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.

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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 

MI CHAEL 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. 

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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

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List of Attendees (Continued) 

L. DAN BARZEL 

Circuit City Storesr Inc. 

ERIN BOEDECKER 

U.S. Department of Energy 

THOMAS BUDREWICZ r 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 Transferr Inc. 

MARK HASKELL 

Travis & Gooch 

LIZ KLUMPP 

Washington Energy Policy 

KIRSTIE KUMMER 

American Gas Association 

DAVID F. LEWIS 

Lennox In~ustriesr Inc. 

PATRICIA A. FRANCO 

Philips Electronics 

WILBUR L. HAAG r JR. 

A.O. Smith Water Products Company 

MARK HARMONIS 

U.S. Department of Justice 

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221

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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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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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

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List of Attendees (Continued) 

STEVE SHANKEL 

Pacific Northwest National Laboratory 

CHARLES STEPHENS 

Oregon Department of Energy 

RICHARD E. STILLWELL 

May tag 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 Cqrporation 

DOUG WEEKLY 

May tag 

JOHN A. WILSON 

California Energy Commission 

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223

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 

Opening Remarks, Agenda Review 

- Objectives 

Review of Day One Outcomes 

- Key Issues 

- DOE Perspective 

- Stakeholder Comments 

Break 

Estimating Manufacturing Costs for Input 

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 

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 spreadsheet model 

- Alternative forecasts 

- Scenario/uncertainty analysis 

Break 

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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

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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/Alternative Methods/Stakeholder 

comments 

Adjourn 

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397 

428 
225

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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1 PRO C E E DIN 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: OO? 

25 (Show of hands.) 

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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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1 2:00. Okay. So we're going to try and get 

2 as much of this done --

3 No? 

4 (Laughter.) 

5 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 layout as the 

14 fundamentals. 

15 So, a few other housekeeping items before we 

16 move on. 

17 All of you that are n~w 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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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 detailed

7 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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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 detailed 

7 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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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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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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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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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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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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1 take on the project, we'll open up the toolbox and just 

2 pullout 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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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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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 

1 1 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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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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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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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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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 

8 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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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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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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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, were

13 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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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? 

8 Charlie? 

9 MR. STEPHENS: I'm comfortable with 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 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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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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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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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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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: Bob Wisbey, Advanced Transformer 

8 Company. 

9 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 accuracY7 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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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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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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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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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. 

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 just had shows the benefits o.f 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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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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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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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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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 Yes? 

21 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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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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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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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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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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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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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 MR. SHANKEL: One comment. 

MR. BROOKMAN: 

7 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 (Laughter.) 

19 Jim Crawford with Trane Company. 

20 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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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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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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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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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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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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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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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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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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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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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 Yes. 

13 And other related issues. 

14 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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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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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. 

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 --

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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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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. 

15 MR. LEWIS: Could you define 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 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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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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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. 

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 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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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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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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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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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? 

1 1 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 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 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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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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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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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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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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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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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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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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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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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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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. 

1 1 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 We'll be talking a little bit 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 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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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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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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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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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 ASBRAE 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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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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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 --

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 

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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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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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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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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 

1 1 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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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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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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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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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. 

1 1 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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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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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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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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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? 

1 1 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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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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1 So we have to make sure that the process we 

2 layout 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 (No response.) 

9 Okay. 

10 MR. TURIEL: Good morning. 

11 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 w~ 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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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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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. 1111 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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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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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. 

11 That was the earliest survey form that we 

12 used. 

13 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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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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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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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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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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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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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 

8 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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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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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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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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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. 

1 1 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 YQu 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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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. 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 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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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. 

1 1 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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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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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. 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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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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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 wi thin 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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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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1 You've got it? Great. Thank you. 

2 MR. LEWIS: Dave Lewis, Lennox. 

3 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 MR. LEWIS: Maybe I misunderstood John's 

15 question. 

16 MR. BROOKMAN: John Wilson? Clarify. 

17 MR. WILSON: Well, I guess I can just re18 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'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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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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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 

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'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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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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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 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 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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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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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 

24 comments? 

25 

MR. BROOKMAN: Additional questions or 

MR. McCABE: We have a question right here. 

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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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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 MR. RIVEST: Steve, I'd say -- this is Mike 

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 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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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."

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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 

25 happens. " 

The student translation is, "And then magic 

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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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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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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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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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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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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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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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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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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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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 sayan 

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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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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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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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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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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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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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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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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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 That's pretty much it. 

9 Do you want to entertain questions? 

10 MR. BROOKMAN: Yes. We'll take a few 

11 questions. 

12 MR. JARNAGIN: Let me note, once again, these 

13 are various different possible approaches, right, that 

1 4 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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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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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. 

1 1 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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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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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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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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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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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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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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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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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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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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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 Buses 

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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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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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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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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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 

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, 

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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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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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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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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 

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 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 

24 

25 

MR. CRAWFORD: This is Dave Lewis of Lennox. 

(Laughter.) 

Jim Crawford of Trane Company. 

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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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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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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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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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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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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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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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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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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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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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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.

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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. 

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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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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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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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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 MR. ADAMS: Just since Larry is up there at 

8 the time. 

9 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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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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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. 

9 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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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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1 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. 

1 4 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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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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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 

1 6 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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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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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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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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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? 

1 1 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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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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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 commi t tee? 

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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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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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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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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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 

1 0 Jim dismissed me yesterday, and he said, "Think back. 

11 You used to work for a utility. Think about how rates 

1 2 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 

1 6 den y 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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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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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 produce the energy. 

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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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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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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 that

13 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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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 VOICE: You're not on the air. 

8 MR. BROOKMAN: I'm not on the air? 

9 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 that 

13 Wayne, you and Charlie have been designated as the co14 chairs or co-facilitators. 

15 No? Charlie? No? 

16 What is the structure? 

17 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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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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1 will be naming additional people to that committee. 

2 MR. BROOKMAN: And Wayne's been kind enough 

3 to host. 

4 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 You wanted to do one more thing for the 

14 record? 

15 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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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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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 Okay. Go ahead, Jim. 

10 Jim McMahon. 

1 1 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, everyone 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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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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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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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

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1 these things up. 

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

3 thing. 

4 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 

1 7 1 2 : 00 noon.) 

18 

19 

20 

21 

22 

23 

24 

25 

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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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1 AFTERNOON SESSION 

2 1 :00 p.m. 

3 MR. BROOKMAN: Good afternoon and welcome 

4 back. 

5 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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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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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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1 could be passed on.

2 I'd like to poi nt out that there's a definite

3 relationship between the life cycle cost curve and the

4 manufac turers 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 cos tless, 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 manufac turer 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 forecas ted 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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1 could be passed on. 

2 I'd like to point out that there's a definite 

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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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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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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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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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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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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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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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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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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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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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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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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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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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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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 Tha t '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 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'd be happy to -- I mean, I'll be happy 

1 4 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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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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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. We're 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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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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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. 

1 1 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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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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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 

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? 

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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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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. 

1 1 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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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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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 

1 3 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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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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1 survey. I guess your paper here notes that it was last 

2 sen tin 1 982 . 

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 

1 6 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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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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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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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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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 MR. FOLEY: Gene Foley, the Alliance to Save 

15 Energy. 

16 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 

25 

MR. BROOKMAN: If I said that 

MR. FOLEY: No. I'm actually responding to 

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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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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 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 

24 

25 

MR. JONES: Thank you. 

MR. BROOKMAN: Additional? 

(No response.) 

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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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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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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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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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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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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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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 like

21 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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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 like 

21 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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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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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 MR. SPINNEY: Well, 

13 MR. SHOREY: What's the biggest? 

14 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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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'm

15 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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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 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 little bit confused as to the parallel 

14 that we're drawing here between automobiles and -- I'm 

15 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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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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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 MR. BROOKMAN: That could be used; could not 

18 be used. 

19 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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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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1 MR. SPINNEY: Okay. I'm assuming that in 

2 your--

3 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 MR. SPINNEY: That would help. 

22 (Laugh ter . ) 

23 MR. LEWIS: Most of my competitors would like 

24 that same information. 

25 MR. SPINNEY: I'm sure they would. 

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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.

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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. 

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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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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, 

1 4 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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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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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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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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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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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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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. 

1 1 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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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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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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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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1 control, again. 

2 MR. RIVEST: It's a control. Yes. 

3 MR. SPINNEY: Okay. 

4 MR. RIVEST: Yes? 

5 MR. FOLEY: Gene Foley, the Alliance to Save 

6 Energy. 

7 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? 

1 1 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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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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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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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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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. 

1 1 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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1 And Jim, you're going to do a brief

2 present ati on next? I want to try and keep moving here .

3 MR. SHOREY: What's been your experience in

4 the manufacturers' views of the potential accuracy of

5 the pr ice 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 ho ld 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 Everet t 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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1 And Jim, you're going to do a brief 

2 presentation next? I want to try and keep moving here. 

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 

25 

MR. CRAWFORD: Yes. Jim Crawford. 

I just wanted to bring us all back to the 

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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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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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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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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. 

1 1 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 

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 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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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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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 anyone 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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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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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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1 operating cost. And this is probably not true for all

2 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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1 operating cost. And this is probably not true for all 

2 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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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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1 you were displaying. 

2 MR. McMAHON: No. That's exactly what 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'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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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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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. 

1 1 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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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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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 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 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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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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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 

25 

VOICE: They don't know. 

MR. McMAHON: I haven't finished my sentence. 

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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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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 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 

25 

MR. McMAHON: Did not. 

MR. RIVEST: Are we ready to move on to 

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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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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 just want to introduce to you --

9 MR. BROOKMAN: Repeat the part about it being 

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 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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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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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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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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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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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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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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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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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 

1 5 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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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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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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4

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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.

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1 anything in the methodology that was used to do that 

2 forecast that could be used to do a forecast in a 

3 standards case? 

4 MR. MORRIS: This is Wayne. 

5 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. 

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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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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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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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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 lIve 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, lId 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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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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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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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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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 XIS are a forecast that was 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, 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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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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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 

1 4 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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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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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 

25 

(Whereupon, a recess was taken.) 

MR. BROOKMAN: Okay. If you could start 

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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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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. 

1 1 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 s~ction 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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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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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. 

6 MR. BROOKMAN: Got out while the getting was 

7 good. 

8 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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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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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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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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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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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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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? 

17 MR. RIVEST: Would you care to comment on 

18 that? 

19 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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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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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 and the 

10 Department can then address that request. 

11 That's as far as I can go 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: 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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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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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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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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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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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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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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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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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 

1 7 ga thered . 

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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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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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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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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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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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 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? 

7 MR. BROOKMAN: Yes. 

8 MR. RIVEST: Moving on to competitive 

9 impacts. 

10 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 th€ir 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 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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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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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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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? 

5 MR. RIVEST: I'm looking at Joe Mattingly 

6 here. 

7 Joe, do you want to --

8 MR. McCABE: This is Michael McCabe. 

9 MR. RIVEST: Do you want to give it to Joe? 

10 MR. McCABE: Let's work it. 

1 1 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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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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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 Glenn Schleede had a question and David 

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 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 ~ompetition, 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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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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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. 

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 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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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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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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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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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 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 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 anyone 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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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's

7 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 to

17 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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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's 

7 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 to 

17 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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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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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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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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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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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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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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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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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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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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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 That completes today's presentations. 

22 MR. BROOKMAN: I saw Wayne first. 

23 MR. MORRIS: This is Wayne Morris from AHAM. 

24 I'd like to ask on this last point that you 

25 brought up, Michael. As I understand the GRIM 

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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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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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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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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 MR. RIVEST: That's shorter than my answer, 

1 4 wasn't it? 

15 (Laughter. ) 

16 I couldn't say yes. 

17 MR. LEWIS: Dave Lewis, Lennox. 

18 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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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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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. 

1 1 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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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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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 MR. BROOKMAN: Additional questions or 

15 comments? 

16 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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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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1 interested parties to look at a particular product, the 

2 industry, whether or not we're talking about 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 

25 

Yes? Please, state your name. 

MR. BEST: Dick Best, Whirlpool Corporation. 

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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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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 

1 6 next i tern 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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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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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. 

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 -- 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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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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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 perspecti ve . 

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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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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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. 

1 1 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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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?

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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 

22 

23 

24 

25 addendum? 

MR. BROOKMAN: Joe? 

MR. MATTINGLY: Joe Mattingly. 

Yes, it makes sense to. 

MR. BROOKMAN: With that addition? With that 

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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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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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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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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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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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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 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 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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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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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 MR. BROOKMAN: There's a Coke machine down in 

10 the--

11 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 

1 7 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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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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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. 

6 MR. BROOKMAN: Can you say which specific 

7 ones? 

8 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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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

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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, that information 

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 

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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

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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 

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25 

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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

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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

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23

24

25

Dated:MARCH 12, 1997

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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 

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25 

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