UNITED STATES DEPARTMENT OF ENERGY MANUFACTURER IMPACT ANALYSES WORKSHOP

Room 1E-245 U.S. Department of Energy 1000 Independence Avenue, SW

Washington, D.C. Wednesday March 12,1997
9:00 a.m. U.S. Department of Energy
DOUGLAS BROOKMAN QUONNIE LAUGHLIN JIM RABA SANDY BEALL MICHAEL McCABE CARL ADAMS DR. BARRY BERLIN EUGENE MARGOLIS MARK FRIEDRICHS

List of Attendees
RANDY BARNES Oak Ridge National Laboratory
RICHARD A. BEST Whirlpool Corporation
JEFF BROWN Circuit Stores, inc.
JOHN H. CYMBALSKY U.S. Department of Energy

DAN DEMPSEY Carrier Corporation JIM EISENBEIS Burnham Corporation
DAVID ARNOLD Arthur D. Little, Inc. EXECUTIVE COURT REPORTERS, INC.

(301) 565-0064

UNITED STATES DEPARTMENT OF ENERGY MANUFACTURER IMPACT ANALYSES WORKSHOP Room 1E-245 U.S. Department of Energy 1000 IndependenceAvenue, SW Washington, D.C. Wednesday March 12,1997

9:00 a.m. U.S. Department of Energy DOUGLAS BROOKMAN QUONNIE LAUGHLIN JIMRABA SANDY BEALL MICHAEL McCABE CARL ADAMS DR. BARRY BERLIN EUGENE MARGOLIS MARK FRIEDRICHS List ofAttendees RANDY BARNES Oak Ridge National Laboratory RICHARD A. BEST Whirlpool Corporation JEFF BROWN Circuit Stores, inc. JOHN H. CYMBALSKY U.S. Department of Energy DAN DEMPSEY CarrierCorporation JIMEISENBEIS BurnhamCorporation DAVID ARNOLD ArthurD. Little, Inc. EXECUTIVE COURT REPORTERS, INC. (301) 565-0064220

List of Attendees (Continued)
L. DAN BARZEL Circuit City Stores, Inc.
ERIN BOEDECKER U.S. Department of Energy THOMAS BUDREWICZ, JR. Arthur D. Little
SUJIT DAS Oak Ridge National Laboratory
TOM ECKMAN Northwest Power Planning Council
BRADFORD W. FLORA Whirlpool Corporation
GENE FOLEY The Alliance to Save Energy
DAVID B. GOLDSTEIN Natural Resources Defense Council
JOHN HANKEY Modine Heat Transfer, Inc.
MARK HASKELL Travis & Gooch
LIZ KLUMPP Washington Energy Policy
KIRSTIE KUMMER American Gas Association
DAVID F. LEWIS Lennox Industries, Inc.
PATRICIA A. FRANCO Philips Electronics WILBUR L. HAAG, JR. A.O. Smith Water Products Company
MARK HARMONIS U.S. Department of Justice EXECUTIVE COURT REPORTERS, INC.

(301) 565-0064 List ofAttendees (Continued) L. DANBARZEL Circuit City Storesr Inc. ERINBOEDECKER U.S. Department of Energy THOMAS BUDREWICZr JR. ArthurD. Little SUJITDAS Oak RidgeNational Laboratory TOM ECKMAN Northwest Power Planning Council BRADFORD W. FLORA Whirlpool Corporation GENE FOLEY The Alliance to Save Energy DAVID B. GOLDSTEIN Natural Resources Defense Council JOHN HANKEY ModineHeat Transferr Inc. MARK HASKELL Travis &Gooch LIZ KLUMPP WashingtonEnergy Policy KIRSTIE KUMMER AmericanGas Association DAVID F. LEWIS Lennox**In~ustriesr** Inc. PATRICIAA. FRANCO Philips Electronics WILBUR L. HAAGr JR. A.O. SmithWater Products Company MARK HARMONIS U.S. Department of Justice EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 220221

List of Attendees (Continued)
EARL F. JONES General Electric Company
MARK E. KREBS Laclede Gas Company
MARK LEVINE Lawrence Berkeley Laboratory DR. QUENTIN LOONEY Policy Research Associates, Inc.
JAMES McMAHON Lawrence Berkeley Laboratory
EDWARD J. McINERNEY General Electric Company
BARBARA MINTZER-McMAHON Center for Transitional Management
R. DEAN MORRISON Rheem Manufacturing company
MICHAEL C. RIVEST Arthur D. Little, Inc.
GLENN R. SCHLEEDE Energy Market & Policy Analysis, Inc.
EVERETT SHOREY Shorey Consulting, Inc.
JOSEPH M. MATTINGLEY Gas Appliance Manufacturers Association, Inc.
MARK MIEFER PNNL WAYNE E. MORRIS Association of Home Appliance Manufacturers
MARK L. PERLIS Dickstein, Shapiro & Morin, L.L.P.
CHARLES A. SAMUELS Association of Home Appliance Manufacturers
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(301) 565-0064 List ofAttendees (Continued) EARL F. JONES General Electric Company MARK E. KREBS Laclede Gas Company MARK LEVINE Lawrence BerkeleyLaboratory DR. QUENTIN LOONEY PolicyResearchAssociates, Inc. JAMES McMAHON Lawrence BerkeleyLaboratory EDWARD J. McINERNEY General Electric Company BARBARAMINTZER-McMAHON Center for Transitional Management R. DEAN MORRISON RheemManufacturing company MICHAEL C. RIVEST ArthurD. Little, Inc. GLENN R. SCHLEEDE EnergyMarket &PolicyAnalysis, Inc. EVERETT SHOREY ShoreyConsulting, Inc. JOSEPHM. MATTINGLEY Gas Appliance Manufacturers Association, Inc. MARK MIEFER PNNL WAYNE E. MORRIS Associationof Home Appliance Manufacturers MARK L. PERLIS Dickstein, Shapiro &Morin, L.L.P. CHARLES A. SAMUELS Associationof Home Appliance Manufacturers EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 221222

List of Attendees (Continued)
STEVE SHANKEL Pacific Northwest National Laboratory
CHARLES STEPHENS Oregon Department of Energy
RICHARD E. STILLWELL Maytag Appliances
MICHAEL C. THOMPSON Whirlpool Corporation
ISAAC TURIEL Lawrence Berkeley National Laboratory
STEVEN WADE U.S. Department of Energy
BERNIE WARNING York International
LAWRENCE R. WETHJE Air-Conditioning & Refrigeration Institute
ROBERT W. WISBEY Advance Transformer Company
TERRY THIELE White Consolidated Industries, Inc. RICHARD F. TOPPING, P.E. Arthur D. Little, Inc.
JIM VAN DYKE Oak Ridge National Laboratory
BILL WALTER Carrier Corporation
DOUG WEEKLY Maytag JOHN A. WILSON California Energy Commission

EXECUTIVE COURT REPORTERS, INC.

(301) 565-0064 List ofAttendees (Continued) STEVE SHANKEL PacificNorthwest National Laboratory CHARLES STEPHENS OregonDepartment of Energy RICHARD E. STILLWELL MaytagAppliances MICHAEL C. THOMPSON Whirlpool Corporation ISAAC TURIEL Lawrence BerkeleyNational Laboratory STEVEN WADE U.S. Department of Energy BERNIE WARNING York International LAWRENCE R. WETHJE Air-Conditioning &Refrigeration Institute ROBERT W. WISBEY Advance TransformerCompany TERRY THIELE White Consolidated Industries/ Inc. RICHARD F. TOPPING/P.E. ArthurD. Little/ Inc. JIMVAN DYKE Oak Ridge National Laboratory BILL WALTER CarrierCqrporation DOUG WEEKLY Maytag JOHN A. WILSON CaliforniaEnergyCommission

EXECUTIVE COURT REPORTERS/ INC. (301) 565-0064 222223

A G E N D A
Opening Remarks, Agenda Review - Objectives Review of Day One Outcomes - Key Issues - DOE Perspective - Stakeholder Comments Break PAGE 225

228

Estimating Manufacturing Costs for Input 258 to GRIM - Panel and Open Discussion - Relationship to Engineering Analysis - Uncertainty in Key Variables - Variability Between Firms - Data Collection Methods e.g., ASHRAE methodology - Costs not considered in GRIM Lunch Estimating Prices for Input to GRIM - Panel 338 and Open Discussion - Relationship to life-cycle cost analysis - Economic concepts - DOT methodology - Alternative forecasts - Scenario/uncertainty analysis Estimating Shipments for Input to GRIM - Panel 384 and Open Discussion - Relationship to national benefits forecasts - Appropriateness of existing forecasting models - Simplified spreadsheet model - Alternative forecasts - Scenario/uncertainty analysis Break

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AGE N D A OpeningRemarks, Agenda Review

- Objectives Review of Day One Outcomes

- Key Issues

- DOE Perspective

- Stakeholder Comments Break EstimatingManufacturing Costs for Input to GRIM

- Panel and Open Discussion

- Relationship to EngineeringAnalysis Uncertainty in Key Variables Variability Between Firms

- Data CollectionMethods e.g., ASHRAE methodology Costs not considered in GRIM Lunch Estimating Prices for Input to GRIM

- Panel and Open Discussion Relationship to life-cycle cost analysis Economic concepts

- DOT methodology

- Alternative forecasts

- Scenario/uncertainty analysis 223

225

228

258

338

Estimating Shipments for Input to GRIM

- Panel 384 and Open Discussion Relationship to national benefits forecasts Appropriateness of existing forecasting models

- Simplified spreadsheetmodel

- Alternative forecasts

- Scenario/uncertainty analysis Break

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064224 A G E N D A (continued)
PAGE Non-Model Impact Evaluation - Panel and Open 397 Discussion - Competitive impacts - Manufacturing capacity, lost investment - Employment impacts - Information gathering and assessment methodology - Cumulative impacts Other Issues/Alternative Methods/Stakeholder 428 comments Adjourn

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 AGE N D A (continued)

Non-Model Impact Evaluation

- Panel and Open Discussion Competitive impacts Manufacturing capacity, lost investment

- Employment impacts Information gathering and assessment methodology

- Cumulative impacts Other Issues/AlternativeMethods/Stakeholder comments Adjourn

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 224

397

428225 1 P R O C E E D I N G S 2 9:07 a.m. 3 MR. BROOKMAN: Welcome, again, especially to 4 those of you that were here yesterday. And to the 5 newcomers, welcome to you, as well. 6 A few housekeeping items before we commence 7 with the program today. 8 My name is Doug Brookman. I'll be 9 facilitating today's meeting. We're glad you made it, 10 and thank you for being here on time and allowing us to 11 start on time. We've got a lot to do today and we're 12 going to try to move through the agenda quickly and try 13 to make up a little bit of time. 14 How many of you today are going to have to 15 leave early to catch a plane or some other reason 16 (Show of hands.) 17 Give me a sense of it. Are you leaving at 18 2:00 or at 3:00? 19 How many are leaving by 3:00? 20 (Show of hands.) 21 So, there'll be four or five you that are 22 going to have to leave by 3:00. 23 How many of you have to leave earlier than 24 3:00? 25 (Show of hands.)

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(301) 565-0064 225 1 PROC E E DING S 2 9:07 a.m. 3 MR. BROOKMAN: Welcome, again, especially to 

### 4 those of you thatwere here yesterday. And to the 5 newcomers, welcome to you, as well. 6 Afew housekeeping items beforewe commence 7 with theprogram today. 8 My name is Doug Brookman. I'llbe 9 facilitating today's meeting. We're gladyou made it, 10 and thank you for beinghere on time and allowingus to 11 start on time. We've got a lot to do today and we're 12 going to try to move through the agenda quickly and try 13 tomake up a littlebit of time. 14 How many of you today are going tohave to 15 leave early to catch a plane or some other reason 16 (Show of hands.) 17 Giveme a sense of it. Are you leaving at 18 2:00 or at 3:00? 19 How many are leavingby 3:00? 20 (Show ofhands.) 21 So, there'll be four or five you that are 22 going tohave to leaveby 3:00. 23 How many of you have to leave earlier than 24 3:OO? 25 (Show of hands.)

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064226 1 2:00. Okay. So we're going to try and get 2 as much of this done -- 3 4 5 No? (Laughter.) I think there may be some healthy competition 6 going on in the room at the moment, and that's a good 7 thing. 8 But having looked at the agenda carefully 9 with the OCS staff after the meeting yesterday, we 10 think there are a few blocks where we can shave a 11 little bit and pick up a little bit of time and 12 preserve your opportunities to comment and add to what 13 the Department is going to try and lay out as the 14 fundamentals. 15 16 move on. 17 So, a few other housekeeping items before we

All of you that are new today, I'm going to 18 ask you to register with Sandy at the front desk, if 19 you haven't already done so. Those of you that are 20 returning from yesterday, we're asking you to use a red 21 pen and initial your name and address, as listed on the 22 sheets that are there. 23 The Advisory Committee June meeting has been 24 rescheduled. I announced this yesterday and let me 25 announce it today again. It will now be held June 23rd

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### 226 1 

### 2:00. Okay. Sowe're going to try andget 2 as much of this done

-- 3 No? 4 (Laughter.) 5 I think theremay be some healthy competition 6 going on in the room at themoment, and that's a good 7 thing. 8 But having looked at the agenda carefully 9 with the OCS staff after themeeting yesterday, we 10 think there are a few blocks where we can shave a 11 littlebit andpickup a littlebit of time and 12 preserve your opportunities to comment and add towhat 13 the Department is going to try and layout as the 14 fundamentals. 15 So, a few otherhousekeeping items beforewe 16 move on. 17 All of you that are**n~w** 

### today, I'mgoing to 18 ask you to registerwith Sandy at the front desk, if 19 youhaven't already done so. Those of you that are 20 returning from yesterday, we're asking you to use a red 21 pen and initial your name and address, as listedon the 22 sheets that are there. 23 The Advisory CommitteeJune meetinghas been 24 rescheduled. I announced this yesterday and letme 25 announce it today again. Itwill nowbeheldJune 23rd

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064227 1 at the Embassy Row Hotel, which is right up there near 2 Dupont Circle. And I think that's all the housekeeping 3 items. 4 One thing that I thought we'd entertain early 5 on this morning, one of the outcomes of today's meeting 6 is to designate a working group to give more detailed7 consideration to some of these modeling and non8 modeling issues. 9 And so after Michael McCabe makes a few 10 welcoming remarks, we might just turn to that briefly 11 and see if there's any structure that occurs to you 12 immediately that's workable. There's always this 13 tension between having huge numbers of people 14 participate and the difficulties of scheduling that and 15 have few numbers of people participate and losing the 16 diversity of the interactions. 17 So we're trying to balance that out here as 18 we look to -- as the Department looks toward further 19 refinement of these products. And more particularly, 20 toward implementation and use of these products, right? 21 In modeling, and other tools. 22 So, I think that's all. 23 Have I forgotten anything, Sandy? I think 24 that's all the preliminary stuff that we need to cover. 25 Michael McCabe. Let me just turn it over to

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(301) 565-0064 227 1 at the Embassy Row Hotel, which is rightup there near 2 Dupont Circle. And I think that's all the housekeeping 3 items. 4 One thing that I thoughtwe'd entertain early 5 on this morning, one of the outcomes of today's meeting 6 is to designate a working group to givemore detailed 7 consideration to some of these modeling andnon8 modeling issues. 9 And so afterMichael McCabe makes a few 10 welcoming remarks, we might just turn to that briefly 11 and see if there's any structure that occurs to you 12 immediately that's workable. There's always this 13 tensionbetweenhavinghuge numbers of people 14 participate and the difficulties of scheduling that and 15 have few numbers ofpeople participate and losing the 16 diversity of the interactions. 17 Sowe're trying tobalance that out here as 18 we look to as the Department looks toward further 19 refinement of these products. And more particularly, 20 toward implementation and use of theseproducts, right? 21 Inmodeling, and other tools. 22 So, I think that's all. 23 Have I forgotten anything, Sandy? I think 24 that's all the preliminary stuff that we need to cover. 25 Michael McCabe. Letme just turn itover to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064228 1 you briefly. 2 Today's proceedings will be taped. I'm going 3 to be walking around handing the microphone. I felt a 4 little like Donahue yesterday, trying to pass that 5 thing around. So we're going to ask you to please say 6 your name, speak one at a time, and use the 7 microphones. 8 We're going to ask that when you critique the 9 models or the other work products that are being laid 10 out here, that you really focus on saying what will 11 make it work. That's the real value added to this, is 12 to say how to improve it. Offer the language. Offer 13 whatever makes it work. 14 And, of course, we all prosper in this as we 15 listen as allies, so we're going to try and do that as 16 well today. 17 Michael. 18 MR. McCABE: Thank you, Doug. 19 Welcome, everybody to the second day. I 20 recognize that there are a number of new faces. I 21 appreciate your coming, your participation. 22 We had a very productive session yesterday, 23 but yesterday was the easy part. Yesterday we reviewed 24 the GRIM model and several of the models that 25 potentially could be used for providing shipments

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### 228 1 youbriefly. 2 Today's proceedingswillbe taped. I'mgoing 3 tobe walking aroundhanding themicrophone. I felt a 4 little likeDonahue yesterday, trying topass that 5 thing around. Sowe're going to askyou toplease say 6 your name, speakone at a time, and use the 7 microphones. 8 We're going to ask thatwhen you critique the 9 models or the otherworkproducts that arebeing laid 10 out here, that you really focus on sayingwhat will 11 make itwork. That's the real value added to this, is 12 to say how to improve it. Offer the language. Offer 13 whatevermakes itwork. 14 And, of course, we allprosper in this as we 15 listenas allies, sowe're going to try anddo that as 16 well today. 17 Michael. 18 

### MR. McCABE: Thank you, Doug. 19 Welcome, everybody to the secondday_ I 20 recognize that there are a number ofnew faces. I 21 appreciate your coming, yourparticipation. 22 We had a veryproductive sessionyesterday, 23 but yesterdaywas the easypart. Yesterdaywe reviewed 24 the GRIM model and several of themodels that 25 potentiallycouldbe used for providing shipments

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064229 1 estimates. We discussed how DOE can develop prices and 2 costs to be used as input to the GRIM and the shipments 3 information also is input to the GRIM. 4 I found it to be a very good discussion, but 5 today we're going to get down to the brass tacks and 6 hopefully get more detail. And I fully expect that 7 we're not going to be able to answer all the questions 8 today, nor will the working group be able to answer all 9 the questions because many of the answers that are 10 going to have to be developed are in fact going to be 11 developed when we deal with individual problems. 12 So we're looking for a process, and agreement 13 and understanding as to how the process is going to 14 work, but certainly not looking for an answer to 15 exactly what is going to be the approach for analyzing 16 a particular product, what are going to be the 17 categories of firms that we're going to look at. Are 18 we going to look at small, medium and large, or are we 19 going to look at a major player and a small player in 20 that industry. It's going to be those industry specific 21 discussions that are going to guide some of the more 22 details. 23 What we're looking for, again, as we used 24 yesterday, is the concept of toolbox, to agree as to 25 what the tools are. And then when it comes time to

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(301) 565-0064 229 1 estimates. We discussedhowDOE candevelop prices and 2 costs tobe used as input to the GRIM and the shipments 3 information also is input to the GRIM. 4 I found it tobe a very gooddiscussion, but 5 today we're going to get down to the brass tacks and 6 hopefully getmore detail. And I fully expect that 7 we're not going tobe able to answer all the questions 8 today, nor will the working groupbe able to answer all 9 the questions becausemany of the answers that are 10 going to have tobe developed are in fact going tobe 11 developedwhenwe deal with individual problems. 12 Sowe're looking for a process, and agreement 13 andunderstanding as to how the process is going to 14 work, but certainly not looking for an answer to 15 exactlywhat is going tobe the approach for analyzing 16 a particularproduct, what are going tobe the 17 categories of firms that we're going to look at. Are 18 we going to look at small, medium and large, or are we 19 going to look at a major player and a small player in 20 that industry. It's going tobe those industry specific 21 discussions that are going to guide some of themore 22 details. 23 What we're looking for, again, as we used 24 yesterday, is the concept of toolbox, to agree as to 25 what the tools are. And thenwhen it comes time to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064230 1 take on the project, we'll open up the toolbox and just 2 pull out those which are appropriate and necessary for 3 that particular rulemaking. 4 I thought that there was a very strong 5 positive attitude yesterday, which I certainly 6 appreciate, and it was very productive. 7 In discussing the GRIM, yesterday there was 8 an awful lot of discussion about some modifications to 9 it. For example, extending the time frame, going 10 beyond the eight-year horizon to modify the graphical 11 output, to include a new base price post-regulation 12 assumption, and also to remove the attribution to AHAM. 13 I make reference to that because it's 14 significance in many respect is that we gave out copies 15 of the GRIM yesterday to folks. If you have not 16 received a copy and would like to get one, see Quonnie. 17 But to give you a sense as to how flexible the GRIM is 18 in spreadsheet models, the copy that was distributed 19 yesterday, we removed the AHAM attribution, so we're 20 now in the next version. So the one that's being 21 circulated doesn't have it. 22 We will try to be responsive. And that was 23 certainly an easy one. 24 MR. BROOKMAN: DOE is going to be charging 25 how many hundreds of dollars for each of these

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(301) 565-0064 230 1 take on the project, we'll openup the toolbox andjust 2 pullout those which are appropriate andnecessary for 3 that particular rulemaking. 4 I thought that therewas a very strong 5 positive attitude yesterday, which I certainly 6 appreciate, and itwas very productive. 7 In discussing the GRIM, yesterday therewas 8 an awful lotof discussion about some modifications to 9 it. For example, extending the time frame, going 10 beyond the eight-yearhorizon tomodify the graphical 11 output, to include a new base price post-regulation 12 assumption, and also to remove the attribution toAHAM. 13 I make reference to thatbecause it's 14 significance inmany respect is that we gave out copies 15 of the GRIM yesterday to folks. If youhave not 16 received a copy andwould like toget one, see Quonnie. 17 But togive you a sense as to how flexible the GRIM is 18 in spreadsheetmodels, the copy that was distributed 19 yesterday, we removed the AHAM attribution, sowe're 20 now in the next version. So the one that's being 21 circulateddoesn't have it. 22 We will try tobe responsive. And thatwas 23 certainly an easy one. 24 MR. BROOKMAN: DOE is going tobe charging 25 how many hundreds of dollars for eachof these

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064231 1 diskettes? Emulating MicroSoft. 2 MR. McCABE: So if you would like a copy of 3 it, see Quonnie if you do not have one. 4 The data book, on the other hand, was not 5 quite as focused of a discussion because we didn't have 6 something concrete in hand. I think with the 7 approximately 70 people who were here yesterday, we 8 probably had about 73 different ideas as to what 9 exactly the data book is going to be. 10 And that's something which I think is going 11 to be very -- one of the focuses of the working group 12 is to look at that and try to flesh it out and get a 13 sense of what makes sense, what can contribute to the 14 early phases of the analysis. 15 As I mentioned yesterday, the data book is an 16 overview of where the industry is, a historical 17 perspective. Gets into some manufacturer data. There 18 will be information that is proprietary that will not 19 be included in a public release. We'll try to collapse 20 it into something that is releasable. But it's going 21 to be used concurrent with the screening analysis to be 22 able to help guide the initial phases of the analysis 23 of the rulemaking. 24 Issues that had been discussed, questions as 25 to how we can get sales data, information on service,

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(301) 565-0064 231 1 diskettes? EmulatingMicroSoft. 2 MR. McCABE: So if youwould like a copy of 3 it, see Quonnie ifyou do not have one. 4 The databook, on the otherhand, was not 5 quite as focused of a discussionbecausewe didn'thave 6 something concrete inhand. I thinkwith the 7 approximately 70 people who were here yesterday, we 8 probablyhad about 73 different ideas as towhat 9 exactly the databook is going tobe. 10 And that's somethingwhich I think is going 1 1 tobe very one of the focuses of theworkinggroup 12 is to look at that and try to flesh itout andget a 13 sense of what makes sense, what can contribute to the 14 early phases of the analysis. 15 As I mentioned yesterday, the databook is an 16 overviewof where the industry is, a historical 17 perspective. Gets into some manufacturerdata. There 18 will be information that is proprietary that will not 19 be included in a public release. We'll try to collapse 20 it into something that is releasable. But it's going 21 tobe used concurrent with the screening analysis tobe 22 able to help guide the initial phases of the analysis 23 of the rulemaking. 24 Issues that had beendiscussed, questions as 25 tohowwe can get sales data, information on service,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064232 1 distribution channels, how we can get information on 2 trends, on employment, what's happening with 3 consolidation. We'll be looking for ways to get that 4 information so as to understand what's happening with 5 that product and with that industry to guide the 6 formulation of the analysis for that product, that 7 rulemaking. 8 We spent a great deal of time also talking 9 about the various national energy forecasting models. 10 Our focus yesterday we to focus on the shipments 11 portion of it, but as we recognized, we're going to use 12 -- we use shipments in a number of places, energy 13 forecasting, as well as manufacturer impacts. 14 There was a great deal of discussion as to 15 how those models should be used, whether or not GRIM 16 should be used, whether or not simplified spreadsheet 17 models should be used, whether or not different models 18 should be used for manufacturer impact or for energy 19 forecasting. But I think there was a general agreement 20 that if we used different models, they should be 21 reconciled and it may be that we will be looking to use 22 different models in order to get some of the 23 sensitivities. 24 Also, there will be topic that we're going to 25 be focusing on with the working group, and also, in

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(301) 565-0064 232 1 distribution channels, howwe can get information on 2 trends, on employment, what's happeningwith 3 consolidation. We'll be looking for ways to get that 4 information so as to understandwhat's happeningwith 5 thatproduct andwith that industry to guide the 6 formulation of the analysis for thatproduct, that 7 rulemaking. 8 We spent a great deal of time also talking 9 about the various national energy forecasting models. 10 Our focus yesterdaywe to focus on the shipments 11 portion of it, but as we recognized, we're going to use 12

-- we use shipments in a number ofplaces, energy 13 forecasting, as well as manufacturer impacts. 14 There was a great deal of discussion as to 15 how those models shouldbe used, whether ornot GRIM 16 shouldbeused, whether ornot simplified spreadsheet 17 models shouldbeused, whether ornot different models 18 shouldbe used for manufacturer impact or for energy 19 forecasting. But I think there was a general agreement 20 that ifwe used different models, they shouldbe 21 reconciled and itmay be that we will be looking touse 22 differentmodels in order to get some of the 23 sensitivities. 24 Also, there will be topic thatwe're going to 25 be focusing onwith the working group, and also, in

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064233 1 order to conclude my statement so can quickly get into 2 the details, is that it's going to be subject that is 3 going to be discussed tomorrow with the Advisory 4 Group's working group on Economic Analysis and Energy 5 Forecasting. 6 To repeat my comment yesterday, that's going 7 to be one of the working groups under the Advisory Committee. The meeting is going to be held tomorrow 9 over at the offices of AHAM. Wayne Morris of AHAM has 10 asked me to ask of those who are here, if you intend on 11 going over there, to let him know so that he can make 12 sure that he has a large enough facility for everybody 13 there. 14 At the break, which will be approximately 15 10:00, you can contact Wayne. 16 Wayne, if you wouldn't mind standing up, so 17 we can all throw some stones at you. 18 MR. MORRIS: Michael, can I add that this is 19 a working group meeting and it is intended that people 20 participate in this working group. 21 MR. McCABE: Charlie Stephens has been 22 facilitating and has been named by Christine as one of 23 the co-chairs for the group. I think most everybody 24 has seen Charlie, but Charlie, if you could pop up as 25 fast as Wayne did --

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(301) 565-0064 233 1 order to concludemy statement so can quickly get into 2 the details, is that it's going tobe subject that is 3 going tobe discussed tomorrowwith the Advisory 4 Group's working group onEconomicAnalysis andEnergy 5 Forecasting. 6 To repeatmy comment yesterday, that's going 7 tobe one of the working groups under theAdvisory 8 Committee. The meeting is going tobeheld tomorrow 9 over at the offices ofAHAM. Wayne Morris ofAHAM has 10 askedme to ask of thosewho are here, ifyou intend on 11 going over there, to lethimknow so thathe canmake 12 sure that he has a large enough facility for everybody 13 there. 14 At the break, which will be approximately 15 10:00, you can contactWayne. 16 Wayne, if you wouldn'tmind standingup, so 17 we can all throw some stones at you. 18 MR. MORRIS: Michael, can I add that this is 19 a working groupmeeting and it is intended thatpeople 20 participate in this working group. 21 MR. McCABE: Charlie Stephens has been 22 facilitating andhas been named by Christine as one of 23 the co-chairs for the group. I thinkmost everybody 24 has seen Charlie, but Charlie, if you couldpop up as 25 fast as Wayne did

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064234 1 But, I appreciate your inputs yesterday, what 2 will be received today, and would encourage those who 3 have something to contribute, who are interested in 4 what's going on with the Advisory Committee, to attend 5 and participate fully in the process. And if the 6 Energy Forecast and Economic Analysis is something you 7 can contribute to, to attend tomorrow's working 8 session, as well. 9 Thank you for your attendance and your 10 participation. We expect that today will be as 11 productive as yesterday was. 12 Thank you. 13 MR. BROOKMAN: Yesterday, one of the 14 presentations was the NEMS computer model, and in your 15 packet this morning were those handouts, those slides? 16 I hope you all received those. 17 Those of you that are here for the first time 18 this morning, did you get the handouts from yesterday? 19 You didn't receive them? 20 That basically tracks the flow of what we 21 went through yesterday, including a rather detailed 22 view of the GRIM. 23 I wanted to get a sense from the group 24 collectively what you thought about the GRIM, 25 generally, just generally speaking.

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### 234 1 But, I appreciate your inputs yesterday, what 2 will be received today, andwould encourage those who 3 have something to contribute, who are interested in 4 what's going on with theAdvisory Committee, to attend 5 and participate fully in theprocess. And if the 6 Energy Forecast andEconomicAnalysis is something you 7 cancontribute to, to attend tomorrow's working 8 session, as well. 9 

### Thank you for your attendance and your 10 participation. We expect that today willbe as 11 productive as yesterdaywas. 12 Thank you. 13 MR. BROOKMAN: Yesterday, one of the 14 presentations was the NEMS computermodel, and inyour 15 packet this morningwere those handouts, those slides? 16 I hope you all received those. 17 Those of you that arehere for the first time 18 this morning, did you get the handouts from yesterday? 19 You didn't receive them? 20 That basically tracks the flow ofwhat we 21 went through yesterday, including a rather detailed 22 viewof the GRIM. 23 I wanted to get a sense from the group 24 collectivelywhat you thought about the GRIM, 25 generally, just generally speaking.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064235 1 I mean, as I was watching you yesterday, it 2 didn't seem -- I mean, aside from the specific things 3 that you noted, it seemed as though generally you were 4 comfortable with what was being laid out and 5 comfortable with the tool itself. Those two things, 6 which I'd separate. 7 Can we comment on that?

Charlie? MR. STEPHENS: I'm comfortable with the

MR. BROOKMAN: Okay. Some fine-tuning. 12 And Michael's comments at the front end, were13 they reflective of those areas that need to be fine14 tuned? 15 MR. STEPHENS: With one exception that I 16 didn't hear mentioned, and that is -- 17 MR. BROOKMAN: Oh, you know what? I'm not 18 taping anything. I'm sorry. 19 Charlie's opening comment was he was 20 generally comfortable with it, but it did require some 21 fine-tuning. 22 Where are the mikes? 23 Thank you. 24 MR. STEPHENS: Charlie Stephens, Oregon 25 Energy Office.

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### 235 1 I mean, as I was watching you yesterday, it 2 didn't seem -- I mean, aside from the specific things 3 that younoted, it seemed as though generally youwere 4 comfortablewithwhat was being laidout and 5 comfortablewith the tool itself. Those two things, 6 which I'd separate. 7 Canwe comment on that? 8 Charlie? 9 

### MR. STEPHENS: I'mcomfortablewith the 10 concept. 1 1 

### MR. BROOKMAN: Okay. Some fine-tuning. 12 And Michael's comments at the front end, were 13 they reflective of those areas that need tobe fine14 tuned? 15 MR. STEPHENS: With one exception that I 16 didn'thearmentioned, and that is

-- 17 

### MR. BROOKMAN: Oh, youknowwhat? I'mnot 18 taping anything. I'm sorry. 19 Charlie's openingcomment was hewas 20 generally comfortablewith it, but itdid require some 21 fine-tuning. 22 Where are themikes? 23 Thank you. 24 

### MR. STEPHENS: Charlie Stephens, Oregon 25 Energy Office.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064236 1 I still need somebody to help me understand 2 that the tool is actually consistent with the tax laws 3 that corporations actually use for investment and 4 depreciation. 5 MR. BROOKMAN: Okay. 6 MR. STEPHENS: And that the model allows a 7 company who wants to reflect its true investment, the 8 incremental investment for the standard compliance in 9 the model. I don't know whether it was just the 10 example that was used yesterday and the numbers that 11 were in there that made me uncomfortable or the concept 12 of the way you had to put them in there and the fact 13 that it might now allow. 14 I think one of the things the model lacks is 15 a clear way to do things with percentage kinds of 16 inputs that allow you to see clearly what the 17 assumptions are about the various inputs to the models 18 very quickly so that you can compare one run, if you 19 will, against another. 20 Any time you get in there to fill in 21 individual boxes in successive years going across the 22 page, it's very unclear without something in the model 23 to show you what's in those boxes relative to what was 24 in the last set of boxes in the last run. It's going 25 to be difficult sometimes to understand just what it is

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(301) 565-0064 236 1 I still need somebody to helpme understand 2 that the tool is actually consistent with the tax laws 3 that corporations actually use for investment and 4 depreciation. 5 MR. BROOKMAN: Okay. 6 MR. STEPHENS: And that themodel allows a 7 company who wants to reflect its true investment, the 8 incremental investment for the standard compliance in 9 the model. I don't know whether itwas just the 10 example that was used yesterday and the numbers that 11 were in there thatmade me uncomfortable or the concept 12 of the way you had to put them in there and the fact 13 that itmight now allow. 14 I think one of the things themodel lacks is 15 a clearway to do things with percentagekinds of 16 inputs that allowyou to see clearly what the 17 assumptions are about the various inputs to the models 18 very quickly so that you can compare one run, if you 19 will, against another. 20 Any time you get in there to fill in 21 individual boxes in successive years going across the 22 page, it's very unclear without something in themodel 23 to show you what's in those boxes relative to what was 24 in the last set of boxes in the last run. It's going 25 to be difficult sometimes to understand justwhat it is

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064237 1 you're looking at compared to other assessments that 2 you use the model to run. 3 MR. BROOKMAN: Do you have other general 4 comments on what was presented yesterday? And 5 particularly, things that would be new, but just 6 notations, things that are noteworthy.
7 8 Company. 9 MR. WISBEY: Bob Wisbey, Advanced Transformer

I just want to I think raise a little concern 10 about the general concept of even trying to do a 11 mathematical model of a financial impact on a company 12 or an industry. This spreadsheet 1 is far better than 13 the previous black box because you can see what's being 14 done with it. But the errors in accuracy, the errors 15 that can come up from predicting competitive behavior 16 and so on and so forth, can just swamp out what happens 17 in the cash flow. 18 Jim McMahon said yesterday, by definition, 19, all forecasts are wrong. If a forecast, for example, 20 on some of the aspects involved here were wrong by, for 21 example, 5 percent, which I've used as an example, when 22 you calculate energy savings -- so you're off by 5 23 percent. That's no big deal. But when you're trying 24 to calculate cash flow, just take the base year 25 example, which I did a little work with last night. Of

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(301) 565-0064 237 1 you're looking at compared to other assessments that 2 you use the model to run. 3 MR. BROOKMAN: Do you have other general 4 comments on what was presented yesterday? And 5 particularly, things that would be new, but just 6 notations, things that are noteworthy. 7 MR. WISBEY: BobWisbey, Advanced Transformer 8 Company. 9 I justwant to I think raise a little concern 10 about the general concept of even trying to do a 11 mathematical model of a financial impact on a company 12 or an industry. This spreadsheet 1 is far better than 13 the previous blackboxbecause you can see what's being 14 done with it. But the errors in accuracY7 the errors 15 that can come up from predicting competitive behavior 16 and so on and so forth, canjust swamp outwhat happens 17 in the cash flow. 18 JimMcMahon said yesterday, by definition, 19. all forecasts are wrong. If a forecast, for example, 20 on some of the aspects involvedhere were wrong by, for 21 example, 5 percent, which I've used as an example, when 22 you calculate energy savings

-- so you're off by 5 23 percent. That's no big deal. Butwhen you're trying 24 to calculate cash flow, just take the base year 25 example, which I did a littlework with last night. Of

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064238 1 the example that was presented yesterday, working off 2 of something that showed a revenue of $1.1 billion in 3 the end, a positive cash flow of $6 million, which is 4 about a half percent of the total, any errors in the 5 input side of this thing can make an enormous error in 6 the difference. 7 For example, if the price were off by 5 8 percent, it would change the cash flow from plus $6 9 [million] to plus $62 million. Or if it was off 5 10 percent the other way, it would make the cash flow 11 negative 50. 12 If the cost of sales were off by 5 percent, 13 it would make the cash flow go to plus $48 million or 14 minus $36 million. 15 If the unit shipments were off 5 percent, it 16 would make the cash flow go from plus $26 [million] to 17 minus $14 [million]. 18 And I seriously doubt that anybody can 19 honestly claim they can predict such elements as that 20 closer than plus or minus 5 percent out years in the 21 future. 22 I know in our own business, if we predict 23 what's going to happen in sales next year within 5 24 percent, we think we've done a hell of a good job. 25 So, I want to add that question. And really,

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(301) 565-0064 238 1 the example that was presented yesterday, working off 2 of something that showed a revenue of $1.1 billion in 3 the end, a positive cash flow of $6 million, which is 4 about a half percent of the total, any errors in the 5 input side of this thing can make an enormous error in 6 the difference. 7 For example, if the price were off by 5 8 percent, itwould change the cash flow from plus $6 9 [million] to plus $62 million. Or if itwas off 5 10 percent the otherway, it would make the cash flow 11 negative 50. 12 If the cost of sales were off by 5 percent, 13 itwould make the cash flow go to plus $48 million or 14 minus $36 million. 15 If the unit shipments were off 5 percent, it 16 would make the cash flow go from plus $26 [million] to 17 minus $14 [million]. 18 And I seriously doubt that anybody can 19 honestly claim they can predict such elements as that 20 closer than plus orminus 5 percent out years in the 21 future. 22 I know in our own business, ifwe predict 23 what's going to happen in sales next year within 5 24 percent, we thinkwe've done a hell of a good job. 25 So, I want to add that question. And really,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064239 1 a general comment that I personally feel, that the 2 qualitative manufacturer's impact is far, far more 3 important than any type of quantitative that's based on 4 a model. Not because the model is wrong, but because of 5 the errors that are involve din predicting the inputs 6 to the model and because of the fact that in a model 7 like this, we're not working -- all of a sudden, 5 8 percent error doesn't become 5 percent. And the bottom 9 line number that we're deriving is the difference 10 between two numbers that are very close to each other. 11 MR. BROOKMAN: [Off mike.]
MR. WISBEY: I think that' s adequate at this

MR. RIVEST: Bob, I think the discussion you 15 just had shows the benefits of the model in a way, in 16 that instead of having a model which will make a bunch 17 of decisions and assumptions about what will really 18 happen and try to ascertain that the assumptions it's 19 made are accurate, I think the discussion you've just 20 had to show those sensitivities and the fact that we 21 can run those various sensitivities with the model and 22 understand the assumptions we're making really shows 23 the uncertainty that exists. 24 So that, I think, is the benefit of the tool. 25 It's that we can get around. We can discuss -- have

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(301) 565-0064 239 1 a general comment that I personally feel, that the 2 qualitative manufacturer's impact is far, far more 3 important than any type of quantitative that's based on 4 a model. Not because the model is wrong, butbecause of 5 the errors that are involve din predicting the inputs 6 to themodel andbecause of the fact that in a model 7 like this, we're not working all of a sudden, 5 8 percent error doesn't become 5 percent. And the bottom 9 linenumber thatwe're deriving is the difference 10 between two numbers that are very close to eachother. 1 1 MR. BROOKMAN: [Off mike.] 12 MR. WISBEY: I think that's adequate at this 13 point. 14 MR. RIVEST: Bob, I think the discussion you 15 justhad shows the benefits o.f themodel in a way, in 16 that instead of having a model which will make a bunch 17 of decisions and assumptions about what will really 18 happen and try to ascertain that the assumptions it's 19 made are accurate, I think the discussion you've just 20 had to show those sensitivities and the fact thatwe 21 can run those various sensitivities with themodel and 22 understand the assumptions we'remaking really shows 23 the uncertainty that exists. 24 So that, I think, is the benefit of the tool. 25 It's that we can get around. We can discuss

-- have

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064240 1 the level of discussion you just had, and we can try to 2 bound that uncertainty. And certainly, if it can be 3 bound, then I think it should be described that way. 4 MR. LEWIS: Dave Lewis, Lennox. 5 I just want to reiterate what you said. I totally 6 agree. What we had dealt with previously with the 7 black box was so much was going on at one time that no 8 one could clearly identify it. The benefit of the 9 spreadsheet is at least you're identifying your 10 guesses. And that's what indeed they are. They're 11 guesses. 12 And I think just to underscore the earlier 13 comment, I think the qualitative decisionmaking is 14 extremely important. And I don't think the Department 15 can hide behind quantitative guesses, because i think 16 ultimately decisions have to be made somewhere. And I 17 think we need to make the model as good as possible, 18 but ultimately there's still a qualitative side really 19 in the decisionmaking process. 20 MR. McCABE: Michael McCabe. 21 I have to agree with you, Dave. Once 22 everything, all the numbers are there, there's 23 certainly a lot of qualitative decisions because what 24 is going to be the impact on a particular manufacturer, 25 a particular consumer, a particular utility, are going

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(301) 565-0064 240 1 the level of discussion you justhad, and we can try to 2 bound that uncertainty. And certainly, if it canbe 3 bound, then I think it shouldbe described thatway. 

### 4 MR. LEWIS: Dave Lewis, Lennox. 5 I justwant to reiteratewhat you said. I totally 6 agree. What we had dealt withpreviouslywith the 7 blackboxwas somuch was going on at one time that no 8 one could clearly identify it. The benefitof the 9 spreadsheet is at least you're identifyingyour 10 guesses. And that's what indeed they are. They're 11 guesses. 12 And I thinkjust to underscore the earlier 13 comment, I think the qualitative decisionmaking is 14 extremely important. And I don't think the Department 15 canhide behind quantitative guesses, because i think 16 ultimately decisions have tobe made somewhere. And I 17 thinkwe need tomake the model as good as possible, 18 butultimately there's still a qualitative side really 19 in the decisionmakingprocess. 20 MR. McCABE: MichaelMcCabe. 21 I have to agree with you, Dave. Once 22 everything, all the numbers are there, there's 23 certainly a lot of qualitative decisions because what 24 is going tobe the impact on a particularmanufacturer, 25 a particular consumer, a particularutility, are going

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064241 1 to vary. And there are a whole host of factors that 2 will come into play in each one, and they can be very 3 different. 4 MR. BROOKMAN: But what I heard yesterday, 5 what I head the Department saying yesterday -- let me 6 push this out and see if this works. 7 I thought I heard you saying that this model, 8 this GRIM, as applied in the base case that you build 9 up for that GRIM becomes your reference point. And if 10 the Department is lucky, then others come forward with 11 their takes based on their personal company and 12 industry experience, and there is this comparison that 13 is possible. And it's the comparison that provides the 14 richness, that provides the full picture. 15 Well, okay. More of the picture. You'd 16 acknowledge that. 17 But that's what informs some of the judgment, 18 in addition to the qualitative features you've already 19 mentioned. 20 21 Yes? So I want to know if that's a pie in the sky 22 notion that the Department thinks that they can get -- 23 since many of you now, and hopefully all of you 24 ultimately will have the GRIM model on your PC's back 25 home, that you can supply the Department with this kind

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(301) 565-0064 241 1 tovary. And there are a whole host of factors that 2 will come intoplay in each one, and they canbe very 3 different. 4 MR. BROOKMAN: But what I heard yesterday, 5 what I head the Department sayingyesterday

-- letme 6 push this out and see if this works. 7 I thought I heard you saying that this model, 8 this GRIM, as applied in thebase case that you build 9 up for that GRIM becomes your referencepoint. And if 10 the Department is lucky, then others come forward with 11 their takes based on theirpersonal company and 12 industry experience, and there is this comparison that 13 is possible. And it's the comparison thatprovides the 14 richness, that provides the full picture. 15 Well, okay. More of the picture. You'd 16 acknowledge that. 17 But that's what informs some of the judgment, 18 in addition to the qualitative features you've already 19 mentioned. 20 Yes? 21 So I want toknow if that's a pie in the sky 22 notion that the Department thinks that they canget

-- 23 sincemany of you now, and hopefully all of you 24 ultimately will have the GRIM model on your PC's back 25 home, that you can supply the Department with this kind

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064242 1 of information. And it helps them to see a range of 2 differences on the quantitative side. 3 I see Dave nodding his head yes. That's a 4 possibility. 5 Anyone else want to comment on that? That's 6 what the Department, I believe, was envisioning as a 7 prospect. 8 Am I overstating it? 9 MR. RIVEST: No. I think what Everett Shorey 10 said yesterday, basically, the GRIM is a calculator and 11 it's been very purposely emptied of any behavioral 12 assumptions so that those can be made outside the 13 model. 14 MR. BROOKMAN: Yes. And one thing we saw 15 yesterday was how those assumptions could be modified. 16 Additional comments on the presentations 17 yesterday and what was implied by them? 18 MR. LEWIS: Dave Lewis, Lennox. 19 The only comment really is I considered 20 yesterday was just to underscore my earlier comment 21 about the data book discussion. 22 The more I considered that over the evening, 23 the more I am convinced that that is really a nebulous 24 thing for us to try to consider at this point in the 25 workshop because industry, as you go through the list,

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(301) 565-0064 242 1 of information. And ithelps them to see a range of 2 differences on the quantitative side. 3 I see Dave nodding his head yes. That's a 4 possibility. 5 Anyone elsewant to comment on that? That's 6 what the Department, I believe, was envisioning as a 7 prospect. 8 Am I overstating it? 9 MR. RIVEST: No. I thinkwhat Everett Shorey 10 said yesterday, basically, the GRIM is a calculator and 11 it'sbeen very purposely emptied of any behavioral 12 assumptions so that those canbemade outside the 13 model. 14 MR. BROOKMAN: Yes. And one thingwe saw 15 yesterday was how those assumptions couldbemodified. 16 Additional comments on the presentations 17 yesterday andwhatwas impliedby them? 18 MR. LEWIS: DaveLewis, Lennox. 19 The only comment really is I considered 20 yesterdaywas just to underscore my earlier comment 21 about the databook discussion. 22 The more I considered that over the evening, 23 themore I am convinced that that is really a nebulous 24 thing for us to try to consider at this point in the 25 workshopbecause industry, as you go through the list,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064243 1 is so diverse. I know the point was made yesterday of 2 that. 3 But in addition, I'm not sure what you've got 4 when you've got it. In fact, I think most of the 5 information probably in some source or in some way is 6 available today. And I just hope that a whole bunch of 7 unnecessary time is not spent on data collection for 8 information to get the "aha" effect. 9 MR. BROOKMAN: Steve, did you envision, with 10 the work you've done -- Steve was our presenter 11 yesterday. 12 Steve, would you stand up? 13 Steve Shankel, from NNL. 14 Did you envision that the data book that you 15 had in this mind at this point, noting that it's still 16 broadly conceptual and no more, was a compilation of 17 other existing databases? Plus, I believe you said 18 interviews. 19 MR. SHANKEL: That's right. Yes, I would 20 largely consider it to be a compilation of already 21 existing data, plus interviews. 22 MR. BROOKMAN: I think it's fair to say what 23 I heard the industry folks saying yesterday was what 24 good does this do us. Is that fair? Or how much good 25 does this do us?

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### 243 1 is so diverse. I know the pointwas made yesterday of 2 that. 3 But in addition, I'mnot surewhat you've got 4 when you've got it. In fact, I thinkmost of the 5 informationprobably in some source or in someway is 6 available today. And I justhope that a wholebunch of 7 unnecessary time is not spent on data collection for 8 information to get the "aha" effect. 9 

### MR. BROOKMAN: steve, did you envision, with 10 the work you've done

-- stevewas ourpresenter 11 yesterday. 12 steve, would you standup? 13 steve Shankel, from NNL. 14 Did you envision that the databook that you 15 had in this mind at this point, noting that it's still 16 broadly conceptual and nomore, was a compilationof 17 other existingdatabases? Plus, I believe you said 18 interviews. 19 

### MR. SHANKEL: That's right. Yes, I would 20 largely consider it tobe a compilationof already 21 existingdata, plus interviews. 22 MR. BROOKMAN: I think it's fair to saywhat 23 I heard the industry folks saying yesterdaywas what 24 good does this do us. Is that fair? Orhow much good 25 does this dous?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064244 1 MR. SHANKEL: Is this question for us? 2 MR. BROOKMAN: Yes. Right. Collectively. 3 For the Department, yes. So don't devote a lot of time 4 and energy to getting it -- 5 6 7 MR. SHANKEL: One comment. MR. BROOKMAN: Steve, again. MR. SHANKEL: As a researcher, it's useful to 8 have it all in one place when you need the data. 9 Knowing that it's available in 100 sources is the first 10 step, but if you have it all in one place, it's a lot 11 easier. 12 MR. BROOKMAN: Other comments on the data 13 book? There were several -- quite a bit of comment 14 yesterday on this subject. 15 Yes. Jim? 16 MR. CRAWFORD: I have the advantage of not 17 having been here yesterday, so -- 18 19 20 (Laughter.) Jim Crawford with Trane Company. When I heard about the data book last night, 21 I was just totally appalled that, with the prospect 22 that any industry group would entertain the possibility 23 of assembling the most sensitive information from their 24 industry in a single volume and put in the hands of 25 anybody short of the deity.

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(301) 565-0064 244 1 MR. SHANKEL: Is this question for us? 2 MR. BROOKMAN: Yes. Right. Collectively. 3 For the Department, yes. So don't devote a lot of time 4 and energy to getting it MR. SHANKEL: 5 One comment. MR. BROOKMAN: MR. SHANKEL: 7 As a researcher, it's useful to 8 have it all inone placewhen you need the data. 9 Knowing that it's available in 100 sources is the first 10 step, but if you have it all in one place, it's a lot 11 easier. 12 MR. BROOKMAN: Other comments on the data 13 book? There were several

-- quite a bit of comment 14 yesterday on this subject. 15 Yes. Jim? 16 MR. CRAWFORD: I have the advantage of not 17 havingbeenhere yesterday, so -- 18 (Laughter.) 19 JimCrawfordwith Trane Company. 20 When I heard about the databook lastnight, 21 I was just totally appalled that, with the prospect 22 that any industry groupwould entertain the possibility 23 of assembling the most sensitive information from their 24 industry in a single volume andput in the hands of 25 anybody short of the deity.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064245 1 If we know anything about this town, we know 2 that this is the town of the big leak. So the 3 sensitivity of it makes it appalling imprudent. 4 And then we go beyond that to what will be 5 done with the data, what is in fact the quality of the 6 data. And there's this fantasy that somehow or other 7 econometric modeling means something. And I think what 8 we just heard is what it means is we live in an 9 extremely volatile world and you can see the 10 volatility. Seeing the volatility doesn't get you to 11 truth. It just shows that we live in a very volatile 12 world. 13 And I've worked for half a dozen Fortune 500 14 companies, not one of which uses those tools for 15 product planning, for program administration or for any 16 serious business. And back in the days when they used 17 to have corporate researchers who did this sort of 18 thing, when asked if they used those tools, the answer 19 was no, but because by the time you reduced them to 20 adequate simplicity to operate with them on a model, 21 they don't represent the real world. 22 And so I think that the entire concept of 23 GRIM is fundamentally flawed, and now we're talking 24 about feeding it. And I think to take a positive view 25 about GRIM is like having a cow in your living room and

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(301) 565-0064 245 1 Ifwe know anything about this town, we know 2 that this is the town of the big leak. So the 3 sensitivity of itmakes it appalling imprudent. 4 And thenwe gobeyond that towhat will be 5 done with the data, what is in fact the quality of the 6 data. And there's this fantasy that somehowor other 7 econometricmodelingmeans something. And I thinkwhat 8 we justheard is what itmeans iswe live in an 9 extremely volatileworld and you can see the 10 volatility. Seeing the volatilitydoesn't get you to 11 truth. It just shows thatwe live in a very volatile 12 world. 13 And I'veworked for half a dozenFortune 500 14 companies, not one of which uses those tools for 15 product planning, for program administration or for any 16 serious business. And back in the days when they used 17 to have corporate researchers who did this sortof 18 thing, when asked if they used those tools, the answer 19 was no, butbecause by the time you reduced them to 20 adequate simplicity to operatewith them on a model, 21 they don't represent the real world. 22 And so I think that the entire concept of 23 GRIM is fundamentally flawed, andnow we're talking 24 about feeding it. And I think to take a positive view 25 about GRIM is like having a cow inyour livingroom and

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064246 1 saying, gee, the milk is going to be convenient. 2 MR. BROOKMAN: Additional comments? Overview 3 comments? 4 MR. McCABE: A couple of points. 5 Michael McCabe. 6 Coming from a dairy farming family -- 7 (Laughter) 8 And this is absolutely true. The family 9 dairy farm is in Eden, Wisconsin which, for those who 10 are from Wisconsin, is just east of Fond du Lac, which 11 is the town which I was born in. That's where there's 12 fresh milk. It's almost like drinking ice cream. 13 MR. BROOKMAN: And methane is a renewable, 14 isn't it? 15 (Laughter.) 16 MR. McCABE: But on the data book, as I said, 17 we had 70 people here yesterday and 73 different idea 18 as to what a data book is. For those who've heard it, 19 it's multiplied. 20 I'm not entirely sure what it's going to be, 21 but one of the things which I see coming out of this is 22 -- Stephen said pulling from existing sources much of 23 the information in order to give us some insight. 24 And if we've made a decision that a 25 particular product is a priority product, has been

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(301) 565-0064 246 1 saying, gee, themilk is going tobe convenient. 2 MR. BROOKMAN: Additional comments? Overview 3 comments? 4 MR. McCABE: Acouple ofpoints. 5 MichaelMcCabe. 6 Coming from a dairy farming family

-- 7 (Laughter) 8 And this is absolutely true. The family 9 dairy farm is inEden, Wisconsinwhich, for those who 10 are fromWisconsin, is just eastof FondduLac, which 11 is the town which I was born in. That's where there's 12 fresh milk. It's almost like drinking ice cream. 13 MR. BROOKMAN: And methane is a renewable, 14 isn't it? 15 (Laughter.) 16 MR. McCABE: But on the databook, as I said, 17 we had 70 peoplehere yesterday and 73 different idea 18 as to what a databook is. For those who've heard it, 19 it'smultiplied. 20 I'mnot entirely surewhat it's going tobe, 21 but one of the things which I see comingout of this is 22

-- Stephen saidpulling from existing sources much of 23 the information in order to giveus some insight. 24 And ifwe've made a decision that a 25 particularproduct is a priorityproduct, has been

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064247 1 identified as a priority and we are initiating a 2 rulemaking, then instead of going into'that first step 3 blindly and say. we're going to structure a particular 4 analysis in the same fashion that for every product 5 it's the same, that's a mistake. 6 And collecting some of the information, my 7 staff going out and meeting with the industry to find 8 out that for an impact analysis where we had made a 9 commitment, in the process we'll look at more than just 10 the prototypical firm. That it's through the, quote, 11 data book and the information gathering as we can 12 determine it, the industry is structured in a way that 13 analysis of a small, medium and large won't do, for 14 whatever reason. That there are significant players at 15 one end or another or certain manufacturers maybe have 16 certain cost factors that we need to look at and divide 17 it in a completely different fashion. That we will 18 have some of that information so that we can sit down 19 with members of the industry and their representatives 20 in structuring the analysis, to get at the impact 21 analysis. 22 This is what seems to make sense to us, so 23 that when it comes time to developing cost information 24 for product costs or price information, that we would 25 have agreed in advance how that information can be

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(301) 565-0064 247 1 identified as a priority andwe are initiating a 2 rulemaking, then insteadof going into'that first step 3 blindly and say.we're going to structure a particular 4 analysis in the same fashion that for every product 5 it's the same, that's a mistake. 6 And collecting some of the information, my 7 staff going out andmeetingwith the industry to find 8 out that for an impact analysis where we hadmade a 9 commitment, in the process we'll look atmore thanjust 10 the prototypical firm. That it's through the, quote, 11 databook and the information gathering as we can 12 determine it, the industry is structured in a way that 13 analysis of a small, medium and largewon't do, for 14 whatever reason. That there are significantplayers at 15 one end or another or certainmanufacturers maybe have 16 certain cost factors that we need to look at and divide 17 it in a completely different fashion. Thatwe will 18 have some of that information so that we can sitdown 19 withmembers of the industry and their representatives 20 in structuring the analysis, to get at the impact 21 analysis. 22 This is what seems tomake sense to us, so 23 that when it comes time to developing cost information 24 for product costs orprice information, that we would 25 have agreed in advance how that informationcanbe

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064248 1 collected and whether or not it's possible to collect 2 it in a particular way. 3 So, I don't envision this data book having 4 detailed financial information on individual companies 5 spread out on the Internet. To me, we're trying to get 6 publicly held information, enhanced with information in 7 order to help structure a process that makes sense, 8 that you can contribute and you can guide us in a 9 proper and reasonable fashion. 10 I hope that touches on some of your questions 11 as far as the GRIM, and whether or not that's a 12 realistic approach. 13 We've also said that for certain industries, 14 it may not be appropriate to use a spreadsheet model or 15 it may be for certain levels of candidate standards 16 that you don't need to look at that. Because if you 17 were to go to a particular standard level that is 18 technologically feasible but for whatever reason is 19 going to have such drastic changes to the industry for 20 the marketplace that you can saturate with just five 21 lines of text and it can explain it and you don't need 22 to do an analysis. But when you get to some range of 23 standards, and for some industries, a cash flow 24 analysis has been described by some as being a very 25 valuable input to the process and very meaningful to

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(301) 565-0064 248 1 collectedand whether or not it'spossible to collect 2 it in a particularway. 3 So, I don't envision this databook having 4 detailed financial informationon individual companies 5 spread out on the Internet. To me, we're trying to get 6 publiclyheld information, enhancedwith information in 7 order tohelp structure a process that makes sense, 8 that you can contribute and you can guideus in a 9 proper and reasonable fashion. 10 I hope that touches on some of your questions 11 as far as the GRIM, and whether ornot that's a 12 realistic approach. 13 We've also said that for certain industries, 14 itmay notbe appropriate to use a spreadsheetmodel or 15 itmay be for certain levels of candidate standards 16 that you don't need to look at that. Because if you 17 were to go to a particular standard level that is 18 technologically feasible but for whatever reason is 19 going tohave suchdrastic changes to the industry for 20 the marketplace that you can saturatewithjust five 21 lines of text and it can explain it and you don't need 22 to do an analysis. But when you get to some range of 23 standards, and for some industries, a cash flow 24 analysis has been describedby some as being a very 25 valuable input to the process and verymeaningful to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064249 1 them. 2 Also, part of the process early on is to sit 3 down and say what makes sense. Is cash flow analysis 4 for the particular industry at these range of levels 5 that have been identified through the screening as the 6 candidate technologies we've considered? Does it make 7 sense to use that analysis for this industry and for 8 all those levels or a part , a subset of them?
9 MR. BROOKMAN : Additional comments, 10 questions, on the broad stroke of yesterday, and 11 particular the GRIM model? 12 13 14 Yes. And other related issues. MR. FLORA: Brad Flora, Whirlpool 15 Corporation. 16 I just wanted to comment. Coming from a 17 Fortune 500 company, we do this kind of analysis all 18 the time, just for the record. 19 MR. BROOKMAN: Would you say what kind of 20 analysis? 21 MR. FLORA: The cash flow analysis. Also, 22 supported by econometric models on volumes. 23 So, I think this is a very reasonable 24 approach. What I see is the issue about inputs and I 25 feel very strongly that we need some structure to give

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(301) 565-0064 249 1 them. 2 Also, partof the process early on is to sit 3 down and saywhat makes sense. Is cash flow analysis 

### 4 for the particular industry at these range of levels 5 thathave been identified through the screening as the 6 candidate technologies we've considered? Does itmake 7 sense touse that analysis for this industry and for 8 all those levels or a part, a subset of them? 9 MR. BROOKMAN: Additional comments, 10 questions, on thebroad stroke of yesterday, and 11 particular the GRIM model? 12 Yes. 13 And other related issues. 14 MR. FLORA: BradFlora, Whirlpool 15 Corporation. 16 I justwanted to comment. Coming from a 17 Fortune 500 company, we do this kind of analysis all 18 the time, just for the record. 19 MR. BROOKMAN: Would you say what kind of 20 analysis? 21 MR. FLORA: The cash flow analysis. Also, 22 supportedby econometricmodels onvolumes. 23 So, I think this is a very reasonable 24 approach. What I see is the issue about inputs and I 25 feel very strongly thatwe need some structure to give

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064250 1 us some guidance on what those inputs are. And I think 2 the econometric models we talked about yesterday can 3 give us a starting point to have a discussion about 4 where they are. 5 And also, by doing some statistical analysis 6 and doing some sensitivity analysis, then we can get a 7 range. And now we've got something to talk about. 8 If we don't have that, I really think we'll 9 spend a lot of time discussing inputs. We'll never 10 agree on inputs. And you don't know where the stake is 11 in the ground. 12 The only other comment I'd make is on the 13 data book. I really struggle with this also because I 14 guess I wondered about the value added. But I think if 15 it has the objective of giving DOE some structure to 16 evaluate inputs then I think it has some value there. 17 So, I think, again, the key is on the inputs. 18 I know that's what we're going to talk about today.

22 23 24 MR. BROOKMAN: Final comments before we move

(No response.) I don't see any. Okay. Thank you, for all of you that did comment. Let's press on. We had originally scheduled 25 for a break at this time, but let's move into the --

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(301) 565-0064 250 1 us some guidance on what those inputs are. And I think 2 the econometric models we talked about yesterday can 3 give us a startingpoint to have a discussion about 4 where they are. 5 And also, by doing some statistical analysis 6 and doing some sensitivity analysis, then we can get a 7 range. And now we've got something to talk about. 8 If we don't have that, I really thinkwe'll 9 spend a lot of time discussing inputs. We'll never 10 agree on inputs. And you don't know where the stake is 11 in the ground. 12 The only other comment I'dmake is on the 13 databook. I really struggle with this alsobecause I 14 guess I wondered about the value added. But I think if 15 it has the objective of givingDOE some structure to 16 evaluate inputs then I think ithas some value there. 17 So, I think, again, the key is on the inputs. 18 I know that's what we're going to talk about today. 19 MR. BROOKMAN: Final comments before we move 20 on? 21 (No response.) 22 I don't see any. Okay. 23 Thank you, for all of you that did comment. 24 Let's press on. We had originally scheduled 25 for a break at this time, but let's move into the

--
EXECUTIVE COURT REPORTERS, INC. (301) 565-0064251 1 oh, let's do one thing first. 2 Is it obvious to anybody in the room how we 3 might structure this working group? Do any of you have 4 any thoughts on how? Many of you have worked in this 5 subject area and with the Department in process 6 improvement for a long time now and the Department 7 wanted to entertain openly the way we structure the 8 working group that's going to look at some of these 9 matters, many of these matters, in greater detail. And 10 I just wanted to get a sense from the group. 11 By the end of the day today, we're going to 12 ask for volunteers and I'm going to write your names 13 down and we're going to establish a few brief -- a few 14 next steps to get a few things done.
MR. LEWIS : Could you define what working

MR. BROOKMAN: Well, I guess -- I cannot, but 18 maybe someone can. 19 Quonnie, do you want to try and define the 20 working group? 21 MS. LAUGHLIN: I don't think we have any 22 preconceived notions about how the group is going to be 23 organized. We were waiting to see how the discussion 24 went today and how interested people were. 25 I mean, we're very interested to know how you

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(301) 565-0064 

### 251 1 oh, let's do one thing first. 2 Is it obvious to anybody in the roomhow we 3 might structure thisworking group? Do any of you have 4 any thoughts on how? Many of youhaveworked in this 5 subject area andwith the Department inprocess 6 improvement for a long time now and theDepartment 7 wanted to entertainopenly the way we structure the 8 working group that's going to look at some of these 9 matters, many of these matters, ingreaterdetail. And 10 I justwanted to get a sense from the group. 11 By the end of the day today, we're going to 12 ask for volunteers and I'mgoing to write yournames 13 down andwe're going to establisha few brief

-- a few 14 next steps to get a few things done. 15 MR. LEWIS: Couldyoudefine what working 16 group? 17 

### MR. BROOKMAN: Well, I guess -- I cannot, but 18 maybe someone can. 19 Quonnie, do you want to try and define the 20 working group? 21 MS. LAUGHLIN: I don't thinkwe have any 22 preconceivednotions about how the group is going tobe 23 organized. We were waiting to seehow the discussion 24 went today andhow interestedpeoplewere. 25 I mean, we'revery interestedtoknow how you

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064252 1 would like to work with us to guide us on developing -- 2 well, further developing the GRIM and other tools that 3 we'll be needing.

MR. CRAWFORD: Is this tomorrow's working

MS. LAUGHLIN: No, this is not. That is 7 another group that's working on the forecasting models. 8 MR. BROOKMAN: Basically, we'll be looking at 9 the comments from the past two days and we'll be 10 revising the draft of the methodology of the approach 11 that you've received. And the way we want to go from 12 here is to get interaction, have people reviewing 13 drafts, have people contributing additional comments. 14 So it may involve meetings or it may involve just 15 exchange of drafts. 16 Mike? 17 MR. THOMPSON: Just a question. I presume -- 18 MR. BROOKMAN: Mike Thompson. 19 MR. THOMPSON: Mike Thompson, Whirlpool 20 Corporation. 21 I presume coming out of this meeting, Mike, 22 we're all going to have an opportunity to provide 23 written comments, as well, not just the comments that 24 were made in a verbal part of this for these two days, 25 but some kind of written format?

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(301) 565-0064 252 1 would like towork withus to guide us ondeveloping

-- 2 well, further developing the GRIM and other tools that 3 we'll be needing. 

### 4 MR. CRAWFORD: Is this tomorrow's working 5 group? 6 MS. LAUGHLIN: No, this is not. That is 7 another group that's working on the forecasting models. 

### 8 MR. BROOKMAN: Basically, we'll be looking at 9 the comments from the past two days andwe'll be 10 revising the draft of the methodology of the approach 11 that you've received. And theway we want to go from 12 here is to get interaction, have people reviewing 13 drafts, have people contributing additional comments. 14 So itmay involve meetings or itmay involvejust 15 exchange of drafts. 16 Mike? 17 MR. THOMPSON: Just a question. I presume -- 18 MR. BROOKMAN: Mike Thompson. 19 MR. THOMPSON: Mike Thompson, Whirlpool 20 Corporation. 21 I presume coming out of this meeting, Mike, 22 we're all going tohave an opportunity toprovide 23 written comments, as well, not just the comments that 24 were made in a verbal part of this for these two days, 25 but some kind of written format?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064253 1 MR. RIVEST: Yes. That's my understanding. 2 MR. SAMUELS: This is Chuck Samuels, AHAM. 3 AHAM obviously will participate in any 4 further taskforces or workshops, et cetera, at this 5 level. But in general, I would urge you to pretty much 6 restrict that process and, to the extent possible, move 7 toward the individual product rulemakings applying the 8 concepts and analysis that's been developed here and 9 working out maybe some of the bugs in the specific 10 product rulemakings. 11 My guess is that a lot of the remaining 12 issues are not going to get resolved in the short-run 13 by further work at this level but will need to be dealt 14 with in the specific context of a particular product 15 rulemaking in the markets that are involved there. 16 So my prejudice is that to some extent we 17 should recognize that we've developed a very good 18 approach here. It's not perfect. There's a lot of 19 lingering questions which could be discussed for years. 20 But let's get on with it where we can and start using 21 this where it needs to be used at the individual 22 product rulemaking level. 23 MR. BROOKMAN: One thing that I heard 24 yesterday in a discussion -- well, any additional 25 comments on the potential structure of this?

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(301) 565-0064 253 1 MR. RIVEST: Yes. That's my understanding. 2 MR. SAMUELS: This is Chuck Samuels, AHAM. 3 AHAM obviouslywill participate in any 4 further taskforces orworkshops, et cetera, at this 5 level. But in general, I would urge you toprettymuch 6 restrict that process and, to the extentpossible, move 7 toward the individual product rulemakings applying the 8 concepts and analysis that's been developedhere and 9 working outmaybe some of the bugs in the specific 10 product rulemakings. 11 My guess is that a lot of the remaining 12 issues are not going to get resolved in the short-run 13 by further work at this level butwill need tobe dealt 14 with in the specific context of a particularproduct 15 rulemaking in the markets that are involved there. 16 Somy prejudice is that to some extentwe 17 should recognize thatwe've developed a very good 18 approachhere. It's not perfect. There's a lotof 19 lingeringquestions which couldbe discussed for years. 20 But let's get onwith itwherewe can and startusing 21 this where itneeds tobe used at the individual 22 product rulemaking level. 23 MR. BROOKMAN: One thing that I heard 24 yesterday in a discussion well, any additional 25 comments on the potential structure of this?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064254 1 (No response.) 2 One opportunity we know of for sure is for 3 comments to come forward based on this meeting. 4 Another would be to post this up on the Web and have 5 people iterate their comments on it and see how much 6 closure we can get -- that sort of thing -- 7 collectively. 8 I'm wondering if that's the sort of thing 9 that reflects the nature of involvement you wish to 10 have? 11 MS. LAUGHLIN: Doug?
12 MR. BROOKMAN: Yes. 13 MS. LAUGHLIN: I guess I'd like to see what 14 people -- the feedback on what Chuck Samuels said. How 15 do the -- 16 MR. BROOKMAN: Thank you for that. 17 MS. LAUGHLIN: -- individual product people 18 feel about that? 19 20 21 MR. BROOKMAN: Yes, yes. MR. LEWIS: Dave Lewis, Lennox. Rather than answering really your question, I 22 would rather see -- I think the discussion may be more 23 meaningful about working groups at the conclusion of 24 this meeting because it seems like, if I look at the 25 agenda, there's a number of things on here that may be

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(301) 565-0064 254 1 (No response.) 2 One opportunity we know of for sure is for 3 comments to come forward based on this meeting. 4 Another wouldbe to post this up on the Web andhave 5 people iterate their comments on it and seehow much 6 closure we can get

-- that sort of thing

-- 7 collectively. 8 I'mwondering if that's the sort of thing 9 that reflects the nature of involvement youwish to 10 have? 1 1 MS. LAUGHLIN: Doug? 12 MR. BROOKMAN: Yes. 13 MS. LAUGHLIN: I guess I'd like to seewhat 14 people the feedback on what Chuck Samuels said. How 15 do the 16 MR. BROOKMAN: Thank you for that. 17 MS. LAUGHLIN:

-- individual product people 18 feel about that? 19 MR. BROOKMAN: Yes, yes. 20 MR. LEWIS: Dave Lewis, Lennox. 21 Rather than answering really your question, I 22 would rather see -- I think the discussionmay be more 23 meaningful about working groups at the conclusionof 24 this meeting because it seems like, if I look at the 25 agenda, there's a number of things onhere thatmay be

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064255 1 identified as areas that maybe a group needs to be 2 formed. 3 Right now, it's just hard for me to grasp 4 what the scope is of a working group. I mean, why are 5 we having two days of meetings to discuss all these 6 things, and then we're going to have a working group 7 formed to re-discuss all these things? I mean, at some 8 point I'm not sure where the connect is, but maybe it 9 would be clear at the end of today. 10 MR. BROOKMAN: That's helpful. I wanted to 11 initiate this now to queue this up because I want you 12 to think about it as the day goes on and not be 13 surprised at 4:00 in the afternoon when many of you 14 have already left. So, that's our purpose for doing 15 this. 16 So let's take Dave's suggestion and also the 17 comments of the others, and let's press on with the 18 agenda. 19 I'm going to suggest that we go for another 20 say half an hour before we break since we started at 21 9:00. So our first segment in this morning's 22 substantive agenda -- 23 Yes? 24 MR. RIVEST: If I can just add one comment, 25 and specifically to the people of ARI.

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(301) 565-0064 255 1 identified as areas thatmaybe a groupneeds tobe 2 formed. 3 Right now, it's justhard for me to grasp 4 what the scope is of a working group. I mean, why are 5 we having two days ofmeetings to discuss all these 6 things, and thenwe're going to have a working group 7 formed tore-discuss all these things? I mean, at some 8 point I ' mnot surewhere the connect is, butmaybe it 9 would be clear at the end of today. 10 MR. BROOKMAN: That's helpful. I wanted to 11 initiate this now to queue this upbecause I want you 12 to think about it as the day goes on andnotbe 13 surprised at 4:00 in the afternoonwhenmany of you 14 have already left. So, that' s ourpurpose for doing 15 this. 16 So let's take Dave' s suggestion and also the 17 comments of the others, and let's press onwith the 18 agenda. 19 I'mgoing to suggest that we go for another 20 say half anhourbeforewe break sincewe started at 21 9:00. So our first segment in this morning's 22 substantive agenda 23 Yes? 24 MR. RIVEST: If I canjust add one comment, 25 and specifically to the people ofARI.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064256
1 What we want to make sure, that in the 2 approach document, everybody sees the tools that they 3 feel will be necessary for their product. So to the 4 extent that we don't have to choose which tools are
5 going to be used at this point, I just think it's 6 important that the tools that we envision will be
7 needed for our product are included. 8 So, I guess what I'm driving at is the ASHRAE 9 methodology which will be described this afternoon -- 10 there may be some discussions that can be held before 11 the methodology is developed, is complete, in the 12 approach document for the methodologies for 13 manufacturing impact that would flesh out some of the 14 issues surrounding application of the methodology to 15 the greater scheme. 16 So that level of discussion can be held. It 17 doesn't need to be a formal working group. It can just 18 be ongoing discussions. But just to put things in 19 perspective for -- you know, that's the type of 20 discussion I would like to have an input. 21 MR. BROOKMAN: Let me do a very brief agenda 22 review. For those of you that have the agenda that was 23 handed out this morning, the times have been modified
24 slightly. 25 We'll take a break around about 10:30. But

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(301) 565-0064 256 1 What we want tomake sure, that in the 2 approach document, everybody sees the tools that they 3 feel will be necessary for theirproduct. So to the 4 extent that we don'thave to choose which tools are 5 going tobe used at this point, I just think it's 6 important that the tools thatwe envisionwill be 7 needed for ourproduct are included. 8 So, I guess what I'mdriving at is theASHRAE 9 methodologywhichwill be described this afternoon

-- 10 there may be some discussions that canbe heldbefore 11 themethodology is developed, is complete, in the 12 approach document for the methodologies for 13 manufacturing impact that would flesh out some of the 14 issues surrounding applicationof the methodology to 15 the greater scheme. 16 So that level of discussion canbe held. It 17 doesn't need tobe a formal working group. Itcanjust 18 be ongoing discussions. But just toput things in 19 perspective for

-- youknow, that's the type of 20 discussion I would like to have an input. 21 MR. BROOKMAN: Letme do a verybrief agenda 22 review. For those of you that have the agenda thatwas 23 handed out this morning, the times have beenmodified 24 slightly. 25 We'll take a break around about 10:30. But

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064257 1 for the next 40 or so minutes, we're going to begin 2 talking about estimating manufacturing costs for input 3 to GRIM, and there are several subtitles that are 4 listed there: relationship engineering analysis; 5 uncertainty in key variables; variability between 6 firms; data collection methods, e.g., the ASHRAE 7 methodology; and costs not considered in GRIM. 8 And then, if we're lucky, prior to lunch 9 we'll begin the discussion of prices, price inputs to 10 GRIM, and the items listed there. 11 We're going to try and move up the day an 12 hour or so as much as we can to accommodate those that 13 are going to leave early to catch planes. 14 So then, moving on from prices, we go to 15 estimating shipments, which are clearly linked. And 16 then in the afternoon after that segment, we're going 17 to talk about non-model impact evaluation and the items 18 that are listed there. 19 And we're going to close out the day by 20 talking about the nature of this advisory group and how 21 it goes forward and describe a few tasks that it might 22 take up, provided this group thinks it's a useful thing 23 to do. 24 So that's the basic plan, and so let's go on 25 to the first segment.

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(301) 565-0064 257 1 for the next 40 or sominutes, we're going tobegin 2 talking about estimatingmanufacturing costs for input 3 to GRIM, and there are several subtitles that are 4 listed there: relationship engineering analysis; 5 uncertainty inkey variables; variabilitybetween 6 firms; data collectionmethods, e.g., the ASHRAE 7 methodology; and costs not considered in GRIM. 8 And then, ifwe're lucky, prior to lunch 9 we'll begin the discussionof prices, price inputs to 10 GRIM, and the items listed there. 11 We're going to try andmove up the day an 12 hour or so as much as we can to accommodate those that 13 are going to leave early to catchplanes. 14 So then, moving on from prices, we go to 15 estimating shipments, which are clearly linked. And 16 then in the afternoon after that segment, we're going 17 to talk about non-model impact evaluation and the items 18 that are listed there. 19 And we're going to close out the day by 20 talking about the nature of this advisory group and how 21 itgoes forward and describe a few tasks that itmight 22 take up, provided this group thinks it's a useful thing 23 to do. 24 So that's thebasic plan, and so let's go on 25 to the first segment.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064258 1 Yes? Yes, Jim. 2 MR. CRAWFORD: I just, for one -- Jim 3 Crawford -- want to say that Mike's comments a moment 4 ago are very welcome and that we do need to keep in 5 mind that the structures of the individual companies 6 involved in these different industries are very, very 7 different. The industries themselves are structured 8 very differently. 9 In one case you have one industry with six or 10 eight manufacturers and another one where you've got 60 11 to 80 manufacturers and things are very different. And 12 we just need to be very careful that, in addition to 13 what Mike said, that we keep in mind that there may 14 even be, as we get into the process procedures that we 15 do not foresee at the moment, that may provide the 16 smoothest road to a mutually satisfactory conclusion. 17 MR. BROOKMAN: Thank you. 18 Mike Rivest. 19 MR. RIVEST: Just want to set the stage for 20 today. 21 Yesterday we've been talking about the GRIM 22 model; the calculator, essentially. And what we'll be 23 doing today is looking at different ways of generating 24 the inputs to the model. 25 We also touched on some of the financial

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(301) 565-0064 258 1 Yes? Yes, Jim. 2 MR. CRAWFORD: I just, for one -- Jim 3 Crawford

-- want to say thatMike's comments a moment 4 ago are very welcome and that we do need tokeep in 5 mind that the structures of the individual companies 6 involved in these different industries are very, very 7 different. The industries themselves are structured 8 very differently. 9 In one case you have one industrywith six or 10 eightmanufacturers and another one where you've got 60 11 to 80 manufacturers and things are very different. And 12 we justneed to be very careful that, in addition to 13 whatMike said, that we keep inmind that theremay 14 evenbe, as we get into the process procedures thatwe 15 do not foresee at the moment, thatmay provide the 16 smoothest road to a mutually satisfactory conclusion. 17 MR. BROOKMAN: Thank you. 18 Mike Rivest. 19 MR. RIVEST: Just want to set the stage for 20 today. 21 Yesterday we've been talking about the GRIM 22 model; the calculator, essentially. And what we'll be 23 doing today is looking at different ways of generating 24 the inputs to the model. 25 We also touched on some of the financial

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064259 1 information which might be contained in the data book 2 which would feed into the GRIM as a starting position 3 of a firm. 4 The first segment today is talking about 5 manufacturing costs. It's important to note that we're 6 talking about two levels of analysis here. The GRIM is 7 to be used for the industry and then it's to be used 8 for the subgroup analysis. So when we're talking about 9 cost, we have to try to put together a procedure that 10 will be able to capture costs at those two levels. 11 Cost will be used for three purposes. We 12 need costs as a starting point to be able to draw a 13 life cycle cost curve for the consumer analysis. In 14 the past, we've used a mark-up over average 15 manufacturing cost as a way of trying to define the 16 consumer life cycle costing. We can still use the cost 17 of producing a product as a starting point for 18 evaluating those prices. It need not be the only way. 19 20 afternoon. 21 We'll be talking a little bit about this this

We need to define average manufacturing costs 22 within a range of uncertainty for the industry cash 23 flow. And in Phase 3, as we go into the subgroup 24 analysis, what we're trying to capture is the 25 variability between the firms.

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(301) 565-0064 259 1 informationwhichmight be contained in the databook 2 whichwould feed into the GRIM as a startingposition 3 of a firm. 4 The first segment today is talking about 5 manufacturing costs. It's important to note that we're 6 talking about two levels of analysis here. The GRIM is 7 tobe used for the industry and then it's tobe used 8 for the subgroup analysis. Sowhen we're talking about 9 cost, we have to try toput together a procedure that 10 will be able to capture costs at those two levels. 1 1 Costwill beused for threepurposes. We 12 need costs as a startingpoint tobe able to draw a 13 life cycle cost curve for the consumer analysis. In 14 the past, we've used a mark-up over average 15 manufacturing cost as a way of trying todefine the 16 consumer life cycle costing. We can stilluse the cost 17 of producing a product as a startingpoint for 18 evaluating those prices. It need notbe the onlyway. 19 We'll be talking a littlebit about this this 20 afternoon. 21 We need to define average manufacturing costs 22 within a range of uncertainty for the industry cash 23 flow. And inPhase 3, as we go into the subgroup 24 analysis, what we're trying to capture is the 25 variabilitybetween the firms.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064260 1 In terms of the concepts here, what we've 2 been doing in the past is just accumulating data, 3 sometimes survey form, and averaging the data we've 4 received and constructing a life cycle cost curve or 5 cost efficiency curve based on the average values. 6 What the interpretive rule has committed us 7 to doing from now on is that this average has to be 8 bound within some uncertainty. So, average values with 9 an uncertainty value. And we have not had any 10 discussion at this point as to how we would describe 11 this uncertainty. So that's work that needs to be done 12 within the working groups, for example. 13 When we get into the subgroup analysis, 14 there's probably more variability in the costs between 15 different types of firms than there is in what will be 16 the range of the average costs that we anticipate in 17 the market. So, the focus in the second segment of the 18 analysis is to look at the different cost structures of 19 the different types of manufacturers. 20 Now, manufacturing costs can be estimated a 21 number of ways and there have been three approaches 22 that have been used by the program in the past. And 23 sometimes it's been a combination of these approaches. 24 The survey approach has been used extensively 25 by LBNL in the residential products and it consists in

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(301) 565-0064 260 1 In terms of the concepts here, what we've 2 been doing in the past is just accumulatingdata, 3 sometimes survey form, and averaging the datawe've 4 received and constructing a life cycle cost curve or 5 cost efficiency curve based on the average values. 6 What the interpretiverulehas committedus 7 to doing from now on is that this average has tobe 8 bound within some uncertainty. So, average values with 9 an uncertainty value. And we have not had any 10 discussion at this point as to howwe would describe 11 this uncertainty. So that's work that needs tobe done 12 within theworking groups, for example. 13 When we get into the subgroup analysis, 14 there's probablymore variability in the costs between 15 different types of firms than there is inwhat will be 16 the range of the average costs that we anticipate in 17 the market. So, the focus in the second segment of the 18 analysis is to look at the different cost structures of 19 the different types ofmanufacturers. 20 NOw, manufacturing costs canbe estimated a 21 number ofways and therehave been three approaches 22 that have beenusedby the program in the past. And 23 sometimes it'sbeen a combinationof these approaches. 24 The survey approachhas beenused extensively 25 by LBNL in the residential products and itconsists in

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064261 1 outlining a series of design options and asking 2 manufacturers to submit price information on those 3 design options. And that way a cost efficiency curve 4 could be drawn. 5 A cost modeling approach, which is sort of a 6 bottoms up, bill of materials construction, was used in 7 the early '80s for the first rulemaking that I guess 8 ended up in the no standard vendor. So it's something 9 that's been used in the past that may have some 10 applications in the future, depending on the nature of 11 the product. 12 Finally, the ASHRAE approach was used -- it 13 is being used with the EPAC products. It's more than 14 just a manufacturing cost derivation because the way 15 the information is reported can capture a lot of the 16 manufacturing impacts. So we'll be talking about that 17 later this afternoon. Ron Jarnagin from the Pacific 18 Northwest, who chaired the committee at ASHRAE, as well 19 as Larry Wethje of ARI will be describing that 20 methodology. 21 Yes? 22 MR. BROOKMAN: Folks might wish to comment as 23 you're going through these slides. Does that work for 24 you? 25 MR. RIVEST: Sure.

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(301) 565-0064 261 1 outlining a series of designoptions and asking 2 manufacturers to submit price information on those 3 design options. And that way a cost efficiency curve 4 could be drawn. 5 Acostmodeling approach, which is sortof a 6 bottoms up, bill of materials construction, was used in 7 the early '80s for the first rulemaking that I guess 8 endedup in the no standardvendor. So it's something 9 that's beenused in the past thatmay have some 10 applications in the future, dependingon the nature of 11 the product. 12 Finally, theASBRAE approachwas used

-- it 13 is beingused with theEPAC products. It'smore than 14 just a manufacturing cost derivationbecause theway 15 the information is reported can capture a lot of the 16 manufacturing impacts. Sowe'll be talking about that 17 later this afternoon. RonJarnagin from the Pacific 18 Northwest, who chaired the committee atASHRAE, as well 19 as LarryWethje ofARI will be describing that 20 methodology. 21 Yes? 22 MR. BROOKMAN: Folks mightwish to comment as 23 you're going through these slides. Does that work for 24 you? 25 MR. RIVEST: Sure.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064262 1 MR. BROOKMAN: So, cue me. Raise your hands. 2 And we can back up if we need to. 3 MR. CRAWFORD: Just very quickly on the -- MR. BROOKMAN: Jim Crawford? MR. CRAWFORD: Sorry. Jim Crawford, Trane

On the ASHRAE approach, I think that that 8 choice of words could be misread, "not based on design 9 options." It is not based on public disclosure of the 10 design options that individual manufacturers select to 11 meet the efficiency numbers over the range. 12 MR. RIVEST: Yes. It's not prescriptive in 13 the sense that it doesn't force you to respond to how 14 much does it cost you for this motor. 15 MR. CRAWFORD: The design activity is done. 16 It's just that we don't tell each other -- 17 MR. RIVEST: Right. 18 MR. CRAWFORD: -- how we think is the best 19 way to achieve that efficiency level.
20 MR. RIVEST: Correct. 21 MR. BROOKMAN: Maybe what we can do is, we'll 22 take questions now but we'll let Mike go through his 23 slides. 24 Charlie? 25 MR. STEPHENS: Charlie Stephens, Oregon

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(301) 565-0064 262 1 MR. BROOKMAN: So, cue me. Raise your hands. 2 And we can back up ifwe need to. 3 MR. CRAWFORD: Just very quickly on the

-- 4 MR. BROOKMAN: Jim Crawford? 5 MR. CRAWFORD: Sorry. Jim Crawford, Trane 6 Company. 7 On the ASHRAE approach, I think that that 8 choice of words could be misread, "not based on design 9 options." It is not based on public disclosure of the 10 design options that individual manufacturers select to 11 meet the efficiency numbers over the range. 12 MR. RIVEST: Yes. It's not prescriptive in 13 the sense that it doesn't force you to respond to how 14 much does it cost you for this motor. 15 MR. CRAWFORD: The design activity is done. 16 It's just that we don't tell each other

-- 17 MR. RIVEST: Right. 18 MR. CRAWFORD:

-- how we think is the best 19 way to achieve that efficiency level. 20 MR. RIVEST: Correct. 21 MR. BROOKMAN: Maybe what we can do is, we'll 22 take questions now but we'll let Mike go through his 23 slides. 24 Charlie? 25 MR. STEPHENS: Charlie Stephens, Oregon

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064263 1 Energy Office. 2 I guess I have a more fundamental question 3 here in order for me to understand the slides. 4 Who's doing this modeling? I mean, it seems 5 to me that we have arrived at the part of this data 6 that is proprietary and that no company is going to be 7 very comfortable putting out their own cost information 8 or, for that matter, in some cases how they got it. 9 I'm not sure it even matters how they got it. 10 If everybody has a GRIM model and can run it, 11 what you're going to end up with, I would think, is 12 that each company, before submitting its data, will 13 have run whatever inputs they want -- price, cost, 14 whatever -- through the model and gotten an answer or a 15 series of answers. Hopefully, a distribution of 16 answers. 17 And I guess I'm trying to figure out how DOE 18 is going to receive this stuff. I mean, this sort of 19 suggests that they're going to be receiving the raw 20 data to put in the model, when I sort of envisioned 21 that you'd be getting the results of the modeling from 22 each company. 23 MR. RIVEST: I don't think we can lock 24 ourselves into one way or another at this point. As 25 Dave Crawford described, in some industries we have

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(301) 565-0064 263 1 Energy Office. 2 I guess I have a more fundamental question 3 here inorder for me tounderstand the slides. 

### 4 Who's doing this modeling? I mean, it seems 5 tome thatwe have arrived at the part of this data 6 that is proprietary and that no company is going tobe 7 very comfortable putting out their own cost information 8 or, for thatmatter, in some cases how they got it. 9 I'mnot sure it evenmatters how they got it. 10 If everybodyhas a GRIM model and canrun it, 11 what you're going to endupwith, I would think, is 12 that eachcompany, before submitting its data, will 13 have runwhatever inputs they want

-- price, cost, 14 whatever

-- through themodel and gotten an answer or a 15 series of answers. Hopefully, a distribution of 16 answers. 17 And I guess I'm trying to figure outhow DOE 18 is going toreceive this stuff. I mean, this sort of 19 suggests that they're going tobe receiving the raw 20 data toput in the model, when I sortof envisioned 21 that you'dbe getting the results of themodeling from 22 each company. 23 MR. RIVEST: I don't thinkwe can lock 24 ourselves into one way or another at this point. As 25 Dave Crawford described, in some industrieswe have

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064264 1 five players and certainly they could run their own 2 models and give them to DOE. In some industries there 3 may be 60 and that would imply that the Department will 4 have to run the models for subgroups. 5 At this point, I don't know that the decision 6 has been made who would run the model. 7 MR. STEPHENS: Yes. I guess that was my sort 8 of concern here, is that I think we are into sensitive 9 data here and this is the stuff that won't be shared 10 publicly, I would think, if you have the kind of detail 11 that you're looking for here. And so I guess -- I 12 thought there might be a discussion early on of who is 13 going to provide the data to whom and whether it will 14 be results. 15 Like I say, hopefully, a distribution of 16 outcomes perhaps from each company for DOE to analyze, 17 or what. 18 MR. McCABE: This is Michael McCabe. 19 This is an example of one of the questions 20 which personally I see is going to vary by industry and 21 that we're going to end up in the initial stages of a 22 rulemaking addressing how the analysis is going to be 23 structured, will DOE do an analysis drawing on the 24 cost, shipments, from whatever approach, or will we 25 give the GRIM model to each manufacturer, they run it

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(301) 565-0064 264 1 five players and certainly they couldrun their own 2 models and give them to DOE. In some industries there 3 may be 60 and thatwould imply that the Departmentwill 4 have to run the models for subgroups. 5 At this point, I don't know that the decision 6 has beenmade who would run the model. 7 MR. STEPHENS: Yes. I guess that was my sort 8 of concernhere, is that I thinkwe are into sensitive 9 data here and this is the stuff thatwon'tbe shared 10 publicly, I would think, ifyou have thekind of detail 1 1 that you're looking for here. And so I guess I 12 thought there mightbe a discussion earlyon ofwho is 13 going to provide the data towhom andwhether itwill 14 be results. 15 Like I say, hopefully, a distributionof 16 outcomes perhaps from each company for DOE to analyze, 17 or what. 18 MR. McCABE: This isMichaelMcCabe. 19 This is an example of one of the questions 20 which personally I see is going to varyby industry and 21 thatwe're going to endup in the initial stages of a 22 rulemaking addressinghow the analysis is going tobe 23 structured, will DOE do an analysis drawing on the 24 cost, shipments, from whatever approach, orwill we 25 give the GRIM model to eachmanufacturer, they run it

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064265 1 with their own costs with certain parameters specified 2 by the Department as far as what we are assuming is 3 going to happen to whatever the inputs are. 4 So they would run it for their own cost 5 structure and give us the results and decide how those 6 results would be provided. So some of those specific 7 questions for individual products would be addressed at 8 that point in developing a methodology. We, in the 9 toolbox, would want to have a process where we could 10 either do the analysis ourselves or have the individual 11 manufacturers do it or so some combination. 12 What Mike was showing here are three 13 approaches that have been taken in developing 14 manufacturing costs. The first two were done by DOE; 15 one where the Department surveyed the industry through 16 the trade association at this level, which represents 17 this design option, what were the costs. So it was a 18 design option based survey. 19 The second one was we structured an analysis 20 where we did the engineering analysis ourselves. If 21 you increase the efficiency of the baseline unit X 22 percent by adding a particular technology, what will be 23 the cost? 24 We undertook those analyses in order to 25 develop the cost data. The ASHRAE approach, as Jim

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(301) 565-0064 265 1 with their own costs with certainparameters specified 2 by the Department as far as what we are assuming is 3 going tohappen towhatever the inputs are. 4 So they would run it for their own cost 5 structure and give us the results and decide how those 6 results would be provided. So some of those specific 7 questions for individual products wouldbe addressed at 8 thatpoint indeveloping a methodology. We, in the 9 toolbox, wouldwant to have a process wherewe could 10 eitherdo the analysis ourselves orhave the individual 11 manufacturers do itor so some combination. 12 WhatMike was showing here are three 13 approaches that have been taken in developing 14 manufacturing costs. The first two were done by DOE; 15 onewhere the Department surveyed the industry through 16 the trade association at this level, which represents 17 this designoption, what were the costs. So itwas a 18 design optionbased survey. 19 The second one was we structured an analysis 20 where we did the engineering analysis ourselves. If 21 you increase the efficiencyof thebaselineunitX 22 percent by adding a particular technology, what will be 23 the cost? 24 We undertook those analyses in order to 25 develop the cost data. The ASHRAE approach, as Jim

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064266 1 Crawford properly recognized, was that manufacturers 2 provided information to ASHRAE. Said for a 15 percent, 3 a 20 percent, 30 percent improvement, whatever the 4 numbers are, here's what it's going to cost. 5 They were the only ones that knew what design 6 options were incorporated in that 15 or X percent
7 improvement because for one manufacturer, it may be a 8 different collection of design options than it is for 9 another manufacturer. But it was structured around 10 percent improvements or efficiency levels. 11 MR. RIVEST: Just wanted to add. On my 12 previous slide, the cost information isn't just used to
13 run the GRIM and to arrive at manufacturing impact.
14 It's also used to arrive at a life cycle cost curve for 15 consumers. And it's needed that we reconcile the 16 prices within one analysis with the cost or prices 17 within the other, as we talked about yesterday for the 18 shipments information being used in the GRIM and being 19 used in the national benefits. 20 MR. BROOKMAN: Additional questions before we 21 move into the next slides? 22 MR. RIVEST: There are presenters for each of 23 these approaches. Ike Turiel is going to be talking 24 about the survey approach that LBNL has been using 25 extensively in the residential products. The cost

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(301) 565-0064 266 1 Crawfordproperly recognized, was thatmanufacturers 2 provided information toASHRAE. Said for a 15 percent, 3 a 20 percent, 30 percent improvement, whatever the 4 numbers are, here's what it'sgoing to cost. 5 They were the only ones thatknewwhat design 6 options were incorporated in that 15 orXpercent 7 improvementbecause for one manufacturer, itmay be a 8 different collectionof designoptions than it is for 9 anothermanufacturer. But itwas structured around 10 percent improvements or efficiency levels. 1 1 MR. RIVEST: Justwanted to add. On my 12 previous slide, the cost information isn'tjustused to 13 run the GRIM and to arrive atmanufacturing impact. 14 It's also used to arrive at a life cycle cost curve for 15 consumers. And it's needed that we reconcile the 16 prices within one analysis with the cost orprices 17 within the other, as we talked about yesterday for the 18 shipments informationbeingused in the GRIM andbeing 19 used in the national benefits. 20 MR. BROOKMAN: Additional questions beforewe 21 move into the next slides? 22 MR. RIVEST: There arepresenters for each of 23 these approaches. Ike Turiel is going tobe talking 24 about the survey approach that LBNL has beenusing 25 extensively in the residential products. The cost

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064267 1 modeling approach will be described by Steve Mariano of 2 ADL, and the ASHRAE approach will be described by Ron 3 Jarnagin and Larry Wethje. So there will be 4 opportunity to talk about how this analysis fits within 5 the framework and get into details of how the analysis 6 was actually conducted. 7 MR. BROOKMAN: That follows on with your 8 overview comments now? 9 MR. RIVEST: Right. And trying to -- I mean, 10 certainly there is no tool and there's no assessment 11 methodology that I think will be applicable to all 12 products. In trying to decide which methodology is 13 best for one product, I listed a series of criteria 14 that one might consider in selecting the tool and I 15 certainly invite you to add or delete criteria that are 16 pertinent. 17 What I listed here is, is there a methodology 18 which, for a particular application, we could expect to 19 have more accurate results. The time and cost of 20 implementation could be significantly different. In 21 some cases, the cost to the Department will be greater. 22 In some cases, the cost to manufacturers for developing 23 these costs will be greater. The opportunity for 24 stakeholder involvement is quite a bit different from 25 one methodology to the next.

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(301) 565-0064 267 1 modeling approachwill be described by steveMariano of 2 ADL, and theASHRAE approach will be describedby Ron 3 Jarnagin andLarryWethje. So there will be 4 opportunity to talk about how this analysis fits within 5 the framework and get into details ofhow the analysis 6 was actually conducted. 7 MR. BROOKMAN: That follows onwith your 8 overview comments now? 9 MR. RIVEST: Right. And trying to

-- I mean, 10 certainly there is no tool and there's no assessment 11 methodology that I thinkwill be applicable to all 12 products. In trying to decide whichmethodology is 13 best for oneproduct, I listed a series of criteria 14 that one might consider in selecting the tool and I 15 certainly invite you to add or delete criteriathat are 16 pertinent. 17 What I listedhere is, is there a methodology 18 which, for a particular application, we could expect to 19 have more accurate results. The time and cost of 20 implementation couldbe significantlydifferent. In 21 some cases, the cost to the Departmentwill be greater. 22 In some cases, the cost tomanufacturers for developing 23 these costs will be greater. The opportunity for 24 stakeholder involvement is quite a bit different from 25 onemethodology to the next.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064268 1 The treatment of uncertainty in average cost. 2 One thing we talked about, we're committed now to 3 describing average costs within uncertainty bounds, so 4 any methodology that we describe has to be consistent 5 with that goal. So we may need to adapt some of the 6 things we've been doing in the past. 7 Validation of results. To what extent do we 8 have to build confidence in the data? Is it possible 9 to validate it somehow? Can we do sanity checks on the 10 data that we generate? 11 Is it compatible to the GRIM? If the GRIM is 12 to be our common calculator of cash flow, can we 13 structure the inputs so that they're fit into the GRIM? 14 And to what extent will this data gathering help us in 15 our evaluation of the additional impacts that we're 16 committed to doing? 17 For example, our employment impact. Will 18 that data gathering contribute to employment impact 19 analyses? Will we have a better understanding of how 20 capital asset requirements may add to leverage and thus 21 to business risk in small businesses? And can we from 22 those costs and from the way that the costs are 23 reported, will we have an idea of any competitive 24 impacts on small -- negative impacts on small 25 companies, for example.

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(301) 565-0064 268 1 The treatment of uncertainty in average cost. 2 One thingwe talked about, we're committednow to 3 describing average costs withinuncertaintybounds, so 4 anymethodology that we describehas tobe consistent 5 with that goal. Sowe may need to adapt some of the 6 things we'vebeen doing in the past. 7 Validationof results. To what extentdo we 8 have tobuild confidence in the data? Is itpossible 9 tovalidate it somehow? Canwe do sanity checks on the 10 data thatwe generate? 1 1 Is it compatible to the GRIM? If the GRIM is 12 tobe our common calculatorof cash flow, canwe 13 structure the inputs so that they're fit into the GRIM? 14 And towhat extent will this datagatheringhelp us in 15 our evaluation of the additional impacts that we're 16 committed to doing? 17 For example, our employment impact. Will 18 that data gathering contribute to employment impact 19 analyses? Will we have a betterunderstandingof how 20 capital asset requirements may add to leverage and thus 21 tobusiness risk in small businesses? And canwe from 22 those costs and from the way that the costs are 23 reported, will we have an ideaof any competitive 24 impacts on small

-- negative impacts on small 25 companies, for example.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064269 1 So we have to make sure that the process we 2 lay out either at that initial stage or later on will 3 be able to fulfill the criteria that we deem important. 4 At this point, I'd like to invite Ike Turiel 5 to come forward and describe the survey methodology. 6 MR. BROOKMAN: Questions for Mike Rivest on 7 the overview? 8 9 10 11 (No response.) Okay. MR. TURIEL: Good morning. I was asked to spend about 10 or 15 minutes 12 to describe how LBL has gathered manufacturing cost 13 data over the last 11 or so years. And as several 14 speakers have already said, and people from the 15 audience, this is very sensitive data, difficult to 16 obtain. 17 And the first thing we did when we were faced 18 with this task back around 1986 was to get help and we 19 had a contract with Arthur D. Little. Actually, I was 20 looking for Dick Topping. He's one of the first people 21 we went to to ask for assistance in developing a list 22 of design options that could be used for each of the 23 products that we had to examine. 24 And we also put out a request for proposals 25 to hire a firm that would help us to go out and gather

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(301) 565-0064 

### 269 1 Sowe have tomake sure that theprocesswe 2 layout either at that initial stage or later onwill 3 be able to fulfill the criteriathatwe deem important. 4 At this point, I'd like to invite IkeTuriel 5 to come forward and describe the surveymethodology. 6 

### MR. BROOKMAN: Questions forMike Rivest on 7 the overview? 8 (No response.) 9 Okay. 10 MR. TURIEL: Goodmorning. 11 I was asked to spend about 10 or 15 minutes 12 to describehow LBL has gatheredmanufacturingcost 13 data over the last 11 or so years. And as several 14 speakers have already said, andpeople from the 15 audience, this is very sensitive data, difficult to 16 obtain. 17 And the first thing**w~** 

### didwhenwe were faced 18 with this taskback around 1986was togethelp andwe 19 had a contractwithArthurD. Little. Actually, I was 20 looking for DickTopping. He's one of the first people 21 we went to to ask for assistance in developing a list 22 ofdesign options that couldbeused for each of the 23 products thatwe had to examine. 24 And we alsoput out a request for proposals 25 tohire a firm thatwould helpus to go out and gather

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064270 1 the information. We had 13 different products that we 2 had to gather data for. And we developed survey forms 3 to gather the data. I'll show you an example of one of 4 those forms in a moment. 5 We also visited manufacturing plants, had 6 discussions with suppliers of parts to the different 7 products. We did literature review, which sometimes 8 gave us some information on manufacturing costs. We 9 used consultants to help both in costing, engineering 10 issues that would come up, and also with modeling 11 issues in terms of getting cost efficiency data. 12 Because that was the goal, was to get cost efficiency 13 data, which was used both for manufacturing impact and 14 also to do life cycle cost analysis. 15 One of the first survey forms that we used is 16 this one here. This one actually goes back to 1987 17 when we first went out to visit plants and tried to 18 gather this type of data. And what it is, essentially, 19 there was a table which listed different design 20 options. It described them, which is not shown in this 21 table. And they were numbered. 22 The manufacturers were asked to order the 23 design options in terms of the way they would use them 24 first, and the technical feasibility was requested in 25 terms of is it presently available, the technology;

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(301) 565-0064 270 1 the information. We had 13 differentproducts that we 2 had to gather data for. And we developed survey forms 3 to gather the data. 1111 showyou an example of one of 4 those forms in a moment. 5 We also visitedmanufacturingplants, had 6 discussions with suppliers of parts to the different 7 products. We did literature review, which sometimes 8 gave us some information onmanufacturing costs. We 9 used consultants to helpboth in costing, engineering 10 issues thatwould come up, and also withmodeling 11 issues in terms of getting cost efficiency data. 12 Because that was the goal! was to get costefficiency 13 data, whichwas used both for manufacturing impact and 14 also to do life cycle cost analysis. 15 One of the first survey forms that we used is 16 this onehere. This one actually goes back to 1987 17 whenwe first went out to visit plants and tried to 18 gather this type of data. And what it is, essentially, 19 there was a table which listeddifferent design 20 options. It described them, which is not shown in this 21 table. And they were numbered. 22 The manufacturers were asked to order the 23 design options in terms of the way theywould use them 24 first, and the technical feasibility was requested in 25 terms of is itpresently available, the technology;

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064271 1 would it be available in the future, or it is just not 2 feasible at all. That was the level of detail that was 3 asked at that time. 4 Then we divided up the cost into the 5 categories. You can see materials, labor. The 6 investments were put into one category at that time, 7 tooling. And purchased parts, packaging/shipping. A 8 confidence interval was asked for the cost information 9 and then the estimated efficiency for that particular 10 design option. That was the earliest survey form that we

Over the years, the survey forms got more 14 elaborate and more detailed, and this is one that was 15 used for the refrigerator rulemaking, the one that is 16 still going on at the moment. It was supposed to be -- 17 it says 1998. That was the original target date, 1998. 18 And this one was developed over many, many months, many 19 iterations back and forth between what we started out 20 with and, working with AHAM very closely, to change 21 that form. 22 And this is what it ended up looking like. 23 It actually originally went all the way across, but it 24 was way too wide to show in a viewgraph, so I chopped 25 it into two pieces here.

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(301) 565-0064 

### 271 1 would itbe available in the future, or it isjustnot 2 feasible at all. Thatwas the level of detail thatwas 3 asked at that time. 4 Thenwe divided up the cost into the 5 categories. You can seematerials, labor. The 6 investments wereput into one category at that time, 7 tooling. And purchasedparts, packaging/shipping. A 8 confidence interval was asked for the cost information 9 and then the estimatedefficiency for thatparticular 10 design option. 11 Thatwas the earliest survey form thatwe 12 used. 13 Over the years, the survey forms gotmore 14 elaborate andmore detailed, and this is one thatwas 15 used for the refrigerator rulemaking, the one that is 16 still going on at themoment. Itwas supposed tobe

-- 17 it says 1998. Thatwas the original targetdate, 1998. 18 And this onewas developedovermany, many months, many 19 iterationsback and forth betweenwhatwe startedout 20 with and, workingwithAHAM very closely, to change 21 that form. 22 And this is what itendedup looking like. 23 It actually originallywent all the way across, but it 24 was way toowide to show ina viewgraph, so I chopped 25 it intotwopieceshere.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064272 1 And again, it starts with design options and 2 asks about the feasibility. This time marketing 3 utility has been added in as another category in the 4 table. Unit cost impact looks pretty similar to what 5 we had before in the top part. Now there's much more 6 of a breakout in terms of the investment expenses, in 7 terms of tooling, building, equipment, research and 8 development. And the last part looks similar; what's 9 the energy use and what's the uncertainty in that 10 particular cost. I'm sorry. Uncertainty and energy is 11 here. Uncertainty in cost is way up on the right. 12 The marketing utility says small, medium, 13 large. That was because there were different impacts 14 depending on whether you were looking at small 15 refrigerators or large refrigerators. Possibly 16 different impacts. 17 Design option feasibility had a whole special 18 table -- which I won't go into now unless someone asks 19 to see that later -- to try to evaluate what design 20 option feasibility was between zero and 100 percent. 21 As I said before, in addition to using the 22 survey forms and gathering information directly from 23 manufacturers, which I should say right now -- I forgot 24 to mention -- the information we got was average 25 information. That data was submitted by the individual

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(301) 565-0064 272 1 And again, it starts with design options and 2 asks about the feasibility. This timemarketing 3 utilityhas been added in as another category in the 4 table. Unit cost impact looks pretty similar towhat 5 we had before in the toppart. Now there's muchmore 6 of a breakout in terms of the investment expenses, in 7 terms of tooling, building, equipment, research and 8 development. And the lastpart looks similar; what's 9 the energyuse andwhat's the uncertainty in that 10 particular cost. I'm sorry. Uncertainty and energy is 11 here. Uncertainty in cost is way up on the right. 12 The marketingutility says small, medium, 13 large. That was because there were different impacts 14 dependingonwhether you were looking at small 15 refrigerators or large refrigerators. Possibly 16 different impacts. 17 Design option feasibility had a whole special 18 table

-- which I won't go intonow unless someone asks 19 to see that later

-- to try to evaluatewhat design 20 option feasibility was between zero and 100percent. 21 As I saidbefore, in addition tousing the 22 survey forms and gathering informationdirectly from 23 manufacturers, which I should say right now -- I forgot 24 tomention the informationwe got was average 25 information. That datawas submittedby the individual

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064273 1 manufacturers to the trade organization and that was 2 then -- after it was averaged, we then obtained that 3 data. 4 So in addition to that, we also went directly 5 to suppliers of equipment to the manufacturers. An 6 example with refrigerators, we looked at compressor and 7 manufacturers, fan motor manufacturers, to get 8 additional data. And we contacted each of the 9 suppliers, compressor manufacturers, fan motor 10 manufacturers, to get estimates. We used average 11 values because that data was also deemed confidential. 12 We couldn't show any of the individual numbers, just 13 the average numbers we got. And we used then the cost 14 efficiency analyses that were performed. 15 In this particular analysis of refrigerators, 16 there was a lot of stakeholder involvement. Many, many 17 meetings were held and this information was shared very 18 early on with the manufacturers and other stakeholders. 19 So after review of that data, some things had changed 20 over about a year period, so we re-did it again, got 21 new estimates, and those were used in the final 22 analysis. 23 And I'll just give one more example. This is 24 for using subcontractors. This was done very early on 25 back in 1987. We were looking at gas furnaces. One of

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(301) 565-0064 273 1 manufacturers to the trade organization and thatwas 2 then

-- after itwas averaged, we then obtained that 3 data. 4 So in addition to that, we alsowent directly 5 to suppliers of equipment to the manufacturers. An 6 example with refrigerators, we looked at compressor and 7 manufacturers, fan motormanufacturers, toget 8 additional data. And we contacted each of the 9 suppliers, compressormanufacturers, fan motor 10 manufacturers, to get estimates. We used average 11 values because that datawas also deemed confidential. 12 We couldn't show any of the individual numbers, just 13 the average numbers we got. And we used then the cost 14 efficiency analyses that were performed. 15 In this particular analysis of refrigerators, 16 there was a lot of stakeholder involvement. Many, many 17 meetings were held and this informationwas sharedvery 18 early onwith the manufacturers and other stakeholders. 19 So after review of that data, some things had changed 20 over about a year period, sowe re-did it again, got 21 new estimates, and thosewere used in the final 22 analysis. 23 And I'lljustgive one more example. This is 24 for using subcontractors. This was done very early on 25 back in 1987. We were looking at gas furnaces. One of

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064274 1 the important issues was looking at the additional cost 2 of induced draft versus natural draft gas furnaces, so 3 we hired a firm that used costing estimators to look 4 specifically at that one particular design option 5 because that was very important. We were going from 71 6 to 78 percent efficiencies. This is the range that was 7 looked at. And they obtained costing data for that one design option. And again, that was used in the 9 analysis also. 10 Those were a couple of examples. And the 11 reason I've shown these examples is just to make it 12 clear it wasn't just survey data only that was used 13 from the manufacturers, but these data was supplemented 14 by additional data from suppliers or subcontractors. 15 So some of the issues I see as being very 16 important in the engineering cost data. As I said 17 before, obviously the confidentiality of that data can 18 be a very important issue always in trying to gather it 19 and how we do that. We have from time to time gotten 20 data from individual companies. Most of it has been 21 average data, as I said, but we have signed 22 confidentiality agreements with individual companies 23 and have obtained data that way also. 24 As was said earlier, the uncertainty in the 25 data from each company is definitely an apparent issue.

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(301) 565-0064 274 1 the important issues was looking at the additional cost 2 of induced draft versus natural draft gas furnaces, so 3 we hired a firm thatused costing estimators to look 4 specifically at that one particulardesign option 5 because that was very important. We were going from 71 6 to 78 percent efficiencies. This is the range that was 7 looked at. And they obtainedcostingdata for that one 8 design option. And again, thatwas used in the 9 analysis also. 10 Those were a couple of examples. And the 11 reason I've shown these examples is just tomake it 12 clear itwasn't just survey data only thatwas used 13 from the manufacturers, but these datawas supplemented 14 by additional data from suppliers or subcontractors. 15 So some of the issues I see as beingvery 16 important in the engineering cost data. As I said 17 before, obviously the confidentialityof that data can 18 be a very important issue always in trying to gather it 19 andhowwe do that. We have from time to time gotten 20 data from individual companies. Most of ithas been 21 average data, as I said, but we have signed 22 confidentiality agreements with individual companies 23 andhave obtained data that way also. 24 As was said earlier, the uncertainty in the 25 data from each company is definitely an apparent issue.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064275 1 There's variability among the companies in what it 2 costs to reach a particular efficiency. But the 3 average data we get, one of the issues there, one of 4 the problems is that it's aggregating the uncertainties 5 in variability among the companies into the final 6 numbers we get, and it's hard to separate that out. In 7 fact, it's not possible to separate that out without 8 knowing the individual numbers. 9 Finally, the process is very time intensive 10 for both the manufacturers -- it takes a tremendous 11 amount of time for their engineers to spend gathering 12 that data and a lot of time for DOE to process it. 13 One thing I want to say publicly. I haven't 14 had the chance to do it. I want to thank all the 15 companies that have invited us to their plants and 16 spent time with us to explain their process with us and 17 to supply that data. 18 Thank you. 19 MR. BROOKMAN: Questions for Ike? 20 MR. CRAWFORD: Jim Crawford, Trane Company. 21 By way of comment rather than by way of 22 question really on the example for use of suppliers. 23 This is an area where we do find significant 24 differences between industries, whereas in 25 refrigerators/compressors, for example, are indicated

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(301) 565-0064 275 1 There's variability among the companies inwhat it 2 costs toreach a particular efficiency. But the 3 average datawe get, one of the issues there, one of 4 the problems is that it's aggregating the uncertainties 5 in variability among the companies into the final 6 numbers we get, and it'shard to separate that out. In 7 fact, it's not possible to separate that out without 8 knowing the individual numbers. 9 Finally, the process is very time intensive 10 for both themanufacturers

-- it takes a tremendous 11 amount of time for their engineers to spend gathering 12 that data and a lotof time for DOE toprocess it. 13 One thing I want to saypublicly. I haven't 14 had the chance to do it. I want to thank all the 15 companies thathave invitedus to theirplants and 16 spent time with us to explain theirprocess withus and 17 to supply that data. 18 Thank you. 19 MR. BROOKMAN: Questions for Ike? 20 MR. CRAWFORD: JimCrawford, Trane Company. 21 By way of comment rather thanbyway of 22 questionreally on the example for use of suppliers. 23 This is an area where we do find significant 24 differences between industries, whereas in 25 refrigerators/compressors, for example, are indicated

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064276 1 as being purchased parts. There are several 2 manufacturers in other industries that are more highly 3 vertically integrated and, therefore, that information 4 on their compressor costs is extremely sensitive to 5 them and is not industry type information. 6 Just to reinforce the discussion of the 7 differences between types of products. 8 MR. BROOKMAN: Comments, questions? 9 (No response.) 10 Okay. 11 MR. RIVEST: I think it would be an 12 appropriate time for a break. 13 MR. BROOKMAN: I think it is. Let's do that.
14 It's now 20 after. Let's come on back and at 15 10:35 and we'll start up. 16 (Whereupon, a recess was taken.) 17 MR. BROOKMAN: Let me ask you the question. 18 So far, how is this working this morning? 19 I want to preserve time for you to comment. 20 Let's just keep it as dynamic as possible. So we'll 21 try and go through a slide and then see if you've got 22 comments or questions based on that, and then we'll try 23 to make summary comments as we move on through it. 24 Okay. 25 Our next presenter is Steve --

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### 276 1 as beingpurchasedparts. There are several 2 manufacturers inother industries that aremore highly 3 vertically integratedand, therefore, that information 4 on their compressor costs is extremely sensitive to 5 them and is not industry type information. 6 Just to reinforce the discussionof the 7 differences between types ofproducts. 8 

### MR. BROOKMAN: Comments, questions? 9 

### (No response.) 10 Okay. 1 1 

### MR. RIVEST: I think itwouldbe an 12 appropriate time for a break. 13 MR. BROOKMAN: I think it is. Let's do that. 14 It's now 20 after. Let's come onback and at 15 10:35 andwe'll startup. 16 (Whereupon, a recess was taken.) 17 

### MR. BROOKMAN: Letme ask you the question. 18 So far, how is this working thismorning? 19 I want topreserve time for YQu to comment. 20 Let's justkeep it as dynamic as possible. Sowe'll 21 try andgo through a slide and then see ifyou've got 22 comments orquestions basedon that, and then we'll try 23 tomake summary comments as we move on through it. 24 Okay. 25 Ournextpresenter is Steve

--
EXECUTIVE COURT REPORTERS, INC. (301) 565-0064277 1 MR. MARIANO: Mariano. 2 MR. BROOKMAN: -- Mariano. Thank you. Steve 3 Mariano. 4 And how much time are you going to spend,
5 Steve? 6 MR. MARIANO: Fifteen, 20 minutes. 7 MR. BROOKMAN: Fifteen minutes, max. Just 8 going rapidly. Just like comedy here. 9 MR. MARIANO: Good morning. My name is Steve 10 Mariano. I'm a manufacturing consulting with Arthur D. 11 Little and I'm going to be talking about a cost 12 assessment approach to generating manufacturing cost 13 data. And I'm going to focus on the uncertainty 14 aspects which are addressed in the Phase 2 analysis and 15 variability in Phase 3. 16 So, I said about 15 minutes, and I'll talk 17 about this approach. As Mike and Ike have talked 18 about, the cost modeling approach is really where this 19 falls in. It's based on cost estimating techniques, 20 cost modeling. 21 There are three more objectives that we see 22 here. First and foremost is consistency. I think 23 that's very important that we're consistent in our 24 analysis. 25 The second, we want to try to address

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### 1 MR. MARIANO: Mariano. 2 

### MR. BROOKMAN:

-- Mariano. Thankyou. steve 3 Mariano. 4 And how much time are you going to spend, 5 steve? 6 

### MR. MARIANO: Fifteen, 20 minutes. 7 

### MR. BROOKMAN: Fifteenminutes, max. Just 8 going rapidly. Just like comedyhere. 9 

### MR. MARIANO: Goodmorning. My name is steve 10 Mariano. I'm a manufacturingconsultingwithArthurD. 11 Little and I'mgoing tobe talking about a cost 12 assessment approach to generatingmanufacturingcost 13 data. And I'mgoing to focus on the uncertainty 14 aspects which are addressed in the Phase 2 analysis and 15 variability inPhase 3. 16 So, I said about 15 minutes, and I'll talk 17 about this approach. As Mike and Ike have talked 18 about, the cost modeling approach is reallywhere this 19 falls in. It's basedon cost estimatingtechniques, 20 costmodeling. 21 There are threemore objectives thatwe see 22 here. First and foremost is consistency. I think 23 that's very important thatwe're consistent inour 24 analysis. 25 The second, we want to try to address

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064278 1 uncertainty. And the way we do that in this approach 2 is to sort of build a prototypical cost and to use that 3 as a basis. 4 And then the variability is to address it, 5 the costs, of each firm. 6 The cost modeling approach, a cost assessment 7 approach, can be used to do just specific design 8 options or we can use it to establish a baseline for 9 comparison. If you're interested in looking at 10 comparing the cost of firms, you might need some sort 11 of a baseline for discussion purposes, and that's 12 really one of the main benefits of using it. 13 Now, just to talk briefly about what the cost 14 assessment approach is. It starts with a bottoms up, 15 component based bill of materials type cost estimate. 16 The labor is activity based costing that we use. It 17 details manufacturing processes. It's spreadsheet 18 based so it works very well with the GRIM in that 19 respect. And it also allows a lot of modification. 20 It's very transparent so you know the assumptions that 21 go into the model -- the costs of components, et 22 cetera, that we're using -- so that you can critique it 23 and we can discuss it. 24 This is just a simple schematic to show you 25 sort of the process that you go through.

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### 278 1 uncertainty. And theway we do that in this approach 2 is to sort ofbuild a prototypical cost and touse that 3 as a basis. 4 And then the variability is to address it, 5 the costs, of each firm. 6 The costmodeling approach, a cost assessment 7 approach, canbe used to do just specific design 8 options orwe canuse it to establisha baseline for 9 comparison. If you're interested in looking at 10 comparing the costof firms, youmight need some sort 11 of a baseline for discussionpurposes, and that's 12 really one of themainbenefits ofusing it. 13 NOw, just to talkbriefly aboutwhat the cost 14 assessment approach is. It startswith a bottoms up, 15 componentbasedbill ofmaterials type cost estimate. 16 The labor is activitybased costing thatwe use. It 17 details manufacturingprocesses. It's spreadsheet 18 based so itworks very well with the GRIM in that 19 respect. And it also allows a lot ofmodification. 20 It's very transparent soyouknow the assumptions that 21 go into themodel

-- the costs of components, et 22 cetera, that we're using

-- so that you cancritique it 23 andwe candiscuss it. 24 This is just a simple schematic to showyou 25 sort of the process that yougo through.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064279 1 First of all, we start with the bill of 2 materials. And what I've said is we list relevant 3 parts. That is all driven by design, whether you have 4 a very detailed design and you need a complete bill of 5 materials on that, or whether it's a little bit more 6 fuzzy and you might just have several subassemblies, 7 you can bill it from that. So there's a level of 8 detail that can be incorporated, depending on what's 9 necessary for the rulemaking process. Again, you can 10 tailor it. 11 Once the bill of materials has been 12 constructed and the parts are there, the next step is 13 understanding the manufacturing and fabrication 14 processes and assembly processes. And this is somewhat 15 of an example of an assembly tree that you might expect 16 to see. It can be much more detailed than this. 17 Typically, it is. And it lists individual components 18 feeding into subassemblies. 19 And what we focus on here is processing 20 times. And what that allows us to do is estimate labor 21 and equipment, equipment and tooling costs. 22 Once the bill of materials -- and this is 23 what we call an expanded bill of materials. It 24 incorporates manufacturing processes when it has been 25 completed. The data can be looked at in a number of

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(301) 565-0064 279 1 First of all, we startwith thebill of 2 materials. And what I've said is we listrelevant 3 parts. That is all drivenby design, whether you have 4 a very detailed design and you need a completebill of 5 materials on that, orwhether it's a littlebitmore 6 fuzzy and you might justhave several subassemblies, 7 you canbill it from that. So there's a level of 8 detail that can be incorporated, dependingon what's 9 necessary for the rulemaking process. Again, you can 10 tailor it. 11 Once thebill ofmaterials has been 12 constructed and the parts are there, the next step is 13 understanding the manufacturing and fabrication 14 processes and assembly processes. And this is somewhat 15 of an example of an assembly tree that you might expect 16 to see. It canbemuchmore detailed than this. 17 Typically, it is. And it lists individual components 18 feeding into subassemblies. 19 And whatwe focus onhere is processing 20 times. And what that allows us to do is estimate labor 21 and equipment, equipment and tooling costs. 22 Once thebill ofmaterials

-- and this is 23 whatwe call an expandedbill of materials. It 24 incorporates manufacturingprocesses when ithas been 25 completed. The data canbe looked at in a number of

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064280 1 ways and this will give you an example. 2 The material costs, direct labor costs, can 3 be broken down by subassembly, as well as equipment 4 necessary for those subassemblies. They also can be 5 broken out by manufacturing processes, if someone's 6 interested. Even by individual components it can be 7 broken down, so you can look at specific components. 8 There's a lot of flexibility in looking at 9 the outputs to the model. 10 So what this model, this cost assessment 11 approach can do is it develops I guess what we call a 12 benchmark. It's really a prototypical manufacturing 13 cost, whether it be for a complete system, a 14 subassembly or one particular design option. 15 Costs are typically what we assume as 16 greenfield sites, and that's how we build up the costs. 17 And what this allows you to do is then to look at the 18 specific analysis and say, well, we want to add and 19 omit things. We want to make changes to that. That's 20 not really the case. 21 What it does allow you to do, it provides the 22 baseline for that discussion. That's the important 23 part of it, providing that baseline. 24 And this gives you some idea of how the 25 spreadsheet is structured. It incorporates product

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### 280 1 ways and this will give you an example. 2 The material costs, direct labor costs, can 3 bebrokendown by subassembly, as well as equipment 4 necessary for those subassemblies. They also canbe 5 brokenoutbymanufacturingprocesses, if someone's 6 interested. Evenby individual components itcanbe 7 brokendown, so you can look at specific components. 8 There's a lot of flexibility in looking at 9 the outputs to themodel. 10 Sowhat this model, this cost assessment 11 approach cando is itdevelops I guess whatwe call a 12 benchmark. It's really a prototypicalmanufacturing 13 cost, whether itbe for a complete system, a 14 subassembly orone particulardesign option. 15 Costs are typicallywhat we assume as 16 greenfield sites, and that's how we buildup the costs. 17 And what this allows you to do is then to look at the 18 specific analysis and say, well, we want to add and 19 omit things. We want tomake changes to that. That's 20 not really the case. 21 What itdoes allowyou to do, itprovides the 22 baseline for that discussion. That's the important 23 part of it, providing thatbaseline. 24 And this gives you some ideaofhow the 25 spreadsheet is structured. It incorporatesproduct

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064281 1 specifications, so that's really your design option, 2 what it is the design entails. Materials in process 3 databases are where the information is stored for doing 4 the manufacturing cost calculation. And then it also 5 can incorporate some financial factors; say things like 6 labor rates, et cetera. 7 And then what happens is those can be 8 summarized and they can be done by operation of the 9 process here. In other words, summarizing materials, 10 labor, equipment for a particular process. It can also 11 be summarized for a particular component or system or 12 subsystem. And that data can be summarized and then 13 fed into the GRIM. 14 What I'd like to talk about now is the Phase 15 2 analysis in addressing the issues of uncertainty. 16 Uncertainty, by its definition, means not definitely 17 known. We don't know the answer. We don't have that 18 number. I think we've talked a lot about that earlier 19 today even. 20 Well, where does this uncertainty come from 21 in the manufacturing costs and how do we understand it 22 and characterize it? 23 We don't necessarily want to sort of 24 eliminate uncertainty. We can't. But we want to 25 understand it. We want to understand where it's coming

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### 281 1 specifications, so that's really your designoption, 2 what it is the design entails. Materials inprocess 3 databases are where the information is stored for doing 4 themanufacturing cost calculation. And then italso 5 can incorporate some financial factors; say things like 6 labor rates, et cetera. 7 And thenwhathappens is those canbe 8 summarized and they canbedoneby operationof the 9 process here. In otherwords, summarizingmaterials, 10 labor, equipment for a particularprocess. Itcan also 11 be summarized for a particularcomponent or systemor 12 subsystem. And that data canbe summarized and then 13 fed into the GRIM. 14 What I'dlike to talk about now is the Phase 15 2 analysis in addressing the issues of uncertainty. 16 Uncertainty, by its definition, means not definitely 17 known. We don't know the answer. We don'thave that 18 number. I thinkwe've talked a lot about that earlier 19 today even. 20 Well, where does this uncertainty come from 21 in themanufacturingcosts andhow dowe understand it 22 and characterize it? 23 We don't necessarilywant to sortof 24 eliminateuncertainty. We can't. Butwe want to 25 understand it. We want tounderstandwhere it's coming

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064282 1 from to improve the rulemaking decision. 2 Just some of the uncertainties that you'd 3 encounter in a prototypical manufacturing cost for a 4 subsystem or a product. The labor rates could vary. 5 Cost of equipment. Say, for instance, you're 6 estimating the cost for a particular piece of equipment 7 and you might get several different vendor quotes and 8 they can vary considerably. And that's a level of 9 uncertainty in your manufacturing process when you 10 carry that through. 11 It could be cycle times or process times. 12 You might say, oh, I think it's going to take two 13 minutes to assemble this particular set of components, 14 but that might be plus or minute 15 seconds. So how do 15 you address that? 16 Now, these are the areas where you might see 17 some uncertainty. And by combining all of these, you 18 can get some pretty large levels of uncertainty. A 19 couple of ways of doing it using our spreadsheet tool. 20 First of all, we use something like 21 sensitivity analysis. Sensitivity analysis, which is 22 the upper left there. What sensitivity analysis lets 23 you do is characterize the level of uncertainty. For 24 example, you can look at how significant the cycle 25 times might be or the material costs might be on the

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### 282 1 from to improve the rulemakingdecision. 2 Just some of the uncertainties that you'd 3 encounter in a prototypicalmanufacturingcost for a 4 subsystemor a product. The laborrates couldvary. 5 Cost of equipment. Say, for instance, you're 6 estimatingthe cost for a particularpiece of equipment 7 and youmight get several different vendor quotes and 8 they canvary considerably. And that's a level of 9 uncertainty inyourmanufacturingprocesswhen you 10 carry that through. 11 It couldbe cycle times orprocess times. 12 You might say, oh, I think it's going to take two 13 minutes to assemble this particular setof components, 14 but thatmightbe plus orminute 15 seconds. Sohow do 15 you address that? 16 Now, these are the areas where youmight see 17 someuncertainty. And by combining all of these, you 18 can get some pretty large levels of uncertainty. A 19 couple ofways of doing itusingour spreadsheet tool. 20 First of all, we use something like 21 sensitivity analysis. Sensitivity analysis, which is 22 the upper left there. What sensitivity analysis lets 23 you do is characterize the level of uncertainty. For 24 example, you can look athow significant the cycle 25 times mightbe or the material costs mightbe on the

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1 product's cost. How significant is it. 2 We were talking about, earlier, sensitivity 3 analysis. I think it was James -- one of you was 4 saying was if you were 5 percent off in your sales 5 volumes, there were huge variations. That's a simple 6 sensitivity analysis. 7 You can do the same thing with the 8 manufacturing costs through this cost modeling 9 approach. You can look at how significant or how 10 accurate do my numbers need to be and how much of an 11 impact are they going to have. 12 The second way of doing it is using 13 simulation techniques. What that allows you to do is 14 to look at multiple variables in the model and see 15 their interrelation and how, bearing all of them, what 16 the impact would be on the results. And again, it's 17 giving you some idea of the uncertainty; characterizing 18 it and understanding it, not eliminate it or not trying 19 to say, well, let's just try to force some numbers into 20 the model to make that uncertainty go away. That's not 21 going to happen. 22 What we're doing is saying, well, how can we 23 understand that uncertainty and what is the impact, 24 what is the level of impact in our results. 25 The Phase 3 analysis now talks about

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(301) 565-0064 283 1 product's cost. How significant is it. 2 We were talking about, earlier, sensitivity 3 analysis. I think itwas James

-- one of you was 4 sayingwas if you were 5 percent off in your sales 5 volumes, there were huge variations. That's a simple 6 sensitivity analysis. 7 You can do the same thing with the 8 manufacturing costs through this costmodeling 9 approach. You can look athow significant orhow 10 accurate do my numbers need to be andhowmuch of an 11 impact are they going to have. 12 The secondway of doing it is using 13 simulation techniques. What that allows you to do is 14 to look atmultiple variables in themodel and see 15 their interrelation andhow, bearing all of them, what 16 the impact wouldbe on the results. And again, it's 17 giving you some idea of the uncertainty; characterizing 18 it andunderstanding it, not eliminate it ornot trying 19 to say, well, let's just try to force some numbers into 20 themodel tomake that uncertainty go away. That's not 21 going to happen. 22 What we're doing is saying, well, how canwe 23 understand that uncertainty and what is the impact, 24 what is the level of impact in ourresults. 25 The Phase 3 analysis now talks about

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064284 1 variability. Now what we're doing with the model is 2 trying to separate the uncertainties in the 3 manufacturing costs by applying it to a prototypical 4 product, prototypical firm, and looking at that, just 5 the uncertainty. And now we're saying we want to use 6 the model to look at variability. 7 Variability is defined as not true to type. 8 It's not typical. It varies with the classes. So if 9 we're talking about subgroups, there's differences and 10 we want to address the variability now with the model. 11 So, first, again, where does it come from and 12 how do we understand it or how can we possibly put some 13 understanding to it. 14 Primarily, two areas where variability stems 15 from. First of all, it stems from the design. As we 16 talked about earlier today, manufacturers might 17 approach an efficiency and achieve an efficiency level 18 through different designs. And it could be as simple 19 as one manufacturing saying, well, I use an injection 20 molded plastic part here, and another manufacturer 21 says, well, my component is cast. Something as simple 22 as that. And it shows you that there's variability 23 about how a manufacturer might go about their design. 24 And the model allows you to look at that because of its 25 basic component based build up of materials.

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(301) 565-0064 284 1 variability. Now what we're doing with themodel is 2 trying to separate the uncertainties in the 3 manufacturing costs by applying it to a prototypical 4 product, prototypical firm, and looking at that, just 5 the uncertainty. And now we're sayingwe want to use 6 the model to look at variability. 7 Variability is defined as not true to type. 8 It's not typical. Itvaries with the classes. So if 9 we're talking about subgroups, there's differences and 10 we want to address the variabilitynowwith themodel. 11 So, first, again, where does itcome from and 12 how do we understand itorhow canwe possiblyput some 13 understanding to it. 14 Primarily, two areas where variability stems 15 from. First of all, it stems from the design. As we 16 talked about earlier today, manufacturers might 17 approach an efficiency and achieve an efficiency level 18 through different designs. And itcouldbe as simple 19 as onemanufacturing saying, well, I use an injection 20 molded plasticpart here, and anothermanufacturer 21 says, well, my component is cast. Something as simple 22 as that. And it shows you that there's variability 23 about how a manufacturermight go about their design. 24 And the model allows you to look at thatbecause of its 25 basic component basedbuildup ofmaterials.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064285 1 The second areas is in the manufacturing, in 2 the manufacturing processes, in the methods that a firm 3 might use. Production volume is obviously one that can 4 affect it. One firm may have very low production
5 volumes. The others may have very high production 6 volumes. There's going to be certainly variability
7 associated with differences in their manufacturing 8 processes. 9 Other areas might include levels of 10 automation, levels of vertical integration you talked 11 about. Again, the product mix, for instance. That 12 might be a major differentiation between them. 13 The model, what it's going to allow us to do 14 is set up a separate model for each subgroup or 15 category that we want to look at and allow us to change 16 the appropriate manufacturing processes and/or designs 17 and compare those, feed those into the GRIM. 18 Just to give you an example, this is just 19 some summaries from a model that would potentially give 20 you manufacturing costs. This is for a particular 21 component. But it would give you that cost for a 22 number of firms. And what you can see is that some 23 firms may have higher equipment costs or higher 24 material costs. What this allows us to do is to 25 categorize those to say, well, now we at least

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(301) 565-0064 285 1 The second areas is in the manufacturing, in 2 the manufacturingprocesses, in the methods that a firm 3 might use. Productionvolume is obviously one that can 4 affect it. One firmmay have very lowproduction 5 volumes. The othersmay have very high production 6 volumes. There's going tobe certainly variability 7 associatedwith differences in theirmanufacturing 8 processes. 9 Other areas might include levels of 10 automation, levels of vertical integrationyou talked 11 about. Again, the productmix, for instance. That 12 might be a major differentiationbetween them. 13 Themodel, what it'sgoing to allow us to do 14 is setup a separatemodel for each subgroup or 15 category thatwe want to look at and allowus to change 16 the appropriate manufacturingprocesses and/or designs 17 and compare those, feed those into the GRIM. 18 Just to give you an example, this is just 19 some summaries from a model that would potentiallygive 20 youmanufacturing costs. This is for a particular 21 component. But itwould give you that cost for a 22 number of firms. And what you can see is that some 23 firms may have higher equipment costs orhigher 24 material costs. What this allows us to do is to 25 categorize those to say, well, now we at least

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064286 1 understand the variability among the firms, where is it 2 coming from. 3 And to conclude, I believe the cost 4 assessment approach has several benefits. One is it 5 establishes consistency in the data, how the data is 6 created and constructed. They're all the same and 7 they're used for different firms. Those models are 8 structured the same so that the estimation techniques 9 of the data that's generated in it is consistent. 10 They're using the same numbers. 11 It helps us to understand uncertainty. It 12 helps us to estimate those uncertainties and understand 13 those so that we can look at them. And that's based on 14 the prototypical firm. That's where that uncertainty 15 with regard to the prototypical is found. 16 And then the next step would be to look at 17 the variability among the manufacturers from that 18 prototypical firm. So, as I've showed you in those 19 columns before, one of those columns might be -- this 20 is on prototypical manufacturing cost estimate. Here 21 are the other firms. So when I say Firm A to B, or A 22 through D or whatever, Firm A may have been our 23 prototypical estimate. Not based on any particular 24 firm but on a typical firm. 25 So that's all I have to talk about today.

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(301) 565-0064 286 1 understand the variability among the firms, where is it 2 coming from. 3 And to conclude, I believe the cost 4 assessment approachhas severalbenefits. One is it 5 establishes consistency in the data, how the data is 6 created and constructed. They're all the same and 7 they'reused for different firms. Thosemodels are 8 structured the same so that the estimation techniques 9 of the data that's generated in it is consistent. 10 They're using the same numbers. 1 1 Ithelps us tounderstand uncertainty. It 12 helps us to estimate those uncertainties andunderstand 13 those so thatwe can look at them. And that's based on 14 the prototypical firm. That's where thatuncertainty 15 withregard to the prototypical is found. 16 And then the next stepwouldbe to look at 17 the variability among the manufacturers from that 18 prototypical firm. So, as I've showed you in those 19 columns before, one of those columns mightbe this 20 is onprototypicalmanufacturing cost estimate. Here 21 are the other firms. Sowhen I say FirmAtoB, orA 22 throughDorwhatever, FirmAmay havebeen our 23 prototypical estimate. Notbased on any particular 24 firmbut on a typical firm. 25 So that's all I have to talk about today.

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1 2 3 Any questions? MR. BROOKMAN: Questions? John, since our mikes are out at the moment, 4 you ask the question and I'm going to repeat it into 5 the record. Stand up, please. 6 MR. WILSON: [Off mike.] 7 MR. BROOKMAN: Can these methods tell us how 8 to deal with changes in productivity is the boiled down 9 version. 10 MR. MARIANO: Speaking from the standpoint of 11 the cost modeling approach, by building out the 12 assembly process and manufacturing processes and 13 modeling those, what we're doing is putting together 14 typical cycle times or process times. 15 Now, when you say improves productivity, 16 those process times can be traced. Certain steps may 17 be eliminated in those manufacturing operations. And 18 what the model allows you to do is add and make changes 19 to it and modify it and take out or add process steps. 20 So that's how I would see addressing productivity, 21 manufacturing productivity, in a cost modeling 22 approach. 23 MR. WILSON: [Off mike.] 24 MR. BROOKMAN: Is there a way to evaluate a 25 time series in the data?

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(301) 565-0064 287 1 Any questions? 2 MR. BROOKMAN: Questions? 3 John, since our mikes are out at the moment, 4 you ask the question and I'm going to repeat it into 5 the record. Standup, please. 6 MR. WILSON: [Off mike.] 7 MR. BROOKMAN: Can these methods tell us how 8 to deal with changes inproductivity is the boileddown 9 version. 10 MR. MARIANO: Speaking from the standpoint of 11 the cost modeling approach, by buildingout the 12 assembly process andmanufacturingprocesses and 13 modeling those, what we're doing is putting together 14 typical cycle times orprocess times. 15 Now, when you say improves productivity, 16 those process times can be traced. Certain steps may 17 be eliminated in those manufacturing operations. And 18 what the model allows you to do is add and make changes 19 to it andmodify it and take out or add process steps. 20 So that's how I would see addressing productivity, 21 manufacturing productivity, in a costmodeling 22 approach. 23 MR. WILSON: [Off mike.] 24 MR. BROOKMAN: Is there a way to evaluate a 25 time series in the data?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064288 1 MR. MARIANO: I don't know if in the 2 manufacturing cost assessment type approach you would 3 do that. I think it fits more into where the GRIM is 4 looking at more of a time period. And I think we 5 really haven't addressed it from the standpoint of 6 within the cost model itself. 7 Prices go down over a time period, is what 8 you're saying? 9 MR. WILSON: Right. 10 MR. MARIANO: Yes. We really haven't done 11 that. The only way I would say is you'd have to create 12 another model at a different period of time. 13 MR. WILSON: [Off mike.] 14 MR. BROOKMAN: The comment is that somehow 15 this methodology should develop that time series 16 aspect; right? 17 MR. WILSON: [Off mike.] 18 MR. BROOKMAN: Or productivity aspect. Okay. 19 We have several people who wish to comment on 20 that. 21 Can you see if anyone of those mikes is 22 working now? 23 (Pause.) 24 Maybe we could just ask you -- those of you 25 that wish to comment, could you come forward, please?

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### 288 1 MR. MARIANO: I don'tknow if in the 2 manufacturingcost assessment type approachyouwould 3 do that. I think it fits more intowhere the GRIM is 4 looking atmore of a time period. And I thinkwe 5 really haven't addressed it from the standpoint of 6 within the cost model itself. 7 Prices go down over a timeperiod, is what 8 you're saying? 9 

### MR. WILSON: Right. 10 MR. MARIANO: Yes. We really haven't done 11 that. The only way I would say is you'dhave to create 12 anothermodel at a different period of time. 13 MR. WILSON: [Offmike.] 14 MR. BROOKMAN: The comment is that somehow 15 this methodology shoulddevelop that time series 16 aspect; right? 17 

### MR. WILSON: [Offmike.] 18 

### MR. BROOKMAN: Orproductivity aspect. Okay. 19 We have several peoplewho wish to comment on 20 that. 21 Canyou see if anyone of thosemikes is 22 workingnow? 23 (Pause.) 24 Maybe we couldjust ask you -- those of you 25 thatwish to comment, could you come forward, please?

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1 2 3 You've got it? Great. Thank you.

MR. LEWIS : Dave Lewis , Lennox. Just to follow up to John 's comment, it would 4 be nice if we had all that information in a nice 5 convenient form, but it may come as a surprise. In 6 business, we don't have that . I mean, we're not 7 dealing with absolutes that are clear, so consequently, 8 you could build the GRIM model to include all those 9 items but I don't know how we'd ever fill them in.
10 MR. MARIANO: I don't see the GRIM model as 11 incorporating all the items. The GRIM model would take 12 inputs from the manufacturing cost assessment or 13 surveys. 14 15 question. 16 17 18 state it. 19 MR. LEWIS: Maybe I misunderstood John's

MR. BROOKMAN : John Wilson? Clarify. MR. WILSON: Well, I guess I can just reOne of the issues that's come up in the last 20 year or two is the observation that prices didn't 21 increase after standards took effect. And we've been 22 going back and forth about whether or not that meant 23 that manufacturers were losing money or whether or not 24 they were continuing to make money but they were 25 reducing their costs. And it seems that this

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(301) 565-0064 289 1 You've got it? Great. Thank you. 2 MR. LEWIS: Dave Lewis, Lennox. 3 Just to follow up toJohn's comment, itwould 4 be nice ifwe had all that information in a nice 5 convenient form, but itmay come as a surprise. In 6 business, we don'thave that. I mean, we're not 7 dealingwith absolutes that are clear, so consequently, 8 you couldbuild the GRIM model to include all those 9 items but I don'tknow how we'd ever fill them in. 10 MR. MARIANO: I don't see the GRIM model as 11 incorporating all the items. The GRIM model would take 12 inputs from the manufacturing cost assessment or 13 surveys. 14 MR. LEWIS: Maybe I misunderstoodJohn's 15 question. 16 MR. BROOKMAN: JohnWilson? Clarify. 17 MR. WILSON: Well, I guess I canjustre18 state it. 19 One of the issues that's come up in the last 20 year or two is the observation that prices didn't 21 increase after standards took effect. And we'vebeen 22 going back and forth about whether ornot thatmeant 23 that manufacturers were losingmoney orwhetherornot 24 they were continuing tomake money but theywere 25 reducing their costs. And it seems that this

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064290 1 methodology will not tell us whether or not that has 2 occurred. 3 And I think that if we're doing a 4 manufacturer impact model, one thing we need to include 5 is whether or not productivity has increased in the 6 past and whether or not it will continue to increase in 7 the future so that when we're then debating some point in the future about whether or not prices did or did 9 not increase, whether or not that meant manufacturers 10 were being adversely impacted. 11 Now, I understand this is a difficult problem 12 but, again, if we're going to be using GRIM, we need to 13 have it be as realistic as possible so that it informs 14 the kinds of policy decisions the Department has to 15 make. 16 17 up? MR. BROOKMAN: Dave, do you want to follow

18 MR. LEWIS: In follow up, of course, 19 complexity and difficulty we all agree this is 20 difficult. But it's my understanding that the GRIM and 21 this whole process is to enable the Department of 22 Energy to make a decision as to what standards -- where 23 standards need to be set. 24 And I guess my comment is the kind of 25 specificity that it sounds like you would be anxious to

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(301) 565-0064 290 1 methodology will not tell us whether or not that has 2 occurred. 3 And I think that if we're doing a 4 manufacturer impact model, one thingwe need to include 5 is whether or not productivity has increased in the 6 past and whether or not it will continue to increase in 7 the future so that when we're then debating some point 8 in the future about whether or not prices did or did 9 not increase, whether or not that meant manufacturers 10 were being adversely impacted. 1 1 Now, I understand this is a difficult problem 12 but, again, if we're going to be using GRIM, we need to 13 have it be as realistic as possible so that it informs 14 the kinds of policy decisions the Department has to 15 make. 16 MR. BROOKMAN: Dave, do you want to follow 17 up? 18 MR. LEWIS: In follow up, of course, 19 complexity and difficulty we all agree this is 20 difficult. But it'smy understanding that the GRIM and 21 this whole process is to enable the Department of 22 Energy to make a decision as to what standards where 23 standards need to be set. 24 And I guess my comment is the kind of 25 specificity that it sounds like you would be anxious to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064291
1 have -- I guess my point is that's not available at 2 this point as we enter a process to set a standard. 3 Information that we have is based on our
4 history. The best guess and experience that we have in
5 the marketplace that we input into the system will not 6 eliminate the problem that you've identified.

7 MR. BROOKMAN: Dan? 8 MR. DEMPSEY: Dan Dempsey, Carrier. 9 I had a specific comment on the cost 10 assessment approach and that's not unlike the industry
11 to develop costs for a new line of products. Having 12 been bitten on the results of these, the key to it is 13 the design that's assumed on the front end. And 14 usually when you're assuming a design you haven't 15 produced before, you usually miss things. 16 And if this approach is used, I guess I would 17 raise a red flag that there need to be some kind of 18 additional contingency placed into it to account for 19 the unknowns. 20 MR. MORRIS: Wayne Morris with AHAM. 21 One of the questions that we've had about 22 these types of approaches has always been how do we 23 account for or get away from this issue of the, quote, 24 average manufacturing. You talk to a certain extent 25 about the prototypical manufacturer, but I think that

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(301) 565-0064 291 1 have

-- I guess my point is that's not available at 2 this point as we enter a process to set a standard. 3 Information that we have is based on our 4 history. The best guess and experience that we have in 5 the marketplace that we input into the systemwill not 6 eliminate the problem that you've identified. 7 MR. BROOKMAN: Dan? 8 MR. DEMPSEY: Dan Dempsey, Carrier. 9 I had a specific comment on the cost 10 assessment approach and that's not unlike the industry 11 to develop costs for a new line of products. Having 12 beenbittenon the results of these, the key to it is 13 the design that's assumed on the front end. And 14 usually when you're assuming a design you haven't 15 producedbefore, you usually miss things. 16 And if this approach is used, I guess I would 17 raise a red flag that there**n~ed** to be some kind of 18 additional contingency placed into it to account for 1 9 the unknowns. 20 MR. MORRIS: Wayne Morris withAHAM. 21 One of the questions that we've had about 22 these types of approaches has always beenhow dowe 23 account for or get away from this issue of the, quote, 24 average manufacturing. You talk to a certain extent 25 about the prototypical manufacturer, but I think that

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064292 1 one of the concerns that we've had and one of the whole 2 reasons behind going forward with both GRIM and also 3 with going forward with the interpretive rule situation 4 was to get away from this issue of defining an average 5 manufacturer within an industry. 6 So I'm curious as to why. Maybe I missed 7 something. But it seems like we're going back to that 8 situation again. 9 MR. RIVEST: As I understand it, Wayne, the 10 purpose of identifying a prototypical manufacturer is 11 to be able to explain why there are non-prototypical 12 manufacturers. It's not to -- we're not using the 13 outcome of the prototypical manufacturer to do rigorous 14 analysis. It's really -- if we had some sort of handle 15 on what a state-of-the-art high volume production 16 facility might look like, and then we'd go to visit a 17 smaller manufacturer, and then we can document that -- 18 well, this manufacturer has really very different costs 19 because of his level of integration, because of his 20 volumes, because of the age of his equipment. 21 So it's just something to compare with. It's 22 not something to lock you in. 23 MR. BROOKMAN: Additional questions or 24 comments? 25 MR. McCABE: We have a question right here.

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(301) 565-0064 292 1 one of the concerns that we've had and one of the whole 2 reasons behind going forward withboth GRIM and also 3 with going forward with the interpretive rule situation 4 was to get away from this issue of defining an average 5 manufacturerwithin an industry. 6 So I'm curious as to why. Maybe I missed 7 something. But it seems like we're goingback to that 8 situation again. 9 MR. RIVEST: As I understand it, Wayne, the 10 purpose of identifying a prototypical manufacturer is 11 to be able to explainwhy there are non-prototypical 12 manufacturers. It's not to

-- we're not using the 13 outcome of the prototypical manufacturer to do rigorous 14 analysis. It's really

-- if we had some sort of handle 15 on what a state-of-the-arthigh volume production 16 facility might look like, and then we'd go to visit a 17 smallermanufacturer, and thenwe can document that 18 well, this manufacturerhas really very different costs 19 because of his level of integration, because of his 20 volumes, because of the age of his equipment. 21 So it's just something to compare with. It's 22 not something to lock you in. 23 24 comments? 25 MR. BROOKMAN: Additional questions or

MR. McCABE: We have a question right here.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064293 1 Steve Nadel. 2 MR. NADEL: Just one comment on this 3 approach. This approach strikes me as pretty 4 complicated, time-consuming, expensive. And I wonder 5 whether it may be overkill in many cases. I noticed in 6 the report write-up, it talked about how it was used 7 previous to about 1990 and then was dropped due to the 8 fact that it proved to be time-consuming and expensive. 9 So I'm not saying never use it. There may be 10 some appropriate cases to use it. But this is, you 11 know, to be used when -- strikes me. The other methods 12 don't -- just will not work because there is great 13 divergence in estimates and the cost of the material is 14 really critical to help pin down how to move forward. 15 For most products, I would hope that we can, 16 through surveys of the other approaches, come to a 17 reasonable agreement and discover that price 18 differences are not a driving factor in the decision.
19 20 Rivest. 21 MR. RIVEST: Steve, I'd say -- this is Mike

I say that what you've just expressed 22 reflects the Department's thinking. It's an option 23 there. It's a recourse when you have no other solutions 24 and you can't get costs. Maybe the technologies are so 25 radical that manufacturers couldn't be surveyed. So

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(301) 565-0064 293 1 steve Nadel. 2 MR. NADEL: Just one comment on this 3 approach. This approach strikesme as pretty 4 complicated, time-consuming, expensive. And I wonder 5 whether itmay be overkill inmany cases. I noticed in 6 the report write-up, it talked about how itwas used 7 previous to about 1990 and thenwas dropped due to the 8 fact that itproved tobe time-consuming and expensive. 

### 9 So I'mnot sayingnever use it. Theremay be 10 some appropriate cases to use it. But this is, you 11 know, tobe usedwhen

-- strikes me. The othermethods 12 don't justwill not workbecause there is great 13 divergence in estimates and the cost of thematerial is 14 really critical to helppindown how tomove forward. 15 Formost products, I wouldhope that we can, 16 through surveys of the other approaches, come to a 17 reasonable agreement and discover thatprice 18 differences are not a driving factor in the decision. 19 MR. RIVEST: Steve, I'd say -- this isMike 20 Rivest. 21 I say that what you've just expressed 22 reflects the Department's thinking. It's an option 23 there. It's a recourse when youhave no other solutions 24 and you can't get costs. Maybe the technologies are so 25 radical thatmanufacturers couldn't be surveyed. So

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064294 1 it's a complement more than a comprehensive solution. 2 MR. BROOKMAN: I guess then we're moving on 3 to our next presentation, which is with Ron Jarnagin 4 and Larry Wethje. 5 MR. JARNAGIN: Okay. My name is Ron Jarnagin 6 and I'm going to start this presentation, but I'm going 7 to need the ample assistance of Larry Wethje to 8 actually give you the substance here. 9 I was asked to talk a little bit about what 10 we did in ASHRAE Standard 90.1. And what I'd like to 11 do is just give you a little brief overview of that; 12 put in context what you're going to hear from Larry. 13 And perhaps differentiate the approach that we use from 14 some of the stuff that you've seen. 15 And as I was looking at the detail and the 16 rigor of some of the stuff that we just presented, I 17 was sort of reminded of the engineering texts that many 18 of us probably studied from, in which they had a 19 derivation of an equation. And there'd be stuff that 20 would go on for pages and finally there would be the 21 classic phrase that says, "It can be easily shown that 22 ... and things appear." 23 (Laughter.) 24 The student translation is, "And then magic 25 happens."

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 294 1 it's a complementmore than a comprehensive solution. 2 MR. BROOKMAN: I guess thenwe'removing on 3 to our next presentation, which is withRon Jarnagin 4 andLarryWethje. 5 MR. JARNAGIN: Okay. My name is RonJarnagin 6 and I'mgoing to start this presentation, but I'mgoing 7 to need the ample assistance of Larry Wethje to 8 actually give you the substance here. 9 I was asked to talk a littlebit aboutwhat 10 we did inASHRAE Standard 90.1. And what I'd like to 11 do is justgive you a littlebrief overviewof that; 12 put incontextwhat you're going to hear from Larry. 13 And perhaps differentiate the approach that we use from 14 some of the stuff that you've seen. 15 And as I was looking at the detail and the 16 rigor of some of the stuff that we justpresented, I 17 was sortof reminded of the engineering texts thatmany 18 ofus probably studied from, inwhich they had a 19 derivationof an equation. And there'dbe stuff that 20 would goon for pages and finally therewould be the 21 classicphrase that says, "It canbe easily shown that 22

... and things appear." 23 (Laughter.) 24 25 happens." The student translation is, "And thenmagic

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064295 1 Well, in a sense, we took an approach that 2 was somewhat in that direction, in which we said that 3 there are certain parts of this process of developing 4 levels of economics and cost that the committee has 5 neither the resources or perhaps the fortitude to 6 approach, but we needed industry involvement in that. 7 So I'm going to describe to you kind of what we tried 8 to do, and then Larry is going to -- oh, there he is. 9 I was hoping Larry was here. 10 Larry is going to tell you a little bit about 11 how one particular aspect of the industry community 12 produced some of this data for us and brought it back 13 to the committee, and then we'll talk a little bit 14 about how it was used. 15 By the way, in case anyone does want to know, 16 I'm currently Chair of the 90.1 Committee. And during 17 the process that this was going on, I was actually 18 Chairman of the Mechanical Subcommittee that was 19 responsible for this. So we give equal credit, too, 20 the members of the Gas Appliance and Manufacturers 21 participated also in this process. So ARI and Gamble 22 were the two players. 23 In the ASHRAE sense, we were developing new 24 equipment efficiency numbers, too, for a new standard. 25 And we made the decision that we wanted to base it on

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(301) 565-0064 295 1 Well, in a sense, we took an approach that 2 was somewhat in that direction, inwhichwe said that 3 there are certainparts of this process of developing 4 levels of economics and cost that the committeehas 5 neither the resources orperhaps the fortitude to 6 approach, but we needed industry involvement in that. 7 So I'mgoing to describe to youkind ofwhatwe tried 8 to do, and then Larry is going to

-- oh, there he is. 9 I was hoping Larry was here. 10 Larry is going to tell you a littlebit about 11 how oneparticular aspect of the industry community 12 produced some of this data for us andbrought itback 13 to the committee, and then we'll talk a littlebit 14 about how itwas used. 15 By theway, in case anyone does want toknow, 16 I'm currently Chair of the 90.1 Committee. And during 17 theprocess that this was going on, I was actually 18 Chairman of the Mechanical Subcommittee that was 19 responsible for this. Sowe give equal credit, too, 20 the members of the Gas Appliance andManufacturers 21 participated also in this process. SoARI and Gamble 22 were the two players. 23 In the ASHRAE sense, we were developingnew 24 equipment efficiencynumbers, too, for a new standard. 25 And we made the decision thatwe wanted tobase iton

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064296 1 cost effectiveness to the consumer, so we needed some 2 sense of what this new equipment was going to cost and 3 certainly what it was going to save. 4 We decided, much like we're talking about 5 here, to do a life cycle cost analysis approach. We 6 used some national average costs because we didn't have 7 a lot of detail on local cost, and the variability of 8 that became somewhat of a problem. 9 So there was a fair amount of simplification 10 that went on in what we did, and that's acknowledged. 11 But we got a lot of comments on our approach in the 12 last public review. 13 To apply this approach, we needed the 14 incremental costs for incremental efficiency levels. 15 And this was for other parts of the standard. 90.1 16 covers the building envelope, lighting systems, as well 17 as mechanical equipment. For other parts of the 18 standard this was a fairly straightforward process 19 because most of the technology was there, it was known, 20 and it was a matter of getting a good handle on the 21 cost of existing technology. 22 When we looked at equipment, of course, we 23 recognized that basically we were probably going to 24 take the industry into some level of products that 25 perhaps hadn't been produced before, and we needed some

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(301) 565-0064 296 1 cost effectiveness to the consumer, sowe needed some 2 sense of what this new equipment was going to cost and 3 certainly what itwas going to save. 4 We decided, much like we're talking about 5 here, to do a life cycle cost analysis approach. We 6 used some national average costs because we didn't have 7 a lot of detail on local cost, and the variability of 8 that became somewhat of a problem. 9 So there was a fair amount of simplification 10 that went on in what we did, and that's acknowledged. 11 But we got a lot of comments on our approach in the 12 lastpublic review. 13 To apply this approach, we needed the 14 incremental costs for incremental efficiency levels. 15 And this was for other parts of the standard. 90.1 16 covers the building envelope, lighting systems, as well 17 as mechanical equipment. For other parts of the 18 standard this was a fairly straightforwardprocess 19 becausemost of the technology was there, itwas known, 20 and itwas a matter of getting a good handle on the 21 cost of existing technology. 22 When we looked at equipment, of course, we 23 recognized that basically we were probably going to 24 take the industry into some level of products that 25 perhaps hadn't been produced before, and we needed some

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064297 1 of this incremental cost data. 2 So, recognizing that we didn't have it, we 3 went to the industry to get sort of a measured cost 4 data. And we sent what I considered to be a rather 5 sweeping and perhaps optimistic letter to the industry 6 telling them what we were going to do and what we need 7 from them and crossed our fingers, I guess, that we 8 would get the cooperation. And I'm happy to say that 9 we did do that. 10 Larry is going to tell you a little bit about 11 what happened when the industry got the request. 12 Basically, what we were looking for was for 13 any given increment, whether it be a percent 14 increment -- or a percent increment of an efficiency 15 improvement over the existing one, what would be the 16 cost impact from the industry's standpoint to produce 17 this. And what we asked for back was essentially an 18 industry aggregate curve which was not specific to 19 individual manufacturers. 20 We didn't know the design options, and I 21 think that's been pointed out before. We had no sense 22 of the design options, recognizing that various 23 manufacturers might approach it in different ways. So 24 all we wanted was the curve that we could use, and now, 25 Larry is going to tell you a little bit about how that

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(301) 565-0064 297 1 of this incremental cost data. 2 So, recognizing that we didn't have it, we 3 went to the industry to get sortof a measured cost 4 data. And we sentwhat I considered tobe a rather 5 sweeping andperhaps optimistic letter to the industry 6 telling themwhat we were going todo andwhatwe need 7 from them and crossedour fingers, I guess, thatwe 8 would get the cooperation. And I'mhappy to say that 9 we did do that. 10 Larry is going to tell you a littlebit about 11 what happenedwhen the industry got the request. 12 Basically, what we were looking for was for 13 any given increment, whether itbe a percent 14 increment

-- or a percent increment of an efficiency 15 improvement over the existingone, whatwouldbe the 16 cost impact from the industry's standpoint toproduce 17 this. And what we asked for backwas essentially an 18 industry aggregate curve whichwas not specific to 19 individualmanufacturers. 20 We didn'tknow the design options, and I 21 think that's beenpointed out before. We had no sense 22 of the design options, recognizing that various 23 manufacturers might approach it indifferent ways. So 24 all we wantedwas the curve thatwe coulduse, andnow, 25 Larry is going to tell you a littlebit about how that

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064298 1 curve was produced or what went on inside the industry. 2 And then I'll come back for one closing remark. 3 MR. WETHJE: I think the ASHRAE process was a 4 good example of how all the interested parties worked 5 together for a very successful outcome, I think. It 6 was quite a simplified approach from the rigor of what 7 we've seen with respect to application of a lot of the 8 models that have been discussed. 9 And when we were approached as an industry to 10 provide input to that process using 90.1, we kind of 11 saw it as a combination of both the engineering 12 analysis and the manufacturer's impact analysis. We 13 see both of those features being very much intertwined 14 together and difficult to separate. 15 And so by providing a cost efficiency curve, 16 we asked our members to take both the engineering 17 aspects and the manufacturing impact aspects into 18 consideration simultaneously and provide that feedback 19 back to ASHRAE. So it's really an alternate approach 20 to both engineering and manufacturers impact, 21 recognizing, I think though, that it does not capture 22 all the manufacturers impacts. 23 It doesn't quantify any type of cash flow 24 analysis, which is certainly a manufacturers impact 25 that still may need to be considered if applied to

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(301) 565-0064 298 1 curve was produced orwhat went on inside the industry. 2 And then I'll come back for one closingremark. 3 MR. WETHJE: I think theASHRAE process was a 4 good example of how all the interestedparties worked 5 together for a very successful outcome, I think. It 6 was quite a simplified approach from the rigorofwhat 7 we've seenwith respect to applicationof a lotof the 8 models thathave beendiscussed. 9 And when we were approached as an industry to 10 provide input to that process using 90.1, we kind of 11 saw it as a combination ofboth the engineering 12 analysis and the manufacturer's impact analysis. We 13 see both of those features being verymuch intertwined 14 together and difficult to separate. 15 And soby providing a cost efficiency curve, 16 we asked ourmembers to takeboth the engineering 17 aspects and the manufacturing impact aspects into 18 consideration simultaneously and provide that feedback 19 back toASHRAE. So it's really an alternate approach 20 toboth engineering andmanufacturers impact, 21 recognizing, I think though, that itdoes not capture 22 all the manufacturers impacts. 23 It doesn't quantify any type of cash flow 24 analysis, which is certainly a manufacturers impact 25 that stillmay need tobe considered if applied to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064299 1 NEACA rulemakings. We didn't warrant or feel it was 2 necessary in the ASHRAE process. We felt like we 3 captured enough of the manufacturers impact in just 4 composing the cost efficiency curves. 5 The engineering analysis was approached a 6 little differently. Actually, quite differently than 7 from the way it had been previously described with the 8 design options approach. Our members generally felt 9 like they designed air-conditioning equipment more so 10 as far as improvements and efficiency goes on an 11 overall systems basis, as opposed to an individual 12 component by component basis. 13 The design options approach assumes that all 14 of a manufacturer's design -- in our case, let's say an 15 air-conditioner with a minimum efficiency of 10 SCER, 16 that a 10 SCER is all designed using all the same 17 components and design options. Well, we don't feel 18 like that's the case. A 10 isn't a 10, isn't a 10, 19 throughout our industry. There's 30-some manufacturers 20 that make unitary equipment and they use their own 21 proprietary trade secrets in establishing and reaching 22 a 10, as well as they will do the same thing in 23 achieving an 11 and a 12, et cetera. 24 And so they attack it more on an overall 25 systems approach, as opposed to being able to

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(301) 565-0064 299 1 NEACA rulemakings. We didn't warrant or feel itwas 2 necessary in the ASHRAE process. We felt likewe 3 capturedenough of themanufacturers impact injust 4 composing the cost efficiency curves. 5 The engineering analysis was approached a 6 littledifferently. Actually, quite differently than 7 from theway ithadbeenpreviously described with the 8 designoptions approach. Ourmembers generally felt 9 like they designed air-conditioning equipment more so 10 as far as improvements and efficiency goes on an 11 overall systems basis, as opposed to an individual 12 component by component basis. 13 The designoptions approach assumes that all 14 of a manufacturer's design

-- in our case, let's sayan 15 air-conditioner with a minimum efficiencyof 10 SCER, 16 that a 10 SCER is all designedusing all the same 17 components and design options. Well, we don't feel 18 like that's the case. A 10 isn't a 10, isn't a 10, 19 throughout our industry. There's 30-somemanufacturers 20 thatmake unitary equipment and they use theirown 21 proprietary trade secrets in establishing and reaching 22 a 10, as well as they will do the same thing in 23 achieving an 11 and a 12, et cetera. 24 And so they attack itmore on an overall 25 systems approach, as opposed tobeing able to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064300 1 categorically say, okay, everybody who makes a 10 uses 2 all these components. 3 Now, we ask you to go to an 11. We're going 4 to say you're going to use a two-speed fan. If we go 5 to a 12, you're going to use a scroll compressor or 6 whatever hypothetical design option you want to choose. 7 It just doesn't really fit our industry that neatly we 8 don't feel. 9 And so we asked them basically to provide us 10 with a curve indicating whatever they might do, what 11 would be the cost impact to you to go to an 11, a 12, 12 or et cetera. And in a minute, I'll just show you an 13 example of the outcome of that, but that's where we are 14 headed. 15 So that was pretty much the engineering 16 analysis approach that was used. As far as the 17 manufacturers impact approach that was used, we just 18 asked them to determine the cost to achieve the higher 19 efficiency relative to the baseline standard. And to 20 incorporate that, obviously we needed to establish 21 certain criteria for the manufacturers to consider in 22 determining this relative cost increase that would be 23 associated with achieving a higher efficiency standard. 24 And then in the end, we really felt like it's 25 still very essential to consider qualitative

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(301) 565-0064 300 1 categorically say, okay, everybody who makes a 10uses 2 all these components. 3 Now, we ask you to go to an 11. We're going 4 to say you're going touse a two-speed fan. Ifwe go 5 to a 12, you're going to use a scroll compressoror 6 whateverhypothetical design option youwant to choose. 7 Itjustdoesn't really fit our industry that neatly we 8 don't feel. 9 And sowe asked thembasically toprovide us 10 with a curve indicatingwhatever theymight do, what 11 would be the cost impact to you to go to an 11, a 12, 12 or et cetera. And in a minute, I'lljust showyou an 13 example of the outcome of that, but that's where we are 14 headed. 15 So thatwas prettymuch the engineering 16 analysis approach that was used. As far as the 17 manufacturers impact approach that was used, we just 18 asked them to determine the cost to achieve the higher 19 efficiencyrelative to thebaseline standard. And to 20 incorporate that, obviouslywe needed to establish 21 certaincriteria for the manufacturers to consider in 22 determining this relative cost increase that wouldbe 23 associatedwith achieving a higher efficiency standard. 24 And then in the end, we really felt like it's 25 still very essential to considerqualitative

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064301 1 assessments. Once you get done with this approach, you 2 need to take a step back and say, okay, now what other 3 factors really need to be considered. Does the outcome 4 look reasonable. And there's various -- there's a lot 5 of qualitative assessment that's still necessary after 6 reviewing the results. 7 What you come up with, and it's been alluded 8 to several times throughout the discussions in the last 9 day and also this morning, is a cost efficiency curve 10 that aggregates together all of the manufacturers data. 11 What we did was we essentially get a curve for each 12 manufacturer. By regression analysis, you're able to 13 condense that together, come up with one industry 14 average curve. From that, based on the data that you 15 get from the multitude of manufacturers responses, you 16 can come up with a standard deviation from that curve, 17 do some statistical analysis with it, and produce some 18 kind of a profile portion of the industry that you want 19 to then represent the industry by. 20 In the case of ASHRAE, what we provided to 21 them was a 90 percentile curve in an effort to protect 22 the small manufacturers. There isn't a lot of legal 23 protection for them, as is the case perhaps with the 24 Department of Justice oversight into the NEACA process. 25 And so, as a conservative approach there, we wanted to

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(301) 565-0064 301 1 assessments. Once you get done with this approach, you 2 need to take a stepback and say, okay, nowwhat other 3 factors really need tobe considered. Does the outcome 4 lookreasonable. And there's various

-- there's a lot 5 of qualitative assessment that's stillnecessary after 6 reviewing the results. 7 What you come upwith, and it'sbeen alluded 8 to several times throughout the discussions in the last 9 day and also this morning, is a cost efficiency curve 10 that aggregates together all of the manufacturers data. 11 What we didwas we essentially get a curve for each 12 manufacturer. By regression analysis, you're able to 13 condense that together, come up with one industry 14 average curve. From that, basedon the data that you 15 get from themultitude of manufacturers responses, you 16 can come upwith a standard deviation from that curve, 17 do some statistical analysis with it, andproduce some 18 kind of a profileportion of the industry that youwant 19 to then represent the industryby. 20 In the case ofASHRAE, whatwe provided to 21 themwas a 90 percentile curve in an effort toprotect 22 the smallmanufacturers. There isn't a lotof legal 23 protection for them, as is the case perhaps with the 24 Department of Justice oversight into the NEACA process. 25 And so, as a conservative approach there, we wanted to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064302 1 make sure we protected small manufacturers. We decided 2 to provide one curve that indicated what 90 percent of 3 the manufacturers of that particular product were able 4 to produce on a cost efficiency basis. 5 From there, you then go and do your life 6 cycle cost analysis, which was done by PNNL, after we 7 provided the curve. And I just want to show you a 8 typical curve that was provided. 9 This happened to be for a ground water source 10 heat pump. Basically what it shows is on a relative 11 basis on your abscissa here, the cost increase. If 12 you're starting out with, in this case, the existing 13 standard was an 11.0 EER. The cost to produce that on 14 a relative basis is 1. In order to go to say perhaps 15 an 11.5, 90 percent of the manufacturers would be able 16 to do that with an incremental cost increase of 17 whatever that indicates there, about 7.5, 8 percent. 18 To go up to a 12 EER, about 12-13 percent increase, et 19 cetera. 20 And so, that's in essence what we provided to 21 ASHRAE for about 35 different product categories and 22 incorporated, as I said, both the engineering analysis 23 and certain portions of the manufacturers impact 24 analysis. 25 There still may be room, if warranted and

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(301) 565-0064 

### 302 1 make surewe protected smallmanufacturers. We decided 2 toprovideone curve that indicatedwhat 90 percentof 3 themanufacturers of that particularproductwere able 4 toproduce on a cost efficiencybasis. 5 From there, you then go and do your life 6 cycle cost analysis, whichwas done by PNNL, afterwe 7 provided the curve. And I justwant to show you a 8 typical curve thatwas provided. 9 This happened tobe for a groundwater source 10 heatpump. Basicallywhat it shows is on a relative 11 basis on your abscissahere, the cost increase. If 12 you're starting outwith, in this case, the existing 13 standardwas an 11.0

### EER. The cost toproduce that on 14 a relativebasis is 1. In order to go to say perhaps 15 an 11.5, 90 percent of themanufacturers wouldbe able 16 to do that with an incremental cost increase of 17 whatever that indicates there, about 7.5, 8 percent. 18 To go up to a 12EER, about 12-13percent increase, et 19 cetera. 20 And so, that's in essence whatwe provided to 21 ASHRAE for about 35 different product categories and 22 incorporated, as I said, both the engineering analysis 23 and certainportions of the manufacturers impact 24 analysis. 25 There stillmay be room, ifwarranted and

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064303 1 deemed necessary, to take this type of incorporation 2 and perhaps input it back into GRIM. Maybe zero out 3 some of the parameters that are included in the 4 manufacturers impact which were considered here, which 5 would then be not necessary to include again in the 6 GRIM analysis, but then perhaps do a cash flow analysis 7 from this curve, as well. 8 9 10 11 questions. That's pretty much it. Do you want to entertain questions? MR. BROOKMAN: Yes. We'll take a few

12 MR. JARNAGIN: Let me note, once again, these 13 are various different possible approaches, right, that 14 could be used? 15 MR. WETHJE: Right. 16 MR. STEPHENS: Charlie Stephens, Oregon 17 Energy Office. 18 Kind of a technical or a statistical 19 question, Larry. Did you -- you said you had about 20 20 manufacturers, and I presume that most of them provided 21 data, except perhaps for the ground source heat pump. 22 But did you give each estimate that was provided by a 23 single company equal weight? 24 MR. WETHJE: Yes. Let me clarify, though. 25 There's 30-some manufacturers of small unitary

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(301) 565-0064 303 1 deemed necessary, to take this type of incorporation 2 andperhaps input itback into GRIM. Maybe zero out 3 some of the parameters that are included in the 4 manufacturers impact whichwere consideredhere, which 5 would thenbe not necessary to include again in the 6 GRIM analysis, but thenperhaps do a cash flow analysis 7 from this curve, as well. 8 That's prettymuch it. 9 Do you want to entertainquestions? 10 MR. BROOKMAN: Yes. We'll take a few 11 questions. 12 MR. JARNAGIN: Letme note, once again, these 13 are various different possible approaches, right, that 1 4 couldbeused? 15 MR. WETHJE: Right. 16 MR. STEPHENS: Charlie Stephens, Oregon 17 Energy Office. 18 Kind of a technical or a statistical 19 question, Larry. Did you -- you saidyouhad about 20 20 manufacturers, and I presume thatmost of themprovided 21 data, exceptperhaps for the ground sourceheatpump. 22 But did you give each estimate that was providedby a 23 single company equal weight? 24 MR. WETHJE: Yes. Letme clarify, though. 25 There's 30-somemanufacturers of small unitary

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064304 1 equipment. And each product category that's covered in 2 ASHRAE Standard 90.1, it varies. In some cases there's 3 as few as three or four manufacturers. In some cases, 4 up to 20. And so each one of these curves represents a 5 different number of manufacturers feedback. 6 And, yes, each one of them was given full 7 weight. 8 MR. FLORA: Larry, this is the second time 9 I've heard you at least give this presentation. This 10 was better than the first time. 11 MR. WETHJE: Well, I had two days to prepare 12 for this one and I only had about a half hour last 13 time. 14 MR. FLORA: I understood this one. 15 Brad Flora, Whirlpool. 16 Larry, I guess the question that I've got 17 here is what kind of variance did you see around this 18 curve? I know this is the 90 percent level?
19 MR. WETHJE: Yes. 20 MR. FLORA: I guess I'm wondering was there a 21 tremendous amount of variance? Because I think that's 22 a real issue that we're going to have in our case. 23 MR. WETHJE: Sure. And that was a big 24 question by the ASHRAE committee, as well. They 25 weren't real receptive to basically being shown a

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(301) 565-0064 304 1 equipment. And eachproduct category that's covered in 2 ASHRAE Standard 90.1, it varies. In some cases there's 3 as few as three or four manufacturers. In some cases, 4 up to 20. And so each one of these curves represents a 5 different number of manufacturers feedback. 6 And, yes, each one of themwas given full 7 weight. 8 MR. FLORA: Larry, this is the second time 9 I'veheard you at least give this presentation. This 10 was better than the first time. 1 1 MR. WETHJE: Well, I had two days toprepare 12 for this one and I only had about a half hour last 13 time. 14 MR. FLORA: I understood this one. 15 BradFlora, Whirlpool. 16 Larry, I guess the question that I've got 17 here is what kind of variance did you see around this 18 curve? I know this is the 90 percent level? 19 MR. WETHJE: Yes. 20 MR. FLORA: I guess I'mwonderingwas there a 21 tremendous amount of variance? Because I think that's 22 a real issue that we're going tohave inour case. 23 MR. WETHJE: Sure. And that was a big 24 questionby the ASHRAE committee, as well. They 25 weren't real receptive to basicallybeing shown a

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064305 1 benign curve like this. Nonetheless, that's all our 2 members felt comfortable releasing at the time and, you 3 know, the easy answer to that is it varied tremendously 4 by product type. 5 As I said, we provided over 35 different 6 curves like this. There's 35 different curves like 7 this. There's 35 different product categories in 90.1 8 that affected our members. And depending on which 9 product category it was, we had some very wide 10 variability to some very narrow variability. And as 11 you said, it's going to be dependent on the industry. 12 When you have only three or four 13 manufacturers, obviously you can get some real wide 14 differences real quick there. When you've got upwards 15 of 10 to 15, having one or two outlayers doesn't 16 necessarily impact the end result as much. 17 MR. FLORA: I think the other issue is what 18 benign options did you pick in order to get there, 19 which is another dimension that we have. 20 MR. BROOKMAN: He's saying the other issue is 21 the design options. 22 MR. WETHJE: Well, see, that's where we 23 differ in our approach. We weren't dictating any 24 design options at all because somebody starting out at 25 11 may choose to use a high efficiency compressor and a

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(301) 565-0064 305 1 benign curve like this. Nonetheless, that's all our 2 members felt comfortable releasing at the time and, you 3 know, the easy answer to that is it varied tremendously 4 by product type. 5 As I said, we provided over 35 different 6 curves like this. There's 35 different curves like 7 this. There's 35 different product categories in 90.1 8 that affected ourmembers. And depending on which 9 product category itwas, we had some very wide 10 variability to some very narrow variability. And as 11 you said, it's going to be dependent on the industry. 12 When you have only three or four 13 manufacturers, obviously you can get some real wide 14 differences real quick there. When you've got upwards 15 of 10 to 15, having one or two outlayers doesn't 16 necessarily impact the end result as much. 17 MR. FLORA: I think the other issue is what 18 benign options did you pick in order to get there, 19 which is another dimension that we have. 20 MR. BROOKMAN: He's saying the other issue is 21 the design options. 22 MR. WETHJE: Well, see, that's where we 23 differ in our approach. We weren't dictating any 24 design options at all because somebody startingout at 25 11 may choose to use a high efficiency compressor and a

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064306 1 small heat exchanger which, to go to a 12 or an 11.5, 2 they may reverse that, as opposed to a different 3 manufacturer who uses a different approach to establish 4 his baseline. 5 MR. FLORA: So the idea is, depending on your 6 situation, you use whatever would be appropriate to you 7 to get there? 8 MR. WETHJE: For that manufacturer. Yes. 9 Exactly. We let them make the choice of what design 10 options they want to use to go from the baseline to the 11 next increment because they're going to all do it 12 different ways. 13 MR. FLORA: Okay. Thank you. 14 MR. BROOKMAN: There are several additional 15 questions. 16 Dave? 17 MR. LEWIS: Dave Lewis, Lennox. 18 I just want to reinforce what Larry has just 19 said. It was our feeling that it was not ASHRAE's 20 responsibility to dictate what design options were or 21 were not the ones that should be used. But instead, 22 that is what we do best. We're manufacturers. 23 So, consequently, the goal was not the design 24 options we choose to use as defined by some third 25 party, but rather how would you get to another level of

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(301) 565-0064 306 1 small heat exchangerwhich, to go to a 12 or an 11.5, 2 they may reverse that, as opposed to a different 3 manufacturerwho uses a different approach to establish 4 his baseline. 5 MR. FLORA: So the idea is, depending on your 6 situation, youusewhateverwouldbe appropriate to you 7 to get there? 8 MR. WETHJE: For that manufacturer. Yes. 9 Exactly. We let themmake the choice ofwhat design 10 options they want touse to go from thebaseline to the 11 next incrementbecause they're going to all do it 12 differentways. 13 MR. FLORA: Okay. Thank you. 14 MR. BROOKMAN: There are several additional 15 questions. 16 Dave? 17 MR. LEWIS: DaveLewis, Lennox. 18 I justwant to reinforcewhat Larry has just 19 said. Itwas our feeling that itwas notASHRAE's 20 responsibility to dictate what designoptions were or 21 were not the ones that shouldbeused. But instead, 22 that is what we do best. We'remanufacturers. 23 So, consequently, the goal was not the design 24 options we choose to use as definedby some third 25 party, but ratherhow would you get to another level of

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064307 1 efficiency. 2 MR. NADEL: Steve Nadel, ACEEE. 3 Larry, I'm thinking about how we might be 4 able to apply this process into the standards process 5 to address some of the controversies that you mentioned 6 occurred at ASHRAE in applying this, and some of the 7 issues here. 8 Let me throw out a strawman, if you will, and 9 see if you would react to that. 10 Do you think it would be possible to collect 11 the information like this, to have the manufacturers 12 report that information to DOE and its contractors in 13 confidence, meaning subject to strict confidentiality 14 concerns and protection, so that they could look at the 15 data; look at the variability; come up with 50 percent, 16 25 percent, 75 percent, 95 percent curves. 17 They could also see if there's some real 18 outlayers that don't seem to make sense and maybe throw 19 them out. 20 Likewise, the other thing I think would be 21 important to have a full review is to have each 22 manufacturer report with its curve which design options 23 they used. 24 Let me just -- I'm throwing something out. 25 Let me get a reaction.

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(301) 565-0064 

### 307 1 efficiency. 2 MR. NADEL: steveNadel, ACEEE. 3 Larry, I'mthinking about how we might be 4 able to apply this process into the standards process 5 to address some of the controversies that youmentioned 6 occurred atASHRAE in applying this, and some of the 7 issues here. 8 Letme throwout a strawman, ifyouwill, and 9 see if youwouldreact to that. 10 Do you think itwouldbepossible to collect 11 the information like this, tohave the manufacturers 12 report that information toDOE and its contractors in 13 confidence, meaning subject to strictconfidentiality 14 concerns andprotection, so that they could look at the 15 data; look at the variability; come upwith 50 percent, 16 25 percent, 75 percent, 95 percent curves. 17 They could also see if there's some real 18 outlayers that don't seem tomake sense andmaybe throw 19 themout. 20 Likewise, the otherthing I thinkwouldbe 21 important tohave a full review is tohave each 22 manufacturer report with its curvewhichdesignoptions 23 theyused. 24 Letme just

-- I'm throwing somethingout. 25 Letme get a reaction.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064308 1 (Laughter.) 2 Again, in confidence, so that DOE and its 3 contractors could use that in part to review outlayers 4 to see whether those are reasonable. It would not 5 enter into the -- it would not be public. It would not 6 enter into this analysis. But just, again, to make 7 sure the data going in appears reasonable and to try to 8 address outlayers.
9 MR. WETHJE: Yes. I understand. 10 MR. BROOKMAN: Let's let a few folks respond 11 and then we'll go back over here. It seems as though 12 several of you wish to comment. Let's try to keep 13 these fairly brief. 14 MR. CRAWFORD: How long? 15 MR. BROOKMAN: Well, fairly brief, because a 16 lot of people wish to comment. 17 MR. CRAWFORD: How long until lunch? 18 I guess I want to comment on two dimensions 19 of this. The first has to do with this percentile 20 stuff. We feel -- we felt very strongly, based on 21 advice from counsel, that we had to be particularly 22 careful in this area. 23 There's a way of using this data in restraint 24 of trade, which we have every intention of avoiding. 25 And when data comes from us that can be used in that

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(301) 565-0064 308 1 (Laughter.) 2 Again, in confidence, so thatDOE and its 3 contractors coulduse that inpart toreview outlayers 4 to see whether those are reasonable. Itwould not 5 enter into the

-- itwouldnotbepublic. Itwouldnot 6 enter into this analysis. But just, again, tomake 7 sure the datagoing in appears reasonable and to try to 8 address outlayers. 9 MR. WETHJE: Yes. I understand. 10 MR. BROOKMAN: Let's let a few folks respond 11 and thenwe'll go back overhere. It seems as though 12 several of you wish to comment. Let's try tokeep 13 these fairly brief. 14 MR. CRAWFORD: How long? 15 MR. BROOKMAN: Well, fairly brief, because a 16 lot of people wish to comment. 17 MR. CRAWFORD: How long until lunch? 18 I guess I want to comment on two dimensions 19 of this. The first has to dowith this percentile 20 stuff. We feel

-- we felt very strongly, based on 21 advice from counsel, that we had tobeparticularly 22 careful in this area. 23 There's a way ofusing this data in restraint 24 of trade, whichwe have every intentionof avoiding. 25 And when data comes from us that canbe used in that

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064309 1 way, we have to be very, very careful of the risks 2 associated with that. Not only the legal risks, but 3 simply the risk of injuring our fellow members of the 4 association. 5 Secondly, the design options thing. This 6 isn't like Company A uses a horizontal; Company B uses 7 a vertical something or other. We have fundamental 8 differences in our industry. 9 Company A uses one type of heat exchanger 10 that at this point in time no other company uses. Why 11 do they use it? It's got something to do with the fact 12 they've got machinery that makes it. 13 Now, if Company A moves the process from one 14 plant to another plant that happens not to have that 15 type of machinery in place, Company A may no longer use 16 that particular design. 17 And this whole process of how you constitute 18 a design, how you design for a specific efficiency 19 level, is an extremely complex process. We take our 20 engineers 10 to 15 years before they can begin to be 21 skilled at it and we're not going to teach anybody how 22 to do it. 23 MR. BROOKMAN: One thing I hear imbedded in 24 your comment is that there's so much variability. 25 There's so many differences and so many different ways

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(301) 565-0064 309 1 way, we have tobe very, very careful of the risks 2 associatedwith that. Not only the legal risks, but 3 simply the risk of injuring our fellowmembers of the 4 association. 5 Secondly, the designoptions thing. This 6 isn't likeCompany Auses a horizontal; Company Buses 7 a vertical something or other. We have fundamental 8 differences inour industry. 9 CompanyAuses one type ofheat exchanger 10 that at this point in time no other company uses. Why 11 do they use it? It's got something to do with the fact 12 they've gotmachinery that makes it. 13 Now, if Company Amoves the process from one 14 plant to another plant that happens not tohave that 15 type ofmachinery inplace, Company Amay no longeruse 16 thatparticular design. 17 And this whole process of how you constitute 18 a design, how you design for a specific efficiency 19 level, is an extremely complexprocess. We take our 20 engineers 10 to 15 years before they canbegin tobe 21 skilled at it and we're not going to teach anybody how 22 to do it. 23 MR. BROOKMAN: One thing I hear imbedded in 24 your comment is that there's somuch variability. 25 There's somany differences and somany different ways

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064310 1 of doing it that it's hard to break it down to the 2 analytic pieces that Steve suggested that you 3 contribute. 4 MR. CRAWFORD: They won't even accept it as 5 an answer. 6 MR. BROOKMAN: Dave, a comment from you, and 7 then Dick Stillwell has a -- well, Dick? 8 MR. MORRIS: Wayne Morris, AHAM. 9 Larry, I don't have really an objection or 10 any feelings about developing of the cost efficiency 11 curve. And certainly if that's what an industry would 12 wish to contribute to for the engineering analysis, I 13 think that that would be the decision of that industry 14 to look at and would encourage the Department to be 15 open to anything that is reasonable for that industry. 16 However, I would say that I'm not sure that I 17 would want to make a statement that one type of 18 engineering analysis like this would be appropriate for 19 all industries. And I know that wasn't your intention 20 here. 21 The second thing I guess would be the 22 statement you made in the very beginning that this 23 would encompass the aspects of the GRIM. And I'm not 24 convinced yet that this is not adequate to get to a 25 place where you have arrived at the beginning points of

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(301) 565-0064 310 1 of doing it that it'shard tobreak itdown to the 2 analyticpieces that steve suggested that you 3 contribute. 4 MR. CRAWFORD: They won't even accept it as 5 an answer. 6 MR. BROOKMAN: Dave, a comment from you, and 7 thenDick Stillwellhas a -- well, Dick? 8 MR. MORRIS: Wayne Morris, AHAM. 9 Larry, I don't have really an objectionor 10 any feelings about developing of the cost efficiency 11 curve. And certainly if that's what an industrywould 12 wish to contribute to for the engineering analysis, I 13 think that that wouldbe the decisionof that industry 14 to look at andwould encourage the Department tobe 15 open to anything that is reasonable for that industry. 16 However, I would say that I'mnot sure that I 17 would want tomake a statement that one type of 18 engineering analysis like this wouldbe appropriate for 19 all industries. And I know that wasn't your intention 20 here. 21 The second thing I guess wouldbe the 22 statement youmade in the very beginning that this 23 would encompass the aspects of the GRIM. And I'mnot 24 convincedyet that this is not adequate toget to a 25 place where you have arrived at the beginningpoints of

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064311 1 some of the information to feed into the GRIM model. 2 But I think that there are a whole lot of other things 3 within the GRIM model that this doesn't begin to get 4 to. 5 So, as an approach to get to the engineering 6 analysis, it certainly looks like it's one. But I 7 don't see it as supplanting the GRIM, which is, after 8 all, what we're sort of here to discuss. 9 MR. WETHJE: Right. No. I totally agree. 10 In fact, I see it as potentially complementing, if 11 warranted and desired by an industry. There's certain 12 costs that were included in the relative cost basis 13 there that are also included in the GRIM analysis. 14 The GRIM analysis, though, takes you to a 15 cash flow assessment or impact, whereas this doesn't. 16 And so they could potentially work together. You just 17 want to make sure you don't include redundant costs 18 both here and in the GRIM. 19 MR. BROOKMAN: A follow-on comment by Wayne. 20 MR. MORRIS: Yes. One other thing. And that 21 is that I think that one of the things we have to watch 22 out for is the issue of cumulative regulatory burden. 23 MR. WETHJE: Oh, yes. 24 MR. MORRIS: Which is something that maybe 25 one industry doesn't face as much as other ones might,

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(301) 565-0064 311 1 some of the information to feed into the GRIM model. 2 But I think that there are a whole lot of other things 3 within the GRIM model that this doesn't begin to get 4 to. 5 So, as an approach to get to the engineering 6 analysis, it certainly looks like it's one. But I 7 don't see it as supplanting the GRIM, which is, after 8 all, what we're sort of here to discuss. 9 MR. WETHJE: Right. No. I totally agree. 10 In fact, I see it as potentially complementing, if 11 warranted and desired by an industry. There's certain 12 costs that were included in the relative cost basis 13 there that are also included in the GRIM analysis. 14 The GRIM analysis, though, takes you to a 15 cash flow assessment or impact, whereas this doesn't. 16 And so they couldpotentially work together. You just 17 want to make sure you don't include redundant costs 1 8 both here and in the GRIM. 19 MR. BROOKMAN: A follow-on comment by Wayne. 20 MR. MORRIS: Yes. One other thing. And that 21 is that I think that one of the things we have to watch 22 out for is the issue of cumulative regulatory burden. 23 MR. WETHJE: Oh, yes. 24 MR. MORRIS: Which is something that maybe 25 one industry doesn't face as much as other ones might,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064312 1 or maybe they do. But certainly that would be factored 2 into a GRIM model which is not necessarily factored 3 into this. 4 MR. BROOKMAN: David Goldstein. 5 MR. GOLDSTEIN: David Goldstein from NRDC. 6 I have a couple of comments on this. I think 7 this method is a useful piece of information to 8 consider in the process because it tells you what the 9 companies that are affected think is cost effective 10 without impacts. 11 It would be a big mistake, however, to place 12 exclusive reliance on this method for a couple of 13 reasons. 14 First of all, it's a black box method. 15 There's no way that someone outside of the industry can 16 comment on omissions or errors in the process. And in 17 fact, there's no way that a company within the industry 18 can comment on it because they don't know what other 19 companies have done. They only know what they've done. 20 So this means, for example, if there's a new 21 design of component which everyone has left out and 22 which ACEEE or ourselves or another company could say, 23 what a second, you need to consider this, there's no 24 way to identify that it has indeed been left out. 25 Similarly, if something is costed too high.

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(301) 565-0064 312 1 ormaybe they do. But certainly thatwouldbe factored 2 into a GRIM model which is not necessarily factored 3 into this. 4 MR. BROOKMAN: David Goldstein. 5 MR. GOLDSTEIN: David Goldstein from NRDC. 6 I have a couple of comments on this. I think 7 this method is a useful piece of information to 8 consider in the process because it tells youwhat the 9 companies that are affected think is cost effective 10 without impacts. 11 Itwouldbe a bigmistake, however, toplace 12 exclusive reliance on this method for a couple of 13 reasons. 14 First of all, it's a blackboxmethod. 15 There's noway that someone outside of the industry can 16 comment onomissions or errors in the process. And in 17 fact, there's no way that a company within the industry 18 can comment on itbecause they don'tknowwhat other 19 companies have done. They only knowwhat they've done. 20 So this means, for example, if there's a new 21 design of component which everyonehas leftout and 22 whichACEEE or ourselves or another company could say, 23 what a second, you need to consider this, there's no 24 way to identify that ithas indeedbeen left out. 25 Similarly, if something is costed toohigh.

EXECUTIVE COURT REPORTERS, INC. (301) 565-006431 3 1 The second problem is that this method is 2 open to political gamesmanship by a company. If you 3 have one company out of four or you can calculate how 4 many out of 35 that just don't want the EER to go above 5 12 for some reason or other, they can submit costs that 6 will assure you that at a 90 percent level, 12 is not 7 going to be cost effective. So you're essentially 8 handing veto power to one or a limited number of companies with respect to standard level. 10 Now obviously, in generating the curves in 11 ASHRAE, nobody did that, so that didn't turn out to be 12 a problem in the past. But there's no way of knowing 13 if it turns out to become one in the future. 14 So, again, the point is this is a useful 15 piece of information for DOE to consider but it's not 16 going to supplant any of the other methods that they 17 will need to use, I think. 18 MR. BROOKMAN: Just to reinforce, again, what 19 I heard earlier on was that these were a series of 20 methodologies that could -- could being the operative 21 word -- be employed. 22 Dave, and then -- 23 MR. CRAWFORD: This is Dave Lewis of Lennox. 24 (Laughter.) 25 Jim Crawford of Trane Company.

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(301) 565-0064 313 1 The secondproblem is that this method is 2 open to political gamesmanship by a company. If you 3 have one company out of four or you can calculate how 4 many out of 35 that just don't want theEER to go above 5 12 for some reason or other, they can submit costs that 6 will assure you that at a 90 percent level, 12 is not 7 going to be cost effective. So you're essentially 8 handing veto power to one or a limitednumber of 9 companies with respect to standard level. 10 Now obviously, in generating the curves in 11 ASHRAE, nobody did that, so that didn't turn out to be 12 a problem in the past. But there's no way of knowing 13 if it turns out to become one in the future. 14 So, again, the point is this is a useful 15 piece of information for DOE to considerbut it's not 16 going to supplant any of the othermethods that they 17 will need to use, I think. 18 MR. BROOKMAN: Just to reinforce, again, what 19 I heard earlier on was that these were a series of 20 methodologies that could couldbeing the operative 21 word

-- be employed. 22 Dave, and then 23 24 25 MR. CRAWFORD: This is Dave Lewis of Lennox. (Laughter.) JimCrawford of Trane Company.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064314 1 I guess the first thing that strikes me is I 2 think we've been accused of setting up something to lie 3 wholesale, assuming that we're too dumb to lie retail. 4 (Laughter.) 5 This process relies on the integrity of the 6 communication between the private sector and the 7 government, and if we cannot rely on the integrity of 8 that process, then this entire dialogue is pointless. 9 The second point is the discussion about the 10 secret component -- and I guess we're going to have the 11 100 mile per gallon carburetor in this discussion 12 before we get through -- assumes that the activist 13 groups are more skilled at design of efficient 14 appliances than are the manufactures. And that is a 15 premise which I find totally non-credible. 16 MR. BROOKMAN: A follow-on comment, and then 17 to Charles. 18 Yes? 19 MR. DEMPSEY: Dan Dempsey of Carrier, again. 20 I just wanted to point out one of the 21 attractions to this method. When you look at the GRIM 22 model you see a lot of specific financial indices that 23 is not publicly available information. It's very 24 sensitive information. You know, percent of sales, of 25 R&D, SG&A expenses, and so on.

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(301) 565-0064 314 1 I guess the first thing that strikesme is I 2 think we've been accused of settingup something to lie 3 wholesale, assuming that we're too dumb to lie retail. 4 (Laughter.) 5 This process relies on the integrity of the 6 communicationbetween the private sector and the 7 government, and ifwe cannot rely on the integrity of 8 that process, then this entire dialogue is pointless. 9 The second point is the discussion about the 10 secret component

-- and I guess we're going tohave the 11 100mile per gallon carburetor in this discussion 12 before we get through

-- assumes that the activist 13 groups are more skilled at design of efficient 14 appliances than are the manufactures. And that is a 15 premise which I find totally non-credible. 16 MR. BROOKMAN: Afollow-on comment, and then 17 to Charles. 18 Yes? 19 MR. DEMPSEY: Dan Dempsey of Carrier, again. 20 I just wanted to point out one of the 21 attractions to this method. When you look at the GRIM 22 model you see a lot of specific financial indices that 23 is not publicly available information. It's very 24 sensitive information. You know, percent of sales, of 25 R&D, SG&A expenses, and soon.

EXECUTIVE COURT REPORTERS, INC. (301) 565-006431 5 1 This method gives a manufacturer a way to 2 bury those into the cost so that that information is 3 not directly available to anyone outside the 4 corporation. 5 MR. WETHJE: If i could just respond to that 6 quickly, too. I want to tell you that this was not an 7 easy process for us to get this information from the 8 members. There was a great deal of reluctance to even 9 give us this type of amalgamated information that Dan 10 was referring to. 11 And so for us to go to them and ask them for 12 the detailed information that's necessary to execute 13 the GRIM, I can foresee it being a formidable 14 challenge, at least within our industry. There's just 15 a whole host of inputs there that I don't think they're 16 going to be very forthcoming with, a lot of them. 17 MR. BROOKMAN: But they did come forward in 18 the final analysis to respond to our methodology. 19 MR. WETHJE: Yes. But I want to tell you 20 also that it was with a great deal of reluctance and a 21 great deal of concern. There's only one person within 22 the whole industry that I'm aware of that has ever seen 23 any of this data, and that's myself. 24 It's locked in my drawer. Our president 25 didn't even want to touch it. He didn't want to see

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(301) 565-0064 315 1 This method gives a manufacturer a way to 2 bury those into the cost so that that information is 3 not directly available to anyone outside the 4 corporation. 5 MR. WETHJE: If i couldjustrespond to that 6 quickly, too. I want to tell you that this was not an 7 easy process for us to get this information from the 8 members. There was a great deal of reluctance to even 9 give us this type of amalgamated information thatDan 10 was referring to. 11 And so for us to go to them and ask them for 12 the detailed information that's necessary to execute 13 the GRIM, I can foresee itbeing a formidable 14 challenge, at leastwithinour industry. There's just 15 a whole host of inputs there that I don't think they're 16 going tobe very forthcoming with, a lot of them. 17 MR. BROOKMAN: But they did come forward in 18 the final analysis torespond to ourmethodology. 19 MR. WETHJE: Yes. But I want to tell you 20 also that itwas with a great deal of reluctance and a 21 great deal of concern. There's only onepersonwithin 22 the whole industry that I'm aware of thathas ever seen 23 any of this data, and that'smyself. 24 It's locked inmy drawer. Ourpresident 25 didn't evenwant to touch it. He didn'twant to see

EXECUTIVE COURT REPORTERS, INC. (301) 565-006431 6 1 it. Hardly even wanted to know it existed. It's very 2 sensitive information, as Jim alluded to. Antitrust 3 concerns come into play. 4 And so if there's that kind of sensitivity 5 over just supplying this, I can foresee formidable 6 obstacles in providing the level of detail required for 7 GRIM execution. 8 MR. BROOKMAN: Charlie? 9 MR. STEPHENS: Yes. Charlie Stephens, Oregon 10 Energy Office. 11 I just -- maybe I can give Jim a little 12 comfort here. I don't really care, to be honest, if 13 I'm the analyst who's looking at this stuff. I don't 14 care what design options were used to get the estimates 15 here. The way the process has always worked is there's 16 a series of levels of efficiency and companies are 17 asked to estimate the costs to get to those levels. 18 And again, I don't really care what they choose. 19 But given that this process ultimately is -- 20 that we're talking about these two days is the 21 manufacturer impact, that impact most people will 22 contend, because I've heard it lots of time from people 23 in this room, the impact, a lot -- not all, but a lot - 24 - comes from the marketplace. 25 And so in the case of burying estimates --

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### 316 1 it. Hardly evenwanted to know itexisted. It's very 2 sensitive information, as Jim alluded to. Antitrust 3 concerns come intoplay. 4 And so if there's that kindof sensitivity 5 overjust supplying this, I can foresee formidable 6 obstacles inproviding the level of detail required for 7 GRIM execution. 8 

### MR. BROOKMAN: Charlie? 9 

### MR. STEPHENS: Yes. Charlie Stephens, Oregon 10 Energy Office. 11 I just

-- maybe I can give Jim a little 12 comfort here. I don't really care, tobe honest, if 13 I'mthe analyst who's looking at this stuff. I don't 14 carewhat designoptionswereused toget the estimates 15 here. The way the process has always worked is there's 16 a series of levels of efficiency and companies are 17 asked to estimate the costs to get to those levels. 18 And again, I don't really carewhat they choose. 19 But given that this process ultimately is 20 thatwe're talking about these two days is the 21 manufacturer impact, that impactmostpeoplewill 22 contend, because I'veheard itlots of time frompeople 23 in this room, the impact, a lot

-- not all, but a lot

- 24

- comes from themarketplace. 25 And so in the case ofburyingestimates

--
EXECUTIVE COURT REPORTERS, INC. (301) 565-0064317 1 which I would like to know. I would like to know what 2 the variability of the estimates are for an efficiency 3 level. Not for a design option but for an efficiency 4 level. I would give the same weight. 5 If I've got one estimate of zero for getting 6 to a certain efficiency level and I've got another 7 estimate of $200, I would give the same weight to the 8 estimate of $200 that the marketplace would give to it. 9 Not much. And the zero estimate would get more weight. 10 And somewhere in between is probably a reasonable 11 estimate of how things will out. 12 But given if I know certain things about the 13 answers that I got, not how they were gotten but the 14 answers, I can probably decide, as an analyst, whether 15 they're reasonable. And when you add up everybody's 16 answers for an industry picture -- I mean, if the 17 industry picture adds up to shipments that are 20 18 percent less than last year in an industry that's been 19 growing 5 percent a year for the last 15, I'm not going 20 to give a lot of credibility to the total picture and 21 I'm going to send it all back and say please re-think 22 this and see if you can come up with a total that adds 23 up to what it looks like today, at least. 24 So there's ways, I think, to decide whether 25 the data you get in is reasonable. But I don't have

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(301) 565-0064 317 1 which I would like toknow. I would like toknowwhat 2 the variabilityof the estimates are for an efficiency 3 level. Not for a design optionbut for anefficiency 4 level. I would give the same weight. 5 If I've got one estimate of zero for getting 6 to a certainefficiency level and I've got another 7 estimate of $200, I wouldgive the sameweight to the 8 estimate of $200 that the marketplacewould give to it. 9 Notmuch. And the zero estimatewould getmore weight. 10 And somewhere inbetween isprobably a reasonable 11 estimateof how things will out. 12 But given if I know certainthings about the 13 answers that I got, not how theywere gottenbut the 14 answers, I canprobably decide, as an analyst, whether 15 they're reasonable. And when you add up everybody's 16 answers for an industry picture

-- I mean, if the 17 industrypicture adds up to shipments that are 20 18 percent less than last year in an industry that's been 19 growing 5 percent a year for the last 15, I'mnot going 20 to give a lotof credibility to the total picture and 21 I'mgoing to send it all backand saypleasere-think 22 this and see if you can come up with a total that adds 23 up to what it looks like today, at least. 24 So there's ways, I think, todecide whether 25 the datayou get in is reasonable. But I don'thave

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064318 1 to know how it was derived necessarily. I only have to 2 know a few of the answers and when assembled into a 3 picture, if that picture seems reasonable. 4 MR. McCABE: Larry, I'd like to follow this 5 up with a series of questions on some background 6 information. I would take this -- for you to say that 7 taking this approach, the ASHRAE based approach, that a 8 GRIM analysis not only is unnecessary, it should not be 9 run, or a similar sort of analysis? 10 MR. WETHJE: No. I'm not saying that. I'm 11 saying that in this case we didn't do that for the 12 ASHRAE 90.1 process. We felt like we captured enough 13 of the manufacturers impacts in this method to satisfy 14 our membership, the manufacturers, who are going to be 15 the ones directly impacted by the increases. They were 16 satisfied. 17 With respect to NEACA rulemaking, they may 18 want to execute some cash flow analysis. And I think, 19 as I said before, you could take pretty much the 20 incremental increase in cost here and provide that as 21 an input into GRIM, and then zero out whatever costs 22 were considered here from what is also recorded in 23 GRIM. 24 So, we have no qualms at all about GRIM being 25 used for other rulemakings and we may in fact decide

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(301) 565-0064 318 1 toknowhow itwas derived necessarily. I onlyhave to 2 know a few of the answers and when assembled into a 3 picture, if that picture seems reasonable. 4 MR. McCABE: Larry, I'd like to follow this 5 up with a series of questions on somebackground 6 information. I would take this

-- for you to say that 7 taking this approach, theASHRAE based approach, that a 8 GRIM analysis not only is unnecessary, it shouldnotbe 9 run, or a similar sortof analysis? 10 MR. WETHJE: No. I'mnot saying that. I'm 11 saying that in this case we didn't do that for the 12 ASHRAE 90.1 process. We felt likewe captured enough 13 of the manufacturers impacts in this method to satisfy 14 ourmembership, the manufacturers, who are going tobe 15 the ones directly impactedby the increases. Theywere 16 satisfied. 17 With respect to NEACA rulemaking, they may 18 want to execute some cash flow analysis. And I think, 19 as I saidbefore, you could take prettymuch the 20 incremental increase in costhere andprovide that as 21 an input into GRIM, and then zero out whatever costs 22 were consideredhere from what is alsorecorded in 23 GRIM. 24 So, we have no qualms at all about GRIM being 25 used for other rulemakings and we may in fact decide

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064319 1 that it's a good tool for us to use. We've never been 2 through a rulemaking with you guys, as you know, so 3 we're still trying to feel our way as to what's going 4 to be the best approach. And we've appreciated the 5 comments both you and Mike have made to the flexibility 6 that you're indicating that's going to be available to
7 us. 8 MR. McCABE: One comment to make as far as if 9 one were to stop at the point where ASHRAE stopped, is 10 that NEACA requires the Department to estimate the 11 economic impact of standards on manufacturers. And in 12 addition, the Department of Justice is required to look 13 at the impact on competition. And as Dan had 14 indicated, and as you, as well, that there's an awful 15 lot of impact information that is buried within here, 16 but you cannot explicitly get at. 17 So the question that we would have, and I'm 18 sure that Justice and others would have at some point, 19 is what are some of those, so that we can make those 20 sorts of determinations. 21 MR. WETHJE: Yes. And I think that's the 22 difference between 90.1 and this. As I said, 90.1, it 23 wasn't the government we were working with. We would 24 have to sit down and discuss what type of things can be 25 disclosed.

EXECUTIVE COURT REPORTERS, INC. (301 ) 565-0064 319 1 that it's a good tool for us to use. We've neverbeen 2 through a rulemakingwith you guys, as youknow, so 3 we're still trying to feel ourway as towhat's going 4 tobe thebest approach. And we've appreciated the 5 comments both you andMike havemade to the flexibility 6 that you're indicating that's going tobe available to 7 us. 8 MR. McCABE: One comment tomake as far as if 9 onewere to stop at the pointwhere ASHRAE stopped, is 10 that NEACA requires the Department to estimate the 11 economic impact of standards onmanufacturers. And in 12 addition, the Department ofJustice is required to look 13 at the impact on competition. And as Danhad 14 indicated, and as you, as well, that there's an awful 15 lotof impact information that isburiedwithinhere, 16 but you cannot explicitly get at. 17 So the question thatwe wouldhave, and I'm 18 sure that Justice and others wouldhave at some point, 19 is what are some of those, so thatwe canmake those 20 sorts of determinations. 21 MR. WETHJE: Yes. And I think that's the 22 difference between 90.1 and this. As I said, 90.1, it 23 wasn't the governmentwe wereworkingwith. We would 24 have to sitdown and discuss what type of things canbe 25 disclosed.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064320 1 I kind of agree with what Chuck was saying 2 earlier this morning, too. I don't know that we 3 necessarily have to form a working group to decide that 4 next week. Let's proceed with the rulemakings and let 5 it get fleshed out in the process. 6 MR. LEWIS: Dave Lewis from Lennox. 7 I think one example of how this works by 8 comparison to what we've had in the past maybe helps in 9 illustrating. 10 In the past, we had a review made of what 11 different potential efficiency levels might be able to 12 be reached and the outcome of that review was nonsense. 13 Comparatively, when the industry worked at looking at 14 what could be done on efficiency levels, realistic 15 information came forth that allowed ASHRAE to move 16 forward and at least establish levels that were 17 practical and reachable. 18 Now, there may be more analysis that DOE 19 needs to perform than ASHRAE, but I think the point is 20 what has come forth from this process is something real 21 versus what had been tried by DOE fairly recently, the 22 outcome was foolish. So I believe this process at 23 least has the potential of working as a component of 24 the overall. 25 MR. BROOKMAN: Additional comments,

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(301) 565-0064 320 1 I kind of agreewithwhat Chuckwas saying 2 earlier this morning, too. I don'tknow thatwe 3 necessarilyhave to form a workinggroup todecide that 4 next week. Let's proceedwith the rulemakings and let 5 itget fleshed out in the process. 6 MR. LEWIS: Dave Lewis from Lennox. 7 I thinkone example of how this works by 8 comparison towhat we've had in the pastmaybe helps in 9 illustrating. 10 In the past, we had a reviewmade of what 11 differentpotential efficiency levelsmightbe able to 12 be reached and the outcome of that reviewwas nonsense. 13 Comparatively, when the industry worked at looking at 14 what couldbe done on efficiency levels, realistic 15 information came forth that allowedASHRAE tomove 16 forward and at least establish levels that were 17 practical and reachable. 18 Now, there may be more analysis thatDOE 19 needs toperformthanASHRAE, but I think the point is 20 what has come forth from this process is somethingreal 21 versus what had been triedby DOE fairly recently, the 22 outcome was foolish. So I believe this process at 23 least has the potential of working as a component of 24 the overall. 25 MR. BROOKMAN: Additional comments,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064321 1 questions? I know Ron's got a final slide. 2 Larry, does that conclude your presentation?
3 MR. WETHJE: Yes. 4 MR. BROOKMAN: Stay right up there. 5 Carl, and -- is there also a question in the 6 back of the room? 7 8 the time. 9 MR. ADAMS: Just since Larry is up there at

This is Carl Adams at DOE. And I didn't 10 follow the 90.1 process that closely but when you did 11 consumer analysis, it seems like you would have had to 12 have come up with a price. And I realize that's the 13 after lunch topic, but just out of curiosity, how did 14 you then use your curve and come up with a price for a 15 consumer analysis? 16 MR. WETHJE: That was done by PNNL. And I 17 think Ron is going to touch on that right now. That's 18 the conclusion of our presentation. 19 MR. JARNAGIN: Thank you, Carl, for setting 20 us up for this here. 21 I know we were supposed to talk about 22 manufacturers impacts but I had this suspicion somebody 23 wanted to know how did you take that and then use the 24 next step. 25 And in getting -- to answer Carl's question,

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(301) 565-0064 321 1 questions? I knowRon's got a final slide. 2 Larry, does that conclude yourpresentation? 3 MR. WETHJE: Yes. 4 MR. BROOKMAN: stay rightup there. 5 Carl, and

-- is there also a question in the 6 back of the room? 7 MR. ADAMS: Just sinceLarry is up there at 8 the time. 9 This is Carl Adams atDOE. And I didn't 10 follow the 90.1 process that closely butwhen you did 11 consumer analysis, it seems like you wouldhave had to 12 have come up with a price. And I realize that's the 13 after lunch topic, butjustout of curiosity, how did 14 you then use your curve and come upwith a price for a 15 consumer analysis? 16 MR. WETHJE: That was done by PNNL. And I 17 thinkRon is going to touch on that right now. That's 18 the conclusion of ourpresentation. 19 MR. JARNAGIN: Thank you, Carl, for setting 20 us up for this here. 21 I knowwe were supposed to talk about 22 manufacturers impacts but I had this suspicion somebody 23 wanted toknow how did you take that and then use the 24 next step. 25 And in getting

-- to answer Carl's question,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064322 1 at least hopefully respond to it, the way that we got 2 to the cost from the consumer standpoint was to take 3 the industry cost increments and bring in some market 4 pricing information that we felt existed out there to 5 turn this into a price. You've got to go from cost to 6 price and you can either do it with a fairly elaborate 7 approach or you can say if the costs go up, we expect 8 the prices to go up.

And what we did is use market pricing. We 10 went to the professional design community, the design 11 engineers that specify many of these pieces of 12 equipment, and they developed pricing information for 13 us. 14 I might add, given all the discussion of 15 variability, the issue of variability is not just an 16 issue for the manufacturers in terms of what they're 17 producing. If we looked at the range of pricing that 18 came back from the professional design community, there 19 was a fairly significant variability actually in the 20 pricing of those systems. So, the variability exists 21 and the uncertainty, if you will, exists across the 22 board. 23 As Larry alluded to, at the Laboratory, we 24 did the analysis on the energy savings. We ran the 25 energy simulations. And there was as lot of

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(301) 565-0064 322 1 at least hopefully respond to it, the way that we got 2 to the cost from the consumer standpointwas to take 3 the industry cost increments and bring in some market 

### 4 pricing information that we felt existed out there to 5 turn this into a price. You've got to go from cost to 6 price and you can either do itwith a fairly elaborate 7 approach or you can say if the costs go up, we expect 8 the prices to go up. 9 And what we did is use market pricing. We 10 went to the professional design community, the design 11 engineers that specifymany of these pieces of 12 equipment, and they developed pricing information for 13 us. 14 I might add, given all the discussion of 15 variability, the issue of variability is not just an 16 issue for the manufacturers in terms of what they're 17 producing. Ifwe looked at the range of pricing that 18 came back from the professional design community, there 19 was a fairly significant variability actually in the 20 pricing of those systems. So, the variability exists 21 and the uncertainty, if you will, exists across the 22 board. 23 As Larry alluded to, at the Laboratory, we 24 did the analysis on the energy savings. We ran the 25 energy simulations. And there was as lot of

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064323 opportunity to have input by the committee into what 2 those simulations were. 3 I'm struck by one thought here. We've had a 4 lot of discussion about black boxes. I suspect that no 5 matter how you approach this that there is some element 6 of a black box that exists somewhere in this process 7 for every industry and product. It's a question of 8 whether it exists within industry data that comes back 9 aggregated in a curve, whether it exists in some other 10 type of model. And the challenge that we'll have here 11 or the challenge the Department will have in deciding 12 how to approach this, you know, what will you be 13 willing to live with. 14 I think everybody has one in some part of the 15 analysis. That's my observation. 16 I think the important point is the final 17 result that we ended up in ASHRAE had to be based on a 18 consensus opinion of the committee and there were -- I 19 wouldn't say every element represented, but there were 20 a number of elements represented on the committee, from 21 advocacy, from the manufacturers, from the design 22 communities and from some general interest people. 23 And I think in the final analysis, that was 24 our check at the end. The reality check, if you will, 25 was could we reach some consensus that this was

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(301) 565-0064 323 1 opportunity to have inputby the committee intowhat 2 those simulations were. 3 I'm struckby one thought here. We've had a 4 lot of discussion about blackboxes. I suspect that no 5 matterhow you approach this that there is some element 6 of a blackbox that exists somewhere in this process 7 for every industry andproduct. It's a questionof 8 whether it existswithin industry data that comes back 9 aggregated in a curve, whether it exists in some other 10 type ofmodel. And the challenge thatwe'll have here 11 or the challenge the Department will have in deciding 12 how to approach this, youknow, what will yoube 13 willing to live with. 1 4 I think everybody has one in some partof the 15 analysis. That'smy observation. 16 I think the importantpoint is the final 17 result thatwe endedup inASHRAE had tobebasedon a 18 consensus opinion of the committee and there were I 19 wouldn't say every element represented, but therewere 20 a number of elements represented on the committee, from 21 advocacy, from the manufacturers, from the design 22 communities and from some general interestpeople. 23 And I think in the final analysis, thatwas 24 our check at the end. The reality check, ifyou will, 25 was couldwe reach some consensus that this was

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064324 1 reasonable? Were some people willing to gulp and say, 2 yes, we can go along with that, even though it was a 3 stretch for some and not so much for others. 4 And, of course, we went through public review 5 and we knew that things would come in at that point. 6 And so you may end up at a very similar end 7 state through a different process, I think, as you're 8 trying to get to something. But consensus is sort of 9 the final check there. 10 The committee didn't have all the resources, 11 nor were they the oracles for this whole process. They 12 were simply the executors of the process. The oracle 13 stage sort of comes in when you try to get through the 14 consensus process. 15 MR. BROOKMAN: Questions? Final comments for 16 Ron or Larry? 17 Yes. I saw Dan, first, and then Steve. 18 MR. DEMPSEY: Dan Dempsey, Carrier. 19 I guess this is more of a comment to lead us 20 into this afternoon. But one thing that we haven't 21 looked at in all of these cost discussions is 22 incremental installation costs for different efficiency 23 levels and where are those going to be included. 24 MR. CRAWFORD: Two points. One is relative 25 to the requirements of the law. I think that we've

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(301) 565-0064 324 1 reasonable? Were some people willing to gulp and say, 2 yes, we can go alongwith that, even though itwas a 3 stretch for some and not somuch for others. 4 And, of course, we went throughpublic review 5 and we knew that things would come in at that point. 6 And so youmay end up at a very similar end 7 state through a differentprocess, I think, as you're 8 trying to get to something. But consensus is sortof 9 the final check there. 10 The committee didn't have all the resources, 11 norwere they the oracles for this wholeprocess. They 12 were simply the executors of the process. The oracle 13 stage sortof comes inwhen you try to get through the 14 consensus process. 15 MR. BROOKMAN: Questions? Final comments for 1 6 Ron or Larry? 17 Yes. I sawDan, first, and then steve. 18 MR. DEMPSEY: DanDempsey, Carrier. 19 I guess this is more of a comment to leadus 20 into this afternoon. But one thing thatwe haven't 21 looked at in all of these cost discussions is 22 incremental installation costs for different efficiency 23 levels and where are those going tobe included. 24 MR. CRAWFORD: Two points. One is relative 25 to the requirements of the law. I think that we've

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064325 1 seen in the course of the discussions over the last 2 couple of years that there's a great deal of latitude 3 in how the law is interpreted, I would think, depending 4 a lot of how well the process is moving and how much 5 the law is used as a resource versus a club. And so I 6 think we should try to keep our focus on the end 7 result. 8 This cost/price issue, I'm trying to think of 9 how to characterize it. I used to work for a major 10 appliance manufacturer and I was at a dinner one night 11 when a number of young, bright engineers, bright-eyed 12 kids, were being lectured by one of the senior VP's of 13 the appliance business. 14 And one of the engineers, towards the end, 15 said, as a consumer, I'm disturbed. I'm beginning to 16 come to the conclusion that there's no relationship 17 between cost and price of this particular category of 18 goods. And the response was, none whatsoever. And 19 that was true 30 years ago. And if you'd go out and 20 buy a refrigerator today and you see the difference 21 between a $1,000 refrigerator and a $1,500 refrigerator 22 of the same size, you will come to the conclusion that 23 there is no relationship between cost and price, other 24 than the fact that if the price doesn't cover the cost, 25 we'll probably quit producing it.

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(301) 565-0064 325 1 seen in the course of the discussions over the last 2 couple of years that there's a great deal of latitude 3 inhow the law is interpreted, I would think, depending 4 a lot ofhow well the process is moving andhowmuch 5 the law is used as a resource versus a club. And so I 6 thinkwe should try tokeep our focus on the end 7 result. 8 This cost/price issue, I'm trying to thinkof 9 how to characterize it. I used towork for a major 10 appliance manufacturer and I was at a dinner one night 11 when a number of young, bright engineers, bright-eyed 12 kids, were being lectured by one of the seniorVp's of 13 the appliance business. 14 And one of the engineers, towards the end, 15 said, as a consumer, I'mdisturbed. I'mbeginning to 16 come to the conclusion that there's no relationship 17 between cost andprice of this particularcategory of 18 goods. And the response was, none whatsoever. And 19 that was true 30 years ago. And if you'dgo out and 20 buy a refrigerator today and you see the difference 21 between a $1,000refrigerator and a $1,500 refrigerator 22 of the same size, you will come to the conclusion that 23 there is no relationshipbetween cost andprice, other 24 than the fact that if the pricedoesn't cover the cost, 25 we'll probably quit producing it.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064326 1 MR. BROOKMAN: I thought I saw one more 2 person. 3 Any additional questions or comments for 4 Larry and Ron on the ASHRAE methodology? 5 (No response.) 6 None. Thank you, Larry and Ron. 7 In fact, let's give a round of applause for 8 all of our presenters this morning. 9 (Applause.) 10 Glenn, did you have a question?
11 MR. SCHLEEDE: Glenn Schleede. 12 I've got a question for Mike, Mike McCabe. 13 And the reason I'm asking this one, I'd like to get a 14 couple of things on the record concerning tomorrow's 15 meeting because I understand that meeting will be off 16 the record, or at least no record of it kept. 17 So there's some things I want to ask you 18 about. And the reason I'm asking is I've had some 19 prior experience with advisory committees, both in the 20 government and helping to create them and outside the 21 government and being on them. And I recognize they are 22 created for a variety of purposes. Sometimes, to make 23 issues go away for a while. Sometimes, to get useful 24 input. But advisory committees can often turn out to 25 be black holes where information and input goes and

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### 326 1 

### MR. BROOKMAN: I thought I sawonemore 2 person. 3 Any additional questions or comments for 4 Larry andRon on theASHRAE methodology? 5 (No response.) 6 

### None. Thankyou, Larry andRon. 7 In fact, let'sgive a roundof applause for 8 all of ourpresenters thismorning. 9 (Applause.) 10 Glenn, didyouhave a question? 1 1 

### MR. SCHLEEDE: Glenn Schleede. 12 I'vegot a question forMike, MikeMcCabe. 13 And the reason I'm asking this one, I'dlike to get a 14 couple of things on the record concerning tomorrow's 15 meetingbecause I understand thatmeetingwillbe off 16 the record, or at leastno record of itkept. 17 So there's some things I want to askyou 18 about. And the reason I'm asking is I'vehad some 19 prior experiencewith advisory committees, both in the 20 government and helping to create them and outside the 21 government andbeingon them. And I recognize they are 22 created for a variety ofpurposes. Sometimes, tomake 23 issues go away for a while. Sometimes, togetuseful 24 input. But advisory committees can often turnout to 25 be blackholes where information and input goes and

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064327 1 never comes out again. 2 So, one of the questions -- and I'll have a 3 series of them. Who from DOE will be there? 4 Second, is any input made at that meeting 5 tomorrow input to DOE or is it input to the advisory 6 committee? 7 Third, of the DOE people who will be there, 8 will there be people who have first line experience in 9 utility ratemaking, either for state PUC, for FERC or 10 for investor owned utility who know the relationship 11 between costs and revenue and how the costs work 12 through the ratemaking process? 13 Do you want to do them one at a time? 14 MR. BROOKMAN: the first question is who's 15 going to be there, and the second question is --
16 MR. SCHLEEDE: Who from DOE? 17 MR. BROOKMAN: -- input to DOE. Is it input 18 to DOE or is it input to the advisory committee? 19 MR. McCABE: On the first question, who from 20 the Department will be there. On my staff, Marc 21 LeFrance is going to be there; Carl Adams is going to 22 be there; and Barry Berlin. I understand also from the 23 Policy office that Mark Friedrichs is going to be 24 there. I'm not certain if there are any others who are 25 going to be there.

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(301) 565-0064 327 1 never comes out again. 2 So, one of the questions and I'llhave a 3 series of them. Who from DOE will be there? 4 Second, is any inputmade at thatmeeting 5 tomorrow input to DOE or is it input to the advisory 6 committee? 7 Third, of the DOE people who will be there, 8 will therebe people who have first line experience in 9 utilityratemaking, either for statePUC, for FERC or 10 for investorownedutilitywho know the relationship 11 between costs and revenue and how the costswork 12 through the ratemaking process? 13 Do youwant to do them one at a time? 14 MR. BROOKMAN: the first question is who's 15 going tobe there, and the second question is

-- 16 MR. SCHLEEDE: Who from DOE? 17 MR. BROOKMAN:

-- input toDOE. Is it input 18 to DOE or is it input to the advisory committee? 19 MR. McCABE: On the first question, who from 20 the Departmentwill be there. On my staff, Marc 21 LeFrance is going tobe there; Carl Adams is going to 22 be there; andBarryBerlin. I understand also from the 23 Policy Office thatMarkFriedrichs is going tobe 24 there. I'mnot certain if there are any otherswho are 25 going tobe there.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064328 1 With respect to the second question, all of 2 the working groups will be providing input to the 3 committee, not directly to the Department. It will be 4 the committee that will then review it and consider it 5 in the public forum with meetings that are noticed, 6 with transcripts and all the other requirements. And 7 then, based on their discussions and their conclusions, 8 their decision, they will then make a recommendation to 9 the Department. 10 MR. SCHLEEDE: The key issue that I'm kind of 11 interested in getting attention to is a very complex 12 one, and it has to do with the issue of which cost of 13 electricity is used; the total cost or the incremental 14 cost. It is not one that can be dealt with in the way 15 that Jim McMahon dealt with it yesterday, saying you're 16 wrong. It takes a lot of discussion and running 17 through a lot of things to understand what that means 18 and how the costs are determined. 19 And I need to tell you just a little bit of a 20 Mission Impossible statement as to why I consider this 21 issue important. 22 I was sitting in my office one day trying to 23 get some work done, when I had a call from someone who 24 happens to work for the Department of Energy, who said, 25 "I've been following all your nasty comments to DOE on

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(301) 565-0064 328 1 With respect to the second question, all of 2 the working groups will beproviding input to the 3 committee, not directly to the Department. Itwill be 4 the committee that will then review it and consider it 5 in thepublic forum withmeetings that are noticed, 6 with transcripts and all the other requirements. And 7 then, based on their discussions and their conclusions, 8 their decision, they will thenmake a recommendation to 9 the Department. 10 MR. SCHLEEDE: The key issue that I'mkind of 11 interested in getting attention to is a very complex 12 one, and ithas to do with the issue of which cost of 13 electricity is used; the total cost or the incremental 14 cost. It is not one that canbe dealt with in theway 15 that JimMcMahon dealt with ityesterday, saying you're 16 wrong. It takes a lot of discussion and running 17 through a lot of things to understandwhat thatmeans 18 andhow the costs are determined. 19 And I need to tell youjusta littlebitof a 20 Mission Impossible statement as towhy I consider this 21 issue important. 22 I was sitting inmy office one day trying to 23 get some work done, when I had a call from someonewho 24 happens towork for the Department ofEnergy, who said, 25 "I'vebeen following all yournasty comments to DOE on

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064329 1 energy price forecasting and on which price ought to be 2 used, average price, and whether that makes sense." 3 And he said, "All your points are right so far, but 4 you're missing the key point." He said, "I've got some 5 experience with this model that LBL uses. I've looked 6 at it in detail." He said, "It's horrible, but the key 7 problem that you've got to focus on is incremental cost 8 versus total cost." 9 I started to dismiss him in the say way that 10 Jim dismissed me yesterday, and he said, "Think back. 11 You used to work for a utility. Think about how rates 12 are set and what really happens to those costs." 13 The guy, I think, still works for DOE. He 14 will no longer answer my telephone calls. And he said, 15 "If you ever tell anybody that I called you, I will 16 deny it." 17 The issue is complicated. I spent quite a 18 bit of time thinking about it and conclude that the guy 19 is right. And it is an issue that I think DOE directly 20 ought to focus on and it's not one that ought to be 21 focused on in this advisory committee, because I 22 consider the advisory committee sort of basically 23 unbalanced to start with and not a good place to take 24 up this issue. 25 But I would urge you to consider it

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(301) 565-0064 329 1 energy price forecasting and onwhichpriceought tobe 2 used, average price, andwhether thatmakes sense." 3 And he said, "All yourpoints are right so far, but 4 you're missing thekey point." He said, "I've got some 5 experience with this model thatLBL uses. I've looked 6 at it indetail." He said, "It'shorrible, but thekey 7 problem that you've got to focus on is incremental cost 8 versus total cost." 9 I started to dismiss him in the say way that 1 0 Jimdismissedme yesterday, andhe said, "Thinkback. 11 You used towork for a utility. Think abouthow rates 1 2 are set and what reallyhappens to those costs." 13 The guy, I think, stillworks for DOE. He 14 will no longer answermy telephone calls. And he said, 15 "If

### you ever tell anybody that I called

### you, I will 1 6 deny it." 17 The issue is complicated. I spent quite a 18 bit of time thinking about it and conclude that the guy 19 is right. And it is an issue that I thinkDOE directly 20 ought to focus on and it's not one that ought tobe 21 focused on in this advisory committee, because I 22 consider the advisory committee sort ofbasically 23 unbalanced to startwith andnot a goodplace to take 24 up this issue. 25 But I wouldurge 

### you to consider it

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064330 1 seriously, that it is not something that can be 2 dismissed easily, and it takes a lot of time to work 3 through it. Which leads to the next question. 4 How will this meeting be run tomorrow? Will 5 there be time to deal with complex issues? And is this 6 a one-time meeting or many times? Will this group meet 7 many times? If so, where will it meet. If it meets in 8 Oregon, I'm not going to be there.9 MR. McCABE: I expect that this is not a one10 time meeting, that there will be a number of meetings. 11 There are a number of issues that will be addressed 12 that there will be an opportunity to discuss all the 13 issues. The working group may decide to focus on some 14 and not on others. 15 You are correct that it is a complicated 16 issue. That if we look at a standard today that goes 17 into effect three years from now as to what impact it 18 would have on the utilities and how to analyze the 19 impact for say the year 2000, that you'd look at a very 20 different set of issues because you already have the 21 structure in place. 22 And that is an incremental cost because 23 you're not going to build any new or retire any power 24 plants. You're looking at reducing energy use. And 25 that's just the cost of the fuel to producethe energy.

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(301) 565-0064 330 1 seriously, that it is not something that canbe 2 dismissed easily, and it takes a lot of time towork 3 through it. Which leads to the next question. 

### 4 How will this meetingbe run tomorrow? Will 5 there be time to deal with complex issues? And is this 6 a one-timemeeting ormany times? Will this groupmeet 7 many times? If so, where will itmeet. If itmeets in 8 Oregon, I'mnot going tobe there. 9 MR. McCABE: I expect that this is not a one10 time meeting, that there will be a number ofmeetings. 11 There are a number of issues that will be addressed 12 that therewill be an opportunity to discuss all the 13 issues. Theworking groupmay decide to focus on some 14 and not on others. 15 You are correct that it is a complicated 16 issue. That ifwe look at a standard today that goes 17 into effect three years from now as towhat impact it 18 would have on the utilities andhow to analyze the 19 impact for say the year 2000, that you'd look at a very 20 different set of issues because you alreadyhave the 21 structure inplace. 22 And that is an incremental costbecause 23 you're not going tobuild any new orretire any power 24 plants. You're looking at reducing energy use. And 25 that's just the cost of the fuel to produce the energy.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064331 1 But if you're looking at 10-15-20 years from now where 2 you're affecting energy demand and you're able to 3 reduce growth by some factor, that probably has a whole 4 different set of questions and a different way to look 5 at it. 6 And so we're looking -- we've typically 7 looked over a 30 year period and have used the average 8 price to try to capture that. We've used the average 9 price for the consumer analysis. And the consumers pay 10 that. The average price does not reflect what 11 everybody is because there's nobody who is average. 12 And we have committed for our analyses, for example, 13 for consumer analyses to look at a range of energy 14 prices. 15 There's a workshop next Tuesday on ballasts. 16 The consumers of ballasts typically are not individual 17 homeowners. They're businesses. But they also 18 experience a range of prices and there will be a 19 sensitivity analysis on life cycle costs that will be 20 discussed. I think it can be applied to these same 21 products. 22 With energy forecasting, we've also committed 23 to look at a range of prices, including regional 24 prices, and also some of the ranges of energy price 25 forecasts in order to capture some of that uncertainty.

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(301) 565-0064 331 1 But if you're looking at 10-15-20 years from nowwhere 2 you're affecting energy demand and you're able to 3 reduce growthby some factor, thatprobablyhas a whole 4 different set of questions and a differentway to look 5 at it. 6 And sowe're looking

-- we've typically 7 looked over a 30 year period and have used the average 8 price to try to capture that. We've used the average 9 price for the consumer analysis. And the consumers pay 10 that. The average price does not reflectwhat 11 everybody is because there's nobody who is average. 12 And we have committed for our analyses, for example, 13 for consumer analyses to look at a range of energy 14 prices. 15 There's a workshop next Tuesday onballasts. 16 The consumers ofballasts typically are not individual 17 homeowners. They're businesses. But they also 18 experience a range ofprices and therewill be a 19 sensitivity analysis on life cycle costs that will be 20 discussed. I think itcanbe applied to these same 21 products. 22 With energy forecasting, we've also committed 23 to look at a range of prices, includingregional 24 prices, and also some of the ranges of energy price 25 forecasts inorder to capture some of thatuncertainty.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064332 1 MR. BROOKMAN: It strikes me that your 2 comments, Michael, and also Glenn's comments speak to 3 the complexity of this issue and maybe speak to the 4 need for an ongoing dialogue on the subject. 5 Let me talk about the structure of this 6 meeting tomorrow. 7

9 VOICE: You're not on the air.

MR. BROOKMAN : I'm not on the air? It strikes me that both of these comments 10 speak to the complexity of this issue and the need for 11 ongoing dialogue.. But the structure of this advisory 12 committee, is I think it's important to note that13 Wayne, you and Charlie have been designated as the co14 chairs or co-facilitators. 15 16 17 No? Charlie? No? What is the structure? MR. McCABE: Let me answer. There are three 18 individuals who have been named to chair this. Charlie 19 is one and we have some representatives from EI, Edison 20 Electric Institute. 21 MR. BROOKMAN: Okay. 22 MR. McCABE: And the American Gas 23 Association. They will be working together to pull 24 together this meeting. The work group will be expanded 25 further. Christine Irvin, the Assistant Secretary,

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(301) 565-0064 332 1 MR. BROOKMAN: It strikes me that your 2 comments, Michael, and also Glenn's comments speak to 3 the complexity of this issue andmaybe speak to the 4 need for an ongoingdialogue on the subject. 5 Letme talk about the structureof this 6 meeting tomorrow. 7 VOICE: You're not on the air. 8 MR. BROOKMAN: I'mnot on the air? 9 It strikesme thatboth of these comments 10 speak to the complexity of this issue and the need for 11 ongoing dialogue. But the structure of this advisory 12 committee, is I think it's important tonote that 13 Wayne, you and Charlie have beendesignated as the co14 chairs or co-facilitators. 15 No? Charlie? No? 16 What is the structure? 17 MR. McCABE: Letme answer. There are three 18 individuals who have been named to chair this. Charlie 19 is one and we have some representatives from EI, Edison 20 Electric Institute. 21 MR. BROOKMAN: Okay. 22 MR. McCABE: And theAmericanGas 23 Association. They will beworking together topull 24 together this meeting. The work groupwill be expanded 25 further. Christine Irvin, the Assistant Secretary,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064333 1 will be naming additional people to that committee.
2 3 to host. 4 MR. BROOKMAN: And Wayne's been kind enough

Yes, Wayne? 5 Yes. So those of you that have specific 6 questions on this issue can ask Charlie now about this 7 meeting tomorrow. And I feel an obligation to not hold 8 everybody hostage jut prior to lunch, but let me offer 9 the opportunity for Glenn and others to ask additional 10 questions during the lunch break. And if we need to 11 introduce it into the record, we can do that when we 12 recommence at 1:00. 13 14 record? 15 You wanted to do one more thing for the

MR. McCABE: I have to apologize. I just 16 been called upstairs. 17 Glenn, you want to make a comment? 18 And you don't need me. 19 MR. SCHLEEDE: I just wanted to say that 20 while I understand all the comments Michael made on 21 what you're going to do on sensitivity and looking and 22 all that, that does not get to the fundamental question 23 of which electricity price; total price or incremental 24 price. And that's the one that needs attention. And 25 there's somebody in DOE building, in this building

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(301) 565-0064 333 1 will be naming additional people to that committee. 2 MR. BROOKMAN: AndWayne's beenkind enough 3 to host. 4 Yes, Wayne? 5 Yes. So those of you thathave specific 6 questions on this issue can ask Charlienow about this 7 meeting tomorrow. And I feel an obligation tonot hold 8 everybodyhostage jutprior to lunch, but letme offer 9 the opportunity for Glenn and others to ask additional 10 questions during the lunchbreak. And ifwe need to 11 introduce it into the record, we can do that whenwe 12 recommence at 1:00. 13 You wanted to do one more thing for the 14 record? 15 MR. McCABE: I have to apologize. I just 16 been calledupstairs. 17 Glenn, youwant tomake a comment? 18 And you don't needme. 19 MR. SCHLEEDE: I justwanted to say that 20 while I understand all the comments Michael made on 21 what you're going todo on sensitivity and looking and 22 all that, that does not get to the fundamental question 23 ofwhich electricityprice; total price or incremental 24 price. And that's the one that needs attention. And 25 there's somebody inDOE building, in this building

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064334 1 right now, that understands it. You've got to find 2 him. 3 MR. BROOKMAN: I guess from the Department's 4 perspective, that anybody who can come forward with the 5 best information on this subject should come forward, 6 whether it's the people in this room or from wherever 7 because they're trying to get to the bottom of it, to 8 the bottom of the best answer, irrespective. 9 10 11 Okay. Go ahead, Jim. Jim McMahon. MR. McMAHON: Glenn, I just want to clarify 12 one thing. I did say you were wrong yesterday but I 13 didn't cut you off. I began to explain my reasons and 14 our facilitator cut me off and said this was the wrong 15 forum for this discussion. 16 I have returned your phone calls and your 17 faxes, every one of them, and -- not the last one? 18 I'm here in Washington, so if you sent me one 19 really recently, I haven't gotten it. We can have this 20 discussion in a different forum. 21 I look forward to a full discussion. I'm not 22 dismissing the issue. I do disagree with you about how 23 it ought to be handled but I would like to hear your 24 reasons. And we'll do that in an appropriate forum. 25 MR. BROOKMAN: It's a big issue. It deserves

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(301) 565-0064 334 1 right now, that understands it. You've got to find 2 him. 3 MR. BROOKMAN: I guess from the Department's 4 perspective, that anybody who can come forward with the 5 best information on this subject should come forward, 6 whether it's the people in this roomor fromwherever 7 because they're trying to get to thebottomof it, to 8 thebottomof thebest answer, irrespective. 9 Okay. Go ahead, Jim. 10 JimMcMahon. 1 1 MR. McMAHON: Glenn, I justwant to clarify 12 one thing. I did say you were wrong yesterday but I 13 didn't cut you off. I began to explainmy reasons and 14 our facilitator cutme off and said this was thewrong 15 forum for this discussion. 16 I have returned yourphone calls and your 17 faxes, everyone of them, and

-- not the last one? 18 I'mhere inWashington, so ifyou sentme one 19 really recently, I haven't gotten it. We canhave this 20 discussion in a different forum. 21 I look forward to a full discussion. I'mnot 22 dismissing the issue. I do disagreewith you about how 23 itought tobe handledbut I would like tohear your 24 reasons. And we'll do that in an appropriate forum. 25 MR. BROOKMAN: It's a big issue. It deserves

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064335
1 a full discussion. 2 David Goldstein. 3 MR. GOLDSTEIN: Just a brief comment on the
4 issue of marginal costs.
5 I don't believe this is an issue of what cost 6 to use. This is an issue of what perspective to use.
7 If you use marginal costs, you're using a societal 8 perspective. You're saying you don't care who spends 9 the money but just that someone spends it. 10 And you could do that. This is not a new 11 issue. NRDC put it in our comments on appliance 12 standards years ago. You could look at the cost stream 13 year by year from a manufacturer and not mark it up to 14 the consumer because that's a transfer payment and not 15 a cost. And you could look at marginal costs and you'd 16 have to add in externalities and you'd come up with 17 another self-consistent viewpoint. And if you work 18 through it on the back of an envelope, you'll discover 19 it doesn't make a lot of difference in terms of how the 20 final answer comes out. 21 So it's an immensely complicated and 22 controversial way in the way the calculation is done 23 that probably wouldn't matter anyway. 24 MR. BROOKMAN: What I heard Michael McCabe 25 saying was that there will be working groups to take

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(301) 565-0064 335 1 a full discussion. 2 David Goldstein. 3 MR. GOLDSTEIN: Just a brief comment on the 4 issue ofmarginal costs. 5 I don'tbelieve this is an issue of what cost 6 touse. This is an issue ofwhat perspective touse. 7 If you use marginal costs, you're using a societal 8 perspective. You're saying you don't carewho spends 9 themoney butjust that someone spends it. 10 And you could do that. This is not a new 11 issue. NRDC put it in our comments on appliance 12 standards years ago. You could look at the cost stream 13 yearby year from a manufacturer and not mark itup to 14 the consumerbecause that's a transferpayment and not 15 a cost. And you could look at marginal costs and you'd 16 have to add in externalities and you'd come upwith 17 another self-consistent viewpoint. And if youwork 18 through iton thebackof an envelope, you'll discover 19 itdoesn't make a lot of difference in terms ofhow the 20 final answer comes out. 21 So it's an immensely complicated and 22 controversial way in theway the calculation is done 23 thatprobably wouldn't matter anyway. 24 MR. BROOKMAN: What I heardMichaelMcCabe 25 sayingwas that therewill beworking groups to take

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064336 1 these things up.

MR. SCHLEEDE: I've got to say one more

MR. BROOKMAN: You can say one more thing and 5 then we will move to lunch. 6 MR. SCHLEEDE: It is not marginal costs that 7 I'm talking about. And we've got to start, if we're 8 going to discuss this, to learn the difference between 9 total cost, incremental cost and marginal cost. And 10 that ought to be early on. I am not talking about 11 marginal cost. 12 MR. BROOKMAN: Thank you. 13 It is now noon. We're going to reconvene at 14 1:00. We've got a full afternoon and we're going to 15 start at 1:00. 16 (Whereupon, the luncheon recess was taken at 17 12:00 noon.) 18 19 20 21 22 23 24 25

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 336 1 these things up. 2 MR. SCHLEEDE: I've got to say onemore 3 thing. 4 MR. BROOKMAN: You can say onemore thing and 5 thenwe willmove to lunch. 6 MR. SCHLEEDE: It is notmarginal costs that 7 I'm talking about. And we've got to start, ifwe're 8 going to discuss this, to learn the differencebetween 9 total cost, incremental cost andmarginal cost. And 10 that ought tobe early on. I am not talking about 11 marginal cost. 12 MR. BROOKMAN: Thank you. 13 It is now noon. We're going to reconvene at 14 1:00. We've got a full afternoon andwe're going to 15 start at 1:00. 16 (Whereupon, the luncheonrecess was taken at 1 7 1 2 :00 noon.) 18 19 20 21 22 23 24 25

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064337
1 AFTERNOON SESSION 2 1:00 P.M.

MR. BROOKMAN: Good afternoon and welcome

One of our goals for the afternoon is to try 6 and end a little bit early since several people are 7 catching planes, so we're going to press on with it 8 here.
9 VOICE: Press on. Press on. 10 MR. BROOKMAN: Let's do it. 11 A few housekeeping items. Once again, let me 12 announce. Those of you that may have come in late 13 today and were not here yesterday, the Advisory 14 Committee which was scheduled for I think June 18th has 15 been rescheduled. The new date which I announced was 16 June 23rd for the Advisory Committee. 17 Those of you that have not yet signed in, 18 we're asking you to do so at the front desk over here 19 with Sandy. 20 And those of you that want to have a diskette 21 of the GRIM model, we have more of them available for 22 those of you that have not yet obtained a diskette. 23 And also, Jim McMahon has provided a sheet 24 that is also at the front table. Jim McMahon from 25 LBNL. It's a price equation for your use.

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(301) 565-0064 

### 337 1 

### AFTERNOON SESSION 2 

### 1:00p.m. 3 

### MR. BROOKMAN: Good afternoon andwelcome 4 back. 5 One of ourgoals for the afternoon is to try 6 and end a littlebit early since severalpeople are 7 catchingplanes, sowe're going topress onwith it 8 here. 9 

### VOICE: Press on. Press on. 10 MR. BROOKMAN: Let's do it. 11 

### Afew housekeeping items. Once again, letme 12 announce. Those of you thatmay have come in late 13 today andwere nothere yesterday, theAdvisory 14 Committeewhich was scheduled for I thinkJune 18thhas 15 beenrescheduled. The new date which I announcedwas 16 June 23rd for theAdvisory Committee. 17 Those of you thathave not yet signed in, 18 we're asking you to do so at the front desk overhere 19 with Sandy. 20 And those of you thatwant tohave a diskette 21 of the GRIM model, we havemore of them available for 22 those of you thathave not yet obtained a diskette. 23 And also, JimMcMahon has provided a sheet 24 that is also at the front table. JimMcMahon from 25 LBNL. It's a price equation for youruse.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064338 1 So, as a way to start off, Mike Rivest is 2 going to give a brief presentation. 3 MR. RIVEST: And what we're starting with for 4 this afternoon, we're onto another series of inputs to 5 the GRIM, which is the price forecasts. 6 Repeating a little bit, the type of inputs 7 that we needed for the costing, we also have three 8 types of inputs. Actually, we have requirements for 9 price forecasts for both a base case and for various 10 efficiency levels. 11 Price forecasts will be needed for both the 12 Phase 2, the industry analysis. So here we're 13 interested in trying to establish an industry-wide 14 price. And also, looking at price setting for the 15 subgroup analysis. There's two layers of price setting 16 we need to be considered with. 17 Previously, the prices were supplied by the 18 MIM model, so incremental manufacturing costs were 19 marked up and these marked-up costs became the prices 20 that were used in both the life cycle cost analysis and 21 to generate the revenues for the prototypical firm on 22 an industry average wide analysis. 23 There was the very controversial issue of 24 cost pass-through of standards induced costs to 25 consumers, what percentage of the incremental costs

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(301) 565-0064 338 

### 1 So, as a way to startoff, Mike Rivest is 2 going to give a briefpresentation. 3 

### MR. RIVEST: And whatwe're startingwith for 4 this afternoon, we're onto another series of inputs to 5 the GRIM, which is the price forecasts. 6 Repeating a littlebit, the type of inputs 7 thatwe needed for the costing, we alsohave three 8 types of inputs. Actually, we have requirements for 9 price forecasts for both a base case and for various 10 efficiency levels. 11 Price forecasts willbeneeded for both the 12 Phase 2, the industry analysis. So herewe're 13 interested in trying to establish an industry-wide 14 price. And also, looking atprice setting for the 15 subgroup analysis. There's two layers ofprice setting 16 we need tobe consideredwith. 17 Previously, the prices were suppliedby the 18 MIM model, so incremental manufacturing costs were 19 markedup and thesemarked-up costs became theprices 20 thatwereused inboth the lifecycle cost analysis and 21 to generate the revenues for theprototypical firm on 22 an industry average wide analysis. 23 There was the very controversial issue of 24 costpass-throughof standards induced costs to 25 consumers, what percentage of the incremental costs

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064339 1 could be passed on. t that there's a definite i I'd lik t

t 2 n ou o po e 3 relationship between the life cycle cost curve and the 4 manufacturers profitability in the sense that if we 5 assume no cost pass-through, that looks very favorable 6 to the consumer since efficiency improvements finally
7 are costless, which means we would have to do a 8 consumer impact analysis. And on the other range, if 9 we were to assume that costs are completely pass10 through at historical mark-ups, then consumer life 11 cycle costs look considerably less appealing but the 12 manufacturer profitability looks better. 13 So there's a tradeoff there. And so, for 14 that reason, it's important that the prices that are 15 forecasted and used in one are reflected in the other 16 so we can achieve that balance. 17 A number of deferent ways that have been used 18 previously to come up -- to arrive at prices, some are 19 cost based, some are not. There are also a couple of 20 methodologies which we'd like to describe which could
21 be incorporated in our tool kit and might serve as one 22 of several possible price forecasts. 23 First of all, I'd like to talk about survey 24 data. Earlier this morning, Ron Jarnagin described how 25 they went about getting price information on more

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(301) 565-0064 339 1 couldbe passed on. 2 I'd like topoint out that there's a definite 3 relationshipbetween the life cycle cost curve and the 4 manufacturers profitability in the sense that ifwe 5 assume no cost pass-through, that looks very favorable 6 to the consumer since efficiency improvements finally 7 are costless, whichmeans we wouldhave todo a 8 consumer impact analysis. And on the otherrange, if 9 we were to assume that costs are completelypass10 through at historicalmark-ups, then consumer life 11 cycle costs look considerably less appealingbut the 12 manufacturerprofitability looks better. 13 So there's a tradeoff there. And so, for 14 that reason, it's important that the prices that are 15 forecasted and used in one are reflected in the other 16 sowe can achieve that balance. 17 Anumber of deferent ways thathave beenused 18 previously to come up -- to arrive at prices, some are 19 costbased, some are not. There are also a couple of 20 methodologies which we'd like todescribe which could 21 be incorporated in our tool kit andmight serve as one 22 of several possible price forecasts. 23 First of all, I'd like to talk about survey 24 data. Earlier this morning, Ron Jarnagindescribedhow 25 they went about gettingprice informationonmore

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064340 1 efficient products by surveying design engineers, I 2 believe. That's a possibility. It has limited 3 application, but certainly in some applications it's 4 probably the best way to go. 5 Another way would be to simply ask 6 manufacturers. They could submit us their cost 7 increases and they could submit to us an independent 8 assessment of what they think the market will bear for 9 that product at the efficiency. 10 Another approach -- and I'm happy to have 11 Bruce Spinney here, Department of Transportation, who's 12 going to describe how DOT goes about assessing the cost 13 impacts to consumers of increased motor vehicle safety 14 requirements. And it's very much a financial based 15 methodology and I'm very happy that he could be hear to 16 explain it, because I'm not sure I understand it that 17 well. 18 Another approach is an economic approach and 19 I hate to use the word, but the MIM model used a 20 similar approach. We'd like to describe some of the 21 basic assumptions and ways it may be used. And the 22 focus here is to perhaps arrive at building a simple 23 spreadsheet that incorporates the economic assumptions 24 in a transparent fashion and decoupling it from 25 everything else so that it can supply us another price

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(301) 565-0064 340 1 efficientproducts by surveying design engineers, I 2 believe. That's a possibility. Ithas limited 3 application, but certainly in some applications it's 4 probably the bestway to go. 5 Anotherway would be to simply ask 6 manufacturers. They could submitus their cost 7 increases and they could submit to us an independent 8 assessment ofwhat they think themarketwill bear for 9 that product at the efficiency. 10 Another approach

-- and I'mhappy tohave 11 Bruce Spinney here, Department ofTransportation, who's 12 going to describehow DOT goes about assessing the cost 13 impacts to consumers of increasedmotorvehicle safety 14 requirements. And it's very much a financial based 15 methodology and I'mvery happy that he couldbe hear to 16 explain it, because I'mnot sure I understand it that 17 well. 18 Another approach is an economic approach and 19 I hate to use the word, but the MIM model used a 20 similar approach. We'd like to describe some of the 21 basic assumptions and ways itmay beused. And the 22 focus here is toperhaps arrive at building a simple 23 spreadsheet that incorporates the economic assumptions 24 in a transparent fashion and decoupling it from 25 everything else so that it can supplyus another price

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064341 1 forecast that we can debate on its merits. 2 Just a word about scenario analysis. We're 3 looking at coming up with several forecasts. I'll 4 describe each of the methods sequentially. 5 The market survey data approach works, it 6 seems, relatively well in some situations for existing 7 products. The mark-up pricing approach used by the 8 Department of Transportation uses a lot of historical 9 experience, looks at trends over many years, and it 10 certainly has its applications. 11 The economic mark-up approach is similar in 12 some senses to the DOT approach but it tries to 13 incorporate price quantity effects. 14 MR. KEMMEL: Sheldon Kemmel, Department of 15 Justice. 16 On the economic mark-up approach, has the 17 Department of Energy estimated demand curves? 18 MR. RIVEST: I'm not competent to answer that 19 question. The person who will be doing the 20 presentation on the economic mark-up approach is Jim
21 McMahon of LBNL. 22 MR. KEMMEL: And that's later? 23 MR. RIVEST: He's not back from lunch. I'm 24 sure he'll be happy to try and answer that for you. 25 MR. RIVEST: Additional questions?

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(301) 565-0064 341 1 forecast that we can debate on its merits. 2 Just a word about scenario analysis. We're 3 looking at coming up with several forecasts. I'll 4 describe eachof the methods sequentially. 5 Themarket survey data approachworks, it 6 seems, relatively well in some situations for existing 7 products. Themark-uppricing approachusedby the 8 Department of Transportationuses a lot ofhistorical 9 experience, looks at trends overmany years, and it 10 certainlyhas its applications. 11 The economic mark-up approach is similar in 12 some senses to the DOT approachbut it tries to 13 incorporatepricequantity effects. 14 MR. KEMMEL: Sheldon Kemmel, Department of 15 Justice. 16 On the economic mark-up approach, has the 17 Department ofEnergy estimateddemand curves? 18 MR. RIVEST: I'mnot competent to answer that 19 question. The personwho will be doing the 20 presentationon the economicmark-up approach is Jim 21 McMahon ofLBNL. 22 MR. KEMMEL: And that's later? 23 MR. RIVEST: He's not back from lunch. I'm 24 sure he'll be happy to try and answer that for you. 25 MR. RIVEST: Additional questions?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064342 1 MR. LEWIS: Dave Lewis, Lennox. 2 Will there be more discussion about the 3 economic mark-up approach? It was my opinion coming 4 into this that that was not going to be utilized. So, 5 obviously, I'm incorrect. 6 If it is going to be utilized, we certainly 7 want to have some review of that because if it has 8 anything to do with what historically has been done, 9 obviously we have great skepticism. 10 MR. RIVEST: It's right there. It's 11 transparent. I mean, it's there for debate. That's 12 why we're bringing it up. 13 MR. BROOKMAN: As I understand it, we're 14 going to look at each one of these in sequence. 15 MR. RIVEST: Yes. Each of these in sequence. 16 I'll be presenting the first two approaches. Jim 17 McMahon will be presenting the economic mark-up 18 approach. I'll be talking a little bit about expert 19 judgment, about how we might go about doing surveys. 20 So, Jim may be doing this at the end, so I 21 won't be sequential. And Bruce Spinney is here to 22 answer any questions on the methodology of the 23 Department of Transportation as we lay it out. 24 The market survey approach was used recently 25 for doing the technical support documents for the

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(301) 565-0064 

### 342 1 MR. LEWIS: DaveLewis, Lennox. 2 

### Will there bemore discussion about the 3 economicmark-up approach? Itwas my opinion coming 4 into this that thatwas not going tobeutilized. So, 5 obviously, I'm incorrect. 6 If it is going tobe utilized, we certainly 7 want tohave some reviewof thatbecause if ithas 8 anything to dowithwhathistoricallyhas beendone, 9 obviouslywe have great skepticism. 10 MR. RIVEST: It'sright there. It's 11 transparent. I mean, it's there for debate. That's 12 why we're bringing itup. 13 MR. BROOKMAN: As I understand it, we're 14 going to look at eachone of these in sequence. 15 MR. RIVEST: Yes. Eachof these in sequence. 16 I'llbepresenting the first two approaches. Jim 17 McMahon willbe presenting the economicmark-up 18 approach. I'llbetalking a littlebit about expert 19 judgment, about how we might go about doing surveys. 20 So, Jimmay be doing this at the end, so I 21 won't be sequential. And Bruce Spinney ishere to 22 answer any questions on themethodology of the 23 Departmentof Transportation as we lay itout. 24 Themarket survey approachwas used recently 25 for doing the technical support documents for the

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064343 1 electronic ballasts, for the ballast rulemaking. And 2 as an example of where it was used, it was used to try 3 to arrive at pricing for electronic ballasts. 4 The reason we felt it was a good approach in 5 this case is that the electronic ballast is an existing 6 product. It's already sold in very high volumes. So, 7 the price -- actually going in the market and surveying 8 the prices, as was done by the Lighting Research 9 Institute, is probably better than any other approach. 10 The prices are there to be seen. 11 A similar approach was used to establish 12 baseline costs for refrigerators in the refrigerator 13 rule. Once again, you're dealing with a high volume 14 product of known features. And it was used only as a 15 baseline, so it didn't capture any of the incremental 16 costs of standards. So that was felt to be a 17 reasonable application of the market survey. 18 There are difficulties applying this, 19 however, because even if the product is out there -- 20 well, it may be available in very low quantities so 21 economies of scale haven't necessarily settled in. 22 In some cases, energy efficiency features, 23 you'd like to be able to look at the efficiency of -- 24 I'll use a heat pump, the 12-SER, 14-SER heat pump in 25 isolation, and that may be difficult because other

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(301) 565-0064 343 1 electronicballasts, for theballast rulemaking. And 2 as an example of where itwas used, itwas used to try 3 to arrive atpricing for electronic ballasts. 4 The reasonwe felt itwas a good approach in 5 this case is that the electronicballast is an existing 6 product. It's already sold invery highvolumes. So, 7 the price

-- actually going in the market and surveying 8 the prices, as was done by the LightingResearch 9 Institute, is probablybetter than any other approach. 10 The prices are there tobe seen. 11 Asimilar approachwas used to establish 12 baseline costs for refrigerators in the refrigerator 13 rule. Once again, you're dealingwith a high volume 14 product of known features. And itwas used only as a 15 baseline, so it didn't capture any of the incremental 16 costs of standards. So that was felt tobe a 17 reasonable application of themarket survey. 18 There are difficulties applying this, 19 however, because even if the product is out there 20 well, itmay be available invery lowquantities so 21 economies of scale haven't necessarily settled in. 22 In some cases, energy efficiency features, 23 you'd like tobe able to look at the efficiency of 24 I'll use a heat pump, the 12-SER, 14-SERheat pump in 25 isolation, and that may be difficultbecause other

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064344 1 comfort type features may be bundled in that higher end 2 product. So it becomes very difficult to isolate the 3 cost of energy efficiency from that of other features. 4 Another problem is that the price of a 5 product after a standard may change because it becomes 6 a commodity product, which means the pricing strategy 7 may be different for that same energy efficiency level. 8 Going back into 1980 at that original 9 rulemaking, a survey of manufacturers was produced and 10 manufacturers were asked to put their estimates of 11 incremental manufacturing costs for different 12 efficiency levels, as well as to put down the price 13 they thought the market would bear for this. So this 14 was based on market judgment and it captures a lot of 15 experience that won't necessarily be incorporated in 16 other methods. 17 For example, they may consider their target 18 markets, their distribution chains, marketing 19 strategies. Some of the questions that were asked in 20 the survey had to do with trying to establish that 21 specific firm's price elasticity in comparison to the 22 industry's price elasticity. It asked direct questions 23 about cost pass-through and also what would be the 24 effect of substitute products after a standard level 25 was put in place.

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(301) 565-0064 344 1 comfort type features may bebundled in thathigher end 2 product. So itbecomes very difficult to isolate the 3 cost of energy efficiency from that of other features. 4 Another problem is that the price of a 5 product after a standardmay change because itbecomes 6 a commodityproduct, whichmeans the pricing strategy 7 may be different for that same energy efficiency level. 8 Going back into 1980 at that original 9 rulemaking, a survey ofmanufacturers was produced and 10 manufacturers were asked toput their estimates of 11 incremental manufacturing costs for different 12 efficiency levels, as well as to put down the price 13 they thought the market wouldbear for this. So this 14 was based onmarket judgment and it captures a lot of 15 experience that won't necessarilybe incorporated in 16 othermethods. 17 For example, theymay consider their target 18 markets, their distribution chains, marketing 19 strategies. Some of the questions thatwere asked in 20 the surveyhad to do with trying to establish that 21 specific firm's price elasticity in comparison to the 22 industry's price elasticity. It asked direct questions 23 about costpass-through and alsowhatwouldbe the 24 effect of substituteproducts after a standard level 25 was put inplace.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064345
1 Just made a photocopy of a page out of that 2 survey. This was a very lengthy survey. It was 60
3 pages long. I don't know what the success rate was on
4 responses. I'd be curious to go back and see. But here
5 you can see that models -- this was the definition of 6 models, earliest production date that the model might 7 be available, and an estimated increase in the retail
8 price. So a simple way is just ask. 9 A couple of other pages out of that survey I 10 thought were interesting. 11 MR. BROOKMAN: Mike, a quick question from 12 Jim.
13 MR. CRAWFORD: It's very, very general, Mike.
14 It's one I'm really going to address to our hosts 15 rather than at you. 16 When are we going to discuss these things, as
17 contrasted to working towards being done at 4:00 this 18 afternoon? And you don't have to answer that, as long 19 as you don't plan to assert that that's what we're 20 doing now. 21 MR. BROOKMAN: I would not assert that we're 22 discussing these things now, me, personally, as 23 facilitator. Our goal is to get enough information up
24 on the table in a format that it can be discussed, it 25 seems to me. That's the attempt.

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(301) 565-0064 345 1 Justmade a photocopy of a page out of that 2 survey. This was a very lengthy survey. Itwas 60 3 pages long. I don't know what the success ratewas on 4 responses. I'dbe curious to go back and see. Buthere 5 you can see that models

-- this was the definition of 6 models, earliestproduction date that themodel might 7 be available, and an estimated increase in the retail 8 price. So a simple way is just ask. 9 Acouple of otherpages out of that survey I 10 thoughtwere interesting. 11 MR. BROOKMAN: Mike, a quickquestion from 12 Jim. 13 MR. CRAWFORD: It'svery, very general, Mike. 14 It's one I'mreally going to address to ourhosts 15 rather than at you. 16 When are we going to discuss these things, as 17 contrasted toworking towards being done at 4:00 this 18 afternoon? And you don't have to answer that, as long 19 as you don'tplan to assert that that's what we're 20 doing now. 21 MR. BROOKMAN: I would not assert thatwe're 22 discussing these things now, me, personally, as 23 facilitator. Our goal is toget enough informationup 24 on the table in a format that it canbe discussed, it 25 seems tome. That's the attempt.

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1 I hope as soon as Mike finishes with this
2 presentation that that's when we have the opportunity 3 to discuss this particular element, and then we move on
4 to the next presentation and we discuss that one.
5 That's my goal. 6 MR. RIVEST: I mean, if there's an issue you
7 want to bring up right now, you're happy to. All I'm
8 trying to do is lay out possible approaches t 9 establishing price after standards and trying to lay
10 out four or five different approaches, identify maybe
11 pros and cons. And if you want to add to that 12 additional approaches or additional pros and cons to
13 the methods, I'd be happy to -- I mean, I'll be happy 14 to incorporate them. 15 MR. CRAWFORD: Well, since we came back from 16 lunch, I think I've seen material for about three days 17 of discussion which we're not going to accomplish this 18 afternoon. And perhaps that discussion needs to be
19 held product family by product family at an appropriate 20 time in the future. And that's fine. I just want to
21 make sure we all don't think we're doing that now. 22 That's all. 23 MR. BROOKMAN: Let me suggest as a way of 24 capturing those comments that those of you that think 25 that additional discussion needs to take place either

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(301) 565-0064 346 1 I hope as soon as Mike finishes with this 2 presentation that that's when we have the opportunity 3 to discuss this particular element, and thenwe move on 4 to the next presentation and we discuss that one. 5 That's my goal. 6 MR. RIVEST: I mean, if there's an issue you 7 want to bringup right now, you're happy to. All I'm 8 trying to do is layout possible approaches to 9 establishing price after standards and trying to lay 10 out four or five different approaches, identify maybe 11 pros and cons. And if you want to add to that 12 additional approaches or additional pros and cons to 13 the methods, I'dbe happy to

-- I mean, I'llbe happy 1 4 to incorporate them. 15 MR. CRAWFORD: Well, since we came back from 16 lunch, I think I've seenmaterial for about three days 17 of discussion which we're not going to accomplish this 18 afternoon. And perhaps that discussion needs tobe 19 heldproduct family by product family at an appropriate 20 time in the future. And that's fine. I justwant to 21 make surewe all don't thinkwe're doing that now. 22 That's all. 23 MR. BROOKMAN: Let me suggest as a way of 24 capturing those comments that those of you that think 25 that additional discussion needs to take place either

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064347 1 surrounding a general methodology or a product specific 2 approach to the use of a methodology, let's make sure 3 we capture it. 4 MR. LELAND: Ted Leland, ARI. 5 Just so I think I understand, you're exposing 6 us to four or five methodologies. Were looking at 7 them in our own mind, cataloging the pros and cons. As 8 we come closer to the time when DOE and ARI and its 9 industry get together on a rulemaking, we will get more 10 involved in the models that seem acceptable and 11 comfortable and will satisfy DOE, the law and our 12 membership. 13 Is that essentially correct? 14 MR. McCABE: Not essentially. It is. 15 MR. LELAND: It is correct. Okay. 16 MR. McCABE: In addition to that, we are 17 presenting some of what has been done in order for 18 discussion as to its possibility of being used in the 19 future. 20 I would like to hear whether or not the 21 approaches can be used at all or cannot be used or if 22 there's some alternatives. And I see the working group 23 would focus more on the alternatives, as well as trying 24 to refine some of these approaches. 25 And then when you get into the product

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(301) 565-0064 347 1 surrounding a general methodology or a product specific 2 approach to the use of a methodology, let'smake sure 3 we capture it. 4 MR. LELAND: TedLeland, ARI. 5 Just so I think I understand, you're exposing 6 us to four or five methodologies. We're looking at 7 them in our own mind, cataloging the pros and cons. As 8 we come closer to the time whenDOE andARI and its 9 industry get together on a rulemaking, we will getmore 10 involved in the models that seem acceptable and 11 comfortable and will satisfyDOE, the law and our 12 membership. 13 Is that essentially correct? 14 MR. McCABE: Not essentially. It is. 15 MR. LELAND: It is correct. Okay. 16 MR. McCABE: In addition to that, we are 17 presenting some ofwhat has beendone inorder for 18 discussion as to its possibility of beingused in the 19 future. 20 I would like to hearwhether ornot the 21 approaches canbe used at all or cannotbeused or if 22 there's some alternatives. And I see the working group 23 would focus more on the alternatives, as well as trying 24 to refine some of these approaches. 25 And thenwhen you get into the product

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064348 1 specific rulemaking, we would establish precisely what 2 approach is going to be taken. Not only in taking 3 costs to price but how the economic impact analysis 4 would be structured, what are all the economic inputs 5 and other inputs to that model, how engineering 6 analysis can be performed. 7 So this is to try to reiterate putting 8 together a toolbox. And as a carpenter, you'll have a 9 toolbox. You'll go to a job. But you will not use 10 every tool in that toolbox in order to frame a wall. 11 MR. CRAWFORD: Jim Crawford. 12 As an illustration of my concern, the 13 experience of 1980 was cited there two or three charts 14 back and I'm not sure that there's universal agreement 15 that the price estimates from that particular exercise 16 were very accurate estimates of what actually evolved. 17 And so we need to be careful that when 18 something like that is put on the board and we 19 acknowledge, yes, we did that exercise and yes, that 20 may be part of the history that we need to look at, 21 that we don't go away with the notion -- and nobody 22 said that was an unsuccessful thing and, therefore, we 23 should not repeat it. 24 MR. RIVEST: No. In fact, we're sort of 25 taking three angles to the price question. You made a

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(301) 565-0064 348 1 specific rulemaking, we would establishpreciselywhat 2 approach is going tobe taken. Not only in taking 3 costs toprice but how the economic impact analysis 4 would be structured, what are all the economic inputs 5 and other inputs to thatmodel, how engineering 6 analysis canbe performed. 7 So this is to try to reiterate putting 8 together a toolbox. And as a carpenter, you'll have a 9 toolbox. You'll go to a job. But youwill not use 10 every tool in that toolbox in order to frame a wall. 1 1 MR. CRAWFORD: JimCrawford. 12 As an illustrationofmy concern, the 13 experience of 1980 was cited there two or three charts 14 back and I'mnot sure that there's universal agreement 15 that the price estimates from thatparticular exercise 16 were very accurate estimates ofwhat actually evolved. 17 And sowe need tobe careful thatwhen 18 something like that is put on theboard andwe 19 acknowledge, yes, we did that exercise and yes, that 20 may bepartof the history that we need to look at, 21 that we don't go away with the notion

-- andnobody 22 said that was an unsuccessful thing and, therefore, we 23 shouldnot repeat it. 24 MR. RIVEST: No. In fact, we're sort of 25 taking three angles to the price question. You made a

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064349 1 comment this morning that there's little relationship 2 between cost and price. So certainly this represents 3 an approach where you're disconnecting the two and 4 you're doing a market type analysis in your head and 5 saying, well, I think that's what the market will bear. 6 There's also an approach here which is to 7 observe what the price is in the market, and that has 8 applications. And then there's the third approach to 9 build it up from costs. So, just laying all three out. 10 MR. CRAWFORD: And again, this is a little 11 piece of the three-day dialogue. 12 MR. BROOKMAN: Maybe we ought to have a 13 three-day meeting. 14 MR. CRAWFORD: But when you remove options 15 for the consumer, what the consumer is then willing to 16 pay for a product is different than what the consumer 17 was willing to pay for that product before you removed 18 those options. 19 MR. RIVEST: Absolutely. 20 MR. BROOKMAN: And I think it's worthy to 21 reemphasize that if there is information about work 22 that came before, that instructs work that's going 23 ahead, then we need to get that into the record and 24 that's really important. So make sure we do that. 25 Yes?

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(301) 565-0064 349 1 comment this morning that there's little relationship 2 between cost and price. So certainly this represents 3 an approach where you're disconnecting the two and 

### 4 you're doing a market type analysis in your head and 5 saying, well, I think that's what the market will bear. 6 There's also an approach here which is to 7 observe what the price is in the market, and that has 8 applications. And then there's the third approach to 9 build itup from costs. So, just laying all three out. 10 MR. CRAWFORD: And again, this is a little 11 piece of the three-day dialogue. 12 MR. BROOKMAN: Maybe we ought to have a 13 three-day meeting. 14 MR. CRAWFORD: But when you remove options 15 for the consumer, what the consumer is then willing to 16 pay for a product is different than what the consumer 17 was willing topay for that product before you removed 1 8 those options. 19 MR. RIVEST: Absolutely. 20 MR. BROOKMAN: And I think it's worthy to 21 reemphasize that if there is information about work 22 that came before, that instructs work that's going 23 ahead, then we need to get that into the record and 24 that's really important. So make sure we do that. 25 Yes?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064350 1 MR. KEMMEL: Sheldon Kemmel, DOJ. 2 One thing I was wondering about was whether - 3 - I know the previous question was about the accuracy 4 of the forecasts of the price changes, and I was 5 wondering whether the Department of Energy has ever 6 actually tried to estimate the elasticity of the slope 7 of the demand curve. 8 MR. RIVEST: Jim, I don't know if you can 9 address that. 10 MR. McCABE: Yes. I can answer that. 11 Those have not been estimated. In the 12 refrigerator consensus process from 1992 to 1994, we 13 discussed that. The industry was not willing to offer 14 any price data. And there isn't any single dataset 15 that you can find that has all of the information about 16 what consumers actually paid for appliance and what did 17 they buy, what are the characteristics of the product. 18 The only retrospective study that's been done 19 did not address elasticities, but it looked at whether 20 the forecasts of prices was actually borne out in the 21 market. And that was for refrigerators for the 1990 22 and 1993 rules. 23 I have in my briefcase one copy of that 24 paper. It was published in the Journal of Regulatory 25 Economics I believe this month. And it found that in

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(301) 565-0064 350 1 MR. KEMMEL: SheldonKemmel, DOJ. 2 One thing I was wondering aboutwas whether 3 - I know the previous questionwas about the accuracy 4 of the forecasts of the price changes, and I was 5 wonderingwhether the Department of Energy has ever 6 actually tried to estimate the elasticity of the slope 7 of the demand curve. 8 MR. RIVEST: Jim, I don't know ifyou can 9 address that. 10 MR. McCABE: Yes. I can answer that. 1 1 Those have notbeen estimated. In the 12 refrigerator consensus process from 1992 to 1994, we 13 discussed that. The industry was notwilling to offer 14 any price data. And there isn't any single dataset 15 that you can find thathas all of the information about 16 what consumers actually paid for appliance andwhat did 17 they buy, what are the characteristics of the product. 18 The only retrospective study that's been done 19 didnot address elasticities, but it looked atwhether 20 the forecasts of prices was actuallyborne out in the 21 market. And thatwas for refrigerators for the 1990 22 and 1993 rules. 23 I have inmy briefcaseone copy of that 24 paper. Itwas published in the Journal ofRegulatory 25 Economics I believe this month. And it found that in

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064351 1 fact, the forecasts were wrong. That the prices did 2 not increase as expected. 3 MR. KEMMEL: The reason I was asking was I'm 4 familiar with some economic literature that claims that 5 the impact on manufacturers of a cost increase depends 6 on the elasticity of the slope of the demand curve.
7 MR. McCABE: Yes. 8 MR. KEMMEL: And so I was wondering if DOE
9 had eer looked at that. 10 MR. McCABE: Unfortunately, there's been very 11 little empirical research about real markets like this. 12 There's a lot of theoretical literature and not a lot 13 of retrospective work. 14 MR. BROOKMAN: Any questions before we go 15 back to the presentation? 16 (No response.) 17 Okay, Mike.
18 MR. RIVEST: Thanks. 19 As I mentioned, I was just trying to put up a 20 copy of that survey to inform. I'd be happy to supply 21 a photocopy of the whole survey, which is about 60 22 pages long, so we can engage in a longer dialogue. 23 MR. JONES: Actually -- and it sort of gets 24 back to the point in the May hearing. And I guess the 25 question, Mike, is yes, you can give us a 60-page

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(301) 565-0064 351 1 fact, the forecasts were wrong. That the prices did 2 not increase as expected. 3 MR. KEMMEL: The reason I was askingwas I'm 4 familiar with some economic literature that claims that 5 the impact onmanufacturers of a cost increasedepends 6 on the elasticity of the slope of the demand curve. 7 MR. McCABE: Yes. 8 MR. KEMMEL: And so I was wondering ifDOE 9 had eer looked at that. 10 MR. McCABE: Unfortunately, there's beenvery 11 littleempirical research about real markets like this. 12 There's a lot of theoretical literature andnot a lot 1 3 of retrospective work. 14 MR. BROOKMAN: Any questions beforewe go 15 back to the presentation? 16 (No response.) 17 Okay, Mike. 18 MR. RIVEST: Thanks. 19 As I mentioned, I was just trying toputup a 20 copy of that survey to inform. I'dbehappy to supply 21 a photocopy of the whole survey, which is about 60 22 pages long, sowe can engage in a longer dialogue. 23 MR. JONES: Actually

-- and it sort of gets 24 back to the point in the May hearing. And I guess the 25 question, Mike, is yes, you can giveus a 60-page

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064352 1 survey. I guess your paper here notes that it was last 2 sent in 1982. 3 My assumption is that there's a connection 4 between those two facts in terms of the success, 5 usefulness, the willingness of anybody to take a second 6 look at this thing. Which leads to the other question. 7 Why are you putting that up there? What are 8 we supposed to take from the fact that you're 9 suggesting this to us? Is this a parade of horrors 10 that's supposed to drive us someplace else? Is that 11 the objective? 12 MR. RIVEST: We talked about using interviews 13 and surveys to go directly to manufacturers and try to 14 get their sense on a number of different issues. And 15 the point I was trying to make is it has been done. It 16 was done through a survey. 17 What we're proposing to do is more one-on-one 18 interaction but the concept of asking people what they 19 think the price is is not new. And I don't have the 20 information as to how successful it was. I think I 21 mentioned that from the start. 22 MR. JONES: Well, I think we can probably 23 conclude it wasn't very successful, given the fact that 24 it hasn't been done in umpty-ump years and nobody has 25 any recollection of whether or not it was a good, bad

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(301) 565-0064 352 1 survey. I guess your paper here notes that itwas last 2 sentin 1982

. 3 My assumption is that there's a connection 4 between those two facts in terms of the success, 5 usefulness, the willingness of anybody to take a second 6 look at this thing. Which leads to the otherquestion. 7 Why are youputting that up there? What are 8 we supposed to take from the fact that you're 9 suggesting this to us? Is this a parade ofhorrors 10 that's supposed to drive us someplace else? Is that 11 the objective? 12 MR. RIVEST: We talked about using interviews 13 and surveys to go directly tomanufacturers and try to 14 get their sense on a number of different issues. And 15 the point I was trying to make is ithas been done. It 1 6 was done through a survey. 17 What we'reproposing to do ismore one-on-one 18 interactionbut the concept of asking people what they 19 think the price is is not new. And I don'thave the 20 information as tohow successful itwas. I think I 21 mentioned that from the start. 22 MR. JONES: Well, I thinkwe canprobably 23 conclude itwasn't very successful, given the fact that 24 ithasn't been done inumpty-ump years andnobody has 25 any recollectionof whether ornot itwas a good, bad

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064353
1 or indifferent work product. 2 But, I mean, mustn't we assume that it was a 3 disaster? 4 MR. RIVEST: I certainly haven't made that
5 assumption. 6 MR. JONES: Oh, really? Then do you have the
7 results anything that you've studied? 8 MR. RIVEST: I haven't assumed anything, that
9 it was successful or unsuccessful. I'm only making the 10 point that it's an approach that should be looked at. 11 MR. JONES: And the other thing that strikes
12 me, of course, just looking at a couple of questions 13 I've seen here, is it assumes a certain kind of 14 precision in pricing decisions that at least I've never
15 seen in industry. And I just make that as one comment. 16 I assume that is also your experience, Mike?
17 MR. RIVEST: I don't know if I'm allowed to
18 have opinions on this side of the table. 19 (Laughter.)
20 MR. BROOKMAN: Gene Foley. 21 It does strike me, though, based on --
22 following up on Jim's earlier comment, that Ted said
23 don't the bulk of these issues -- I'm paraphrasing a
24 little bit here -- don't the bulk of the issues get 25 worked out in the context of specific products. And

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(301) 565-0064 353 1 or indifferentworkproduct. 2 But, I mean, mustn'twe assume that itwas a 3 disaster? 4 MR. RIVEST: I certainlyhaven'tmade that 5 assumption. 6 MR. JONES: Oh, really? Thendo youhave the 7 results anything that you've studied? 8 MR. RIVEST: I haven't assumed anything, that 9 itwas successful orunsuccessful. I'monlymaking the 10 point that it's an approach that shouldbe looked at. 11 MR. JONES: And the other thing that strikes 12 me, of course, just looking at a couple ofquestions 13 I've seenhere, is it assumes a certainkind of 14 precision inpricingdecisions that at least I've never 15 seen in industry. And I justmake that as one comment. 16 I assume that is also your experience, Mike? 17 MR. RIVEST: I don'tknow if i'mallowed to 18 have opinions on this side of the table. 19 (Laughter.) 20 MR. BROOKMAN: Gene Foley. 21 It does strikeme, though, based on -- 22 following up on Jim's earlier comment, thatTed said 23 don't thebulk of these issues

-- I'mparaphrasing a 24 littlebithere

-- don't thebulkof the issues get 25 worked out in the context of specificproducts. And

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064354 1 Jim said, yes, but some of these things require three 2 days of discussion. 3 And maybe one of the things we can do today 4 is at least -- 5 MR. FOLEY: [Off mike.] 6 MR. BROOKMAN: Well, that's a lot of 7 discussion. But maybe today, at a minimum, we could 8 define those things that require additional discussion 9 that are not product specific, if that is possible. I 10 just suggest that as an approach because if major 11 discussion is necessary, then maybe we should figure 12 that out now. 13 Gene? 14 15 Energy. 16 MR. FOLEY: Gene Foley, the Alliance to Save

The survey that's on the board right now is 17 only one of two that were mentioned on page 5 of the 18 current presentation. It's my understanding that the 19 Lighting Research market survey actually has met with a 20 certain amount of positive feedback. And so to in one 21 brush say all market surveys are inappropriate and we 22 ought to just move on and they haven't been done since 23 1982 is probably a misstatement. 24 MR. BROOKMAN: If I said that - 25 MR. FOLEY: No. I'm actually responding to

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(301) 565-0064 

### 354 1 Jim said, yes, but some of these things require three 2 days ofdiscussion. 3 And maybe one of the things we cando today 4 is at least

-- 5 

### MR. FOLEY: [Offmike.] 6 

### MR. BROOKMAN: Well, that's a lot of 7 discussion. Butmaybe today, at a minimum, we could 8 define those things thatrequire additional discussion 9 that arenotproduct specific, if that ispossible. I 10 just suggest that as an approachbecause ifmajor 11 discussion is necessary, thenmaybe we should figure 12 that outnow. 13 Gene? 14 MR. FOLEY: GeneFoley, theAlliance to Save 15 Energy. 16 The survey that's on theboardright now is 17 only one of two thatwere mentioned onpage 5 of the 18 currentpresentation. It'smy understanding that the 19 LightingResearchmarket survey actuallyhas metwith a 20 certainamount ofpositive feedback. And so to inone 21 brush say allmarket surveys are inappropriate andwe 22 ought tojustmove on and they haven'tbeendone since 23 1982 is probably a misstatement. 24 25 

### MR. BROOKMAN: If I said that MR. FOLEY: No. I'm actuallyresponding to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064355 1 Earl' s comment at this point.

MR. BROOKMAN: I'm not sure he said that

MR. JONES: I didn't exactly. But I would 5 ask a question. Does it look to prospective price 6 increases? 7 MR. BROOKMAN: The LR? 8 Excuse me. We're trying to capture this. 9 Earl asks is this prospective; right? 10 MR. JONES: Yes. My question was whether the 11 survey that Gene referred to, which he said was highly 12 regarded, whether it looked to prospective price 13 increases in I guess the lighting industry, or was it a 14 survey of what activity had occurred price wise in the 15 industry. 16 MR. RIVEST: That's right. There are two 17 different things. One, it was looking at market at a 18 point in time, and the other one is trying to forecast. 19 So one is not a forecast. 20 MR. TURIEL: Isaac Turiel. 21 I could just answer that very quickly. It 22 was a survey of what the prices are right now. 23 MR. JONES: Thank you. 24 MR. BROOKMAN: Additional? 25 (No response.)

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(301 ) 565-0064 1 Earl's comment at this point. 2 MR. BROOKMAN: I'm not sure he said that 3 either. 4 MR. JONES: I didn't exactly. But I would 5 ask a question. Does it look to prospective price 6 increases? 7 8 9 MR. BROOKMAN: The LR? Excuse me. We're trying to capture this. Earl asks is this prospective; right? 355

10 MR. JONES: Yes. My question was whether the 11 survey that Gene referred to, which he saidwas highly 12 regarded, whether it looked to prospective price 13 increases in I guess the lighting industry, orwas it a 14 survey of what activity had occurred price wise in the 15 industry. 16 MR. RIVEST: That's right. There are two 17 different things. One, itwas looking at market at a 18 point in time, and the other one is trying to forecast. 19 So one is not a forecast. 20 MR. TURIEL: Isaac Turiel. 21 I could just answer that very quickly. It 22 was a survey of what the prices are right now. 23 24 25 MR. JONES: Thank you. MR. BROOKMAN: Additional? (No response.)

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064356 1 Okay. Michael, keep going. 2 MR. RIVEST: Next, I'd like to talk about the 3 Department of Transportation's methodology that was 4 developed over 23 years, my understanding. 5 The focus here is trying to look at how the 6 safety regulation might change the retail cost of a car 7 and it's done through a build up from incremental 8 manufacturing cots, looking at a build up of mark-ups 9 from -- first of all, from manufacturing firms and then 10 through a dealer channel, which is basically what I 11 just said. 12 The Department breaks down the cost of a car 13 into four segments; variable costs, non-variable costs, 14 manufacturer profit and dealer mark-up. 15 Since we're talking about price inputs to the 16 GRIM right now, we wouldn't be concerned immediately 17 about dealer mark-ups. We might be, if we had a 18 consumer perspective and we were interested in consumer 19 life cycle costs. 20 The variable portions of manufacturing costs 21 are done in a methodology that's very similar to the 22 cost assessment that Steve Mariano presented this 23 morning, so it's a tear-down analysis and an add and 24 omit process based on cost modeling, very rigorous. 25 From these variable cost estimates, looking

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(301) 565-0064 356 1 Okay. Michael, keep going. 2 MR. RIVEST: Next, I'd like to talk about the 3 Department of Transportation'smethodology thatwas 4 developed over 23 years, my understanding. 5 The focus here is trying to look at how the 6 safety regulationmight change the retail cost of a car 7 and it's done through a buildup from incremental 8 manufacturing cots, looking at a buildup ofmark-ups 9 from

-- first of all, from manufacturing firms and then 10 through a dealer channel, which isbasicallywhat I 11 just said. 12 The Department breaks down the cost of a car 13 into four segments; variable costs, non-variable costs, 14 manufacturerprofit and dealermark-up. 15 Since we're talking about price inputs to the 16 GRIM right now, we wouldn'tbe concerned immediately 17 about dealermark-ups. We might be, ifwe had a 18 consumerperspective andwe were interested inconsumer 19 life cycle costs. 20 The variable portions ofmanufacturing costs 21 are done in a methodology that's very similar to the 22 cost assessment that SteveMariano presented this 23 morning, so it's a tear-down analysis and an add and 24 omitprocess based on costmodeling, very rigorous. 25 From these variable cost estimates, looking

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064357 1 at 10-K's, historical information and looking at what 2 have been the historical non-variable and manufacturer 3 profit mark-ups that were able to cover the fixed costs 4 and generate profit as a mark-up over variable cost, 5 that's the type of analysis that was done. 6 Just reviewing quickly, it involves two 7 steps; trying to assess the variable costs for a 8 particular component or design change through a process 9 that involves identification of feasible design option, 10 identification of design concepts most likely to be 11 employed, selection of specific concepts for costing 12 and then a development of cost estimates, direct 13 material, labor costs and variable burden costs. 14 So in a way, it's similar to what we're doing 15 inside the engineering analysis. 16 MR. KEMMEL: Do I understand that they have a 17 constant mark-up? That they take the mark-up from 18 historical levels and just assume that that will 19 continue? 20 MR. SPINNEY: It's been that way for the last 21 25 years. These are historical mark-up rates that we 22 use and they're based on a 25-year composite. 23 We found typically that in the auto industry, 24 with the domestic manufacturers and the foreign 25 manufacturers, that our estimated variable cost as a

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(301) 565-0064 357 1 at 10-K's, historical information and looking at what 2 have been the historical non-variable andmanufacturer 3 profitmark-ups thatwere able to cover the fixed costs 4 and generateprofit as a mark-up over variable cost, 5 that's the type of analysis thatwas done. 6 Just reviewing quickly, it involves two 7 steps; trying to assess the variable costs for a 8 particular component or design change through a process 9 that involves identificationof feasible designoption, 10 identificationof design concepts most likely tobe 11 employed, selectionof specific concepts for costing 12 and then a development of cost estimates, direct 13 material, labor costs and variableburden costs. 14 So in a way, it's similar towhat we're doing 15 inside the engineering analysis. 16 MR. KEMMEL: Do I understand that theyhave a 17 constantmark-up? That they take the mark-up from 18 historical levels and justassume that thatwill 19 continue? 20 MR. SPINNEY: It's been that way for the last 21 25 years. These are historicalmark-up rates that we 22 use and they're based on a 25-year composite. 23 We found typically that in the auto industry, 24 with the domesticmanufacturers and the foreign 25 manufacturers, that our estimatedvariable cost as a

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064358 1 percentage of net sales runs between 70 and 80 percent, 2 and mostly around 75 percent. And through thick and 3 thin, this has held true. 4 MR. KEMMEL: Actually, this is sort of the 5 previous question I asked, as well, because at least in 6 the economic literature there's a claim that there's a 7 relation between mark-up and the elasticity of the 8 slope of the demand curve. To assume one is to assume 9 the other. 10 And it may be the case that in the 11 transportation field they do have a constant mark-up, 12 and that might be telling us something about the 13 elasticity of the slope of the demand curve for cars. 14 MR. SPINNEY: Keep in mind one thing about 15 cars. There's a lot of negotiation that goes on at the 16 dealer level. Some of this increased cost gets 17 bargained away in the discount process. 18 You can show what something actually cost but 19 the effect on what the customer ultimately pays is a 20 great deal less specific in the real world. 21 MR. KEMMEL: However, even if it's the case 22 that you do have that constant mark-up in cars, you 23 wouldn't necessarily know that you would have that in 24 household appliances. 25 MR. SPINNEY: No, you would not. We've also

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(301) 565-0064 358 1 percentage of net sales runs between 70 and 80 percent, 2 andmostly around 75 percent. And through thick and 3 thin, this has held true. 

### 4 MR. KEMMEL: Actually, this is sort of the 5 previous question I asked, as well, because at least in 6 the economic literature there's a claimthat there's a 7 relationbetweenmark-up and the elasticity of the 8 slope of the demand curve. To assume one is to assume 9 the other. 10 And itmay be the case that in the 11 transportation field they do have a constantmark-up, 12 and thatmight be telling us something about the 13 elasticity of the slope of the demand curve for cars. 14 MR. SPINNEY: Keep inmind one thing about 15 cars. There's a lot of negotiation that goes on at the 16 dealer level. Some of this increasedcost gets 17 bargained away in the discount process. 18 You can showwhat something actually costbut 19 the effect onwhat the customerultimatelypays is a 20 great deal less specific in the real world. 21 MR. KEMMEL: However, even if it's the case 22 that you dohave that constantmark-up in cars, you 23 wouldn't necessarily know that youwould have that in 24 household appliances. 25 MR. SPINNEY: No, youwouldnot. We've also

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064359 1 been looking at tier one suppliers, for example, and 2 we've discovered that firms that specialize in 3 electronics manufacturing have a different cost 4 structure than the automobile companies do. 5 What we're finding is that heavy industries, 6 whether it's automotive manufacturing or whether it's 7 manufacturing of transmissions, bearings, rear axles or 8 whatnot, you see a fairly typical 75-25 percent 9 variable margin rate. But with the electronics, it's 10 more like 50-50. 11 And what we're finding is that as we get into 12 the suppliers, we are seeing different cross structures 13 emerge. 14 MR. BROOKMAN: Those comments on automobiles 15 are from Bruce Spinney from the Department of 16 Transportation. 17 MR. CRAWFORD: Jim Crawford, Trane. 18 I just want to follow on on that last point 19 and point out that the economic structure associated 20 with cost and pricing of energy intensive products like21 transportation products, with the incredible after22 market, are totally different than what we see in the 23 appliance industry where, with just a little bit of 24 luck, you may never have any maintenance.
25 MR. BROOKMAN: Everett?

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(301) 565-0064 359 1 been looking at tierone suppliers, for example, and 2 we've discovered that firms that specialize in 3 electronicsmanufacturinghave a different cost 4 structure than the automobile companies do. 5 What we're finding is thatheavy industries, 6 whether it's automotive manufacturingorwhether it's 7 manufacturing of transmissions, bearings, rear axles or 8 whatnot, you see a fairly typical 75-25 percent 9 variablemargin rate. But with the electronics, it's 10 more like 50-50. 11 And what we're finding is that as we get into 12 the suppliers, we are seeing different cross structures 13 emerge. 14 MR. BROOKMAN: Those comments on automobiles 15 are from Bruce Spinney from the Department of 16 Transportation. 17 MR. CRAWFORD: Jim Crawford, Trane. 18 I justwant to follow on on that lastpoint 19 and point out that the economic structure associated 20 with cost and pricingof energy intensiveproducts like 21 transportationproducts, with the incredible after22 market, are totally different thanwhatwe see in the 23 appliance industrywhere, withjust a littlebitof 24 luck, youmay never have anymaintenance. 25 MR. BROOKMAN: Everett?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064360 1 MR. SHOREY: Everett Shorey. 2 For the safety related issues that you're 3 costing in the transportation sector, when you make a 4 change to the design, roughly what portion or what 5 percentage of the cost are you affecting? Is it a 2 6 percent cost increase or a 20 percent cost increase or 7 a 50 percent cost increase? 8 MR. SPINNEY: It depends. It depends on what 9 the safety feature is. 10 MR. SHOREY: What's the range it's tended to 11 run in? 12 13 14 MR. SPINNEY: Well, -- MR. SHOREY: What's the biggest? MR. SPINNEY: The biggest thing that I have 15 seen was recently in the field of child restraints 16 where we were, for a while, considering a rulemaking 17 that would have resulted in a doubling of the price. 18 And, of course, that would have never flown with the 19 public. 20 Each case is different. You can't just say 21 10 percent change or whatnot. Each case is unique. 22 MR. SHOREY: Everett Shorey, again. 23 And you've assumed a constant mark-up on the 24 cost, no matter what the range of cost increases were? 25 MR. SPINNEY: Well, what we assume is that

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(301) 565-0064 360 1 MR. SHOREY: Everett Shorey. 2 For the safetyrelated issues that you're 3 costing in the transportation sector, when youmake a 4 change to the design, roughly what portionorwhat 5 percentage of the cost are you affecting? Is ita 2 6 percent cost increase or a 20 percent cost increase or 7 a 50 percent cost increase? 8 MR. SPINNEY: It depends. Itdepends onwhat 9 the safety feature is. 10 MR. SHOREY: What's the range it's tended to 11 run in? 12 MR. SPINNEY: Well, 13 MR. SHOREY: What's thebiggest? 14 MR. SPINNEY: The biggest thing that I have 15 seenwas recently in the field of childrestraints 16 where we were, for a while, considering a rulemaking 17 thatwouldhave resulted in a doubling of the price. 18 And, of course, that wouldhave never flown with the 19 public. 20 Each case is different. You can'tjust say 21 10percent change orwhatnot. Each case is unique. 22 MR. SHOREY: Everett Shorey, again. 23 And you've assumed a constantmark-upon the 24 cost, no matter what the range of cost increases were? 25 MR. SPINNEY: Well, whatwe assume is that

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064361 1 there's a certain ratio between variable and 2 discretionary fixed costs and others that is realized 3 with the automobile as a whole. Remember, we're 4 building cars. We're not building individual parts. 5 These ratios are based on the vehicles as a whole. 6 Now, there are different ratios that show up 7 with some of the parts, like as I was saying earlier. 8 Electronics, the cost relationships with the 9 electronics industry are considerably different. 10 Does that answer your question? 11 MR. SHOREY: Okay. 12 MR. LEWIS: Dave Lewis, Lennox. 13 I'm a little bit confused as to the parallel 14 that we're drawing here between automobiles and -- I'm15 sorry -- the product that we manufacture, like air16 conditioning that is contractor installed. 17 It seems to me that I can see the 18 distribution chain in transportation and the vehicle is 19 purchased. The owner drives it away. But with our 20 product, the product is purchased and then there's 21 another mark-up added with the person that's actually 22 doing the installation. And the installations are not 23 typical. Each installation is unique. 24 It just seems like the levels of complexity 25 just start multiplying in that kind of a situation.

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(301 ) 565-0064 

### 361 1 there's a certainratiobetweenvariable and 2 discretionary fixed costs and others that is realized 3 with the automobile as a whole. Remember, we're 4 buildingcars. We're not building individual parts. 5 These ratios arebasedon the vehicles as a whole. 6 Now, there are differentratios that showup 7 with some of the parts, like as I was sayingearlier. 8 Electronics, the cost relation$hips with the 9 electronics industry are considerably different. 10 Does that answer your question? 1 1 

### MR. SHOREY: Okay. 12 MR. LEWIS: Dave Lewis, Lennox. 13 I'm a littlebit confused as to the parallel 14 thatwe're drawingherebetween automobiles and

-- I'm 15 sorry -- the product that we manufacture, like air16 conditioning that is contractor installed. 17 It seems tome that I can see the 18 distribution chain in transportation and the vehicle is 19 purchased. The owner drives it away. Butwithour 20 product, the product is purchased and then there's 21 anothermark-up addedwith the person that's actually 22 doing the installation. And the installations arenot 23 typical. Each installation is unique. 24 Itjust seems like the levels of complexity 25 just startmultiplying in thatkind of a situation.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064362 1 MR. SPINNEY: I would think that's absolutely 2 correct. Don't forget, too, the automobile industry, 3 we're talking about tremendous economies of scale. 4 MR. BROOKMAN: Mike Rivest, can you say again 5 why you're showing this to us, this methodology? 6 MR. RIVEST: Right. What I'm trying to show 7 is the methodology that was developed in terms of 8 financial analysis of 10-K statements. And just 9 showing the work that they've done, the context is 10 different. If we're talking about a $300 air bag and a 11 $20,000 car, the assumption of the cost pass-through 12 doesn't have the radical consequences of a doubling of 13 the car's price from $20,000 to $40,000. 14 MR. BROOKMAN: The purpose of this is array 15 yet another tool, as Michael McCabe refers to it. 16 MR. RIVEST: That's correct. 17 18 be used. 19 MR. BROOKMAN: That could be used; could not

MR. RIVEST: We're trying to bound the range 20 of possible prices. 21 MR. LEWIS: Dave Lewis, Lennox. 22 My concern though is that you 're showing us a 23 dental probe as a tool when what we need is a jack 24 hammer . It doesn't look like the tool fits the 25 patient, unless I'm missing somewhere here, how that -

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(301) 565-0064 362 1 MR. SPINNEY: I would think that's absolutely 2 correct. Don't forget, too, the automobile industry, 3 we're talking about tremendous economies of scale. 

### 4 MR. BROOKMAN: Mike Rivest, can you say again 5 why you're showing this tous, this methodology? 6 MR. RIVEST: Right. What I'm trying to show 7 is the methodology thatwas developed in terms of 8 financial analysis of 10-K statements. And just 9 showing the work that they've done, the context is 10 different. If we're talking about a $300 air bag and a 11 $20,000 car, the assumption of the costpass-through 12 doesn't have the radical consequences of a doubling of 13 the car's price from $20,000 to $40,000. 14 MR. BROOKMAN: The purpose of this is array 15 yet another tool, as Michael McCabe refers to it. 16 MR. RIVEST: That's correct. 17 MR. BROOKMAN: That couldbe used; could not 18 be used. 19 MR. RIVEST: We're trying to bound the range 20 of possibleprices. 21 MR. LEWIS: Dave Lewis, Lennox. 22 My concern though is that you're showingus a 23 dental probe as a tool whenwhat we need is a jack 24 hammer. Itdoesn't look like the tool fits the 25 patient, unless I'mmissing somewhere here, how that

-
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MR. SPINNEY : Okay. I'm assuming that in

MR. LEWIS: And that's not a criticism on 4 your methodology for the automobile industry. 5 MR. SPINNEY: No problem. 6 MR. LEWIS: It's just where are we here with 7 our product? 8 MR. SPINNEY: Let me ask you this. What 9 products do you manufacture? 10 MR. BROOKMAN: I'd like to keep us moving, 11 too, because there are so many tools we're going to lay 12 out here, rather than get immersed in what does a 13 product mean. 14 MR. LEWIS: Air-conditioning, refrigeration, 15 heating products, fireplaces, water heating. I mean,
16 what -- 17 MR. SPINNEY: Okay. What are your annual 18 volumes for each of these utilities or appliances? 19 MR. LEWIS: Would you like my personal 20 company volumes? 21 22 23 MR. SPINNEY: That would help. (Laughter.) MR. LEWIS: Most of my competitors would like 24 that same information. 25 MR. SPINNEY: I'm sure they would.

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(301 ) 565-0064 363 1 MR. SPINNEY: Okay. I'massuming that in 2 your-- 3 MR. LEWIS: And that's not a criticismon 4 yourmethodology for the automobile industry. 5 MR. SPINNEY: No problem. 6 MR. LEWIS: It'sjustwhere arewe herewith 7 ourproduct? 8 MR. SPINNEY: Letme ask you this. What 9 products do you manufacture? 10 MR. BROOKMAN: I'd like tokeep us moving, 11 too, because there are so many tools we're going to lay 12 outhere, rather than get immersed inwhat does a 13 productmean. 14 MR. LEWIS: Air-conditioning, refrigeration, 15 heatingproducts, fireplaces, water heating. I mean, 16 what-- 17 MR. SPINNEY: Okay. What are your annual 18 volumes for each of these utilities or appliances? 19 MR. LEWIS: Would you likemy personal 20 company volumes? 21 MR. SPINNEY: Thatwouldhelp. 22 (Laughter. ) 23 MR. LEWIS: Most ofmy competitorswould like 24 that same information. 25 MR. SPINNEY: I'm sure theywould.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064364 1 MR. LEWIS: Most of the Department of Energy 2 would like that information. 3 MR. RIVEST: It will be in the data book. 4 MR. LEWIS: That hasn't been something that 5 we print in any way. 6 MR. SPINNEY: Okay. What area that might 7 have an advantage is -- 8 MR. BROOKMAN: For your information, the car 9 business is publicly available. 10 MR. LEWIS: And I guess that's another point. 11 That's why -- it seems like the more I get into 12 thinking through what your process is showing and how 13 it would apply at least to the products in our 14 industry, the further the disconnect reaches. Because 15 even the information that you work from that is readily 16 available in the marketplace for your research isn't 17 obtainable in our industry. 18 MR. SPINNEY: There is one way you might be 19 able to do it, and I'll try not to belabor this. 20 MR. BROOKMAN: Yes, because I don't want to 21 stretch this too far, because this doesn't seem to be a 22 good fit for most of the people in this room. 23 MR. RIVEST: I'd just like to get through the 24 slides. And certainly the input you're contributing is 25 valuable.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 364 1 MR. LEWIS: Most of the Department ofEnergy 2 would like that information. 3 MR. RIVEST: It will be in the data book. 4 MR. LEWIS: That hasn't been something that 5 we print in any way. 6 MR. SPINNEY: Okay. What area that might 7 have an advantage is

-- 8 MR. BROOKMAN: For your information, the car 9 business is publicly available. 10 MR. LEWIS: And I guess that's anotherpoint. 11 That's why

-- it seems like themore I get into 12 thinking throughwhat your process is showing and how 13 itwould apply at least to the products inour 14 industry, the further the disconnect reaches. Because 15 even the information that youwork from that is readily 16 available in the marketplace for your research isn't 17 obtainable inour industry. 18 MR. SPINNEY: There is one way youmight be 19 able to do it, and I'll try not tobelabor this. 20 MR. BROOKMAN: Yes, because I don'twant to 21 stretch this too far, because this doesn't seem to be a 22 good fit for most of the people in this room. 23 MR. RIVEST: I'djust like to get through the 24 slides. And certainly the input you're contributing is 25 valuable.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064365 1 MR. McCABE: Dave, this is Michael McCabe. 2 Dave, your comments are well on point and 3 part of what I am looking for. We went out looking to 4 see what was available, what other agencies had done, 5 to bring it here. Not to say this is what we are 6 recommending, but rather to lay it out because it has 7 never been presented to the industry before even as a 8 possibility because I'm not aware of anybody in the 9 appliance industry, whether that's residential or 10 commercial, that makes automobiles. They used to, but 11 they got rid of that. 12 But to look to you and say does this make 13 sense? And you've made it clear that in your opinion, 14 it doesn't. 15 Are there some modifications that might be an 16 approach that would be useful, beneficial? And that 17 would be -- if there are potentially, that would be 18 some of the discussion in a work group process, not to 19 develop those here. But it's putting out the option, 20 because we were being charged by you, the entire 21 audience of those who are interested in the 22 rulemakings, that the manufacturing impacts analysis 23 that we've been conducting is flaws. You've got to 24 come up with something else. 25 And this is part of what is being considered

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(301) 565-0064 

### 365 1 MR. McCABE: Dave, this isMichaelMcCabe. 2 Dave, your comments are well onpoint and 3 part ofwhat I am looking for. We went out looking to 4 seewhat was available, what other agencies haddone, 5 tobring ithere. Not to say this iswhatwe are 6 recommending, but rather to lay itoutbecause ithas 7 never beenpresented to the industrybefore even as a 8 possibilitybecause I'mnot aware of anybody in the 9 appliance industry, whether that's residential or 10 commercial, thatmakes automobiles. They used to, but 11 they got rid of that. 12 But to look to you and saydoes thismake 13 sense? And you'vemade it clear that inyour opinion, 1 4 itdoesn't. 15 Are there some modifications thatmightbe an 16 approach thatwouldbeuseful, beneficial? And that 17 wouldbe if there are potentially, thatwouldbe 18 some of the discussion in a workgroupprocess, not to 19 develop those here. But it'sputtingout the option, 20 becausewe were being chargedby you, the entire 21 audience of those who are interested in the 22 rulemakings, that themanufacturing impacts analysis 23 thatwe'vebeen conducting is flaws. You've got to 24 come upwith something else. 25 And this is part ofwhat isbeingconsidered

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064366
1 when we throw the net out to come up with something 2 that's a possibility for discussion. 3 MR. BROOKMAN: Charlie, do you have an 4 additional comment before we move on?
5 MR. STEPHENS: After listening to this, I 6 think I understand why he's here and why he's
7 presenting this. And I don't see that there's such a 8 huge difference between what they've done and what 9 would be applied to the industry out here. There's 10 dealers in both cases that have considerable
11 negotiating room. There's financing that enters into 12 the pricing of the thing. 13 His concept of adding an air bag or a child 14 restraint to a thing and having that somehow buried. 15 You're selling a car, not a child restraint. The same 16 case. You're selling an air-conditioner, not an 17 expansion valve or a thermostat in a refrigerator in a 18 compressor. You're selling a whole product. And there 19 probably is some parallel. I'm not sure how we'll get 20 to it, but I think that it might be possible to do that
21 with enough discussion. Not now. 22 MR. JONES: Just wrapping this up, it says 23 right up there on the top section, 10-K reports. I 24 therefore assume that this applies to very large 25 industrial organizations which are publicly traded.

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(301) 565-0064 366 1 when we throw the net out to come upwith something 2 that's a possibility for discussion. 3 MR. BROOKMAN: Charlie, do youhave an 4 additional comment beforewe move on? 5 MR. STEPHENS: After listening to this, I 6 think I understandwhy he's here andwhy he's 7 presenting this. And I don't see that there's such a 8 huge difference betweenwhat they've done and what 9 would be applied to the industry outhere. There's 10 dealers inboth cases that have considerable 11 negotiatingroom. There's financing that enters into 12 the pricingof the thing. 13 His concept of adding an airbagor a child 14 restraint to a thing and having that somehowburied. 15 You're sellinga car, not a childrestraint. The same 16 case. You're selling an air-conditioner, not an 17 expansion valve or a thermostat in a refrigerator in a 18 compressor. You're selling a whole product. And there 19 probably is some parallel. I'mnot sure how we'll get 20 to it, but I think that itmight be possible to do that 21 with enoughdiscussion. Not now. 22 MR. JONES: Just wrapping this up, it says 23 right up there on the top section, 10-Kreports. I 24 therefore assume that this applies tovery large 25 industrial organizationswhich arepublicly traded.

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1 MR. SPINNEY: Correct. 2 MR. JONES: And, of course, many of the
3 people in this room are not publicly traded. They 4 don't publish 10-K's. Many companies in this room are 5 parts of larger companies which do not reflect these
6 costs in the 10-K as relevant to that industry. So
7 there are many reasons why this doesn't fit.
8 MR. BROOKMAN: And I think rather than 9 enumerate the rest of the flaws, let's keep pressing on 10 with the slides, get through them, and we'll take a 11 comment from Dan, who I heard suffers. That was it? 12 And then, Jim, a final comment from you and 13 let's get to the slides. 14 MR. CRAWFORD: The point I made earlier, 15 apparently, was totally missed on Charlie. And it's 16 essential to understand the incredible difference in 17 the whole market dynamic between the products that are 18 sold by the people who are under discussion at the 19 moment and automobiles. 20 An automobile manufacturer can damn near give 21 the car away at no mark-up. A dealer certainly can do 22 it at almost no mark-up because he knows that I'm going 23 to be back there for him to put his hand in my pocket 24 repeatedly throughout the life of that automobile. 25 That refrigerator that I buy from one of the

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(301 ) 565-0064 367 1 MR. SPINNEY: Correct. 2 MR. JONES: And, of course, many of the 3 people in this room are not publicly traded. They 4 don't publish 10-K's. Many companies in this room are 5 parts of larger companies whichdo not reflect these 6 costs in the 10-Kas relevant to that industry. So 7 there are many reasons why this doesn't fit. 8 MR. BROOKMAN: And I thinkrather than 9 enumerate the rest of the flaws, let's keeppressingon 10 with the slides, get through them, and we'll take a 11 comment from Dan, who I heard suffers. Thatwas it? 12 And then, Jim, a final comment from you and 13 let's get to the slides. 14 MR. CRAWFORD: The point I made earlier, 15 apparently, was totallymissed onCharlie. And it's 16 essential to understand the incredibledifference in 17 the wholemarket dynamic between the products that are 18 soldby the people who are under discussion at the 19 moment and automobiles. 20 An automobilemanufacturer candamn near give 21 the car away at nomark-up. Adealer certainly cando 22 it at almost no mark-up becausehe knows that I'mgoing 23 tobe back there for him toputhis hand inmy pocket 24 repeatedly throughout the life of that automobile. 25 That refrigerator that I buy from one of the

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064368 1 manufacturers represented in this room, I don't expect 2 to ever do anything to that for 15 years. And you show 3 me an automobile that will give me 15 years of no cost 4 service and I might be interested. 5 MR. RIVEST: Let's press on with the slides. 6 The methodology involves what's called common 7 sizing of the financial statements, which is a 8 rearranging of a financial account, financial accounts, 9 to try and separate fixed from variable components. 10 I've got an example here.11 This becomes the mark-up formula. The non12 variable and profit mark-up which is added, is 13 multiplied by the variable cost, is the ratio of net 14 sales to variable manufacturing cost as were re-sized 15 according to the methodology described. 16 This is an application to an appliance 17 manufacturer whose absolute numbers have been scaled so 18 he wouldn't be recognized. But the absolute percentage 19 numbers are accurate and reflected. And if nothing 20 else, what this will show is that some of the 21 assumptions made in GRIM are pretty darn close. 22 As I recall from yesterday, and I hadn't 23 noticed that before, depreciation in GRIM I thought was 24 3.3. percent was the base case assumption. Selling, 25 general and administrative were entered in a lump sum,

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(301) 565-0064 368 1 manufacturers represented in this room, I don't expect 2 to ever do anything to that for 15 years. And you show 3 me an automobile thatwill giveme 15 years ofno cost 4 service and I might be interested. 5 MR. RIVEST: Let's press onwith the slides. 6 The methodology involves what's calledcommon 7 sizingof the financial statements, which is a 8 rearranging of a financial account, financial accounts, 9 to try and separate fixed from variable components. 10 I've got an example here. 1 1 This becomes the mark-up formula. The non12 variable andprofitmark-upwhich is added, is 13 multipliedby the variable cost, is the ratio of net 14 sales tovariablemanufacturing cost as were re-sized 15 according to themethodology described. 16 This is an application to an appliance 17 manufacturerwhose absolute numbers have been scaled so 18 he wouldn'tbe recognized. But the absolutepercentage 19 numbers are accurate and reflected. And ifnothing 20 else, what this will show is that some of the 21 assumptions made in GRIM arepretty darn close. 22 As I recall from yesterday, and I hadn't 23 noticed that before, depreciation inGRIM I thoughtwas 24 3.3. percentwas thebase case assumption. Selling, 25 general and administrative were entered in a lump sum,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064369 1 but I'd be curious to divide back my revenue to see how 2 we're doing in terms of SG&A percentage of revenue. 3 And look at the R&D component. And this is 4 an integration over many years. We're looking at 1.8 5 percent R&D of sales revenue.6 What this is saying is on average for a four7 year period, an appliance manufacturer has applied a 8 1.43 percent mark-up over variable cost.

9 MR. JONES: [Off mike.] 10 MR. RIVEST: It's not a revision. It's 11 another one, a different one. And the purpose was just 12 to try and ascertain if there was some consistency 13 between manufacturers of a similar industry. It 14 depreciates 3.4. 15 The reporting rules -- and I don't know if 16 this is true, but my understanding is some level of 17 detail isn't required by the SEC. 18 MR. SPINNEY: The concept is materiality. In 19 other words, would the amount affect a decisionmaker? 20 Percentage is less important than would it affect a 21 decisionmaker. 22 MR. RIVEST: In this case, I don't see 23 necessarily a separate item for R&D, for example. I 24 don't know if it's because it was clustered in SG&A. 25 MR. SPINNEY: But you're using that as a

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(301) 565-0064 369 1 but I'dbe curious to divide backmy revenue to see how 2 we're doing in terms of SG&A percentage of revenue. 3 And look at the R&D component. And this is 4 an integrationovermany years. We're looking at 1.8 5 percent R&D of sales revenue. 6 What this is saying is on average for a four7 yearperiod, an appliance manufacturerhas applied a 8 1.43 percent mark-up over variable cost. 9 MR. JONES: [Off mike.] 10 MR. RIVEST: It's not a revision. It's 11 another one, a different one. And the purpose was just 12 to try and ascertain if there was some consistency 13 betweenmanufacturers of a similar industry. It 14 depreciates 3.4. 15 The reporting rules

-- and I don't know if 16 this is true, butmy understanding is some level of 17 detail isn't required by the SEC. 18 MR. SPINNEY: The concept is materiality. In 19 other words, would the amount affect a decisionmaker? 20 Percentage is less important than would it affect a 21 decisionmaker. 22 MR. RIVEST: In this case, I don't see 23 necessarily a separate item for R&D, for example. I 24 don't know if it's because itwas clustered in SG&A. 25 MR. SPINNEY: But you're using that as a

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064370 1 control, again. 2 MR. RIVEST: It's a control. Yes. 3 MR. SPINNEY: Okay.
MR. RIVEST: Yes? MR. FOLEY: Gene Foley, the Alliance to Save

Sir, to make sure I understand these two 8 forms that are handouts, sort of 6 and 6A, as it were, 9 these represent your analysis of two different 10 companies from available data?
11 MR. RIVEST: Yes. 12 MR. FOLEY: Okay. Thank you. 13 MR. BROOKMAN: Press on, Mike.
14 MR. RIVEST: Dave? 15 MR. LEWIS: But just as a follow-up to that 16 comment, that doesn't necessarily reflect an industry 17 or the accuracy of such a program being applied to an 18 industry. 19 MR. RIVEST: I agree. 20 MR. LEWIS: Okay. 21 MR. FOLEY: I guess in response to the 22 question of why not, if you'd look at a 10-K for a 23 company like United Technologies, I don't think the 24 numbers that you come up with would apply directly to a 25 furnace or an air-conditioner.

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(301) 565-0064 370 1 control, again. 2 MR. RIVEST: It's a control. Yes. 3 MR. SPINNEY: Okay. 4 MR. RIVEST: Yes? 5 MR. FOLEY: Gene Foley, theAlliance to Save 6 Energy. 7 Sir, tomake sure I understand these two 8 forms that are handouts, sort of 6 and 6A, as itwere, 9 these represent your analysis of two different 10 companies from available data? 1 1 MR. RIVEST: Yes. 12 MR. FOLEY: Okay. Thankyou. 13 MR. BROOKMAN: Press on, Mike. 14 MR. RIVEST: Dave? 15 MR. LEWIS: But just as a follow-up to that 16 comment, that doesn't necessarily reflect an industry 17 or the accuracy of such a programbeing applied to an 18 industry. 19 MR. RIVEST: I agree. 20 MR. LEWIS: Okay. 21 MR. FOLEY: I guess inresponse to the 22 question ofwhy not, ifyou'd look at a 10-Kfor a 23 company likeUnited Technologies, I don't think the 24 numbers that you come up withwould apply directly to a 25 furnace or an air-conditioner.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064371 1 MR. RIVEST: And I've tried to identify some 2 of the issues, some of the problems in applying it, and 3 I don't think I'm saying anything new because I heard 4 it all before I got to the slide. 5 (Laughter.)6 So it implicitly assumes a complete pass7 through of standards induced cost. It relies on the 8 detailed engineering cost estimate conducted by outside 9 contractors. That's not necessarily a bad thing. But 10 you need to have that level of detail of information, 11 breaking down fixed variable components. 12 It does rely on section 10-K reports, 13 understanding the historic long-term cost structure of 14 the firm. In the appliance industry, for some of the 15 manufacturers, the appliance business is only a part of 16 the firm's total operations. And I might add that 17 sometimes they're just not available. 18 And the derived market rates do not recognize 19 the real life situation that mark-ups can be very 20 different for different products in the product line. 21 And we've both talked about this. There's a 22 recognition here. We're flagging it. We're not trying 23 to pass anything by you. 24 MR. BROOKMAN: Mike, isn't it actually 25 rewarding to have your analysis validated by a group

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(301) 565-0064 371 1 MR. RIVEST: And I've tried to identify some 2 of the issues, some of the problems in applying it, and 3 I don't think I'm saying anything newbecause I heard 4 it all before I got to the slide. 5 (Laughter.) 6 So it implicitly assumes a complete pass7 through of standards induced cost. Itrelies on the 8 detailed engineering cost estimate conductedby outside 9 contractors. That's not necessarily a bad thing. But 10 you need to have that level of detail of information, 11 breakingdown fixed variable components. 12 It does rely on section 10-Kreports, 13 understanding the historic long-termcost structureof 14 the firm. In the appliance industry, for some of the 15 manufacturers, the appliance business is only a part of 16 the firm's total operations. And I might add that 17 sometimes they're justnot available. 18 And the derivedmarket rates do not recognize 19 the real life situation thatmark-ups canbe very 20 different for different products in the product line. 21 And we'veboth talked about this. There's a 22 recognitionhere. We're flagging it. We're not trying 23 to pass anythingby you. 24 MR. BROOKMAN: Mike, isn't it actually 25 rewarding to have your analysis validatedby a group

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064372 1 like this? 2 (Laughter.) 3 MR. RIVEST: Oh, I'm glad I made that slide. 4 VOICE: It's worth every cent that you paid. 5 MR. BROOKMAN: Do you have more on this 6 segment or should we --
7 MR. RIVEST: No. 8 MR. BROOKMAN: Are there party shots on this 9 that we haven't yet covered? 10 Yes. 11 MR. SPINNEY: Let me make one last point 12 here. What we do first of all on a cost analysis is we 13 actually buy either a whole automobile and tear it down 14 or we buy the component that's under analysis and tear 15 it down to every last nut, bolt and screw. And having 16 identified that, then we apply these overall mark-up 17 rates to the cost of that part or vehicle to come up 18 with an estimated retail price equivalent. 19 So it's a two tier analysis. We do a 20 financial analysis for the mark-up rates, but we do a 21 tear-down cost analysis for the individual unit itself. 22 And that may have some application in the appliance 23 industry. 24 MR. BROOKMAN: Yes. We have a few comments. 25 I saw Everett first.

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(301) 565-0064 372 1 like this? 2 (Laughter.) 3 MR. RIVEST: Oh, I'mglad I made that slide. 

### 4 VOICE: It'sworth every cent that youpaid. 5 MR. BROOKMAN: Do youhave more on this 6 segment or shouldwe -- 7 MR. RIVEST: No. 8 MR. BROOKMAN: Are there party shots on this 9 thatwe haven't yet covered? 10 Yes. 1 1 MR. SPINNEY: Letme make one lastpoint 12 here. What we do first of all on a cost analysis iswe 13 actuallybuy either a whole automobile and tear itdown 14 or we buy the component that's under analysis and tear 15 itdown to every lastnut, bolt and screw. And having 16 identified that, thenwe apply these overall mark-up 17 rates to the cost of that part or vehicle to come up 18 with an estimatedretail price equivalent. 19 So it's a two tier analysis. We do a 20 financial analysis for the mark-up rates, but we do a 21 tear-down cost analysis for the individual unit itself. 22 And that may have some application in the appliance 23 industry. 24 MR. BROOKMAN: Yes. We have a few comments. 25 I saw Everett first.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064373 1 And Jim, you're going to do a brief here nd kee movin tr t? I t t ti t 2 presen g . y a p wan o on nex a 3 MR. SHOREY: What's been your experience in 4 the manufacturers' views of the potential accuracy of 5 the price estimates that have come out of your cost 6 estimating versus -- and the application of the
7 standard mark-up? Do they think that's an accurate -- 8 what's kind of been the -- 9 MR. SPINNEY: Yes. That has generated very 10 little controversy. In fact, this whole analysis was 11 first developed by people who had spent years and years
12 in the auto industry. So we haven't gotten too much 13 flack over these mark-up percentages. 14 What will happen is there'll be a special 15 case, like say tail lights, which are very often 16 restyled before the automobile is. The relationships 17 that you see here, like 70-30 or 75-25, would simply 18 not hold true for tail lights. But at least when we 19 see numbers like that come in, we know that something's 20 out of kilter and that we have to ask a couple of
21 questions. 22 MR. BROOKMAN: The original question was from 23 Everett Shorey, by the way.
24 MR. CRAWFORD: Yes. Jim Crawford. 25 I just wanted to bring us all back to the

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(301) 565-0064 373 1 And Jim, you're going todo a brief 2 presentationnext? I want to try andkeepmovinghere. 3 MR. SHOREY: What's been your experience in 4 the manufacturers' views of the potential accuracy of 5 the price estimates thathave come out of your cost 6 estimatingversus -- and the applicationof the 7 standardmark-up? Do they think that's an accurate 8 what's kind of been the 9 MR. SPINNEY: Yes. Thathas generatedvery 10 little controversy. In fact, this whole analysis was 11 first developed by people who had spent years and years 12 in the auto industry. So we haven't gotten toomuch 13 flack over these mark-uppercentages. 14 What will happen is there'll be a special 15 case, like say tail lights, which are very often 16 restyledbefore the automobile is. The relationships 17 that you seehere, like 70-30 or 75-25, would simply 18 not hold true for tail lights. But at leastwhen we 19 seenumbers like that come in, we know that something's 20 out ofkilter and thatwe have to ask a couple of 21 questions. 22 MR. BROOKMAN: The original questionwas from 23 Everett Shorey, by theway. 24 25 MR. CRAWFORD: Yes. JimCrawford. I justwanted tobringus allback to the

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064374 1 point that Dave Lewis made earlier, and that is the 2 tremendous difference between the appliance industry, 3 and particular comfort products, and the automotive 4 relative to the mark-up chain, relative to the ratio 5 between ultimate price paid by the consumer and the 6 price realized by the manufacturers that rolls off the 7 dock. 8 And to do that kind of a detailed analysis is 9 absolutely utterly meaningless and worthless in the 10 comfort product industry because the majority of the 11 price that is paid by the consumer is determined by 12 things that transpire after the unit leaves the 13 factory. 14 MR. BROOKMAN: I note that Jim Rivest 15 captured the thrust of that up here on the flip charts, 16 in addition to it being recorded. 17 Shall we go on? 18 MR. RIVEST: Yes. I'd like to have Jim 19 McMahon describe an economic mark-up approach to 20 pricing. 21 MR. McCABE: Before Jim does that, however, I 22 would like to reiterate that what is being presented is 23 what has been done, not for the purpose of saying that 24 this will be done or necessarily that it could be done. 25 Certainly I guess it could be done since it has been

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(301) 565-0064 374 1 point thatDave Lewis made earlier, and that is the 2 tremendous difference between the appliance industry, 3 andparticular comfort products, and the automotive 4 relative to the mark-up chain, relative to theratio 5 betweenultimate pricepaidby the consumer and the 6 price realizedby the manufacturers that rolls off the 7 dock. 8 And to do thatkind of a detailed analysis is 9 absolutely utterlymeaningless andworthless in the 10 comfort product industrybecause the majority of the 11 price that is paidby the consumer is determinedby 12 things that transpire after the unit leaves the 13 factory. 14 MR. BROOKMAN: I note thatJimRivest 15 captured the thrust of thatup here on the flip charts, 16 in addition to itbeing recorded. 17 Shall we go on? 18 MR. RIVEST: Yes. I'd like to have Jim 19 McMahon describe an economic mark-up approach to 20 pricing. 21 MR. McCABE: BeforeJimdoes that, however, I 22 would like to reiterate that what is beingpresented is 23 what has been done, not for the purpose of saying that 24 this will be done ornecessarily that it couldbe done. 25 Certainly I guess it couldbe done since ithas been

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064375 1 done. But to many of those in the audience that have 2 not had the benefit of an explanation of what is the 3 manufacturer mark-up cost to price that's imbedded in 4 the manufacturing impact model, and in order to review 5 this subject, we felt that it would be appropriate to 6 present this part of the manufacturing impact model. 7 It is not being presented as an alternate to 8 GRIM but rather for historical perspective. It is an 9 alternative for the benefit of getting some dialogue 10 going. 11 MR. LEWIS: Why is it being presented? 12 MR. McCABE: As an economic perspective as to 13 how mark-up can be derived. Because in the earlier 14 rulemakings -- for example, 1980, we had applied the 15 approach for a fixed mark-up across the range of 16 efficiencies of a manufacturer's product offering. 17 There were an awful lot of comments that had 18 been submitted to say that that approach was 19 inappropriate, that the mark-up ranged as a function of 20 a number of factors, including the volume of the 21 products produced. And arguments were made that there 22 should be more of an economic approach used to derive 23 mark-up. 24 So in the evolutionary process, in response 25 to the comments, we developed this. If we are going to

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(301) 565-0064 375 1 done. But tomany of those in the audience thathave 2 not had the benefit of an explanation ofwhat is the 3 manufacturermark-up cost toprice that's imbedded in 4 themanufacturing impact model, and inorder toreview 5 this subject, we felt that itwould be appropriate to 6 present this part of themanufacturing impact model. 7 It is notbeing presented as an alternate to 8 GRIM but rather for historical perspective. It is an 9 alternative for thebenefit of getting some dialogue 10 going. 1 1 MR. LEWIS: Why is itbeingpresented? 12 MR. McCABE: As an economicperspective as to 13 howmark-up can be derived. Because in the earlier 1 4 rulemakings for example, 1980, we had applied the 15 approach for a fixed mark-up across the range of 16 efficiencies of a manufacturer's product offering. 17 There were an awful lot of comments that had 18 been submitted to say that that approachwas 19 inappropriate, that the mark-up ranged as a function of 20 a number of factors, including the volume of the 21 products produced. And arguments weremade that there 22 shouldbe more of an economic approachused toderive 23 mark-up. 24 So in the evolutionaryprocess, inresponse 25 to the comments, we developed this. Ifwe are going to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064376 1 -- and we've committed to using a different approach 2 for estimating manufacturer impacts, now the question 3 before us at this point is how to develop mark-up. 4 Is mark-up a fixed amount? Is mark-up 5 determined based on other things? Would it be 6 appropriate to use any one of these approaches to 7 develop mark-up or use another approach more 8 appropriate? 9 So it's to provide some of the evolution in 10 thought that has occurred on this subject in the past 11 in order to advance the subject further. 12 MR. BROOKMAN: Take it away. 13 MR. McMAHON: Now they're all warmed up. 14 Thank you, Mike and Mike. 15 I think has been said enough times why this 16 is up here, so let me start by saying what I'm 17 presenting is the economic mark-up approach. 18 You should have received three pages when you 19 came back from lunch. They're out of order. The last 20 page should be first. 21 The economic mark-up approach is based upon 22 economic theory. I think maybe I can get support from 23 Sheldon Kemmel and from Everett Shorey that in fact 24 this is in the academic literature. 25 The basic process say that you start with a

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(301) 565-0064 

### 376 1

-- andwe've committed to using a different approach 2 for estimatingmanufacturer impacts, now the question 3 beforeus at this point is how todevelopmark-up. 4 

### Ismark-up a fixed amount? Is mark-up 5 determinedbasedon other things? Would itbe 6 appropriate touse anyone of these approaches to 7 developmark-up oruse another approachmore 8 appropriate? 9 So it's toprovide some of the evolution in 10 thought thathas occurred on this subject in thepast 11 inorder to advance the subject further. 12 MR. BROOKMAN: Take it away. 13 MR. McMAHON: Now they're allwarmedup. 14 Thank you, Mike andMike. 15 I thinkhas been said enough times why this 16 is up here, so letme startby sayingwhat I'm 17 presenting is the economicmark-up approach. 18 You shouldhave received threepages when you 19 cameback from lunch. They'reoutoforder. The last 20 page shouldbe first. 21 The economicmark-up approach isbasedupon 22 economic theory. I thinkmaybe I canget support from 23 SheldonKemmel and fromEverett Shorey that in fact 24 this is in the academic literature. 25 Thebasicprocess say that you startwith a

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064377 1 base price. That the forecasted price after standards 2 is a mark-up over all variable costs. That is, over 3 the incremental variable costs. This is a process 4 that's been used previously. 5 The variable costs include both the direct 6 manufacturing costs that vary with output and the part 7 of capital costs that vary with capacity. 8 The constant mark-up case has the beauty of 9 simplicity and transparency. However, it implies that 10 the prices are related to the costs. If you believe 11 that the prices are independent of the costs, then this 12 is the wrong method to apply. 13 This is simply the equation. Price new, that 14 is, price after standards, is equal to the price in the 15 base case, plus a mark-up, times the incremental 16 variable costs. 17 The third page presents a variable mark-up 18 case. I do want to point out that in the previous 19 methodology, the mark-ups were not assumed to be 20 constant. That is, they varied with product class and 21 they varied by design option. One of the things that 22 was discovered in the course of that research that I 23 don't think is widely recognized is that if there is a 24 sensitivity or an elasticity on the part of the 25 consumer to both the price of the product and the

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(301) 565-0064 377 1 baseprice. That the forecasted price after standards 2 is a mark-up over all variable costs. That is, over 3 the incremental variable costs. This is a process 4 that's beenusedpreviously. 5 The variable costs includeboth the direct 6 manufacturing costs that vary with output and thepart 7 of capital costs that vary with capacity. 8 The constantmark-up case has thebeauty of 9 simplicity and transparency. However, it implies that 10 theprices are related to the costs. If youbelieve 11 that the prices are independent of the costs, then this 12 is thewrongmethod to apply. 13 This is simply the equation. Price new, that 14 is, price after standards, is equal to theprice in the 15 base case, plus a mark-up, times the incremental 16 variable costs. 17 The thirdpagepresents a variablemark-up 18 case. I do want topoint out that in theprevious 19 methodology, the mark-ups were not assumed tobe 20 constant. That is, they variedwithproduct class and 21 they variedby design option. One of the things that 22 was discovered in the course of that research that I 23 don't think is widely recognized is that if there is a 24 sensitivity or an elasticityon the part of the 25 consumer toboth the priceof theproduct and the

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064378 1 operating cost. And this is probably not true for all2 products, but it may be true for central air3 conditioners and a couple of the others that the 4 elasticity changes as you change the mix of these two 5 things. 6 So consider the consumer who is worried both 7 about the first cost of the product and to some extent, 8 and probably a lesser extent, but to some extent about 9 the operating cost of the product. If an efficiency 10 change is put in that increases the price of the 11 product and decreases the operating cost, then the 12 price becomes increasingly important to the consumer. 13 We believe that that needs to be considered, 14 if in fact that's the case . If the price doesn't 15 change, this isn't an issue. 16 That's it.
17 MR. LEWIS : Dave Lewis, Lennox. 18 I guess your last comment, Jim, I think 19 there's another dynamic that you're not displaying when 20 you made that statement, and that is it depends on the 21 magnitude of change or benefit that a consumer derives 22 or, if the price is actually decreased in energy costs, 23 that it becomes less and less of a player to the point 24 where the first cost becomes the dominant. 25 I think that is a little different than what

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(301) 565-0064 378 1 operating cost. And this is probablynot true for all 2 products, but itmay be true for central air3 conditioners and a couple of the others that the 4 elasticity changes as you change themix of these two 5 things. 6 So consider the consumerwho isworriedboth 7 about the first costof the product and to some extent, 8 andprobably a lesser extent, but to some extent about 9 the operating cost of the product. If an efficiency 10 change is put in that increases the price of the 11 product and decreases the operating cost, then the 12 price becomes increasingly important to the consumer. 13 We believe that thatneeds tobe considered, 14 if in fact that's the case. If the price doesn't 15 change, this isn't an issue. 16 That's it. 17 MR. LEWIS: Dave Lewis, Lennox. 18 I guess your last comment, Jim, I think 19 there's another dynamic that you're not displayingwhen 20 youmade that statement, and that is itdepends on the 21 magnitude of change orbenefit that a consumerderives 22 or, if the price is actually decreased inenergy costs, 23 that itbecomes less and less of a player to thepoint 24 where the first costbecomes the dominant. 25 I think that is a littledifferent thanwhat

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064379 1 you were displaying.

MR. McMAHON: No. That's exactly what I was

MR. LEWIS: That's good. We got it clear. 5 MR. BROOKMAN: It's good that you're able to 6 agree on that point. 7 MR. KEMMEL: Well, I guess -- this is Sheldon 8 Kemmel, DOJ. 9 I guess I had a question about how this is an 10 economic approach. Earlier you had said that you can't 11 get price data, and therefore, you can't estimate a 12 demand curve. And therefore, all the more so, you 13 can't estimate the shape of the demand curve, which, as 14 I understand the economic literature, is the magnitude 15 that determines what sort of mark-ups you have and how 16 they change. 17 And so I'm wondering how you have any basis 18 for assumptions about how the mark-up is going to 19 change. 20 MR. McMAHON: There are two related problems. 21 I did not say that there is no price data available. 22 What I said is there is no single data set that 23 combines both the actual price paid and the 24 characteristics of the product. 25 The best price data that I'm aware of that's

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(301) 565-0064 379 1 you were displaying. 2 MR. McMAHON: No. That's exactlywhat I was 3 saying. 4 5 MR. LEWIS: That's good. We got it clear. MR. BROOKMAN: It's good that you're able to 6 agree on that point. 7 MR. KEMMEL: Well, I guess -- this is Sheldon 8 Kemmel, DOJ. 9 I guess I had a question about how this is an 10 economic approach. Earlier you had said that you can't 11 get price data, and therefore, you can't estimate a 12 demand curve. And therefore, all the more so, you 13 can't estimate the shape of the demand curve, which, as 14 I understand the economic literature, is the magnitude 15 that determines what sort of mark-ups you have and how 1 6 they change. 17 And so I'mwondering how you have any basis 18 for assumptions about how the mark-up is going to 19 change. 20 MR. McMAHON: There are two related problems. 21 I did not say that there is no price data available. 22 What I said is there is no single data set that 23 combines both the actual price paid and the 24 characteristics of the product. 25 The best price data that I'm aware of that's

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064380 1 publicly available is the consumer expenditure survey, 2 which characterizes a great deal about the individual 3 consumers and it tells you whether or not they bought a 4 particular product, say a refrigerator. It tells you 5 the price that they paid but it doesn't tell you 6 anything about the refrigerator. You don't know how 7 big it is. You don't know whether it's frost free. You 8 don't know anything about it. 9 So it's hard to do a study based upon that 10 because there are different products. 11 MR. BROOKMAN: Let me say, as someone with a 12 graduate degree in economics, it seems like we're 13 getting into it fairly deep here. This is interesting, 14 but let's get back to the central question here pretty 15 quick. 16 MR. KEMMEL: Yes. Actually, I did want to 17 get back to the question because the question of 18 whether you have price data or not is not the heart of 19 my question. My question was whether you had estimated 20 the shape of the demand curve. And if you haven't and 21 you want to call this an economic approach, I'm 22 wondering how you have any basis for the assumption of 23 how the mark-ups change. 24 MR. McMAHON: There was a demand function 25 estimated in the methodology before. It was estimated

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(301) 565-0064 380 1 publicly available is the consumer expenditure survey, 2 which characterizes a great deal about the individual 3 consumers and it tells you whether ornot they bought a 4 particularproduct, say a refrigerator. It tells you 5 the price that they paidbut itdoesn't tell you 6 anything about the refrigerator. You don'tknowhow 7 big it is. You don't knowwhether it's frost free. You 8 don't know anything about it. 9 So it'shard to do a studybasedupon that 10 because there are differentproducts. 1 1 MR. BROOKMAN: Letme say, as someonewith a 12 graduate degree in economics, it seems likewe're 13 getting into it fairly deep here. This is interesting, 14 but let's getback to the central questionherepretty 15 quick. 16 MR. KEMMEL: Yes. Actually, I didwant to 17 getback to the questionbecause the question of 18 whether youhave pricedata ornot is not the heart of 19 my question. My questionwas whether youhad estimated 20 the shape of the demand curve. And ifyouhaven't and 21 you want to call this an economic approach, I'm 22 wondering how youhave any basis for the assumptionof 23 how the mark-ups change. 24 MR. McMAHON: Therewas a demand function 25 estimated in themethodology before. Itwas estimated

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064381 1 by taking a time series of prices and using the 2 fluctuations in those prices, together with the 3 shipments data, to estimate a demand function but not 4 the shape. 5 6 7 There is an elasticity -- MR. KEMMEL: [Off mike.] MR. McMAHON: That's correct. That's right. 8 If there were sufficient data, we'd be happy to do that 9 study. If you're aware of a data source, I'd like to 10 hear about it. 11 MR. CRAWFORD: Jim Crawford. 12 On data sources, for some classes of products 13 the well published and nationally uniform prices of 14 some major national retailers can give you tremendous 15 insights into some of these questions. I used to use a 16 Sears Roebuck catalogue but they quit publishing the 17 catalogue. But you've also got other major national 18 retailers. 19 And you've got the price. You could get the 20 performance data. You can get the whole picture from 21 one source. 22 MR. McMAHON: Thank you. The only case where 23 we've gotten price data like that -- I mean, I 24 understand that the catalogues are there. They 25 represent part of the market and a characterization of

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(301) 565-0064 381 1 by taking a time series of prices and using the 2 fluctuations in those prices, togetherwith the 3 shipments data, to estimate a demand function but not 4 the shape. 5 There is an elasticity

-- 6 MR. KEMMEL: [Off mike.] 7 MR. McMAHON: That's correct. That's right. 8 If there were sufficient data, we'd behappy todo that 9 study. If you're aware of a data source, I'd like to 10 hear about it. 11 MR. CRAWFORD: JimCrawford. 12 On data sources, for some classes ofproducts 13 thewell published and nationally uniformprices of 14 somemajornational retailers cangive you tremendous 15 insights into some of these questions. I used to use a 16 Sears Roebuck cataloguebut they quitpublishing the 17 catalogue. But you've alsogot othermajornational 18 retailers. 19 And you've got the price. You couldget the 20 performance data. You can get thewhole picture from 21 one source. 22 MR. McMAHON: Thank you. The only casewhere 23 we've gottenprice data like that

-- I mean, I 24 understand that the catalogues are there. They 25 representpartof themarket and a characterizationof

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064382
1 suggested prices. I don't think everything is actually
2 sold at that price. 3 We did purchase the ELCAP survey of 4 refrigerator prices, which provides model specific 5 information gathered at retail stores of what prices 6 were actually paid. And those kind of sources of data
7 are rare. A lot of times you can find things like 8 catalogues or suggested retail prices. It doesn't tell 9 you what people actually paid. 10 We did use the refrigerator survey. We 11 mapped it onto the AHAM directory to get energy 12 consumption out of it, and we did the study that 13 indicated earlier is available. But it's not -- if the 14 data is available, tell us about it and we'll be happy 15 to do whatever is possible with that. 16 MR. LEWIS: David Lewis, Lennox. 17 I agree with you, Jim. I don't think it is 18 available because one of the larger components of that
19 is the insulation aspect, which obviously is not 20 reflected.
21 MR. McMAHON: The Government Consumer 22 Expenditure Survey does ask consumers what they paid 23 for installation. 24 VOICE: They don't know. 25 MR. McMAHON: I haven't finished my sentence.

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(301) 565-0064 382 1 suggestedprices. I don't think everything is actually 2 sold at thatprice. 3 We didpurchase theELCAP survey of 4 refrigeratorprices, whichprovides model specific 5 information gathered at retail stores ofwhat prices 6 were actually paid. And those kind of sources of data 7 are rare. Alot of times you can find things like 8 catalogues or suggestedretail prices. Itdoesn't tell 9 you what people actuallypaid. 10 We did use the refrigerator survey. We 11 mapped itonto the AHAM directory to get energy 12 consumption out of it, andwe did the study that 13 indicated earlier is available. But it'snot if the 14 data is available, tell us about it andwe'll behappy 15 to do whatever is possible with that. 16 MR. LEWIS: DavidLewis, Lennox. 17 I agree with you, Jim. I don't think it is 18 availablebecause one of the larger components of that 19 is the insulation aspect, which obviously is not 20 reflected. 21 MR. McMAHON: The Government Consumer 22 Expenditure Survey does ask consumers what they paid 23 for installation. 24 25 VOICE: They don'tknow. MR. McMAHON: I haven't finished my sentence.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064383 1 Consumers report what they remember about 2 that, and there's problems with that. 3 Mike Rivest, have we covered yet scenario and 4 uncertainty analysis? 5 6 beginning.
7 MR. RIVEST: I had that slide at the

MR. McMAHON: Okay. 8 MR. RIVEST: So the idea is you do a scenario 9 analysis and hope that all the errors cancel out. 10 MR. BROOKMAN: Say it again, Mike. 11 Was that as clear as it could be? 12 MR. RIVEST: I think so. 13 MR. McINERNEY: This is Ed McInerney with GE. 14 Jim, you mentioned earlier that you had 15 published this month your assessment of the accuracy of 16 the -- you published what the price impact of the 17 refrigerator standard was. Is that right? 18 MR. McMAHON: It's a study of what the actual 19 prices were compared to the future -- 20 MR. McINERNEY: Did you by any chance 21 contrast and compare in there the accuracy with the 22 prediction at the time of the standard versus the 23 actual realization after the fact? 24 MR. McMAHON: Did not. 25 MR. RIVEST: Are we ready to move on to

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(301) 565-0064 383 1 Consumers report what they remember about 2 that, and there's problems with that. 3 Mike Rivest, have we covered yet scenario and 4 uncertainty analysis? 5 MR. RIVEST: I had that slide at the 6 beginning. 7 MR. McMAHON: Okay. 8 MR. RIVEST: So the idea is you do a scenario 9 analysis and hope that all the errors cancel out. 10 MR. BROOKMAN: Say it again, Mike. 1 1 Was that as clear as it couldbe? 12 MR. RIVEST: I think so. 13 MR. McINERNEY: This is Ed McInerney with GE. 14 Jim, you mentioned earlier that you had 15 published this month your assessment of the accuracy of 16 the

-- you publishedwhat the price impact of the 17 refrigerator standardwas. Is that right? 18 MR. McMAHON: It's a study of what the actual 19 prices were compared to the future

-- 20 MR. McINERNEY: Did you by any chance 21 contrast and compare in there the accuracy with the 22 prediction at the time of the standard versus the 23 actual realization after the fact? 24 25 MR. McMAHON: Did not. MR. RIVEST: Are we ready to move on to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064384 1 shipments? 2 3 4 MR. BROOKMAN: Yes.
MR. RIVEST: Yes. The discussion on shipments will be rather 5 brief because we spent a considerable amount of time 6 talking about one of the approaches yesterday, which 7 was the use of the national forecasting models. 8 I just want to introduce to you --

MR. BROOKMAN: Repeat the part about it being

MR. RIVEST: We'd like to spend a few minutes 12 talking about shipments. We spent a considerable 13 amount of time talking about one of the possible 14 approaches to generating shipment forecasts for the 15 GRIM yesterday; that being the national forecasting 16 models, such as REM, REEPS, and the like. 17 I'd like to talk a little bit more about 18 other ways we might be able to generate some shipment 19 forecasts. 20 Now, in order to do the cash flow analysis, 21 we have to have unit sales projections which would be 22 prepared for shipments in the absence of standards and 23 at different standard levels. Now, some approaches 24 could include developing expert forecasts. One of the 25 ways might be going through surveys. That would

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(301) 565-0064 384 1 shipments? 2 MR. BROOKMAN: Yes. 3 MR. RIVEST: Yes. 4 The discussion on shipments will be rather 5 brief because we spent a considerable amount of time 6 talking about one of the approaches yesterday, which 7 was the use of the national forecasting models. 8 I justwant to introduce to you -- 9 MR. BROOKMAN: Repeat the part about itbeing 10 brief. 1 1 MR. RIVEST: We'd like to spend a few minutes 12 talking about shipments. We spent a considerable 13 amount of time talking about one of the possible 14 approaches to generating shipment forecasts for the 15 GRIM yesterday; that being the national forecasting 16 models, such as REM, REEPS, and the like. 17 I'd like to talk a littlebitmore about 18 other ways we might be able to generate some shipment 19 forecasts. 20 NOw, in order to do the cash flow analysis, 21 we have to have unit sales projections whichwould be 22 prepared for shipments in the absence of standards and 23 at different standard levels. Now, some approaches 24 could include developing expert forecasts. One of the 25 ways might be going through surveys. That would

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064385 1 involve having discussions with manufacturers, 2 retailers and other market experts. 3 We could also generate forecasts using one of 4 the national net benefits models. We could also look 5 at the development of some type of a spreadsheet which 6 may encompass some of the major drivers of shipments, 7 be it things like retirement of existing products, 8 demographics, and things like that, which would be a 9 subset, if you will, of these models, a very simplified 10 version, a tool which we could sit around and discuss 11 the validity of our expert forecast to see if one 12 explains the other or if they're in total 13 contradiction. 14 We could also try and do a scenario analysis 15 which would incorporate these forecasts and maybe some 16 more simple assumptions. 17 I wish that slide didn't have data book on 18 it. But the information that we would have gathered to 19 do the industry characterization at the beginning of 20 the rulemaking and other information that manufacturers 21 and interested parties may have could serve as a basis 22 for trying to forecast shipments in a non-quantitative, 23 if you will, method. 24 And that would have the advantage of 25 considering things that the model couldn't capture.

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(301) 565-0064 385 1 involve having discussions with manufacturers, 2 retailers and othermarket experts. 3 We could also generate forecasts using one of 4 the national net benefits models. We could also look 5 at the development of some type of a spreadsheet which 6 may encompass some of the major drivers of shipments, 7 be it things like retirement of existingproducts, 8 demographics, and things like that, which would be a 9 subset, if you will, of these models, a very simplified 10 version, a tool whichwe could sit around and discuss 11 the validity of our expert forecast to see if one 12 explains the other or if they're in total 13 contradiction. 14 We could also try and do a scenario analysis 15 which would incorporate these forecasts andmaybe some 16 more simple assumptions. 17 I wish that slide didn't have databook on 18 it. But the information that we would have gathered to 19 do the industry characterization at the beginning of 20 the rulemaking and other information thatmanufacturers 21 and interestedparties may have could serve as a basis 22 for trying to forecast shipments in a non-quantitative, 23 if you will, method. 24 And that would have the advantage of 25 considering things that the model couldn't capture.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064386 1 Things like potential changes in distribution channels, 2 other institutional factors. 3 I put here "future standards on competing 4 products." What happens if there's a standard imposed 5 on a competitive product which wasn't lumped in the 6 same rulemaking as your product, for example. So that 7 could have a major impact and wouldn't necessarily be 8 considered in the model. 9 There can be definite changes in consumer 10 purchase habits and taste. Such trends aren't 11 necessarily captured in the models, once again. Your 12 own advertising strategies and marketing strategies can 13 impact those quantities and competitors' actions. 14 So depending on what level we're doing our 15 forecasting, if we're looking for the industry as an 16 aggregate or if we're looking at the reaction of your 17 firm and how it will try to maintain or not maintain 18 market share after regulation. A lot of factors come 19 into play which wouldn't be captured by any model. 20 Once again, looking in terms of a method that 21 was used in the past to gather shipment forecasts as a 22 base case in the absence of standards and for different 23 efficiency levels, the survey I referred to earlier 24 simply asked what do you think will be the shipments in 25 the absence of standards and what do you think would be

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(301) 565-0064 386 1 Things like potential changes in distribution channels, 2 other institutional factors. 3 I put here "future standards on competing 4 products." What happens if there's a standard imposed 5 on a competitive productwhich wasn't lumped in the 6 same rulemaking as yourproduct, for example. So that 7 could have a major impact and wouldn't necessarilybe 8 considered in themodel. 9 There canbe definite changes inconsumer 10 purchasehabits and taste. Such trends aren't 11 necessarily captured in themodels, once again. Your 12 own advertising strategies andmarketing strategies can 13 impact those quantities and competitors' actions. 14 So depending on what level we're doing our 15 forecasting, if we're looking for the industry as an 16 aggregate or ifwe're looking at the reaction of your 17 firm andhow itwill try tomaintain ornotmaintain 18 market share afterregulation. Alot of factors come 19 intoplaywhich wouldn'tbe capturedby anymodel. 20 Once again, looking in terms of a method that 21 was used in the past to gather shipment forecasts as a 22 base case in the absence of standards and for different 23 efficiency levels, the survey I referred to earlier 24 simply askedwhat do you thinkwill be the shipments in 25 the absence of standards andwhat do you thinkwouldbe

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064387 1 the shipments at each of these four efficiency levels, 2 for example. 3 So that's one way of incorporating expert 4 judgment in a shipment forecast. 5 As I mentioned before, we could also make 6 some very simple assumptions about shipment forecasts. 7 What we're really interested in is not so much what 8 happens in the base case but what might happen on the 9 differential. What's the difference between the 10 shipments in the absence of standards and with 11 standards is the question we're getting at. So a lot 12 of the variables drop out. 13 And I assume for certain product rulemakings 14 the shipments may not be that -- for a certain range of 15 efficiency levels -- I should clarify. There may be 16 not that much sensitivity on shipments. So a constant 17 shipment case could be used with or without standards 18 as a bound showing no impact with the standard. 19 We could have a decreasing shipment case 20 which might try to model the potential impact on 21 whatever elasticity value we have or trends that we 22 could have observed from past information. That, once 23 again, would bound the uncertainty in the shipments. 24 We could look at shipment trends over the 25 past. Certainly for the base case it might help to

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(301) 565-0064 387 1 the shipments at eachof these four efficiency levels, 2 for example. 3 So that's one way of incorporatingexpert 4 judgment in a shipment forecast. 5 As I mentionedbefore, we could alsomake 6 some very simple assumptions about shipment forecasts. 7 What we're really interested in is not somuchwhat 8 happens in the base casebut what might happenon the 9 differential. What's the differencebetween the 10 shipments in the absence of standards andwith 11 standards is the question we're getting at. So a lot 12 of the variables drop out. 13 And I assume for certainproduct rulemakings 14 the shipmentsmay notbe that

-- for a certainrange of 15 efficiency levels

-- I should clarify. There may be 16 not thatmuch sensitivity on shipments. So a constant 17 shipment case couldbe usedwithor without standards 18 as a bound showingno impact with the standard. 19 We couldhave a decreasing shipment case 20 whichmight try tomodel the potential impact on 21 whatever elasticity value we have or trends that we 22 couldhave observed from past information. That, once 23 again, wouldbound the uncertainty in the shipments. 24 We could look at shipment trends over the 25 past. Certainly for the base case itmight help to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064388 1 look at where the market has been going the last three, 2 five, 10-20 years and project out and see how that 3 might bound our shipments. And we could look at the 4 survey results that we could have distributed to 5 manufacturers and other people knowledgeable in the 6 market and incorporate that and the outputs of other 7 models potentially. 8 That completes what I had prepared for the 9 shipment portion. If there are any questions on that - 10 - 11 MR. BROOKMAN: Wayne? 12 MR. MORRIS: This is Wayne Morris with AHAM. 13 Just kind of a follow-on to some discussion 14 we had yesterday, and I guess to make sure that this is
15 on the record. 16 While we agree that a number of these pieces 17 of information need to be checked back against the 18 model, I guess we would encourage the Department and 19 its contractor, if that's so chosen, to use an approach 20 to gathering the forecasting of shipment information 21 that is extremely simple, as simple as absolutely 22 possible. 23 It may need to be done industry by industry 24 in a rulemaking situation and we fully support that 25 situation. But we do not support the idea of complex

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(301) 565-0064 388 1 look at where themarket has beengoing the last three, 2 five, 10-20 years and projectout and seehow that 3 might bound our shipments. And we could look at the 4 survey results thatwe couldhave distributed to 5 manufacturers and otherpeople knowledgeable in the 6 market and incorporate that and the outputs of other 7 models potentially. 8 That completes what I had prepared for the 9 shipmentportion. If there are any questions on that 10 11 MR. BROOKMAN: Wayne? 12 MR. MORRIS: This isWayne Morris withAHAM. 13 Justkind of a follow-on to some discussion 14 we had yesterday, and I guess tomake sure that this is 1 5 on the record. 16 While we agree that a number of thesepieces 17 of informationneed to be checkedback against the 18 model, I guess we would encourage the Department and 19 its contractor, if that's so chosen, touse an approach 20 to gathering the forecasting of shipment information 21 that is extremely simple, as simple as absolutely 22 possible. 23 Itmay need tobe done industryby industry 24 in a rulemaking situation andwe fully support that 25 situation. But we do not support the idea of complex

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064389 1 modeling involving multiple black boxes to arrive at a 2 forecast of shipments to look at something as 3 straightforward as comparing a base case with a 4 standards situation. 5 Not that that's simple. But that it is 6 certainly extremely imperative that when we do this 7 situation that we do not have complex modeling 8 techniques involves in this situation and using all 9 kinds of saturation numbers and everything else to 10 arrive at the numbers of forecasts. Because otherwise, 11 we are then plugging in, I am serious afraid and I 12 think others should be. 13 We're plugging in another sort of swags into 14 the GRIM that we, unfortunately, will just make the 15 output of it that much worse. So I ask that we try and 16 keep it as absolutely simple as possible. 17 MR. BROOKMAN: Jim? 18 MR. McMAHON: Wayne, I noticed in the January 19 Appliance Magazine, there's the annual forecast and it 20 has a forecast out to the year 2002 of shipments for 21 the major appliances. And I wondered if you've -- I've 22 two questions for you. 23 One, do you think that would be an 24 appropriate forecast to use for the base case for the 25 products that are in there? And secondly, is there

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(301) 565-0064 389 1 modeling involvingmultipleblackboxes to arrive at a 2 forecast of shipments to look at something as 3 straightforward as comparing a base casewith a 4 standards situation. 5 Not that that's simple. But that it is 6 certainly extremely imperative that when we do this 7 situation that we do not have complexmodeling 8 techniques involves in this situation andusing all 9 kinds of saturationnumbers and everythingelse to 10 arrive at the numbers of forecasts. Because otherwise, 11 we are thenplugging in, I am serious afraid and I 12 think others shouldbe. 13 We're plugging in another sortof swags into 14 the GRIM that we, unfortunately, will justmake the 15 output of it that much worse. So I ask that we try and 16 keep it as absolutely simple as possible. 17 MR. BROOKMAN: Jim? 18 MR. McMAHON: Wayne, I noticed in the January 19 ApplianceMagazine, there's the annual forecast and it 20 has a forecast out to the year 2002 of shipments for 21 the major appliances. And I wondered if you've

-- I've 22 two questions for you. 23 One, do you think that wouldbe an 24 appropriate forecast to use for the base case for the 25 products that are in there? And secondly, is there

EXECUTIVE COURT REPORTERS, INC. (301) 565-00641 2 3 4 5 390 anything in the methodology that was used to do that forecast that could be used to do a forecast in a standards case?

MR. MORRIS: This is Wayne. I have no way of knowing what they used. I 6 think that we would need to look at that situation. I 7 think we're open to considering many different 8 forecasting methodologies. But I would again stress 9 that I think that it needs to be done possibly on an 10 industry by industry basis in the beginnings of the 11 rulemaking process. But I think that it -- I'm not sure 12 I would want to suggest that we should just pick out 13 numbers out of a magazine, however good that is or is 14 not. 15 But I think that we could look back and see 16 what they used as their formula to drive that and 17 certainly it might be, I have to believe, a lot simpler 18 than using some of the forecasts that we've seen in 19 previous situations. 20 MR. McMAHON: My understanding of the 21 methodology -- I spoke with one of the editors of the 22 magazine and he said they surveyed the companies and 23 that the companies provided forecasts which the 24 magazine then aggregated to get an industry wide 25 number.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 390 1 anything in the methodology thatwas used to do that 2 forecast that couldbe used to do a forecast in a 3 standards case? 

### 4 MR. MORRIS: This isWayne. 5 I have no way of knowing what they used. I 6 think that we wouldneed to look at that situation. I 7 think we're open to consideringmany different 8 forecasting methodologies. But I would again stress 9 that I think that itneeds tobe done possibly on an 10 industryby industrybasis in thebeginnings of the 11 rulemakingprocess. But I think that it

-- I'mnot sure 12 I wouldwant to suggest thatwe shouldjustpick out 13 numbers out of a magazine, however good that is or is 14 not. 15 But I think that we could lookback and see 16 what they used as their formula to drive that and 17 certainly itmight be, I have tobelieve, a lot simpler 18 thanusing some of the forecasts thatwe've seen in 19 previous situations. 20 MR. McMAHON: My understandingof the 21 methodology

-- I spokewith one of the editors of the 22 magazine andhe said they surveyed the companies and 23 that the companies provided forecasts which the 24 magazine then aggregated to get an industrywide 25 number.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064391 1 And they did not have information of how each 2 of the companies had done the forecasts. So perhaps 3 that's something that we could find out, as to whether 4 there's anything there that we could use. 5 MR. CRAWFORD: Jim Crawford. 6 I think you need to come back to a question 7 that was asked by one of the appliance manufacturers a 8 while ago; and that is, have you looked at how good the 9 past forecasts from these sources have been. 10 We all have a hat from which we draw numbers. 11 And I think that that's -- when you aggregate those 12 numbers in the magazine, it's still the same basic 13 source. 14 MR. McMAHON: If you'll allow me a moment to 15 get a slide out of my briefcase, I can give you a 16 partial answer to that question. 17 MR. BROOKMAN: I think after this segment, 18 we'll take a short break. And then we will move to 19 discussing non-model impact evaluation. And then 20 finally, we'll take up the question again about whether 21 there should be a working group established and what 22 the boundaries -- if there is a group established, what 23 the kind of parameters on that group should be. 24 MR. McMAHON: This is an old slide. I 25 apologize for the quality. Obviously, with modern

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(301) 565-0064 391 1 And they didnot have informationofhow each 2 of the companies had done the forecasts. Soperhaps 3 that's something that we could find out, as towhether 4 there's anything there that we coulduse. 5 MR. CRAWFORD: JimCrawford. 6 I think you need to come back to a question 7 thatwas askedby one of the appliance manufacturers a 8 while ago; and that is, have you looked athow good the 9 past forecasts from these sources have been. 10 We all have a hat fromwhichwe drawnumbers. 11 And I think that that's

-- when you aggregate those 12 numbers in the magazine, it's still the samebasic 13 source. 14 MR. McMAHON: If you'll allowme a moment to 15 get a slide out ofmy briefcase, I can give you a 16 partial answer to that question. 17 MR. BROOKMAN: I think after this segment, 18 we'll take a shortbreak. And then we willmove to 19 discussingnon-model impact evaluation. And then 20 finally, we'll take up the question again aboutwhether 21 there shouldbe a working group established andwhat 22 theboundaries

-- if there is a group established, what 23 thekind ofparameters on that group shouldbe. 24 MR. McMAHON: This is an old slide. I 25 apologize for the quality. Obviously, withmodern

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064392 1 technology we could make it prettier. 2 What you see there on the left is industry 3 reported data. It's AHAM data about factory shipments 4 for refrigerators in the U.S. from about 1930 to the 5 mid-1970's. And I've hidden the right side. 6 You can see significant variability. And if 7 I were to task any of,you with the problem of, okay, 8 now do the forecast for the next 20 years, I'd be 9 curious as to how you would do that. That's the shoes 10 that I was put in. 11 On the right, there are three sets of data. 12 This line continues as actual shipments as reported. 13 The open triangles are a forecast made by Lawrence 14 Berkeley National Laboratory. That one was made -- it 15 starts in 1980 but the forecast was actually made, I 16 believe, in 1987 or -8. It was in consideration of the 17 1993 rulemaking. 18 Ad you can see that our forecast has these 19 waves in it, which are replacement cycles. Since there 20 were a lot of purchases here, roughly 20 years later, 21 you see a big wave of replacement, and then again. But 22 it's a long-term forecast and it does not try to take 23 account of short-term changes in the economy or 24 business cycles. 25 The other one here that's very jagged is

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(301) 565-0064 392 1 technologywe couldmake itprettier. 2 What you see there on the left is industry 3 reported data. It'sAHAM data about factory shipments 4 for refrigerators in the

## u.s. from about 1930 to the 5 mid-1970's. And lIve hidden the right side. 6 You can see significantvariability. And if 7 I were to task any of.youwith theproblemof, okay, 8 now do the forecast for the next 20 years, lIdbe 9 curious as tohow youwould do that. That's the shoes 10 that I was put in. 11 On the right, there are three sets of data. 12 This line continues as actual shipments as reported. 13 The open triangles are a forecast made byLawrence 14 BerkeleyNational Laboratory. That one was made

-- it 15 starts in 1980 but the forecast was actuallymade, I 16 believe, in 1987 or -8. Itwas inconsiderationof the 17 1993 rulemaking. 18 Ad you can see that our forecast has these 19 waves in it, which are replacement cycles. Since there 20 were a lot ofpurchases here, roughly 20 years later, 21 you see a bigwave of replacement, and then again. But 22 it's a long-term forecast and itdoes not try to take 23 account of short-termchanges in the economy or 24 business cycles. 25 The otheronehere that's very jagged is

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064393 1 testimony offered by someone that AHAM brought to one 2 of the hearings in order to critique our forecast. And 3 they attempted to match the most recent years. You see 4 this stretch right in here. I think they had seven 5 years of data that they matched extremely well, and 6 then they did a forecast off into the future with a 7 seven-year business cycle that went up and down 8 dramatically. 9 The actual data that they had matched up to 10 this point then proceeds on up here. Their forecast 11 went down. If you actually look at the errors in the 12 forecast between the LBL forecast and this one, you'll 13 find that LBL was closer, not right. And the current 14 sales are in the 8.6 million range. So right about 15 here in 1995. So they've continued on up. 16 That's a partial answer to your question 17 about how good the forecasts have been. 18 MR. CRAWFORD: [Off mike.] 19 MR. McMAHON: I'm sorry? Off by 2 to 1?
20 MR. CRAWFORD: Yes. 21 MR. McMAHON: I don't understand what you 22 mean by 2 to 1. 23 MR. BROOKMAN: Jim says incrementally you're 24 off by 2 to 1 and the question is what does that mean. 25 MR. CRAWFORD: If I understood correctly,

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(301) 565-0064 393 1 testimony offeredby someone thatAHAM brought to one 2 of the hearings in order to critique our forecast. And 3 they attempted to match the most recent years. You see 4 this stretch right inhere. I think they had seven 5 years of data that they matched extremely well, and 6 then they did a forecast off into the future with a 7 seven-yearbusiness cycle that went up and down 8 dramatically. 9 The actual data that they hadmatchedup to 10 this point then proceeds onup here. Their forecast 11 went down. If you actually look at the errors in the 12 forecast between the LBL forecast and this one, you'll 13 find that LBL was closer, not right. And the current 14 sales are in the 8.6 million range. So right about 15 here in 1995. So they've continued onup. 16 That's a partial answer to your question 17 about how good the forecasts have been. 18 MR. CRAWFORD: [Offmike.] 19 MR. McMAHON: I'm sorry? Off by 2 to 1? 20 MR. CRAWFORD: Yes. 21 MR. McMAHON: I don't understandwhat you 22 mean by 2 to 1. 23 MR. BROOKMAN: Jim says incrementally you're 24 offby 2 to 1 and the question is what does thatmean. 25 MR. CRAWFORD: If I understood correctly,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064394 1 your triangles there are essentially representative of 2 what has been happening thus far and the more jagged 3 curve is the consultant's estimate. 4 No? Okay. 5 Well, neither one is a reality because 6 they're going out past 2010. So I mean, we have to -- 7 MR. McMAHON: Let me explain. It's a problem 8 -- you have to look very closely at the figures here. 9 The pluses are historical data. That's AHAM 10 information. The X's are a forecast that was prepared 11 for AHAM in 1988 or '89. 12 13 14 MR. RIVEST: By Battelle? MR. McMAHON: By Battelle . Yes. And the open triangles are the LBL forecast 15 that was published in the TSD. So the actual data ends 16 right here. 17 MR. CRAWFORD: Incrementally, you had a 18 fairly severe underestimate at that point, 19 incrementally. 20 MR. McMAHON: We had an underestimate of -- I 21 don't know. Half a million out of 7.5 million. 22 MR. CRAWFORD: No. Out of the increment. Out 23 of the change in the market. It's no great trick to 24 estimate that we're going to sell a lot of appliances 25 next year. The question is how well do you predict the

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(301) 565-0064 394 1 your triangles there are essentiallyrepresentative of 2 what has beenhappening thus far and themore jagged 3 curve is the consultant's estimate. 4 No? Okay. 5 Well, neither one is a realitybecause 6 they're goingout past 2010. So I mean, we have to

-- 7 MR. McMAHON: Let me explain. It's a problem 8

-- youhave to look very closely at the figures here. 9 The pluses are historical data. That'sAHAM 10 information. The XIS are a forecast thatwas prepared 11 for AHAM in 1988 or '89. 12 MR. RIVEST: By Battelle? 13 MR. McMAHON: By Battelle. Yes. 14 And the open triangles are the LBL forecast 15 that was published in the TSD. So the actual data ends 16 right here. 17 MR. CRAWFORD: Incrementally, youhad a 18 fairly severe underestimate at that point, 19 incrementally. 20 MR. McMAHON: We had anunderestimate of

-- I 21 don't know. Half a million out of 7.5 million. 22 MR. CRAWFORD: No. Out of the increment. Out 23 of the change in themarket. It's no great trick to 24 estimate thatwe're going to sell a lot of appliances 25 next year. The question is how well do youpredict the

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064395 1 change from where you are today. And it looks as 2 though you missed the change by 50 percent. 3 Am I wrong? 4 MR. McMAHON: You're wrong in characterizing 5 it that way. We are forecasting the absolute shipments 6 and we're off by about 500,000 out of 7.5 million. 7 MR. JONES: My only point on this one is who 8 cares. I mean, this is debate. Quite frankly, we're 9 not in the business. You're not up for a job, Jim. I 10 hope not with anybody in this room. You seem to be 11 like you're trying to audition for one. 12 This is not -- 13 MR. McMAHON: No, I'm not auditioning for a 14 job. I have a job. 15 MR. JONES: Why do we have to bother 16 defending your predictions.
17 MR. BROOKMAN: Let's then move on. 18 MR. McMAHON: I'm not defending my 19 prediction. Jim asked a question. Has anyone compared 20 the forecast to the actual shipments. This is an 21 answer to that question. Very direct. 22 MR. BROOKMAN: Thank you for answering the 23 question. 24 Are there any other questions that relate to 25 shipments, which is where we are at the moment before

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(301) 565-0064 

### 395 1 change from where you are today. And itlooks as 2 though youmissed the changeby 50 percent. 3 Am I wrong? 4 

### MR. McMAHON: You'rewrong incharacterizing 5 it thatway. We are forecasting the absolute shipments 6 andwe're offby about 500,000 outof 7.5 million. 7 

### MR. JONES: My onlypoint on this one iswho 8 cares. I mean, this is debate. Quite frankly, we're 9 not in the business. You're not up for a job, Jim. I 10 hope notwith anybody in this room. You seemtobe 11 like you're trying to audition for one. 12 This is not 13 MR. McMAHON: No, I'mnot auditioning for a 1 4 job. I have a job. 15 MR. JONES: Why dowe have tobother 16 defendingyourpredictions. 17 MR. BROOKMAN: Let's then move on. 18 

### MR. McMAHON: I'mnot defendingmy 19 prediction. Jimasked a question. Has anyone compared 20 the forecast to the actual shipments. This is an 21 answer to thatquestion. Very direct. 22 MR. BROOKMAN: Thankyou for answering the 23 question. 24 Are there any otherquestions that relate to 25 shipments, which is where we are at themoment before

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064396 1 we go to break. 2 No other questions related to shipments? 3 Mike, have we covered the shipments portion 4 adequately? 5 We did. 6 Yes? 7 MR. MORRIS: I have one brief question. 8 MR. BROOKMAN: Yes, yes. 9 MR. MORRIS: This is Wayne Morris. 10 I assume by shipments you're talking about 11 domestic net. That is, essentially you're looking at 12 shipments of the manufacturers, less exports, including 13 imports. Is that essentially what it is?
14 MR. McMAHON: That's correct. 15 MR. BROOKMAN: Final questions? 16 (No response.) 17 I see none. 18 Let's take a break. It's now 2:30. We'll 19 start up at quarter 'til 3:00. We're going to try and 20 finish off today talking about non-model impact 21 evaluation and then we're going to take up the issue of 22 whether we should have a working group or not, and the 23 shape of it. 24 (Whereupon, a recess was taken.) 25 MR. BROOKMAN: Okay. If you could start

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### 396 1 we go tobreak. 2 No otherquestions related to shipments? 3 Mike, have we covered the shipments portion 4 adequately? 5 We did. 6 Yes? 7 

### MR. MORRIS: I have onebriefquestion. 8 

### MR. BROOKMAN: Yes, yes. 9 

### MR. MORRIS: This isWayne Morris. 10 I assumeby shipments you're talking about 11 domestic net. That is, essentially you're looking at 12 shipments of the manufacturers, less exports, including 13 imports. Is that essentiallywhat it is? 14 MR. McMAHON: That's correct. 15 MR. BROOKMAN: Final questions? 16 (No response.) 17 

### I see none. 18 

### Let's take a break. It's now 2:30. We'll 19 start up at quarter 'til 3:00. We're goingto try and 20 finish off today talking about non-model impact 21 evaluation and thenwe're going to takeup the issue of 22 whetherwe shouldhave a working group ornot, and the 23 shape of it. 24 25 (Whereupon, a recess was taken.) MR. BROOKMAN: Okay. Ifyou could start

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064397 1 taking your seats. 2 (Pause.) 3 Okay. Let's begin. 4 We're going to wait just two minutes. Mike 5 Rivest is going to kick off our last segment, which is 6 non-model impact evaluation. 7 (Pause.) 8 Thanks for being patient, everybody. You all 9 are hanging in there great. This is pretty dense 10 material. 11 MR. RIVEST: Hi, again. 12 I'd like to move on to looking at some of the 13 other impacts that the Department has committed to 14 considering. A lot f them-- I call this session the 15 non-model impact evaluation. I'm not excluding the 16 fact that some of these impacts may be derived through 17 some of the analytical tools. But what I d like to 18 focus on in this section is more the interviewing 19 process and trying to assess some of the more 20 qualitative impacts, things that really need one-on-one 21 interaction to try to arrive at a solution or an 22 answer. 23 I divided this section into five groups. I'd 24 like to start by talking about how we go about 25 gathering information and in the context of trying to

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(301) 565-0064 397 1 taking your seats. 2 (Pause.) 3 Okay. Let's begin. 

### 4 We're going to wait just twominutes. Mike 5 Rivest is going to kick off our last segment, which is 6 non-model impact evaluation. 7 (Pause.) 8 Thanks for beingpatient, everybody. You all 9 are hanging in there great. This is pretty dense 10 material. 1 1 MR. RIVEST: Hi, again. 12 I'd like to move on to looking at some of the 13 other impacts that the Departmenthas committed to 14 considering. Alot f them-- I call this session the 15 non-model impact evaluation. I'mnot excluding the 16 fact that some of these impacts may be derived through 17 some of the analytical tools. But what I'dlike to 18 focus on in this section is more the interviewing 19 process and trying to assess some of the more 20 qualitative impacts, things that really need one-on-one 21 interaction to try to arrive at a solutionor an 22 answer. 23 I divided this**s~ction** into five groups. I'd 24 like to startby talking about how we go about 25 gathering information and in the context of trying to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064398 1 get information about competitive impacts, 2 manufacturing capacity, impacts on existing 3 manufacturing assets, employment impacts and cumulative 4 impacts. 5 The starting point and -- DOJ is gone.

MR. BROOKMAN: Got out while the getting was

MR. RIVEST: I think he wanted to make sure 9 we didn't ask him any questions about his methodology. 10 DOE proposes to gather greater public input 11 through interviews and surveys. I put down that all 12 stages of the manufacturing impact analysis. It may 13 not be necessary to have interviews at Phase 1 or Phase 14 2, for example, but certainly at Phase 3 it will be 15 critical that we have very good interaction. 16 We'll be developing surveys with the help of 17 DOJ and these will be used to solicit information from 18 both manufacturers and other interested parties. 19 The contents of the surveys and the list of 20 interviewees will be publicly vetted prior to 21 initiating the interview process. We were able to 22 flesh out this interview process primarily through our 23 experience with the ballast industry. So what I'm 24 describing here is something that we've already tried 25 out and I believe it's been successful to an extent.

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(301) 565-0064 398 1 get information about competitive impacts, 2 manufacturing capacity, impacts on existing 3 manufacturing assets, employment impacts and cumulative 4 impacts. 5 The startingpoint and

-- DOJ is gone. 6 MR. BROOKMAN: Got outwhile the gettingwas 7 good. 8 MR. RIVEST: I thinkhe wanted tomake sure 9 we didn't ask him any questions about his methodology. 10 DOE proposes to gather greaterpublic input 11 through interviews and surveys. I putdown that all 12 stages of the manufacturing impact analysis. Itmay 13 not be necessary to have interviews at Phase 1 orPhase 14 2, for example, but certainly at Phase 3 itwill be 15 critical that we have very good interaction. 16 We'll be developing surveys with the help of 17 DOJ and these will beused to solicit information from 18 bothmanufacturers and other interestedparties. 19 The contents of the surveys and the list of 20 interviewees will bepublicly vettedprior to 21 initiating the interviewprocess. We were able to 22 flesh out this interviewprocess primarily through our 23 experience with the ballast industry. Sowhat I'm 24 describinghere is something that we've already tried 25 out and I believe it'sbeen successful to an extent.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064399 1 MR. SPINNEY: And when you get to the end of 2 this segment, why don't you let me add the benefits. 3 MR. RIVEST: Great. Let's do that. Yes. 4 So what we did is we collaborated. We 5 identified what we thought were the issues. We 6 prepared a survey. We sat down with the trade 7 association and manufacturers and a few of the other 8 interested parties and we made sure that we were 9 covering the important issues. 10 It wasn't meant to constrain the interviews 11 to those specific topics but those are the ones we felt 12 we had already identified and we thought we needed to 13 get input on. 14 The list of people being interviewed, we'd 15 like to make it part of the process that those people 16 would be identified in advance and there'd be 17 opportunity for people to be added to the interview 18 list. 19 The interviews would be scheduled well in 20 advance. We want to be as inclusive as possible and 21 give people the opportunity to participate. And the 22 type of information we'd try to be gathering -- and 23 this is very dependent on what phase of the analysis 24 we're involved in, but certainly at the subgroup 25 analysis we'd be interested in trying to understand the

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(301) 565-0064 399 1 MR. SPINNEY: And when you get to the end of 2 this segment, why don't you letme add thebenefits. 3 MR. RIVEST: Great. Let's do that. Yes. 4 Sowhatwe did is we collaborated. We 5 identifiedwhat we thought were the issues. We 6 prepared a survey. We sat down with the trade 7 association and manufacturers and a few of the other 8 interestedparties andwe made sure thatwe were 9 covering the important issues. 10 Itwasn't meant to constrain the interviews 11 to those specific topics but those are the ones we felt 12 we had already identified and we thoughtwe needed to 13 get input on. 14 The list of people being interviewed, we'd 15 like tomake itpart of the process that those people 16 would be identified in advance and there'dbe 17 opportunity for people to be added to the interview 18 list. 19 The interviews would be scheduledwell in 20 advance. We want tobe as inclusive as possible and 21 give people the opportunity to participate. And the 22 type of informationwe'd try tobe gathering

-- and 23 this is very dependent on what phase of the analysis 24 we're involved in, but certainly at the subgroup 25 analysis we'dbe interested in trying to understand the

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064400 1 specific costs and capital assets that they have and 2 the impacts of regulation on those subgroup or firm 3 specific characteristics. 4 We'd like to try to understand how the 5 standards might impact pricing and their shipments. 6 And looking at the ballast industry was really helpful 7 to see how rich in nuances you can get because there 8 were a lot of interactions which we probably couldn't 9 understand unless you speak to people. 10 Direct employment and industry competitive 11 and other issues, we'd like to go through during the 12 interviews. 13 One feature that we developed was we were 14 trying to gather what we recognized to be a lot of 15 confidential information, and we wanted to be able to 16 do it in such a way that people would feel free to 17 speak and try to get as much relevant information as 18 possible to arrive at good policy decisions. 19 The way we developed it is that we conducted 20 the interviews and we wrote up a summary of the 21 interview. The Department did. And we sent back that 22 summary to the party that was interviews and we asked 23 them to validate that that's indeed the discussion that 24 was held. And at the same time, we wanted to give them 25 an opportunity to identify any areas of the interview

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(301) 565-0064 400 1 specific costs and capital assets that they have and 2 the impacts of regulation on those subgroup or firm 3 specific characteristics. 4 We'd like to try to understandhow the 5 standards might impact pricing and their shipments. 6 And looking at the ballast industry was really helpful 7 to see how rich innuances you can get because there 8 were a lot of interactions whichwe probably couldn't 9 understand unless you speak to people. 10 Direct employment and industry competitive 11 and other issues, we'd like to go through during the 12 interviews. 13 One feature that we developedwas we were 14 trying to gather what we recognized tobe a lot of 15 confidential information, and we wanted tobe able to 16 do it in such a way that people would feel free to 17 speak and try to get as much relevant information as 18 possible to arrive at good policy decisions. 19 The way we developed it is that we conducted 20 the interviews andwe wrote up a summary of the 21 interview. The Department did. And we sent back that 22 summary to the party that was interviews and we asked 23 them to validate that that's indeed the discussion that 24 was held. And at the same time, we wanted to give them 25 an opportunity to identify any areas of the interview

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064401 1 that they considered touched on very confidential 2 information. 3 And once identified, those would be taken out 4 of the interview summary that would be put into the 5 public record. It would stay within DOE. And the type 6 of information could be either aggregated in some cases 7 or simply considered. 8 The complete interview summaries were 9 collated and made available to all parties. And of 10 course, the interview process, one of the big 11 strengths, that a lot of issues that we didn't know 12 existed were brought to light. 13 VOICE: Once this information becomes part of 14 the government's information base and it's not 15 classified under any of the National Security fields, 16 is it not FOIA-able? MR. RIVEST: Would you care to comment on

MR. LEVY: This is Ed Levy, Office of General 20 Counsel, DOE. 21 There is the exemption of FOIA, which 22 pertains to trade secrets. It's not something I've 23 dealt with in a while but I believe it's designed to 24 address this type of information. So just because 25 something comes into the possession of the government

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(301) 565-0064 

### 401 1 that they considered touched on very confidential 2 information. 3 And once identified, those wouldbe takenout 4 of the interview summary thatwouldbeput into the 5 public record. Itwould staywithinDOE. And the type 6 of information couldbe either aggregated in some cases 7 or simply considered. 8 The complete interview summarieswere 9 collatedandmade available to allparties. And of 10 course, the interviewprocess, one of thebig 11 strengths, that a lotof issues thatwe didn'tknow 12 existedwere brought to light. 13 VOICE: Once this informationbecomes partof 14 the government's informationbase and it'snot 15 classifiedunder any of the National Security fields, 16 is it not FOIA-able? 17 

### MR. RIVEST: Wouldyou care to comment on 18 that? 19 

### MR. LEVY: This isEdLevy, OfficeofGeneral 20 Counsel, DOE. 21 There is the exemptionofFOIA, which 22 pertains to trade secrets. It'snot something I've 23 dealtwith in a while but I believe it'sdesigned to 24 address this type of information. Sojustbecause 25 something comes into the possessionof the government

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064402 1 doesn't mean that it's automatically public 2 information. 3 And then there is actually -- I believe a 4 statute that imposes criminal penalties for disclosure 5 of certain protected types of information by the 6 government. So there are vehicles to deal with this. 7 And I think the Department has a procedure by which any 8 information provided to it that a firm believes is 9 confidential can be identified as such andthe 10 Department can then address that request. 11 12 13 That's as far as I can go at this point. MR. BROOKMAN: Thank you. Are you finished with your slide, Mike? 14 MR. RIVEST: No. I've finished with this 15 one. MR. WISBEY: Bob Wisbey, Advanced 16 Transformer. 17 As somebody that's gone through one of these 18 interviews, I think possibly maybe the first one of the 19 process, as one of the guinea pigs, I just want to say 20 that we were very much in favor of this process. We 21 continue to be very much in favor of this process. We 22 thought the interviews and the opportunity to present 23 the information and so on and so forth was conducted in 24 a very excellent and professional manner. 25 And we had an opportunity to make all the

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(301) 565-0064 402 1 doesn't mean that it's automatically public 2 information. 3 And then there is actually

-- I believe a 4 statute that imposes criminal penalties for disclosure 5 of certainprotected types of informationby the 6 government. So there are vehicles todeal with this. 7 And I think the Department has a procedure by which any 8 informationprovidedto it that a firmbelieves is 9 confidential canbe identified as such and the 10 Department can then address that request. 11 That's as far as I cango at this point. 12 MR. BROOKMAN: Thank you. 13 Are you finished with your slide, Mike? 14 MR. RIVEST: No. I've finished with this 15 one. MR. WISBEY: BobWisbey, Advanced 16 Transformer. 17 As somebody that's gone through one of these 18 interviews, I thinkpossiblymaybe the first one of the 19 process, as one of the guineapigs, I justwant to say 20 thatwe were verymuch in favor of this process. We 21 continue tobe verymuch in favor of this process. We 22 thought the interviews and the opportunity to present 23 the information and so on and so forth was conducted in 24 a very excellent andprofessionalmanner. 25 And we had an opportunity tomake all the

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1 points that we'd like to make and provide all the 2 information that we would like to make, a fairly large 3 contingent, which included Mike and Isaac Turiel and
4 Balducci, who's sitting in the back, I think, and
5 several others participated in the interview at our 6 place. We took them on a detailed tour of our factory
7 and so forth. 8 I consider is just a very positive experience 9 in the overall process. In fact, as I indicated this 10 morning, I'm a very strong believer in the 11 manufacturing impact analysis being done on a
12 qualitative basis with this kind of information, as 13 opposed to trying to do the detailed cash flow analysis
14 and so on and so forth that are just so subject to 15 error based on the accuracy of the estimates. 16 We had, interestingly enough, as it indicates 17 up there in the second bullet, we were given the 18 opportunity to review the interview summary before it 19 became a part of the public record. In our case, the 20 DOE staff and contractors did such a good job that I 21 did not touch it. I did not make or suggest any 22 changes whatsoever in the summary of interview that had 23 been provided. 24 There was always the consideration of 25 confidential information. We did not in our case

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(301) 565-0064 403 1 points that we'd like tomake andprovide all the 2 information thatwe would like tomake, a fairly large 3 contingent, which includedMike and Isaac Turiel and 4 Balducci, who's sitting in theback, I think, and 5 several others participated in the interview at our 6 place. We took them on a detailed tourof our factory 7 and so forth. 8 I consider is just a very positive experience 9 in the overall process. In fact, as I indicated this 10 morning, I'm a very strongbeliever in the 11 manufacturing impact analysis being done on a 12 qualitative basis with this kind of information, as 13 opposed to trying to do the detailed cash flow analysis 14 and so on and so forth that are just so subject to 15 error based on the accuracy of the estimates. 16 We had, interestingly enough, as it indicates 17 up there in the secondbullet, we were given the 18 opportunity to review the interview summarybefore it 19 became a part of the public record. In our case, the 20 DOE staff and contractors did such a goodjob that I 21 did not touch it. I did not make or suggest any 22 changes whatsoever in the summary of interviewthathad 23 beenprovided. 24 There was always the considerationof 25 confidential information. We didnot inour case

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064404 1 provide anything that we really considered confidential 2 information. We spoke about things that would be 3 considered really confidential a little bit in 4 generalities, and I guess there's probably a little 5 judgment in everybody's own case as to what they 6 consider confidential or how confidential they consider 7 it. 8 The situation, one of the reasons why it was 9 a very useful thing, I think, in the case of the 10 ballasts, is that our product line and the product line 11 that's under consideration for further regulation is 12 possibly a little different than many of the other 13 appliances from the standpoint that really the proposed 14 or potential regulations would convert the industry 15 from being transformer manufacturers to being 16 essentially consumer electronics manufacturers. And 17 so, a total change in the concept and so forth of 18 what's done. 19 And also, brings into play new participants 20 in the industry and potentially leaves out existing 21 participants in the industry. And I don't know how to 22 even begin to handle those variables quantitatively. 23 And so, again, I think the qualitative approach is much 24 better.
25 MR. BROOKMAN: Follow-on comment or two?

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(301) 565-0064 404 1 provide anything thatwe really consideredconfidential 2 information. We spoke about things thatwouldbe 3 considered really confidential a littlebit in 

### 4 generalities, and I guess there's probably a little 5 judgment in everybody's own case as towhat they 6 consider confidential orhow confidential they consider 7 it. 8 The situation, one of the reasons why itwas 9 a very useful thing, I think, in the case of the 10 ballasts, is that ourproduct line and the product line 11 that's under consideration for further regulation is 12 possibly a littledifferent thanmany of the other 13 appliances from the standpoint that really the proposed 14 orpotential regulations would convert the industry 15 from being transformermanufacturers tobeing 16 essentially consumer electronicsmanufacturers. And 17 so, a total change in the concept and so forth of 18 what's done. 19 And also, brings intoplaynewparticipants 20 in the industry andpotentially leaves out existing 21 participants in the industry. And I don'tknowhow to 22 evenbegin to handle those variables quantitatively. 23 And so, again, I think the qualitative approach is much 24 better. 25 MR. BROOKMAN: Follow-oncomment or two?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064405 1 Yes. 2 MS. KLUMPP: In light of the comments you 3 made, Bob, I think I would be a lot more comfortable if 4 I understood why all this information was confidential 5 and what portion perhaps needed to remain confidential 6 and what portions don't. 7 I'm not really sure what's being collected 8 through this particular component of the process, but, 9 you know, some of us are going to be looking at just a 10 number as a result and not know anything that was 11 behind that number. And my guess is, from comments 12 like yours, that some of that information is fine to 13 share. 14 And so I'd like to see DOE do a little 15 further refinement on what can be public. 16 MR. GOLDSTEIN: I'm David Goldstein. 17 John Wilson, who had to leave early to catch 18 a plane, asked me to express the following viewpoint 19 for him. 20 He was quite concerned about the confidential 21 information sections on this slide in terms of how DOE 22 would rely on them, particularly in terms of 23 competitive information. That it would be very easy, I 24 think was his point of view -- you can check in more 25 detail with him -- for some company to make some

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(301) 565-0064 405 1 Yes. 2 MS. KLUMPP: In lightof the comments you 3 made, Bob, I think I wouldbe a lot more comfortable if 4 I understoodwhy all this informationwas confidential 5 and what portionperhaps needed toremain confidential 6 andwhat portions don't. 7 I'mnot really surewhat's being collected 8 through this particular component of theprocess, but, 9 youknow, some ofus are going tobe looking atjust a 10 number as a result and not know anything that was 11 behind that number. And my guess is, from comments 12 like yours, that some of that information is fine to 13 share. 14 And so I'd like to seeDOE do a little 15 further refinement onwhat canbe public. 16 MR. GOLDSTEIN: I'mDavid Goldstein. 17 JohnWilson, who had to leave early to catch 18 a plane, askedme to express the following viewpoint 19 for him. 20 He was quite concerned about the confidential 21 information sections on this slide in terms of howDOE 22 would rely on them, particularly in terms of 23 competitive information. That itwouldbe very easy, I 24 thinkwas his point ofview you can check inmore 25 detail with him

-- for some company tomake some

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064406 1 confidential statements about anti-competitive impacts 2 of a standard without anyone being able to follow-up 3 and see whether they're correct. 4 I've heard your presentation. I'm a little 5 bit personally less concerned than that because of the 6 way you've described this in the context of the 7 interview. That is, there may be some reasons why 8 collecting confidential information is a good thing to 9 do, but I'm equally concerned about how that might be 10 used. 11 From my point of view, confidential 12 information is the ultimate black box. There's no way 13 for other stakeholders to vet the information, see if 14 the analysis is right, see even if the numbers are 15 right. So my concerns would relate to what kind of use 16 DOE makes of confidential information after it's 17 gathered. 18 MR. BROOKMAN: Bob, you want to respond 19 first? 20 MR. WISBEY: Yes. Bob Wisbey, again. 21 I think in almost everybody's case, what's 22 confidential is numbers; cost, prices, number of units 23 built, number of units shipped. Those things are 24 confidential. And none of us in a manufacturing 25 company are willing to provide that information on

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(301 ) 565-0064 406 1 confidential statements about anti-competitive impacts 2 of a standardwithout anyone being able to follow-up 3 and seewhether they're correct. 4 I've heard your presentation. I'ma little 5 bitpersonally less concerned than thatbecause of the 6 way you've described this in the context of the 7 interview. That is, there may be some reasons why 8 collecting confidential information is a good thing to 9 do, but I'm equally concerned about how thatmightbe 10 used. 11 Frommy point of view, confidential 12 information is the ultimate blackbox. There's noway 13 for other stakeholders to vet the information, see if 14 the analysis is right, see even if the numbers are 15 right. Somy concerns would relate towhatkind ofuse 16 DOE makes of confidential information after it's 1 7 gathered

. 18 MR. BROOKMAN: Bob, youwant torespond 19 first? 20 MR. WISBEY: Yes. BobWisbey, again. 21 I think in almost everybody's case, what's 22 confidential is numbers; cost, prices, number of units 23 built, number of units shipped. Those things are 24 confidential. And none of us in a manufacturing 25 company are willing to provide that information on

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1 anything other than a confidential basis. 2 On the other hand, I think we had a very 3 fruitful interview. And as I say, I led the conducting 4 of the interview, if you will, on behalf of our
5 company, and I think we provided an adequate response 6 to all of the questions and all the information
7 required without in fact divulging any confidential 8 information. 9 At this point in time, many people have 10 already seen it. Within at least those involved in the 11 ballast workshop next week, the results of our 12 interview are public information or public knowledge at 13 that point. There is no information marked 14 confidential on our particular interview. But I was 15 fairly careful to specifically not divulge specific 16 numbers that I would consider confidential either.
17 MR. RIVEST: Well, having visited several 18 people, people have different levels of tolerance as to 19 what's confidential. Bob's is quite liberal, frankly. 20 Having visited some plants, I can tell you how many 21 ballasts leave the production line an hour, how the 22 plants are configured, how many people work in there. 23 I don't think anybody would even let me 24 through the door if I were to divulge that kind of 25 information. How it can be used, though, it can be

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(301 ) 565-0064 407 1 anything other than a confidentialbasis. 2 On the otherhand, I thinkwe had a very 3 fruitful interview. And as I say, I led the conducting 4 of the interview, ifyou will, onbehalf of our 5 company, and I thinkwe provided an adequate response 6 to all of the questions and all the information 7 requiredwithout in fact divulging any confidential 8 information. 9 At this point in time, many peoplehave 10 already seen it. Within at least those involved in the 11 ballastworkshopnext week, the results of our 12 interview are public informationor publicknowledge at 13 that point. There is no informationmarked 14 confidential on ourparticular interview. But I was 15 fairly careful to specifically not divulge specific 16 numbers that I would consider confidential either. 17 MR. RIVEST: Well, having visited several 18 people, peoplehave different levels of tolerance as to 19 what's confidential. Bob's is quite liberal, frankly. 20 Having visited some plants, I can tell youhowmany 21 ballasts leave the production line anhour, how the 22 plants are configured, howmany peoplework in there. 23 I don't think anybody would even letme 24 through the door if I were to divulge thatkind of 25 information. How itcanbe used, though, itcanbe

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064408 1 aggregated. We can say that we saw X number of people 2 working in the magnetic ballast industry. That doesn't 3 say which plant produces how many ballasts. But a lot
4 of very valuable information to arrive at answers to
5 the employment impacts, for example. 6 So, it will be used strictly in the context
7 of answering questions. I don't see how we can get 8 cooperation without some assurance. 9 MR. BROOKMAN: I especially appreciate your 10 comments, Bob. That's helpful. 11 It strikes me that the Department of Energy 12 is once again in this balancing act where it's trying 13 to gather the most information possible and not hurt 14 any of the parties and still make some of these 15 difficult judgments. 16 MR. McCABE: As a follow-up to that -- this
17 is Michael McCabe. One of the parts of the analysis or 18 process that is being changed is that prior to 19 publishing a proposed rule, for example, the data by 20 which that proposal is based will have been vetted 21 beforehand, so that the decision that will be made as 22 far as the proposal in all likelihood will be fairly 23 transparent. 24 So that if confidential information, as 25 somebody articulated, may drive a decision the way that

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(301) 565-0064 408 1 aggregated. We can say that we sawXnumber ofpeople 2 working in themagnetic ballast industry. That doesn't 3 saywhich plant produces how many ballasts. But a lot 4 of very valuable information to arrive at answers to 5 the employment impacts, for example. 6 So, itwill be used strictly in the context 7 of answeringquestions. I don't seehowwe can get 8 cooperationwithout some assurance. 9 MR. BROOKMAN: I especially appreciate your 10 comments, Bob. That's helpful. 11 It strikesme that the Department ofEnergy 12 is once again in this balancing actwhere it's trying 13 to gather themost informationpossible and not hurt 14 any of the parties and stillmake some of these 15 difficult jUdgments. 16 MR. McCABE: As a follow-up to that

-- this 17 isMichaelMcCabe. One of the parts of the analysis or 18 process that is being changed is thatprior to 19 publishing a proposed rule, for example, the databy 20 which that proposal is basedwill have beenvetted 21 beforehand, so that the decision that will be made as 22 far as the proposal in all likelihoodwillbe fairly 23 transparent. 24 So that if confidential information, as 25 somebody articulated, may drive a decision the way that

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064409 1. others would disagree with, I think that having the 2 analysis in the public record before the proposed 3 action is taken, that that will give some signals that 4 parties can respond to it before the proposal or the 5 final rule goes out. 6 MR. RIVEST: Want to move on?
MR. BROOKMAN: Yes. MR. RIVEST: Moving on to competitive

We saw earlier that the legislation directs 11 the Attorney General to make a determination as to the 12 likely anti-competitive effects of standards. As it 13 was described to us, the Manufacturing Impact Work 14 Team, when we visited with the Department of Justice, 15 it was summarized that their analysis really consisted 16 in answering a few questions. 17 The first question is is the standard likely 18 to reduce the number of competitors. When they do a 19 merger investigation, that question is, of course, so 20 they move on right to question number two. But when 21 they look at the standards program, the first question 22 to answer is is it likely that the number of 23 competitors will change. 24 And they have several methods of calculating 25 industry concentration, one of them being the

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### 1. others would disagree with, I think thathaving the 2 analysis in the public record before the proposed 3 action is taken, that that will give some signals that 4 parties canrespond to itbefore the proposal or the 5 final rule goes out. 6 MR. RIVEST: want tomove on? 7 MR. BROOKMAN: Yes. 8 MR. RIVEST: Moving on to competitive 9 impacts. 10 We sawearlier that the legislationdirects 11 theAttorney General tomake a determination as to the 12 likely anti-competitive effects of standards. As it 13 was described tous, theManufacturing Impact Work 14 Team, whenwe visitedwith the Department ofJustice, 15 itwas summarized that th€iranalysis really consisted 16 in answering a few questions. 17 The first question is is the standard likely 18 to reduce the number of competitors. When they do a 19 merger investigation, that question is, of course, so 20 theymove onright to questionnumber two. Butwhen 21 they look at the standards program, the first question 22 to answer is is it likely that the number of 23 competitors will change. 24 And they have several methods of calculating 25 industry concentration, one of thembeing the

EXECUTIVE COURT REPORTERS, INC. (301) 565-006441 0 1 Herfindahl Index. 2 And finally, if there will be fewer 3 manufacturers, will that matter to the consumer? And 4 here the question is is it possible that standards will 5 enhance market power and give the seller the ability to 6 profitably maintain prices above a competitive level 7 for significant periods of time, thereby resulting in a 8 transfer of wealth. 9 So the issue is will consumers be negatively 10 impacted. But to answer the second question in our 11 context, we have to go back and answer the first. 12 MS. KLUMPP: Liz Klumpp, Washington state. 13 I've got a question on this that I address to 14 the fellow from DOE also, and that is, is DOJ and DOE's 15 role on this particular question of competitiveness 16 sort of a status quo what we have? We're concerned 17 about being less competitive than we may be today? Or 18 are they also interested in the possibilities for 19 increasing competitiveness? 20 We've experienced a few manufacturers who are 21 perhaps manufacturing in Europe at this point but were 22 interested in opening up plants in the states and 23 didn't think the market was ready. But if we'd had a 24 different standard that their product would have fit, 25 they may have come to the country.

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### 410 1 Herfindahl Index. 2 And finally, if there willbe fewer 3 manufacturers, will thatmatter to the consumer? And 4 here the question is is itpossible that standardswill 5 enhancemarketpower andgive the sellerthe ability to 6 profitablymaintainprices above a competitive level 7 for significantperiods of time, thereby resulting in a 8 transferofwealth. 9 So the issue is will consumers benegatively 10 impacted. But to answer the second question inour 11 context, we have to goback and answer the first. 12 MS. KLUMPP: Liz Klumpp, Washington state. 13 I've got a question on this that I address to 14 the fellow from DOE also, and that is, isDOJ andDOE's 15 role on this particularquestionof competitiveness 16 sortof a status quowhat we have? We're concerned 17 about being less competitive thanwe may be today? Or 18 are they also interested in the possibilities for 19 increasingcompetitiveness? 20 We've experienced a few manufacturers who are 21 perhaps manufacturing inEurope at this pointbutwere 22 interested inopeningupplants in the states and 23 didn't think themarket was ready. But ifwe'dhad a 24 different standard that theirproductwouldhave fit, 25 theymay have come to the country.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064411 1 And so I'm wondering are both questions 2 relevant in this analysis? Is it a benefit if we're 3 increasing competition or is it just a detriment if 4 we're decreasing it?

MR. RIVEST: I'm looking at Joe Mattingly

8 9 10 11 Joe, do you want to -- MR. McCABE: This is Michael McCabe. MR. RIVEST: Do you want to give it to Joe? MR. McCABE: Let's work it. As I understand it, the Department of 12 Justice, their focus is competition period. That if 13 they see that there is likely to be no change in 14 competition or an increase, I believe they would 15 terminate their investigation and give us a very 16 summary statement. 17 We have not seen anything like that to date. 18 Our economic impact on manufacturers analysis that 19 we're performing looking at the increase in cost, the 20 investment required, does not capture that. It would 21 be data or information that would come from outside of 22 the analysis, as far as a commitment from foreign 23 manufacturers or others that they are interested in the 24 market and they would be so if these situations exist. 25 I don't recall any such articulations have

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(301) 565-0064 411 1 And so I'mwondering arebothquestions 2 relevant in this analysis? Is it a benefit ifwe're 3 increasing competition or is itjust a detriment if 4 we're decreasing it? 5 MR. RIVEST: I'm looking atJoe Mattingly 6 here. 7 Joe, do youwant to

-- 8 MR. McCABE: This isMichaelMcCabe. 9 MR. RIVEST: Do youwant to give it toJoe? 10 MR. McCABE: Let'swork it. 1 1 As I understand it, the Department of 12 Justice, their focus is competitionperiod. That if 13 they see that there is likely tobe no change in 14 competition or an increase, I believe they would 15 terminate their investigation andgive us a very 16 summary statement. 17 We have not seen anything like that to date. 18 Our economic impact onmanufacturers analysis that 19 we're performing looking at the increase in cost, the 20 investment required, does not capture that. Itwould 21 be data or information thatwould come from outside of 22 the analysis, as far as a commitment from foreign 23 manufacturers or others that they are interested in the 24 market and they wouldbe so if these situations exist. 25 I don't recall any such articulationshave

EXECUTIVE COURT REPORTERS, INC. (301) 565-006441 2 1 been made in the past. 2 MS. KLUMPP: [Off mike.] 3 MR. McCABE: Yes. I think that would be. It 4 would be useful and relevant to the rulemaking record 5 if such information is available on the increase in 6 competition to be able to provide that for the record 7 consideration. 8 9 Goldstein. 10 Glenn Schleede had a question and David

MR. MATTINGLY: I had a follow-up.
11 MR. McCABE: Yes. Joe. 12 MR. MATTINGLY: Joe Mattingly from GAMA. 13 The antitrust enforcement agencies often say 14 that the antitrust laws protect competition, not 15 competitors. So, if as a result of a standard, new 16 standards, if the Justice Department makes an 17 assessment that in fact although some domestic 18 competitors may drop out of the market nevertheless 19 entry barriers remain, are relatively low, and in fact 20 it's projected that some European manufacturers would 21 actually come into the market, and if there's no net 22 projected loss of competition, then it doesn't matter 23 to the Justice Department that a couple of American 24 competitors have gone out of business from a 25 competition analysis standpoint.

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(301) 565-0064 412 1 beenmade in the past. 2 MS. KLUMPP: [Off mike.] 3 MR. McCABE: Yes. I think thatwouldbe. It 4 would be useful and relevant to the rulemaking record 5 if such information is available on the increase in 6 competition tobe able toprovide that for the record 7 consideration. 8 Glenn Schleedehad a question andDavid 9 Goldstein. 10 MR. MATTINGLY: I had a follow-up. 1 1 MR. McCABE: Yes. Joe. 12 MR. MATTINGLY: Joe Mattingly from GAMA. 13 The antitrust enforcement agencies often say 14 that the antitrust laws protect competition, not 15 competitors. So, if as a result of a standard, new 16 standards, if the Justice Departmentmakes an 17 assessment that in fact although some domestic 18 competitorsmay drop out of the market nevertheless 19 entry barriers remain, are relatively low, and in fact 20 it's projected that some Europeanmanufacturers would 21 actually come into themarket, and if there's no net 22 projected loss of**~ompetition,** then itdoesn't matter 23 to theJustice Department that a couple ofAmerican 24 competitors have gone out ofbusiness from a 25 competition analysis standpoint.

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1 MR. SCHLEEDE: Glenn Schleede. 2 Just a question, a clarification, on this 3 slide. Do I understand this correctly that if there's 4 no change in the index towards more concentration, then 5 the second question isn't even addressed? That's a 6 threshold question that's -- they don't even get to 7 number two unless there's a higher concentration? 8 MR. RIVEST: That's a literal quote, so -- 9 I'm sorry he's not here. 10 MR. SCHLEEDE: Number two starts out, "and if 11 yes, does it mater to the customer," which sounds like 12 if the answer to one is no, then they don't even look 13 at number two. MR. RIVEST: That's how I interpret it, as

MR. SCHLEEDE: That's pretty side. 17 MR. RIVEST: And I think that actually is 18 Joe's comment about protecting competition, not 19 competitiveness. 20 MR. GOLDSTEIN: This is David Goldstein. 21 I think it's important that this analysis 22 that DOE is doing, which, as you said, goes beyond the 23 minimum required in the law, is not biased towards the 24 status quo. I can see a scenario working out in which 25 a given standard doesn't look good because

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(301) 565-0064 413 1 MR. SCHLEEDE: Glenn Schleede. 2 Just a question, a clarification, on this 3 slide. Do I understand this correctly that ifthere's 4 no change in the index towards more concentration, then 5 the second question isn't even addressed? That's a 6 threshold question that's

-- they don't evenget to 7 number two unless there's a higher concentration? 8 MR. RIVEST: That's a literalquote, so 9 I'm sorry he's not here. 10 MR. SCHLEEDE: Number two starts out, "and if 11 yes, does itmater to the customer," which sounds like 12 if the answer to one is no, then they don't even look 13 at number two. 14 MR. RIVEST: That's how I interpret it, as 15 well. 16 MR. SCHLEEDE: That's pretty side. 17 MR. RIVEST: And I think that actually is 18 Joe's comment about protectingcompetition, not 19 competitiveness. 20 MR. GOLDSTEIN: This is DavidGoldstein. 21 I think it's important that this analysis 22 thatDOE is doing, which, as you said, goes beyond the 23 minimumrequired in the law, is not biased towards the 24 status quo. I can see a scenarioworking out inwhich 25 a given standard doesn't look goodbecause

EXECUTIVE COURT REPORTERS, INC. (301) 565-006441 4 1 manufacturers can't pass on their costs to consumers, 2 but it also doesn't look good if they can pass on their 3 costs to consumers because that's what this competition 4 stuff is talking about. It's talking about the ability 5 to pass on costs to consumers. 6 So it seems to me that this analysis -- we're 7 not trying to have a planned economy here. We're 8 trying to have competition, which can mean change. So 9 it's important that if we determine that there is an 10 impact plus or minus on competition and therefore on 11 prices to the consumer, that's considered along with 12 any other price as an equal part of the analysis. 13 In other words, if I've got a standard that 14 saves the consumer $100 and $25 of it is due to 15 manufacturer costs -- $25 of costs are incurred in 16 manufacturer costs, and normally another $25 would be 17 passed on to the consumer, but because of less 18 competition it's $30 that' s passed on to the consumer, 19 I want the DOE analysis to reflect that it's $100 of 20 savings and $55 of costs. 21 And obviously, if the cost is due to less 22 competition are big, that will change the number. But 23 it shouldn't be a case where you say, oh, my god, this 24 could cause concentration; it will raise costs $5; and 25 forget that it's $5 compared to $50 of savings.

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(301) 565-0064 414 1 manufacturers can'tpass on their costs to consumers, 2 but it also doesn't lookgood if they canpass on their 3 costs to consumers because that's what this competition 4 stuff is talking about. It's talking about the ability 5 topass on costs to consumers. 6 So it seems tome that this analysis

-- we're 7 not trying to have a planned economy here. We're 8 trying to have competition, which canmean change. So 9 it's important that ifwe determine that there is an 10 impact plus orminus on competition and therefore on 11 prices to the consumer, that's considered alongwith 12 any otherprice as an equalpartof the analysis. 13 In otherwords, if I've got a standard that 14 saves the consumer $100 and $25 of it is due to 15 manufacturer costs

-- $25 of costs are incurred in 16 manufacturer costs, andnormally another $25 wouldbe 17 passed on to the consumer, butbecause of less 18 competition it's $30 that's passed on to the consumer, 19 I want the DOE analysis to reflect that it's $100 of 20 savings and $55 of costs. 21 And obviously, if the cost is due to less 22 competition are big, that will change the number. But 23 it shouldn'tbe a case where you say, oh, my god, this 24 could cause concentration; itwill raise costs $5; and 25 forget that it's $5 compared to $50 of savings.

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1 MR. McCABE: Michael McCabe. 2 As you've addressed it, David, the 3 legislation talks about the Department weighing a 4 variety of economic impacts, both benefits and costs, 5 and that there is not a threshold test for the impact 6 on competition. As I have looked at this, the 7 legislation expects that there is a possibility that 8 there could be some adverse impact on competition and 9 that has to be weighed with the other impacts in 10 reaching the decision. So it's not an absolute test. 11 MR. RIVEST: What did come out of our 12 discussions with DOJ was that there are only certain 13 parts of the past analysis that was done by DOE that 14 was useful to them. Modeling a prototypical firm, 15 although it might give some indication of the general 16 direction of the industry as a whole, it wasn't useful 17 to try to assess any anti-competitive impacts since 18 even if the industry was better off as a whole, that 19 wasn't a test that any one particular manufacturer 20 might be negatively impacted. 21 So that part of the analysis, for them, was 22 of limited value. However, they did find useful, 23 because it saved them a lot of time, to know who the 24 players were in the industry, trends in consolidation, 25 because apparently this is a type of analysis that they

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(301) 565-0064 415 1 MR. McCABE: Michael McCabe. 2 As you've addressed it, David, the 3 legislation talks about the Department weighing a 4 variety of economic impacts, bothbenefits and costs, 5 and that there is not a threshold test for the impact 6 on competition. As I have looked at this, the 7 legislation expects that there is a possibility that 8 there could be some adverse impact on competition and 9 that has to be weighedwith the other impacts in 10 reaching the decision. So it1s not an absolute test. 11 MR. RIVEST: What did come out of our 12 discussions with DOJ was that there are only certain 13 parts of the past analysis that was done by DOE that 14 was useful to them. Modeling a prototypical firm, 15 although itmight give some indicationof the general 16 direction of the industry as a whole, itwasn't useful 17 to try to assess any anti-competitive impacts since 18 even if the industry was betteroff as a whole, that 19 wasn't a test that anyone particularmanufacturer 20 might be negatively impacted. 21 So that part of the analysis, for them, was 22 of limitedvalue. However, they did find useful, 23 because it saved them a lot of time, toknowwho the 24 players were in the industry, trends in consolidation, 25 because apparently this isa type of analysis that they

EXECUTIVE COURT REPORTERS, INC. (301) 565-006441 6 1 need to do. 2 Looking at how their own analysis contrasts 3 with DOE's, they very much focused on firm specific 4 financial investments. They conducted one-on-one 5 interviews. 6 And if anybody can contribute to this, that's7 great, because I haven't been through an anti8 competitive assessment. 9 They were very much concerned about looking 10 at how the regulation may contribute to increasing 11 fixed costs because they described that as an increased 12 business risk and that was more severely felt by small 13 manufacturers. 14 They also tended to define the markets in a 15 different fashion. It wasn't sufficient that there 16 were five manufacturers of a product. They needed to17 know that there was sufficient competition in sub18 segments. So if there was only two manufacturers -- 19 five manufacturers in all but only two that were in a 20 particular niche market, well, losing one of those two 21 would be catastrophic. So they did a lot of product 22 market definition that was different from DOE's. 23 Now, I was just talking to Sheldon Kemmel and 24 he said, well, really, he sees this as a win-win 25 situation whereby we can try to collect a lot of

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(301) 565-0064 416 1 need to do. 2 Looking athow theirown analysis contrasts 3 withDOE's, they very much focused on firm specific 4 financial investments. They conducted one-on-one 5 interviews. 6 And if anybody can contribute to this, that's 7 great, because I haven'tbeen through an anti8 competitive assessment. 9 They were verymuch concerned about looking 10 athow the regulationmay contribute to increasing 11 fixed costsbecause they described that as an increased 12 business risk and that was more severely felt by small 13 manufacturers. 14 They also tended to define themarkets in a 15 different fashion. Itwasn't sufficient that there 16 were five manufacturers of a product. They needed to 17 know that there was sufficientcompetition in sub18 segments. So if there was only twomanufacturers

-- 19 five manufacturers in all but only two thatwere in a 20 particularniche market, well, losingone of those two 21 wouldbe catastrophic. So they did a lotof product 22 market definition thatwas different from DOE's. 23 Now, I was just talking to SheldonKemmel and 24 he said, well, really, he sees this as a win-win 25 situationwherebywe can try to collect a lot of

EXECUTIVE COURT REPORTERS, INC. (301) 565-006441 7 1 information they need to do their assessment well in 2 advance. They typically have had very little time to 3 respond to the NOPR. 4 How long is it? Like 30 days? 5 MR. McCABE: Seventy-five. 6 MR. RIVEST: Seventy-five days. So they felt 7 compressed in the time. They didn't always get to it 8 the day DOE sent it over the fence. So they felt 9 compressed. So they feel now that they'll be able 10 themselves to do a better job in their assessments. 11 And their concerns are trying to look at any 12 asymmetrical cost increases to some manufacturers, 13 increased proportion of fixed cost, as I mentioned 14 before, and any barriers to market entry which is 15 proprietary technologies. 16 And he told me I shouldn't have used the word 17 "interrogation." The line of questioning will follow 18 the guidelines. 19 MR. CRAWFORD: Inquisition would have 20 probably fit better. 21 MR. RIVEST: So, they gave us a copy of the 22 merger guidelines and told us that was their overall 23 framework for conducting the analysis. 24 Moving on to manufacturing capacity. There's 25 a word I don't like on this one.

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(301) 565-0064 417 1 information they need todo their assessmentwell in 2 advance. They typicallyhave hadvery little time to 3 respond to the NOPR. 4 How long is it? Like 30 days? 5 MR. McCABE: Seventy-five. 6 MR. RIVEST: Seventy-five days. So they felt 7 compressed in the time. They didn't always get to it 8 the day DOE sent itover the fence. So they felt 9 compressed. So they feel now that they'll be able 10 themselves to do a betterjob in their assessments. 11 And their concerns are trying to look at any 12 asymmetrical cost increases to some manufacturers, 13 increasedproportion of fixed cost, as I mentioned 14 before, and any barriers tomarket entrywhich is 15 proprietary technologies. 16 And he toldme I shouldn't have used the word 17 "interrogation." The line ofquestioningwill follow 18 the guidelines. 19 MR. CRAWFORD: Inquisitionwouldhave 20 probably fit better. 21 MR. RIVEST: So, they gave us a copy of the 22 merger guidelines and toldus thatwas their overall 23 framework for conducting the analysis. 24 Moving on tomanufacturing capacity. There's 25 a word I don't like on this one.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064418 1 Now, the process rule directs DOE to consider 2 if significant losses of capital investment may result 3 as a result of the rules would impact domestic 4 manufacturers. That may be more true. The new 5 appliance standards can result in the obsolescence of 6 existing manufacturing assets. I think that was the 7 case of the magnetic ballast industry, for example. 8 Any information required for making those 9 assessments would primarily be gathered through the 10 interviews. 11 The impact of loss on capital investments 12 depends very much on the stringency of the standard. 13 And the existing -- it said "capabilities," but what I 14 meant by that, the existing resources. Resource being 15 capital assets in terms of plant and equipment. It 16 could also be -- well, tooling, such equipment as that. 17 And GRIM -- is that Rick? 18 MS. LAUGHLIN: He just left, I think. 19 MR. RIVEST: Right now, there isn't the 20 capability in GRIM to do a one-time write-off of 21 assets, so as you see, we have a straight line. I 22 believe a straight line depreciation, 3.3 percent per 23 year. However, we might have to look at how we could 24 incorporate write-offs into the GRIM. 25 I don't think a major issue since the GRIM is

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(301) 565-0064 418 1 Now, the process rule directs DOE to consider 2 if significant losses of capital investmentmay result 3 as a result of the rules would impact domestic 4 manufacturers. That may be more true. The new 5 appliance standards canresult in the obsolescence of 6 existingmanufacturing assets. I think thatwas the 7 case of the magneticballast industry, for example. 8 Any information required for making those 9 assessments wouldprimarilybe gathered through the 10 interviews. 11 The impact of loss on capital investments 12 depends verymuch on the stringency of the standard. 13 And the existing

-- it said "capabilities," but what I 14 meant by that, the existingresources. Resource being 15 capital assets in terms ofplant and equipment. It 16 could alsobe

-- well, tooling, such equipment as that. 17 And GRIM

-- is thatRick? 18 MS. LAUGHLIN: He just left, I think. 19 MR. RIVEST: Right now, there isn't the 20 capability in GRIM to do a one-time write-off of 21 assets, so as you see, we have a straight line. I 22 believe a straight line depreciation, 3.3percentper 23 year. However, we might have to look athowwe could 24 incorporate write-offs into the GRIM. 25 I don't think a major issue since the GRIM is

EXECUTIVE COURT REPORTERS, INC. (301) 565-006441 9 1 not income based but is cash based. So if a 2 manufacturer has, quote, stranded assets, then it will 3 be reflected in the fact that he's going to have to 4 have a lot more capital outlay to meet the standard. 5 So this is an issue we should look at but I don't think 6 it's going to be a difficult issue to handle. 7 Moving on to employment impacts. DOE Is 8 committed to trying to get a handle on both the direct 9 and the indirect employment impacts resulting from 10 standards. Direct impacts would include employees at 11 manufacturing plants and also within related supply and 12 service industries. 13 Trying to get at what these employment 14 impacts might be, one way would be to look at the data 15 submitted for the manufacturing costs. And there we 16 have itemized material and labor categories. So it's 17 been suggested that that might be one way of looking at 18 standards. Since they increase labor, they might 19 increase, in fact, employment. 20 There are a lot of problems with that in the 21 sense that you can't take for granted that the product 22 that is currently being produced is going to be 23 produced in that same factory. It may well be that in 24 that industry the decision will be made to close that 25 plant and open another one in another state or another

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(301) 565-0064 419 1 not income basedbut is cashbased. So if a 2 manufacturerhas, quote, stranded assets, then itwill 3 be reflected in the fact thathe's going tohave to 4 have a lotmore capital outlay tomeet the standard. 5 So this is an issuewe should look atbut I don't think 6 it'sgoing tobe a difficult issue to handle. 7 Moving on to employment impacts. DOE Is 8 committed to trying to get a handle onboth the direct 9 and the indirect employment impacts resulting from 10 standards. Direct impacts would include employees at 11 manufacturingplants and alsowithinrelated supply and 12 service industries. 13 Trying to get at what these employment 14 impacts might be, oneway would be to look at the data 15 submitted for themanufacturing costs. And there we 16 have itemizedmaterial and labor categories. So it's 17 been suggested that thatmightbe oneway of looking at 18 standards. Since they increase labor, theymight 19 increase, in fact, employment. 20 There are a lot of problems with that in the 21 sense that you can't take for granted that the product 22 that is currentlybeingproduced is going tobe 23 produced in that same factory. Itmay wellbe that in 24 that industry the decisionwill bemade to close that 25 plant and open another one in another stateor another

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064420 1 country. So without the interview process, we really 2 wouldn't know. Or it may be that that factory -- that 3 that company already has a plant that can manufacture 4 those products that meet the standard level but it 5 happens to be in another country. 6 So it would be risky to go just on the basis 7 of the engineering analysis data. 8 Indirect impacts are more macro-economic and 9 they wouldn't be done within the context of the 10 manufacturing impact. So methods have yet to be 11 developed for trying to calculate those. 12 I'd like to say a few words about cumulative 13 impacts. The Department has recognized the importance 14 to consider the impact of multiple regulations on 15 manufacturers. There are several means that have been 16 provided. One through the priority setting process. 17 Also, in the determination of the stringency 18 of standards. There's a recognition that cumulative 19 burden can result from a standard being imposed on the 20 component of a larger system. 21 So, for example, if there was a motor -- 22 maybe a motor standard that would increase the price of 23 that component and that motor is then installed in an 24 air-conditioning or furnace unit, for example. 25 One means the Department has committed to

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### 420 1 country. Sowithout the interviewprocess, we really 2 wouldn'tknow. Or itmay be that that factory

-- that 3 that company alreadyhas a plant that canmanufacture 4 those products thatmeet the standard levelbut it 5 happens tobe in another country. 6 So itwouldbe risky to gojuston thebasis 7 of the engineering analysis data. 8 Indirect impacts aremore macro-economic and 9 theywouldn'tbe donewithin the contextof the 10 manufacturing impact. Somethods have yet tobe 11 developed for trying to calculate those. 12 I'd like to say a fewwords about cumulative 13 impacts. TheDepartmenthas recognized the importance 14 to consider the impact of multipleregulations on 15 manufacturers. There are severalmeans thathavebeen 16 provided. One through the priority settingprocess. 17 

### Also, in the determinationof the stringency 18 of standards. There's a recognition that cumulative 19 burdencanresult from a standardbeing imposed on the 20 component of a larger system. 21 So, for example, if therewas a motor

-- 22 maybe a motor standard thatwould increase thepriceof 23 that component and thatmotor is then installed in an 24 air-conditioningor furnace unit, for example. 25 One means theDepartmenthas committed to

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064421 1 reducing cumulative burden is by delaying effective 2 dates, scattering the rule. 3 Well, that should say three years. I'm 4 sorry. The Department will assess the joint impacts of 5 its standards occurring within three years of each 6 other. 7 Types of cumulative impact burdens that could 8 be captured within the interview process include 9 demonstration of the ability or inability to meet 10 compounded financial and technological demands. That 11 might, for example, be through restrained R&D and 12 engineering resources. And reduced opportunity to 13 pursue other types of plant productivity improvements 14 or product innovation. So those would be noted. 15 From a more quantitative analysis standpoint, 16 the GRIM can handle multiple regulations by having 17 multiple scenarios. We talked about this yesterday and 18 probably there'll be further discussion if we decide to 19 have the work group or in the next draft of the 20 approach. 21 22 23 24 That completes today's presentations. MR. BROOKMAN: I saw Wayne first.

MR. MORRIS : This is Wayne Morris from AHAM. I'd like to ask on this last point that you 25 brought up, Michael. As I understand the GRIM

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(301) 565-0064 421 1 reducing cumulative burden is by delaying effective 2 dates, scattering the rule. 3 Well, that should say three years. I'm 4 sorry. The Department will assess the joint impacts of 5 its standards occurring within three years of each 6 other. 7 Types of cumulative impact burdens that could 8 be captured within the interviewprocess include 9 demonstration of the ability or inability tomeet 10 compounded financial and technological demands. That 11 might, for example, be through restrainedR&D and 12 engineering resources. And reduced opportunity to 13 pursue other types of plant productivity improvements 14 or product innovation. So those would be noted. 15 From a more quantitative analysis standpoint, 16 the GRIM canhandle multiple regulations by having 17 multiple scenarios. We talked about this yesterday and 18 probably there'll be further discussion ifwe decide to 19 have the work group or in the next draft of the 20 approach. 21 That completes today's presentations. 22 MR. BROOKMAN: I sawWayne first. 23 MR. MORRIS: This is Wayne Morris fromAHAM. 24 I'd like to ask on this last point that you 25 brought up, Michael. As I understand the GRIM

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064422 1 situation right now, on that point number 1, the GRIM 2 does not have a -- if you will, a cumulator formula, if 3 you will, to be able to look at these multiple 4 regulations. And I believe it has been anticipated 5 that such work would be done. 6 Is there some kind of a commitment on the 7 part of Office of Codes and Standards that this would 8 be done in three months, in six months, some period of 9 time? 10 MR. RIVEST: I think what we'll try to do -- 11 but we'll try to gather all the suggestions that were 12 made as far as enhancements to GRIM, draft a proposal 13 that we would resubmit back to you, and make sure that 14 what in fact we have described in that proposed update 15 meets your needs. And that could be accompanied by a 16 commitment. 17 MR. BROOKMAN: You may need to repeat the 18 question again. 19 MR. MORRIS: Did you hear the question, 20 Michael? 21 MR. McCABE: No, I did not. 22 MR. BROOKMAN: Go ahead. Can you repeat it? 23 MR. MORRIS: I'm sorry. 24 Mike, Mike Rivest was talking about this 25 issue of cumulative burden, and point number 1 on the

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(301) 565-0064 422 1 situationright now, on that point number 1, the GRIM 2 does not have a -- if you will, a cumulator formula, if 3 you will, to be able to look at these multiple 4 regulations. And I believe ithas been anticipated 5 that such work would be done. 6 Is there some kind of a commitment on the 7 part of Office of Codes and Standards that this would 8 be done in three months, in sixmonths, some period of 9 time? 10 MR. RIVEST: I thinkwhat we'll try to do

-- 11 but we'll try to gather all the suggestions that were 12 made as far as enhancements to GRIM, draft a proposal 13 that we would resubmit back to you, andmake sure that 14 what in fact we have described in that proposedupdate 15 meets your needs. And that couldbe accompaniedby a 16 commitment. 17 MR. BROOKMAN: You may need to repeat the 18 question again. 19 MR. MORRIS: Did you hear the question, 20 Michael? 21 MR. McCABE: No, I did not. 22 MR. BROOKMAN: Go ahead. Can you repeat it? 23 MR. MORRIS: I'm sorry. 24 Mike, Mike Rivest was talking about this 25 issue of cumulative burden, and point number 1 on the

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064423 1 slide up there talks about, as Michael has pointed out, 2 that GRIM can be run for multiple scenarios to look at 3 multiple, cumulative burden. But at the present time, 4 the GRIM does not have that cumulator formula built 5 into it. And I was wondering if we could get some kind 6 of a commitment to build that into this next level or 7 this next draft of the GRIM so that it could be done 8 and that this could be tracked and we could actually 9 see that, since that's one of the major take-aways from 10 this process. 11 MR. McCABE: I have a one word answer, so I 12 guess my answer would be yes. 13 14 wasn't it? 15 16 17 18 MR. RIVEST: That's shorter than my answer,

(Laughter.) I couldn't say yes. MR. LEWIS: Dave Lewis, Lennox. Could you put up slide 13, a couple back? 19 It's the one on cumulative. 20 The second bullet from the top and the second 21 from the bottom, taking into consideration the 22 Department's commitment in this area, I would guess 23 that you are not saying that the way that you have 24 determined to take care of cumulative burden is simply 25 by delaying an effective date. That that isn't the

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(301) 565-0064 423 1 slideup there talks about, as Michael has pointedout, 2 that GRIM canbe run for multiple scenarios to look at 3 multiple, cumulativeburden. But at the present time, 4 the GRIM does not have that cumulator formula built 5 into it. And I was wondering ifwe couldget some kind 6 of a commitment tobuild that into this next level or 7 this next draft of the GRIM so that itcouldbe done 8 and that this couldbe tracked and we could actually 9 see that, since that's one of themajor take-aways from 10 this process. 11 MR. McCABE: I have a one word answer, so I 12 guess my answer wouldbe yes. 13 MR. RIVEST: That's shorter thanmy answer, 1 4 wasn't it? 15 (Laughter.) 16 I couldn't say yes. 17 MR. LEWIS: DaveLewis, Lennox. 18 Could youput up slide 13, a couple back? 19 It's the one on cumulative. 20 The secondbullet from the top and the second 21 from thebottom, taking into consideration the 22 Department's commitment in this area, I would guess 23 that you are not saying that the way that youhave 24 determined to take care of cumulativeburden is simply 25 by delaying an effectivedate. That that isn'tthe

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064424 1 sole solution to this issue. 2 MR. McCABE: This is Michael McCabe. 3 That's correct. That is one approach. The 4 other would be adjusting the standard level. And the 5 first bullet is to the priority setting process. 6 Decisions will be made. It will very well be that 7 using the example of regulations from another agency, 8 EPA, that the timing of the regs may be such to 9 coincide with other agencies in order to reduce the 10 cumulative burden. 11 MR. CRAWFORD: Jim Crawford. 12 I'd like slide 1 of this set. 13 (Pause.) 14 It's the outline of this last set of 15 material. 16 Yes. The reason I wanted is is that we are 17 off in hyper-dimensional space now where we have a 18 number of different parameters that bear on the 19 decision process. We've got these five, plus cash 20 flow, plus I'm not sure how many others. And we have 21 seen no discussion of how these are brought together in 22 a unifying algorithm that leads to the ultimate 23 decision process. 24 And that is central to the entire process in 25 which we're engaged here and the appropriateness of

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### 424 1 sole solutionto this issue. 2 

### MR. McCABE: This isMichaelMcCabe. 3 

### That's correct. That is one approach. The 4 otherwouldbe adjusting the standard level. And the 5 first bullet is to thepriority settingprocess. 6 Decisions willbemade. Itwill verywellbe that 7 using the example ofregulations from another agency, 8 EPA, that the timing of the regs may be such to 9 coincidewithother agencies inorder toreduce the 10 cumulativeburden. 1 1 

### MR. CRAWFORD: JimCrawford. 12 I'dlike slide 1 of this set. 13 (Pause.) 14 It's the outline of this last set of 15 material. 16 Yes. The reason I wanted is is thatwe are 17 off inhyper-dimensional spacenow wherewe have a 18 number of differentparameters that bearon the 19 decisionprocess. We've got these five, plus cash 20 flow, plus I'mnot surehowmany others. And we have 21 seenno discussion ofhow these are brought together in 22 a unifying algorithmthat leads to theultimate 23 decisionprocess. 24 And that is central to the entireprocess in 25 whichwe're engagedhere and the appropriateness of

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064425 1 various analytical tools in the process. 2 If we have a significant number of 3 intrinsically non-analytical factors like how do you 4 weigh employment impacts, how do you weigh competitive 5 decreases, et cetera, then it suggests that one ought 6 not build a mountain of analytical data based upon tens 7 or hundreds of thousands of datapoints from 8 manufacturers to come up with a cash flow analysis when 9 you are going to weigh that with subjective estimates 10 of some of these other factors. 11 What we have is a veneer of rigor in a 12 process that may in fact not have a whole lot to do 13 with the final decision. 14 15 comments? 16 MR. BROOKMAN: Additional questions or

MR. McCABE : Well, following up on what 17 you've said, Jim, I think that you've already talked 18 about it and it's those three days for that particular 19 product that we take and we spend in talking about how 20 do we structure a meaningful analysis and credible 21 analysis for that particular product. Because, as 22 we've laid out here, there are a number of factors that 23 could be considered but may not necessarily be 24 considered or be considered in a particular fashion for 25 this particular product. That your three days with the

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(301) 565-0064 425 1 various analytical tools in the process. 2 Ifwe have a significantnumber of 3 intrinsicallynon-analytical factors likehow do you 4 weigh employment impacts, how do youweigh competitive 5 decreases, et cetera, then it suggests that one ought 6 not build a mountainof analytical databasedupon tens 7 orhundreds of thousands of datapoints from 8 manufacturers to come up with a cash flow analysis when 9 you are going toweigh thatwith subjective estimates 10 of some of these other factors. 11 What we have is a veneer ofrigor in a 12 process that may in fact not have a whole lot todo 13 with the final decision. 14 MR. BROOKMAN: Additional questions or 15 comments? 16 MR. McCABE: Well, following up onwhat 17 you've said, Jim, I think that you've already talked 18 about it and it's those three days for thatparticular 19 product that we take andwe spend in talking about how 20 dowe structure a meaningful analysis and credible 21 analysis for thatparticularproduct. Because, as 22 we've laidout here, there are a number of factors that 23 could be consideredbutmay not necessarilybe 24 considered orbe considered in a particular fashion for 25 this particularproduct. That your three days with the

EXECUTIVE COURT REPORTERS, INC. (301) 565-00641 2 426 interested parties to look at a particular product, industry, whether or not we're talking about the the

3 manufacturer, the retail industry for that product or 4 what have you, and to structure the analysis that will 5 be done for that rulemaking, so that the results will 6 be both quantitative and qualitative, will be 7 meaningful to the DOE decisionmakers when they decide 8 what should -- and when the process is over, what is 9 the rule and when is it effective. 10 MR. BROOKMAN: I see a few heads going like 11 this, but if I were to then take your statement to the 12 next level up of generality or abstraction, what you 13 implied there, I believe, was that many of these 14 products or many of these prospective rules or 15 judgments are so different or potentially idiosyncratic 16 that unless you look at them at that level, product by 17 product, category by category, that you're going to 18 have a hard time working these tools. 19 MR. McCABE: Absolutely. 20 MR. BROOKMAN: I just wanted to clarify that. 21 Additional questions, comments, at this 22 point? Because I think we're about to move on to the 23 closing items on the agenda. 24 Yes? Please, state your name. 25 MR. BEST: Dick Best, Whirlpool Corporation.

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(301) 565-0064 426 1 interestedparties to look at a particularproduct, the 2 industry, whether or not we're talking about the 3 manufacturer, the retail industry for thatproduct or 4 what have you, and to structure the analysis that will 5 be done for that rulemaking, so that the results will 6 beboth quantitative and qualitative, will be 7 meaningful to the DOE decisionmakers when they decide 8 what should

-- and when the process is over, what is 9 the rule andwhen is it effective. 10 MR. BROOKMAN: I see a few heads going like 11 this, but if I were to then take your statement to the 12 next level up of generality or abstraction, what you 13 implied there, I believe, was thatmany of these 14 products ormany of these prospective rules or 15 judgments are so different orpotentially idiosyncratic 16 that unless you look at them at that level, productby 17 product, category by category, that you'regoing to 18 have a hard time working these tools. 19 MR. McCABE: Absolutely. 20 MR. BROOKMAN: I justwanted to clarify that. 21 Additional questions, comments, at this 22 point? Because I thinkwe're about tomove on to the 23 closing items on the agenda. 24 25 Yes? Please, state yourname. MR. BEST: Dick Best, Whirlpool Corporation.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064427 1 I'm not sure, Michael, if I understood 2 exactly the context there, but there's been several 3 times -- and we have a chart over here -- about 4 potential topics for the working group. If I imply 5 correctly, we're talking about follow-up here and how 6 to resolve some of the finer details. 7 One suggestion that I think Whirlpool would 8 make is that in fact, we do not have a generic working 9 group but have follow-up working groups, as 10 appropriate, by product. And maybe that's where you 11 were coming from. I'm not sure if I understood 12 correctly. 13 MR. BROOKMAN: I'd like to note that comment, 14 but I want to make sure we close out the rest of this 15 discussion before we move to that item, which is the 16 next item on the agenda. 17 MR. BEST: Okay. 18 MR. BROOKMAN: Please state your name, again? 19 MR. BEST: Dick Best. 20 MR. BROOKMAN: Thanks, Dick. I forgot your 21 name. 22 Dick's suggesting that there be no generic 23 work group but the working group -- that there be 24 product specific groups to take up the issues that 25 related to that product.

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(301) 565-0064 427 1 I'mnot sure, Michael, if I understood 2 exactly the context there, but there's been several 3 times

-- andwe have a chart over here

-- about 4 potential topics for the working group. If I imply 5 correctly, we're talking about follow-up here and how 6 to resolve some of the finer details. 7 One suggestion that I thinkWhirlpool would 8 make is that in fact, we do not have a generic working 9 group but have follow-up working groups, as 10 appropriate, by product. And maybe that'swhere you 11 were coming from. I'm not sure if I understood 12 correctly. 13 MR. BROOKMAN: I'd like to note that comment, 14 but I want to make surewe close out the rest of this 15 discussionbeforewe move to that item, which is the 1 6 next itern on the agenda. 17 MR. BEST: Okay. 18 MR. BROOKMAN: Please state your name, again? 19 MR. BEST: Dick Best. 20 MR. BROOKMAN: Thanks, Dick. I forgot your 21 name. 22 Dick's suggesting that there be no generic 23 work groupbut the working group -- that there be 24 product specific groups to take up the issues that 25 related to that product.

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064428 1 Additional questions or comments based on the 2 final substantive item on the agenda today, which is 3 non-model impact evaluation, this last presentation? 4 (No response.) 5 I don't see it. So then, Dick, you 6 anticipated the next question.

I think he directed that directly at you,

MR. McCABE : I'll turn it around and say

11 (Laughter.) 12 MR. BROOKMAN: Good move. 13 MR. McCABE: -- if I were -- that makes a lot 14 of sense because the points that the points that Chuck 15 Samuels was making this morning I think was along those 16 lines. Let's go ahead and do it. What Jim Crawford -- 17 or was that Dave Lewis -- 18 (Laughter.) 19 MR. CRAWFORD: He's got more hair. 20 MR. McCABE: Just in different places. 21 That the three days that Jim Crawford said, 22 to me I got a strong feeling or undercurrent that now 23 is the time to start talking about the individual 24 products, the structure and analysis for that product 25 that would make sense. And that there's not -- I don't

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(301) 565-0064 428 1 Additional questions or comments basedon the 2 final substantive itemon the agenda today, which is 3 non-model impact evaluation, this lastpresentation? 4 (No response.) 5 I don't see it. So then, Dick, you 6 anticipated the next question. 7 I think he directed that directly at you, 8 Michael. 9 MR. McCABE: I'll turn it around and say 10 that-- 11 (Laughter.) 12 MR. BROOKMAN: Good move. 13 MR. McCABE:

-- if I were -- thatmakes a lot 14 of sense because the points that the points that Chuck 15 Samuels was making this morning I thinkwas along those 16 lines. Let's go ahead and do it. What JimCrawford

-- 17 orwas that Dave Lewis 18 (Laughter.) 19 MR. CRAWFORD: He's gotmore hair. 20 MR. McCABE: Just in differentplaces. 21 That the three days that Jim Crawford said, 22 tome I got a strong feeling orundercurrent that now 23 is the time to start talking about the individual 24 products, the structure and analysis for that product 25 that wouldmake sense. And that there's not

-- I don't

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064429 1 get a sense that there are a lot of things that aren't 2 on the table as far as potential analyses, potential 3 tools, that haven't been considered, but rather let's 4 talk about what makes sense for my product and for this 5 product, depending upon if you're seeing it from a 6 manufacturer's perspective or some other stakeholder's 7 perspective. 8 So I would put the question to us as to 9 whether or not it's necessary for working groups or 10 just go to the individual products as the priorities 11 would set. And if there are issues that come up that 12 need to be resolved, that the Department would 13 certainly be amenable to establishing working group but 14 it is more appropriate to go right to the products and 15 deal with the product specific issues. 16 MR. LEWIS: Dave Lewis, Lennox. 17 I assume that when you have on your priority 18 list a product or products that you are going to take 19 into review, that it would be at that time that you 20 would then sit down and review those areas, issues and 21 areas that are pertinent with that particular group of 22 manufacturers or industry.
23 MR. McCABE: Yes. 24 MR. LEWIS: Because I would be -- I think 25 when you are faced with that particular -- with a

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(301) 565-0064 429 1 get a sense that there are a lot of things that aren't 2 on the table as far as potential analyses, potential 3 tools, that haven't been considered, but rather let's 4 talk about what makes sense for my product and for this 5 product, depending upon if you're seeing it from a 6 manufacturer's perspective or some other stakeholder's 7 perspective. 8 So I would put the question to us as to 9 whether ornot it's necessary for working groups or 10 justgo to the individual products as the priorities 11 would set. And if there are issues that come up that 12 need to be resolved, that the Department would 13 certainlybe amenable to establishingworking groupbut 14 it is more appropriate to go right to the products and 15 deal with the product specific issues. 16 MR. LEWIS: Dave Lewis, Lennox. 17 I assume that when you have on your priority 18 list a product or products that you are going to take 19 into review, that itwould be at that time that you 20 would then sitdown and review those areas, issues and 21 areas that are pertinentwith that particular group of 22 manufacturers or industry. 23 MR. McCABE: Yes. 24 MR. LEWIS: Because I would be

-- I think 25 when you are faced with that particular

-- with a

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064430 1 rulemaking or a review for a rulemaking coming upon 2 you, you're much more focused. A little bit difficult 3 to talk about this in a nebulous way. 4 So one of the areas I'm concerned with is 5 just to have a work group to have a work group to 6 settle these things. I think you'd have a disaster. 7 MR. BROOKMAN: And I think that's been one of 8 the challenges today is to look at this out of context 9 and kind of generically. It's been kind of a challenge, 10 but fortunately, the group's done pretty well, I think. 11 MR. MATTINGLY: Joe Mattingly from GAMA, 12 representing furnaces, boilers, water heaters and 13 direct heating equipment. 14 I think we would support moving on to the 15 individual product considerations at the pre-ANOPR 16 stage in an rulemaking. We would make much more 17 headway and we'd have concrete issues and products in 18 front of us. 19 MR. BROOKMAN: Additional questions, 20 comments, along this line? I've seen several heads in 21 the room nodding up and down, yes. 22 MR. McCABE: Either that, or else they're 23 asleep. The chairs look comfortable. 24 MR. BROOKMAN: They're not nodding off. It's 25 a surprisingly tough group. They've hung in here for

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(301) 565-0064 430 1 rulemaking or a review for a rulemaking coming upon 2 you, you'remuch more focused. Alittlebitdifficult 3 to talk about this in a nebulous way. 4 So one of the areas I'mconcernedwith is 5 just to have a work group tohave a work group to 6 settle these things. I think you'd have a disaster. 7 MR. BROOKMAN: And I think that's beenone of 8 the challenges today is to look at this out of context 9 andkind of generically. It'sbeenkind of a challenge, 10 but fortunately, the group's done prettywell, I think. 1 1 MR. MATTINGLY: JoeMattingly from GAMA, 12 representing furnaces, boilers, waterheaters and 13 directheating equipment. 14 I thinkwe would supportmoving on to the 15 individual product considerations at the pre-ANOPR 16 stage in an rulemaking. We wouldmake muchmore 17 headway and we'd have concrete issues andproducts in 18 front of us. 19 MR. BROOKMAN: Additional questions, 20 comments, along this line? I've seen several heads in 21 the roomnodding up anddown, yes. 22 MR. McCABE: Either that, or else they're 23 asleep. The chairs look comfortable. 24 MR. BROOKMAN: They're not nodding off. It's 25 a surprisingly tough group. They'vehung inhere for

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064431 1 two days. 2 Well, let me ask the question. Is anybody 3 fundamentally opposed to trying to do it this way? 4 (No response.) 5 No one is showing me anything -- in the 6 context of products, specifically. 7 Yes? 8 MS. KLUMPP: I do think that makes sense and 9 I do think it provides a lot of focus for everyone who 10 participates to think about the technology under 11 consideration. 12 And my one suggestion or something I'd like 13 to see come out of it is sort of overriding principles 14 in terms of how we're determining assumptions that go 15 into the analysis be carried over from one technology 16 to others, as appropriate. So if air-conditioning is 17 up first, overriding principles that guide the analysis 18 of manufacturer impacts for air-conditioning, we take 19 those and carry them into the next technology, so we're 20 not reinventing rom scratch again.
21 MR. BROOKMAN: Joe? 22 MR. MATTINGLY: Joe Mattingly. 23 Yes, it makes sense to. 24 MR. BROOKMAN: With that addition? With that
25 addendum?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 431 1 two days. 2 Well, letme ask the question. Is anybody 3 fundamentally opposed to trying to do it this way? 4 (No response.) 5 No one is showingme anything in the 6 context of products, specifically. 7 Yes? 8 MS. KLUMPP: I do think that makes sense and 9 I do think it provides a lot of focus for everyone who 10 participates to think about the technology under 11 consideration. 12 And my one suggestion or something I'd like 13 to see come out of it is sort of overriding principles 14 in terms of how we're determining assumptions that go 15 into the analysis be carriedover from one technology 16 to others, as appropriate. So if air-conditioning is 17 up first, overridingprinciples that guide the analysis 18 ofmanufacturer impacts for air-conditioning, we take 19 those and carry them into the next technology, sowe're 20 not reinventing rom scratch again. 21 22 23 24 25 addendum? MR. BROOKMAN: Joe? MR. MATTINGLY: Joe Mattingly. Yes, itmakes sense to. MR. BROOKMAN: With that addition? With that

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064432
1 I think, Michael, that the group seems to 2 think this makes sense, collectively.
3 Okay. There are a few small other 4 housekeeping items I'd like to attend to, and then I'll 5 turn it back'to you.
6 MR. McCABE: Just a few?
7 MR. BROOKMAN: Just a few. 8 As I understand it, typically after a
9 workshop like this the comment period is in the range 10 of 30 days. Specific written comments that any of you 11 might wish to contribute on the worksheets and, in this
12 case, the draft work plan, the draft work plan that I 13 believe all of you received. 14 Have all of you received the draft work plan? 15 And if you haven't, see Sandy over here. 16 So, how about that, adhering to that standard 17 of 30 days of comment, written comment, for those of
18 you that wish to make those comments. 19 Yes, Wayne? 20 MR. MORRIS: Will the comments that have been
21 drafted by Jim be written down and distributed? 22 MR. BROOKMAN: Will the comments that have 23 been drafted by Jim that have been written down be
24 distributed? Yes. 25 MR. MORRIS: Does that mean Jim Crawford?

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### 432 1 I think, Michael, that the group seems to 2 think thismakes sense, collectively. 3 

### Okay. There are a few small other 4 housekeeping items I'dlike to attend to, and then I'll 5 turn itback to you. 6 

### MR. McCABE: Just a few? 7 

### MR. BROOKMAN: Just a few. 8 As I understand it, typically after a 9 workshop like this the comment period is in the range 10 of 30 days. Specificwrittencomments that any of you 11 might wish to contribute on the worksheets and, in this 12 case, the draftwork plan, the draftworkplan that I 13 believe all of youreceived. 14 Have all of you received the draftworkplan? 15 And ifyouhaven't, see Sandy overhere. 16 So, how about that, adhering to that standard 17 of 30 days of comment, written comment, for those of 18 you thatwish tomake those comments. 19 Yes, Wayne? 20 MR. MORRIS: Will the comments that havebeen 21 draftedby Jimbewritten down anddistributed? 22 MR. BROOKMAN: Will the comments thathave 23 beendraftedby Jim that havebeenwrittendownbe 24 distributed? Yes. 25 MR. MORRIS: Does thatmeanJimCrawford?

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064433 1 MR. BROOKMAN: That means Jim, up here, has 2 been diligently taking notes for the last two days and 3 doing a great job of it, also. 4 MR. McCABE: Performance evaluations were 5 performed a month ago, but he's already looking ahead 6 for next year. 7 MR. BROOKMAN: Yes, Jim? 8 MR. CRAWFORD: I have somewhat more to the 9 point. More broadly, can we assume that the dialogue 10 from this day has in fact been captured for the benefit 11 of the process? 12 MR. McCABE: I don't have a comment. 13 MR. BROOKMAN: Yes. Absolutely. 14 MR. McCABE: I found the last two days to be 15 highly productive and beneficial. And if there are 16 exceptions that people want to make or they feel that 17 they have not been able to put forth their position, 18 the comment would provide that. But if it's a matter 19 of just reiterating what one has already said or the 20 feeling of what's happened, I don't think that's 21 necessary unless you want to make a comment on Jim's 22 performance, so it's on the record, so that it can be 23 used for next year's performance evaluation. 24 MR. BROOKMAN: An actual transcript of these 25 proceedings will be available in two or so weeks in the

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(301) 565-0064 433 1 MR. BROOKMAN: Thatmeans Jim, uphere, has 2 been diligently takingnotes for the last two days and 3 doing a great jobof it, also. 4 MR. McCABE: Performance evaluations were 5 performed a month ago, buthe's already looking ahead 6 for next year. 7 MR. BROOKMAN: Yes, Jim? 8 MR. CRAWFORD: I have somewhatmore to the 9 point. More broadly, canwe assume that the dialogue 10 from this day has in fact been captured for thebenefit 11 of the process? 12 MR. McCABE: I don'thave a comment. 13 MR. BROOKMAN: Yes. Absolutely. 14 MR. McCABE: I found the last two days tobe 15 highly productive and beneficial. And if there are 16 exceptions that peoplewant tomake or they feel that 17 they have notbeen able toput forth theirposition, 18 the commentwouldprovide that. But if it's a matter 19 of justreiteratingwhat one has already said or the 20 feeling ofwhat's happened, I don't think that's 21 necessary unless you want tomake a comment onJim's 22 performance, so it's on the record, so that itcanbe 23 used for next year's performance evaluation. 24 MR. BROOKMAN: An actual transcript of these 25 proceedings will be available in two or soweeks in the

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064434 1 Reading Room. Yes. 2 VOICE: [Off mike.] 3 MR. BROOKMAN: I beg your pardon? 4 VOICE: What is the time line?
5 MR. BROOKMAN: For? 6 7 together. 8 VOICE: For the working groups getting

MR. BROOKMAN : They will be -- can you 9 address that? The actual working groups that are 10 product specific and their configuration. 11 MR. McCABE: We will -- I don't have the time 12 line handy. The first product off the top of my head 13 it would seem we'd be focusing on would be the laundry 14 equipment. Also, it would be the priority products. 15 Another priority product is -- Joe Mattingly 16 had identified -- is water heaters. The other products 17 that are priorities are beyond this point. For 18 example, refrigerators is near a final rule, or so I 19 hope. Room air-conditions and ranges and ovens. 20 The two off the top of my head that would be 21 the priorities that this would apply to would be 22 laundry, ranges and ovens. 23 Excuse me. Laundry and water heaters. I 24 made a comment earlier to somebody that they hoped that 25 laundry would be the last time that they'd be looked

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(301) 565-0064 434 1 Reading Room. Yes. 2 VOICE: [Offmike.] 3 MR. BROOKMAN: I beg your pardon? 4 VOICE: What is the time line? 5 MR. BROOKMAN: For? 6 VOICE: For the working groups getting 7 together. 8 MR. BROOKMAN: They will be

-- can you 9 address that? The actual working groups that are 10 product specific and their configuration. 1 1 MR. McCABE: We will

-- I don't have the time 12 line handy. The first product off the top of my head 13 itwould seemwe'dbe focusing onwouldbe the laundry 14 equipment. Also, itwouldbe the priorityproducts. 15 Anotherpriority product is

-- JoeMattingly 16 had identified

-- is water heaters. The otherproducts 17 that are priorities are beyond this point. For 18 example, refrigerators is near a final rule, or so I 19 hope. Room air-conditions and ranges and ovens. 20 The two off the top of my head that would be 21 the priorities that this would apply to would be 22 laundry, ranges and ovens. 23 Excuseme. Laundry and waterheaters. I 24 made a comment earlier to somebody that they hoped that 25 laundry would be the last time that they'dbe looked

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064435 1 at. I don't want to add another one and raise a 2 question. 3 MR. BROOKMAN: So, final comments? 4 Yes? 5 MR. LEWIS: Some of us were just wondering, 6 Mike. Where is the Chairman's reception going to be 7 held? 8 (Laughter.) 9 10 the -- 11 MR. BROOKMAN: There's a Coke machine down in

MR. McCABE : Actually, there's a lovely woman 12 outside who has a stand that I frequent often. And 13 there was a comment earlier that was Star Wars related 14 as I was taking my Pepsi and looking at Darth Vaders. 15 MR. BROOKMAN: Let me finish by saying, 16 please -- the evaluation forms we use, they're very 17 helpful to us. 18 Earl, would you like to make a comment? 19 MR. JONES: During the discussion earlier, 20 particularly on some of the models, there were 21 suggestions made from time to time about making changes 22 and adjustments of one kind or another. My question is 23 where do those requests stand? Which ones are being 24 pursued? Which ones are not being pursued? How will 25 they be pursued and how will we know what happens on

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(301) 565-0064 435 1 at. I don't want to add another one and raise a 2 question. 3 MR. BROOKMAN: So, final comments? 4 Yes? 5 MR. LEWIS: Some ofus were justwondering, 6 Mike. Where is the Chairman's receptiongoing tobe 7 held? 8 (Laughter.) 9 MR. BROOKMAN: There's a Cokemachine down in 10 the-- 11 MR. McCABE: Actually, there's a lovelywoman 12 outsidewho has a stand that I frequent often. And 13 there was a comment earlier thatwas StarWars related 14 as I was taking my Pepsi and looking atDarthVaders. 15 MR. BROOKMAN: Letme finish by saying, 16 please

-- the evaluation forms we use, they're very 1 7 helpful to us. 18 Earl, would you like tomake a comment? 19 MR. JONES: During the discussion earlier, 20 particularly on some of themodels, therewere 21 suggestions made from time to time aboutmaking changes 22 and adjustments of one kind or another. My question is 23 where do those requests stand? Which ones arebeing 24 pursued? Which ones are not beingpursued? How will 25 they bepursued andhow will we knowwhat happens on

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064436 1 that? 2 And I say that because I have a comment on 3 one of the suggestions that was made. And depending 4 upon what the answer to that question is, I'd like to 5 make a follow-up.

MR. BROOKMAN: Can you say which specific

MR. JONES: Well, it was the notion that -- 9 and I think it was one of the pricing models -- should 10 take into account productivity. Do you recall that 11 suggestion? 12 John Wilson, I think, from California, made 13 that suggestion. 14 MR. RIVEST: I think that was in the context 15 of the costing methodology. 16 MR. JONES: That's right. Costing. Exactly. 17 There ought to be some way of having an input into the 18 model to take into account productivity gains that are 19 being realized by manufacturers and that somehow that's 20 not being properly reflected, et cetera. And I agree 21 with the observation that often those gains come 22 through changes which occur which are totally outside 23 any process which affects the setting of these 24 standards or these products, even. And that since the 25 costs of those changes are not input into these models,

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(301) 565-0064 436 1 that? 2 And I say thatbecause I have a comment on 3 one of the suggestions that was made. And depending 4 uponwhat the answer to that question is, I'd like to 5 make a follow-up. 6 MR. BROOKMAN: Can you saywhich specific 7 ones? 8 MR. JONES: Well, itwas the notion that

-- 9 and I think itwas one of the pricingmodels

-- should 10 take into account productivity. Do you recall that 11 suggestion? 12 JohnWilson, I think, from California, made 13 that suggestion. 14 MR. RIVEST: I think that was inthe context 15 of the costingmethodology. 16 MR. JONES: That's right. Costing. Exactly. 17 There ought tobe some way of having an input into the 18 model to take into account productivitygains that are 19 being realizedbymanufacturers and that somehow that's 20 notbeingproperly reflected, et cetera. And I agree 21 with the observation that often those gains come 22 through changes which occurwhich are totally outside 23 any process which affects the settingof these 24 standards or theseproducts, even. And that since the 25 costs of those changes are not input intothesemodels,

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064437 1 neither then should the benefits. 2 So if you are going to pursue that line, I 3 just wanted to make sure that that thought was also 4 kept in mind if you do. But, if you're not, you can 5 ignore both points. 6 MR. McCABE: Changes that have been 7 discussed, as I would envision the process, that in 8 those three days of Jim Crawford's would be discussed, 9 as far as we would be laying out an approach for the 10 particular product, coming to an understanding as to 11 what the changes in the enhancements, improvements, 12 what have you, to this particular model that would be 13 used. And let's just use the GRIM, for an example. 14 That we need to identify changes. That those will be 15 discussed. 16 We'll go back, try and make the changes. 17 We'll make the changes. We'll circulate the analysis 18 for review and discussion, so that before a proposed 19 rule, for example, is published, that the changes are 20 aware, have been discussed, and the results reviewed 21 and commented on. And then, in turn, thatinformation 22 will also be -- that knowledge will be incorporated 23 into other rulemakings, as appropriate. 24 It may be that that particular element or 25 that tool out of the toolbox would not be used for

EXECUTIVE COURT REPORTERS, INC.

(301) 565-0064 437 1 neither then should thebenefits. 2 So if you are going topursue that line, I 3 justwanted tomake sure that that thoughtwas also 4 kept inmind if you do. But, ifyou're not, you can 5 ignore bothpoints. 

### 6 MR. McCABE: Changes that have been 7 discussed, as I would envision the process, that in 8 those three days ofJimCrawford's wouldbe discussed, 9 as far as we wouldbe layingout an approach for the 10 particularproduct, coming to an understanding as to 11 what the changes in the enhancements, improvements, 12 what have you, to this particularmodel thatwouldbe 13 used. And let's justuse the GRIM, for an example. 14 That we need to identify changes. That those will be 15 discussed. 16 We'll goback, try andmake the changes. 17 We'll make the changes. We'll circulate the analysis 18 for review and discussion, so that before a proposed 19 rule, for example, is published, that the changes are 20 aware, have beendiscussed, and the results reviewed 21 and commented on. And then, in turn, that information 22 will alsobe

-- that knowledge will be incorporated 23 into other rulemakings, as appropriate. 24 Itmay be that that particular element or 25 that tool out of the toolboxwouldnot beused for

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064438 1 another product, but certainly the information would be 2 there to be considered. 3 MR. BROOKMAN: Final questions or comments at 4 this point? 5 Let me -- I'd like to thank you all, 6 personally, for being so constructive in this meeting. 7 Two years ago when we started, when the Department, 8 with the support of some others, started this process 9 of process improvement, it was envisioned that 10 something like this was possible and doable. And now 11 we're seeing some of the benefits occur and reaping 12 some of those benefits. 13 So, many thanks to all of you for your 14 participation. I'll turn it back to Michael.15 MR. McCABE: I'm trying to think of a one16 word statement and I don't have one, other than to use 17 two words and say thank you. 18 (Applause.) 19 (Whereupon, the proceedings were concluded at 20 3:50 p.m.) 21 22 23 24 25

EXECUTIVE COURT REPORTERS, INC. (301) 565-0064 438 1 another product, but certainly the informationwouldbe 2 there to be considered. 3 MR. BROOKMAN: Final questions or comments at 4 this point? 5 Let me -- I'd like to thank you all, 6 personally, for being so constructive in this meeting. 7 Two years agowhen we started, when the Department, 8 with the support of some others, started this process 9 of process improvement, itwas envisioned that 10 something like this was possible and doable. And now 11 we're seeing some of the benefits occur and reaping 12 some of those benefits. 13 So, many thanks to all of you for your 14 participation. I'll turn itback toMichael. 15 MR. McCABE: I'm trying to think of a one16 word statement and I don't have one, other than to use 17 two words and say thankyou. 18 (Applause.) 19 (Whereupon, the proceedings were concluded at 20 3:50 p.m.) 21 22 23 24 25

EXECUTIVE COURT REPORTERS, INC. (301) 565-00641 2 REPORTER'S CERTIFICATE 3 This is to certify that the attached 4 proceedings before: DOE 5 6
7 In the Matter of: MANAFACTURES IMPACT ANALYSIS WORKSHOP 8 9 10
11 12 13
14 15 16 17 18 were held as herein appears and that this is the

original transcript thereof for the file of the Department, Commission, Administrative Law Judge or the Agency.

BRILANE BOWMAN Official Reporter. 19 20
21 22 23 24
25 Dated:MARCH 12, 1997

EXECUTIVE COURT REPORTERS

(301) 565-0064 1 

### 2 3 4 5 6 7 8 9 10 1 1 12 13 14 15 16 17 18 19 REPORTER'S CERTIFICATE

This is to certify that the attached proceedings before: DOE

In the Matter of: MANAFACTURES IMPACT ANALYSIS WORKSHOP

were held as herein appears and that this is the original transcript thereof for the file of the Department, Commission, Administrative Law Judge

or the Agency.

BRILANE BOWMAN Official Reporter.

20 Dated:MARCH 12; 1997 21 

### 22 23 

### 24 25
EXECUTIVE COURT REPORTERS (301) 565-0064