d result in major product redesigns?

6.5 For the efficiency levels put forth, which design options would require only minor changes to production lines, major changes to production lines, substantial modifications to existing facilities, or the developmen t of entirely new manufacturing facilities?

6.6 What level of product conversion costs would you expect to incur at each of these efficiency levels for each product class? Please provide your estimates in T able 6

. 3 and T able 6

. 4

consi dering such expense s as product development expenses, prototyping, testing, certification, and marketing. In the description column, please describe the assumptions behind the estimates provided.12A

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Table 6.3 Expected Product Conversion Costs for Front

- Loading Commercial Clo thes

Washers

Efficiency

Level MEF

ft 3 /kwh/cycle WF

gal/cycle/ft 3 Total Product

Conversion Costs Description

1 2.2 0 4.5 0

2 2.4 0 4 .00

3 2.6 0 3.7 0

Table 6.4 Expected Product Conversion Costs for Top

- Loading Commercial Clothes Washers (Exploratory Efficiency Levels)

Efficiency

Level MEF

ft 3 /kwh/cycle WF

gal/cycle/ft 3 Total Product

Conversion Costs Description

1 1.65 8.4

2 1.7 8.4

3 1.75 8.4

4 1.85 6.85

6.7 Please provide additional qualitative information to help DOE understand the types and nature of your investments, including the plant and tooling changes and the product development effort required at different efficiency levels.

7 CUMULATIVE REGULATORY BURDEN

In assessing the impact to industry, DOE seeks to understand the cumulative regulatory burden facing manufacturers. Cumulative regulatory burden refers to the financial burden that stems from overlapping effects of new or revised DOE standards and/or other regulatory actions affecting the same product or industry. In this regard, DOE will consider other regulations (beyond energy efficiency) such as materials regulations and building codes that will adversely impact the cost to either the manufacturer or consumer.

7.1 In assessing cumulative regulatory burden, DOE co nsiders the impacts of other regulations for which the effective starting date falls within a six year timeframe extending from three years before to three years after the proposed commercial clothes washer standards become

effective. Below is a list of o ther relevant regulations that could affect manufacturers of commercial clothes washers. Please provide any comments on the listed regulations and provide an estimate for your expected compliance cost.12A

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Table 7

. 6 Other Regulati ons Identified by DOE

Regulation Estimated or Actual Effective Date(s) Comments Expected Expense for Compliance (Millions $)

Residential central air conditioners and heat pumps energy

conservation standards 2013 & 2015 211.6

Residential clothes washer energy conservation standards 2015 & 2018 418.5

Residential clothes dryer energy

conservation standards 2015 95.4

Wine chiller and misc. refrigeration energy conservation

standards 2018

Residential furnace fans energy

conservation standards 2018

Dehumidifier energy conservation

standards 2019

7.2 Are there any other recen t or impending regulations that commercial clothes washer manufacturers face (from DOE or otherwise)? If so, please identify the re gulation, the corresponding effective dates, and your expected compliance cost.

7.3 Under what circumstances would you be able to coordinate any expenditure related to

these other regulations with an amended energy conservation standard ?

8 DIRECT EMPLOYMENT IMPACT ASSESSMENT

The impact of amended energy conservation standards on employment is an important consideration in the rulemaking process. This section of the interview guide seeks to explore

current trends in commercial clothes washer manufacturer employment and solicit manufacturer views on how domestic employment patterns might be a ffected by amended energy conservation

standards.

8.1 Where are your commercial clothes washer manufacturing facili ties that produce products for the United States located? What types of pro ducts are manufactured at each

location? Please provide annual shipment figures for your company’s commercial clothes washer manufacturing at each location by product class. Please also provide employment levels at each

of these facilities

.12A

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Table 8. 7 Commercial Clothes Washer Revenue and Shipment Volumes by Product Class

Facility Location Product Types Manufactured Employees Annual Shipments

Example Sheboygan, WI Commercial Clothes Washers 200 1 00,000

1

2

3

4

5

8.2 Would your domestic employment levels be expected to ch ange significantly under amended energy conservation standards? If so, please explain how they would change if higher efficiency levels are required.

8.3 Would the workforce skills neces sary under amended energy conservation standards require extensive retraining or replacement of employees at your manufacturing facilities ?

8.4 Would amended energy conservation standards require extensive retraining of your

service/field tech nicians? If so, could you expand on how your service infrastructure would be impacted in general as a result of amended energy conservation standards?

9 MANUFACTURING CAPACITY AND NON

- US SALES

9.1 How would amended energy conservation standards impact your company’s manufacturing capacity?

9.2 For any design changes that would require new production equipment, please describe how much downtime would be required. What impact would downtime have on your business? Are there any design changes that could not be implemented before the compliance date of the

final rule for certain product classes?

9.3 What percentage of your company’s commercial clothes washer sales is made within the

United States ?

9.4 W hat percentage of your U.S. production of com mercial clothes washers is exported?

9.5 Are there any foreign companies with North American production facilities?

9.6 Would amended energy conservation standards impact your domestic vs. foreign manufacturing or sourcing decision s ? Is there an effici ency level that would cause you to move domestic production facilities outside the U.S.?12A

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10 IMPACT ON COMPETITION

Amended energy conservation standards can alter the competitive dynamics of the market. This can include prompting companies to enter or exi t the market, or to merge. DOE and the Department of Justice are both interested in any potential reduction in competition that wo uld result from an amended energy conservation standard.

10.1 How would amended energy conservation standards affect your ability to compete in the marketplace? Would the effects on your company be different than others in the industry?

10.2 Would you expect your market share to change if amended energy conservation standards

become effective?

10.3 Do any firms hold intellectual property that gives them a competitive advantage following amended energy conservation standards?

10.4 How would industry competition change as a result of amended energy conservation

standards?

11 IMPACTS ON SMALL BUS INESS

11.1 The Small Business A dministration (SBA) denotes a small business in the commercial

clothes washer manufacturing industry as having less than 1,000 total employees , including the parent company and all subsidiaries. a By this definition, is your company considered a small

business?

11.2 Are there any reasons that a small business manufacturer might be at a disadvantage relative to a larger business under amended energy conservation standards? Please consider such factors as technical expertise, a ccess to capital, bulk purchasing power for materials/components, engineering resources, and any other relevant issues.

11.3 To your knowledge, are there any small businesses for which the adoption of amended energy conservation standards would have a par ticularly severe impact? If so, why?

11.4 To your knowledge, are there any niche manufacturers or component manufacturers for which the adoption of amended energy conservation standards would have a particularly severe impact? If so, why?

a DOE uses the small business size standards published on January 1 , 20 12 , as amended, by the SBA to determine whether a company is a small business. To be categorized as a small business, a manufacturer of “other commerc ial and service industry machinery manufacturing” (NAICS #333318, which includes commercial clothes washer

manufacturers ) and its affiliates may employ a maximum of 1,000 employees. The 1,000 employee threshold includes all employees in a business’s parent company and any other subsidiaries.