12

- i CHAPTER 12. PRELIMINARY MANUFACTURER IMPACT AN A L YSIS

TABLE OF CONTENTS

12.1 INTRODUCTION

................................ ................................ ................................ ......... 12

- 1 12.2 METHODOL OGY

................................ ................................ ................................ ........ 12

- 1 12.2.1 Phase 1: Industry Profile

................................ ................................ ................................ 12

- 2 12.2.2 Phase 2: 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 3: Sub

- Group 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 Sub

- Group Analysis

................................ .............................. 12

- 4 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

- 5 12.3 PRELIMINARY MANUFACT URER IMPACT ANALYSIS

................................ ..... 12

- 5 12.3.1 General Interview Structure

................................ ................................ ........................... 12

- 5 12.3.1.1 Key Issues

................................ ................................ ............................... 12

- 5 12.3.1.2 Shipment Trends and Projections

................................ ................................ 12

- 6 12.3.1.3 Profita bility

................................ ................................ ............................... 12

- 6 12.3.1.4 Product Mix

................................ ................................ ............................... 12

- 6 12.3.1.5 Conversion Costs

................................ ................................ ......................... 12

- 7 12.3.1.6 Market Shares and Industry Consolidation

................................ .................. 12

- 7 12.3.1.7 Product Utility and Innovation

................................ ................................ ..... 12

- 7 12.3.1.8 Impact on Sm all Manufacturers

................................ ................................ ... 12

- 8 12.3.1.9 Cumulative Regulatory Burden

................................ ................................ ... 12

- 8 12.4 PORTABLE AIR CONDITI ONER PRELIMINARY MIA RESULTS

....................... 12

- 8 12.4.1 Key Issues

................................ ................................ ................................ .............. 12

- 8 12.4.2 Shipments, Profitability, and Competitiveness

................................ .............................. 12

- 9 12.4.3 Conversion Costs, Manufacturing Capacity, and Employment Levels

....................... 12

- 10 12.4.4 Impact on Innovation and Product Utility

................................ ................................ ... 12

- 10 12.4.5 Cumulative Burdens

................................ ................................ ................................ ..... 12

- 11 12.4.5.1 Standards for Other Products Made by Portable AC Manufacturers

......... 12

- 11 12.4.5.2 Certification Requirements in California

................................ ................... 12

- 11 12.4.6 Impact on Small Manufacturers

................................ ................................ ................... 12

- 1212

- 1

CHAPTER 12. PRELIMINARY MANUFACT URER IMPACT ANALYSIS

12.1 INTRODUCTION

The pu rpose of the manufacturer impact analysis (MIA) is to identify the likely impacts of potential energy conservation standards on manufacturers. The U.S. Department of Energy ( DOE ) will conduct this analysis with input from manufacturers and other interested parties and will apply this methodology to its evaluation of analyzed efficiency levels for portable AC s

. DOE will also consider financial impacts and a wide range of quantitative and qualitative industry impacts that might occur following the adoption of a potential energy conservation standard. For example, a particular energy conservation standard level, if adopted by DOE, could require changes to practices used in manufacturing portable AC s

. If and when DOE decides to propose an energy conservation sta ndard for portable AC s, DOE will identify and come to understand 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 thr ough 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.” a Previously, DOE did not report any MIA results until the N otice of P ropos ed R ulemaking ( NOPR ) phase; however, under this new format, DOE has collect ed , evaluate d , and report ed preliminary information and data during the preliminary phase (the phase preceding the NOPR) of this rulemaking

. Such preliminary information includes th e anticipated conversion capital expenditures by efficiency level and the corresponding anticipated impacts on jobs. DOE solicited this information during the engineering analysis manufacturer interviews and reported the results below.

12.2 METHODOLOGY

DOE cond uct s the MIA in three phases and further tailor s the analytical framework based on comments from interested parties

. In Phase 1

, DOE creates an industry profile to characterize the industry and conducts preliminary manufacturer interviews to identify impor tant issues that require consideration. T he preliminary
t echnical s upport d ocument ( preliminary TSD ) presents the results of the Phase 1 analysis

. In Phase 2

, DOE prepares an industry cash

- flow model and an interview

a This report is a vailable on the DOE we bsite at www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html

.12

- 2

questionnaire to guide subsequent discu ssions. In Phase 3

, DOE interviews manufacturers, and assesses the impacts of potential energy conservation standards both quantitatively and qualitatively. U s ing the g overnment r egulatory i mpact m odel (GRIM)

, DOE assesses i ndustry and sub

- group cash flow and NPV. Then

, DOE assesses impacts on competition, manufacturing capacity, employment, and regulatory burden based on feedback received during manufacturer interview s and subsequent discussions. The NOPR TSD presents r esults of the Phase 2 and Phase 3 ana lyses.

12.2.1 Phase 1 : Industry Profile

In Phase 1 of the manufacturer impact analysis, DOE collect s pertinent qualitative and quantitative financial and market information. This includes portable AC manufacturer market share s , corporate operating rat ios, wages, employment levels , and production cost ratios. Sources of information may include reports published by industry
groups, trade journals, the U.S. Census Bureau, copies of Securities Exchange Commission (SEC) 10

- K filings , and interviews with man ufacturers

. DOE also relies on information from its market and technology assessment, engineering analysis, life

- cycle cost analysis, and markup analysis

.
12.2.2 Phase 2 : Industry Cash

- Flow Analysis and Interview Guide

In Phase 2

, DOE will perform a preliminary i ndustry cash

- flow analysis and
prepare written guidelines for interviewing manufacturers.

12.2.2.1 Industry Cash

- Flow Analysis

DOE uses the GRIM to analyze the financial impacts of potential energy conservation standards on the portable AC industr y

. Sta ndards will likely require additional investment, raise production costs, and affect revenue through higher prices and, possibly, lower sales. T he GRIM uses several factors to determine a series of annual cash flows for the year standard s become effective and for several years after implementation. These factors include annual e xpected revenues, costs of sales, selling

a nd general administration costs, and taxes, a s well as capital expenditures, depreciation and maintenance related to new standards

. Inputs to the GRIM include manufacturing costs, shipments forecasts, and price forecasts developed in other analyses. Another input, f inancial information

, will be developed based on publicly available data and confidentially submitted manufacturer information. D OE compares t he results of the GRIM against baseline projections where no standards are in place

. The financial impact of potential energy conservation standards is the difference between the two sets o f discounted annual cash flows.

12.2.2.2 Interview Guide

DOE wi ll conduct interviews with manufacturer s to gather information on the effects of standard s on revenues and finances, direct employment, capital assets, and industry competitiveness. Before the interviews, DOE will distribute an interview guide that will pr ovide a starting point to identify relevant issues and help identify the impacts of standards on individual manufacturers or sub

- groups of manufacturers. DOE12

- 3

anticipates t hat the interview guide will cover c urrent o rganizational c haracteristics, i ndustry i nfrastructure, manufacturer c ash

- flow analysis, a competitive impacts assessment, an employment impacts assessment, a nd a manufacturing capacity impacts
assessment.

12.2.3 Phase 3 : Sub

- G roup Analysis

Phase 3 activities include manufacturer interviews, revision of the industry cash

flow analysis, manufacturer sub

- group cash

- flow analysis, competitive impact assessment, manufacturing capacity impact, employment impact, and cumulative regulatory burden.

12.2.3.1 Manufacturer Interviews

The information gathered in Phase 1 and the cash

- flow analysis performed in Phase 2 will be supplemented with information gathered during interviews with manufacturers during Phase 3

. The interview process has a key role in the manufacturer impact analys i s, since it provides an opportunity for interested parties to express their views privately on important issues, allowing confidential or sensitive information to be considered in the rulemaking decision.

DOE will conduct detailed interviews with as many manufacturers as necessary to gain insigh t into the range of po ssible impacts of potential standards. During the interviews, DOE will solicit information on the possible impacts of potential standards on sales, direct employment, capital assets, and industry competitiveness. Both qualitative and quantitative information are valuable. Interviews will be scheduled well in advance in order to provide every opportunity for key individuals to be available for comment. Although a written response to the questionnaire will be acceptable, DOE prefers an i nteractive interview process because it helps clarify responses and provides the opportunity to identify additional issues.

All information transmitted will be considered, as appropriate, in DOE’s decision

making process. Interview participants will be ask ed to identify all confidential information provided in writing or orally ; no confidential information will be made available in the public record. Participants will also be asked to identify all information they wish included in the public record but do n ot want to have associated with their interview. This information will be incorporated into the public record but reported without attribution.

12.2.3.2 Revised Industry Cash

- Flow Analysis

In Phase 2 of the MIA, DOE will provide manufacturers with a preliminary GRI M for review and evaluation

. During the interviews, DOE will seek comment and suggestions regarding the values selected for the parameters. Upon completion of the interviews, DOE will revise its industry cash

- flow model based on manufacturer feedback.12

- 4 12.2.3.3 Man ufacturer Sub

- Group Analysis

Using average cost assumptions to develop an industry cash

- flow estimate is not adequate for assessing differential impacts among sub

- groups of manufacturers. Smaller manufacturers, niche players, or 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 manufacture rs exhibiting similar characteristics. During the interview process, DOE will discuss the potential sub

- groups and sub

- group members that have been identified for the analysis. DOE will look to the manufacturers and other stakeholders to suggest what sub

- g roups 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 (EPCA) directs DOE to consider any lessening of competition likely to result from standards. It further directs the U.S. Attorney General to determine the impacts, if any, of any decrease in competition. DOE will make a determined effort to gather and report firm

- specific financial information and impacts. The competitive analysis will focus on assessing the impacts on smaller, yet significant, manufacturers. The assessment will be based on manufacturing cost data and information collected from interviews with manufacturers. The manufacturer interviews will focus on gathering information that would help in

as sessing 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).

12.2.3.5 Manufacturing Capacity Impact

One of t he significant outcomes of standards could be the obsolescence of existing manufacturing assets, including tooling and investment. The manufacturer interview guide will have a series of questions to help identify impacts on manufacturing capacity, specific ally capacity utilization and plant location decisions in North America with and without a 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 and other charges, where applicable.

12.2.3.6 Employment Impact

The impact of potential energy conservation standard on employment is an important consideration in the rulemaking process. T o assess how domestic employm ent patterns might be affected, the interview will explore current employment trends in the portable AC industry. T he interview will also solicit manufacture r views on changes in employment patterns that may result from increased standard level s. The employment impacts section of the interview guide will focus on current employment levels associated with manufacturers at each of their production facilities, expected future employment12

- 5

levels with and without a standard, and differences in workfor ce skills and issues related to the retraining of employees.

12.2.3.7 Cumulative Regulatory Burden

DOE recognizes and seeks to mitigate the overlapping effects of potential energy conservation standards and other regulatory actions affecting the same products on

ma nufacturers

. DOE will analyze and consider the impact of multiple, product

- specific regulatory actions on manufacturers

. Based on its own research and discussions with manufacturers, DOE identified regulations relevant to portable AC manufactur ers , including standards for other products made by portable AC manufacturers and California certification requirements

. DOE will study the potential impacts of these cumulative burdens in greater detail during the MIA conducted during the NOPR phase.

12.3 PRELIMINARY MANUFACT URER IMPACT ANALYSIS

During the pre liminary rulemaking phase, DOE conducted a preliminary evaluation of the impact of p otential energy conservation standards on manufacturer market share and financial performance, industry cons olidation, manufacturing capacity, and product utility and innovation. The interviews also served as an opportunity to get feedback from manufacturers relating to other regulatory burdens they may face.

The primary sources of information for this analysis were on

- site or telephone interviews with manufacturers of portable AC s conducted in January and February of 2014

. T o maintain confidentiality, DOE did not identify the individual manufacturers that disclosed information

. T he evaluation only reports aggre gated information and does not disclose sensitive or company

- specific information.

For the preliminary MIA, DOE conducted interviews with manufacturers primarily to identify key issues and gain insights into the qualitative impacts of proposed
energy conse rvation standards. For each product, DOE used an interview guide to gather responses from multiple manufacturers on many issues. Appendix 12A contains a copy of the interview guide for portable AC s

.
12.3.1 General Interview Structure

The manufacturer interviews included questions relating to the following topics. DOE received responses to most, if not all, of these topics from various manufacturers.

12.3.1.1 Key Issues

One of the most important aspect s of the preliminary MIA is the opportunity to identify key manufacturer issues early in the development of p otential energy conservation standards. During the interviews, DOE engages manufacturers in a discussion about what they perceive to be the key issues in the rulemaking. Key issues, once identified, are added to the lis t of topics explored during NOPR

- phase interviews.12

- 6

For example, key issues in previous rulemakings have included the ability to pass cost increases on to consumers

.
12.3.1.2 Shipment Trends and Projections

Shipment projections can be a significant factor in de termi ning the impacts of
p otential energy conservation standard s

. The interviews provide an opportunity for manufacturers to share information that can help DOE quantify the magnitude of any chan ges in shipments resulting from potential energy conservation stan dard s

. DOE is interested in information relating to the historical and current number of product shipments, broken down by product class

, capacity rating

, and efficiency level. DOE also seeks input on the forecas t of future shipments absent a p otential ene rgy conservation standard. Manufacturers are asked how they would expect shipments to change for the industry as a whole as a function of standard levels and why they expect these changes might occur. More specific questions aim to derive a price elasticit y estimate for use in the n ational i mpact a nalysis (NIA) spreadsheet.

Another aspect of the shipments discussion is to understand the impacts of a reduction in shipments on individual manufacturers of portable AC s

.
12.3.1.3 Profitability

DOE requests manufacturers ’ views on what they perceive to be th e possible impact of potential energy conservation standard s on their future profitability. A p otential energy conservation standard could affect financial performance in several different
ways. Several of these impact s are captured in previous sections. For instance

, the outlays of capital to upgrade manufacturing equipment before it has reached the end of its useful life and the investment in product development to redesign products to comply with
p otential standard c an engender significant conversion costs that otherwise would not be expended

, resulting in reduced cash flow and stranded investments. New energy efficiency standards also can result in higher per

- unit costs that may deter some

consumer s from purchasing t he products

, or cause some consumers to choose less efficient products

, thereby reducing shipments. Alternatively, if manufacturers wish to maintain a cost competitive product offering on minimally compliant products , the inability to pass

- through increase d per

- unit costs to the consumer may decrease the manufacturers’ gross margin (as a percentage).

12.3.1.4 Product Mix

DOE is interested in understanding if p otential energy conservation standard s might change a manufacturer’s product mix and if this change affects profits. For example

, higher energy efficiency standards might limit a manufacturer’s ability to differentiate and market premium products that command higher profit margins.

The interview guide also investigates how p otential energy conservation standard s might affect a manufacturer’s c onsumer mix and its distribution channels

, and how in turn this might change profitability.12

- 7 12.3.1.5 Conversion Costs

During the interviews, DOE asks manufacturers to quantify and explain both the capital and product conversion cost s necessary to raise the energy efficiency of their product lines to the potential standard levels. In some instances, manufacture r s may be able to meet potential standard levels by modifying existing products. In other cases, the necessary changes may ent ail a complete product

- line redesign. In these situations, an increase in efficiency standards will cause manufacturers to incur one

- time conversion capital expenditures and product conversion expenses. C apital c onversion cost s are one

time investments in property, plant, and equipment. Product conversion costs include

one

- time investments in research, product development, testing

, and marketing.

12.3.1.6 Market Shares and Industry Consolidation

Potential energy conservation standard s can alter the competitive dynam ics of the marketplace. This can include prompting companies to enter the market, exit the market, or merge with other companies. The preliminary MIA interview questions ask manufacturers to share their perspectives on industry consolidation both in the ab sence of potential standard s and assuming potential standard s at various efficiency levels. The interview questions focus on gathering information that helps in assessing :

 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).

12.3.1.7 Product Utility and Innovation

DOE conducts an assessment of anti

- competitive effects of p otential standards in order to protect the inte rests of the consumer. During the interviews, DOE solicits information to understand if a p otential standard could result in disproportionate economic or performance penalties for particular consumer/user sub

- groups.

DOE also asks manufacturers if potentia l energy conservation standard s could result in products that will be more or less desirable to consumers due to changes in product functionality, utility, or other features.

P otential energy conservation standard s may require investment in conversion
cost s, including research and development (R&D). This required spending may force a manufacturer to reduce funding usually allocated to product innovation. Potential energy conservation standard s may also force manufacturers to eliminate innovative energy

cons uming features from their products. During the interview s, DOE request s information on the effect of p otential standard s on innovation

.12

- 8 12.3.1.8 Impact on Small Manufacturers

DOE will consider the possibility of small businesses being affected by the potential prom ulgation of new energy conservation standard s for portable AC s

. Should any small business manufacturers be identified, DOE will study the potential impacts on these small businesses in greater detail during the MIA.

12.3.1.9 Cumulative Regulatory Burden

While any o ne regulation may not impose a significant burden on manufacturers, the combined effects of several impending regulations may have serious consequences for some 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 help DOE identify the level and timing of investments manufacturers are expecting to incur as a result of these regulations. Manufacturers are also asked under what circumstances they might be able to coordinate expenditures related to these regulations and efficiency standards

.

In addition to the potential energy conservation standard for portable AC s , several other Federal and State regulations and pending regulations apply to t hese products. DOE will investigate these cumulative regulatory burdens in greater detail during the NOPR phase of the rulemaking.

12.4 PORTABLE A IR C ONDITIONER PRELIMINARY MIA RESU LTS

During the preliminary MIA interview, m anufacturers identified key issues surrounding DOE’s rulemaking for portable AC s and provided feedback regarding the po ssible impact of potential energy conservation standard

. DOE summarize s the feedback below

.
12.4.1 Key Issues

One of the central questions of the preliminary analysis manufacturer interview guide i s : “What are the key issues for your company regarding the portable AC energy

cons ervation standard s rulemaking?” This open question initiated dialogue with manufacturers, enabling them to identify key points that DOE would explore and discuss during the interview. T his section describes the key issues manufacturers felt were of the hig hest importance and that would have the most significant impact on the industry. Manufacturers indicated that, for the most part, the risks associated with these issues increase with more stringent potential energy conservation standard levels

. The issues are overall concerns that many manufacturers expressed

.

Portable AC manufacturers cited concerns regarding a number of issues that are covered in greater detail elsewhere in this chapter

. Detailed descriptions of these12

- 9

manufacturer concerns are provided i n the appropriate sections that follow; only brief descriptions are provided here.

 Impacts of higher selling prices

– A num ber of manufacturers cited that higher selling prices associated with standards compliance could be detrimental to consumers and the industry . Higher selling prices could effectively price

- out a segment of portable AC consumers or cause customers to purchase room air conditioners in lieu of portable AC s

.

 Impacts on competition

– Manufacturers agree that new standards

, because they woul d be accompanied by a new test procedure that would provide consistent portable AC ratings

, will improve the situation for some manufacturers and sourcing companies, while others may be forced to exit the market. Overall, competition within the market will decrease.

 Impacts on consumer u tility

– Manufacturers of portable AC s believe that increased product efficiency will negatively impact consumer utility associated with product features such as size, noise level, and ease of water disposal

.

The other issue s of key importance to manufacturer s and importers include impacts of cumulative regulatory burdens, variations among testing labs, and the importance of establishing a test method that allows for direct comparison of portable and

room ACs

.
12.4.2 Shipments, Prof

itability , and Competitiveness

DOE solicits information from manufacturers during the preliminary interviews about the impact s of a potential energy conservation standard on their overall shipments, profitability, and on their competitiveness

.

As mentione d above, several manufacturers stressed that potential energy conservation standards for portable AC s would increase per

- unit costs of production, which, in turn, would result in higher selling prices. Depending on the standard level, t his would be detrime ntal both to consumers and the industry as whole . Higher selling prices could become prohibitive for lower

- in come customers or cause customers to purchase

room ACs in lieu of portable AC s.
Nearly all manufacturers stated that an energy conservation standa rd would have a negative impact on total industry shipments, although the magnitude of the decrease would depend on the efficiency level chosen. Two manufacturers emphasized that the portable AC market is a highly price

- competitive market

. M anufacturers a ll affirmed that increased production c osts can only be passed through to a certain point, after which demand would decline. Manufacturers noted that price is the primary factor influencing purchasing decisions in the market, which is one reason for the po pularity of single

- duct portable AC s relative to more expensive dual

- duct units. Relatedly, two of these manufacturers suggested that consumers may switch to buying room ACs as the price of portable AC s increases with standards.12

- 10 Among manufacturers, it was generally agreed that small increases in manufacturer production costs on the order of 5 to 10 percent are tolerable. However, manufacturers asserted that a cost increase of 25 percent would have major detrimental impacts on portable AC shipments . A cost increase of 50 percent or more would have a devastating impact the market

.
However, some manufacturers stated that it is unlikely that a new energy conservation standard would greatly affect their profitability. One manufacturer stated that their profitabi lity in the portable AC segment would likely decrease for a few years when resources are strained to fund upfront investments in capital and R&D, but that the company’s competitive position within the industry would ultimately increase as some companies ar e forced to exit the market ( i.e.

, competition decreases)

. Similarly, some manufacturers believe that efficiency standards would have a positive impact on their competitive position , as it would force all products onto a level playing field in terms of
pro duct efficiency (and associated testing and certification burdens).

12.4.3 Conversion Costs, Manufacturing Capacity, and Employment Levels

DOE asked manufacturers what level of conversion costs they anticipate if potential energy conservation standard s were to ta ke effect

. M anufacturers generally responded that they may have to incur significant product and capital conversion costs in order to upgrade their product designs and production processes, depending on the standard level adopted.

One manufacturer noted th at efficiency levels that would necessitate platform redesigns ( in the form of changes in c hassis size ) would impose a significant burden.

Most manufacturers agree d that potential energy conservation standards would likely not greatly impact direct produc tion (or related non

- production) employment levels in the industry.

12.4.4 Impact on Innovation and Product Utility

Several m anufacturers expressed concerns that s tringent energy conservation standards c ould have a negative impact on product innovation and perfo rmance from the consumer standpoint

.

M anufacturers cited multiple impact s (beyond price) brought about by a n energy conservation standard

, including size, noise level, and ease of water disposal

. Regarding product size, some manufacturers raised concern ov er the need for portable AC s to become physically larger in order to achieve improved efficiency

. Therefore , for customers with significant space constraints or lifting capabilities

, a proposed standard may inhibit these customers from getting the product that best fits their needs.

S ome manufacturer s also believe that potential energy conservation standards would decrease consumer

- focused product innovation by diverting finite human and capital resources

. Finally, another manufacturer believes that new ef ficiency standards will cause manufacturers to produce better quality products overall.12

- 11

12.4.5 Cumulative Burden s

DOE will not include testing and certification costs as a cumulative regulatory burden. If and when DOE determines that portable AC s will be covere d products, and, subsequently, proposes and then adopts energy conservation standards for them , all manufacturers will be required to test and certify their products according to a test procedure developed by DOE. In this case, testing and certification co sts will be treated as conversion costs and incorporated into the GRIM in order to estimate the direct impact of these costs on the industry

. Based on its own research and discussions with manufacturers, DOE identified the following regulations relevant to portable ACs , including:

12.4.5.1 Standards for Other Products M ade by Portable AC

Manufacturers

In addition to the efficiency regulations for portable AC s , several other DOE regulations and pending regulations apply to other products manufactured by the companie s that manufacture portable AC s

. Other F ederal energy conservation standards that may impact manufacturers of portable AC s include the standard s for room ACs

, r esidential dehumidifiers, dishwashers

, microwave oven s, residential clothes washers, residential clothes dryers, residential refrigerators and freezers, and HVAC products ( i.e.

, mini

- splits and packaged terminal air conditioners and heat pumps )

.
12.4.5.2 Certification Requirements in California

California ’s Appliance Efficiency Regulations b require that “spo t air conditioner ” performance be certified according to an industry standard for rating portable air conditioners for all such products sold in that State

. Although the California regulations define “spot air conditioner ” as “an air conditioner that disch arges cool air into a space and discharges rejected heat back into that space, where there is no physical boundary separating the discharges,” which would preclude ducted portable ACs, DOE notes that the California Energy Commission’s Appliance Efficiency Database lists many ducted portable ACs.

DOE will study the potential impacts of these cumulative burdens in greater detail during the MIA conducted during the NOPR phase.

b California Code of Regulations, Title 20, Sections 1601

– 1608.12

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12.4.6 Impact on Small Manufacturers

The Small Business Administration ( SBA ) defines smal l business manufacturing enterprises for North American Industry Classification System (NAICS) code 333415, Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing , as companies with 750 or less e mployees

. SBA lists small business size standards that are matched to industries as they are described in the NAICS. The size standard defines the maximum allowable size of a for

- profit small business for Federal Government programs. S ize standards are gen erally based on the average annual receipts or the average number of employees at a firm.

Using this classification in conjunction with information from industry databases, the SBA member directory, and reports from vendors such as Dun & Bradstreet, DOE h as not identified a ny small, U.S.

- based manufacturers of portable ACs covered by this rulemaking. DOE will continue investigate whether there are any small manufacturers of portable ACs based in the United States

.