CHAPTER 13. MANUFACTURER IMPACT ANALYSIS 

TABLE OF CONTENTS 

13.1 INTRODUCTION ......................................................................................................... 13-1
 

13.2 METHODOLOGY ........................................................................................................ 13-1
 

13.2.1 Phase I: Industry Profile.................................................................................... 13-2
 

13.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide........................... 13-2
 

13.2.2.1 Industry Cash-Flow Analysis............................................................... 13-3
 

13.2.2.2 Interview Guide ................................................................................... 13-3
 

13.2.3 Phase III: Sub-Group Analysis ......................................................................... 13-3
 

13.2.3.1 Manufacturer Interviews...................................................................... 13-4
 

13.2.3.2 Revised Industry Cash-Flow Analysis................................................. 13-4
 

13.2.3.3 Manufacturer Sub-Group Analysis...................................................... 13-4
 

13.2.3.4 Small-Business Manufacturer Subgroup ............................................. 13-5
 

13.2.3.5 Manufacturing Capacity Impact .......................................................... 13-6
 

13.2.3.6 Employment Impact............................................................................. 13-6
 

13.2.3.7 Cumulative Regulatory Burden ........................................................... 13-6
 

13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES.......................................... 13-7
 

13.3.1 Conventional Cooking Products ........................................................................ 13-7
 

13.3.1.1 Lack of Cost-Effective Design Options for Energy Conservation
 

Standards............................................................................................................ 13-7
 

13.3.1.2 Standing Pilot Ignition Systems........................................................... 13-7
 

13.3.1.3 Profitability .......................................................................................... 13-8
 

13.3.2 Microwave Ovens .............................................................................................. 13-8
 

13.3.2.1 Standby Power ..................................................................................... 13-8
 

13.3.2.2 Profitability .......................................................................................... 13-9
 

13.3.3 Commercial Clothes Washers............................................................................ 13-9
 

13.3.3.1 Product Class Separation ..................................................................... 13-9
 

13.3.3.2 Potential Elimination of Top-Loading (Vertical-Axis) Washers......... 13-9
 

13.3.3.3 Reduced Cleaning Performance and Consumer Dissatisfaction for Top-


Loading Washers ............................................................................................. 13-10
 

13.3.3.4 Test Procedure Implications .............................................................. 13-10
 

13.4 GRIM INPUTS AND ASSUMPTIONS...................................................................... 13-10
 

13.4.1 Overview of the GRIM .................................................................................... 13-11
 

13.4.2 Sources GRIM Inputs ...................................................................................... 13-11
 

13.4.2.1 Corporate Annual Reports ................................................................. 13-11
 

13.4.2.2 Standard and Poor Credit Ratings...................................................... 13-12
 

13.4.2.3 Dun and Bradstreet Reports............................................................... 13-12
 

13.4.2.4 Shipment Model................................................................................. 13-12
 

13.4.2.5 Engineering Analysis......................................................................... 13-12
 

13.4.2.6 Manufacturer Interviews.................................................................... 13-13
 

13.4.3 Financial Parameters........................................................................................ 13-13
 

13.4.4 Corporate Discount Rate.................................................................................. 13-14
 

13.4.5 Trial Standard Levels....................................................................................... 13-16
 

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13.4.6 NES-Shipments Forecast ................................................................................. 13-17
 

13.4.6.1 Base Case Shipments Forecast........................................................... 13-17
 

13.4.6.2 Standards Case Shipments Forecast................................................... 13-18
 

13.4.6.3 Price Elasticity of Demand Shipments Scenario ............................... 13-21
 

13.4.6.4 Economic Growth Shipments Scenario ............................................. 13-22
 

13.4.7 Production Costs .............................................................................................. 13-22
 

13.4.8 Conversion Costs ............................................................................................. 13-25
 

13.4.8.1 Conversion Capital Expenditures ...................................................... 13-25
 

13.4.8.2 Product Conversion Expenses............................................................ 13-27
 

13.4.9 Markups ........................................................................................................... 13-29
 

13.4.9.1 Preservation of Gross Margin Percentage.......................................... 13-29
 

13.4.9.2 Preservation of Gross Margin (Absolute Dollars) ............................. 13-30
 

13.5	 CONVENTIONAL COOKING PRODUCTS INDUSTRY FINANCIAL
 

IMPACTS .................................................................................................................... 13-30
 

13.5.1 Impacts on Industry Net Present Value ........................................................... 13-30
 

13.5.2 Impacts on Annual Cash Flow......................................................................... 13-32
 

13.6	 MICROWAVE OVEN INDUSTRY FINANCIAL IMPACTS .................................. 13-37
 

13.6.1 Impacts on Industry Net Present Value ........................................................... 13-38
 

13.6.2 Impacts on Annual Cash Flow......................................................................... 13-39
 

13.7	 COMMERCIAL CLOTHES WASHERS INDUSTRY FINANCIAL IMPACTS ..... 13-42
 

13.7.1 Impacts on Industry Net Present Value ........................................................... 13-42
 

13.7.2 Impacts on Annual Cash Flow......................................................................... 13-44
 

13.8	 IMPACTS ON COOKING PRODUCTS SMALL BUSINESSES............................. 13-49
 

13.9	 IMPACTS ON THE LOW-VOLUME COMMERCIAL CLOTHES WASHER
 

MANUFACTURER .................................................................................................... 13-50
 

13.9.1 Introduction...................................................................................................... 13-50
 

13.9.2 Low Volume Manufacturer Competitiveness.................................................. 13-51
 

13.9.3 Effects of a Transition to Front-Loading (Horizontal-Axis) Platforms........... 13-51
 

13.9.4 Fixed Cost Impacts on a Low Volume Manufacturer...................................... 13-52
 

13.9.5 Financial Position of the LVM ........................................................................ 13-55
 

13.9.6 Additional Impacts on the Low Volume Manufacturer................................... 13-56
 

13.9.7 Consequences of Higher Energy Conservation Standards on the LVM.......... 13-57
 

13.10	 OTHER IMPACTS...................................................................................................... 13-58
 

13.10.1 Employment............................................................................................. 13-58
 

13.10.1.1 Methodology.................................................................................... 13-58
 

13.10.1.2 Conventional Cooking Products ...................................................... 13-60
 

13.10.1.3 Microwave Ovens ............................................................................ 13-63
 

13.10.1.4 Commercial Clothes Washers.......................................................... 13-66
 

13.10.2 Production Capacity................................................................................. 13-69
 

13.10.2.1 Conventional Cooking Products Production Capacity Impacts....... 13-69
 

13.10.2.2 Microwave Oven Production Capacity Impacts .............................. 13-69
 

13.10.2.3 Commercial Clothes Washer Capacity Impacts .............................. 13-70
 

13.10.3 Cumulative Regulatory Burden ............................................................... 13-70
 

13.10.3.1 Standby Power Requirements.......................................................... 13-71
 

13.10.3.2 Additional Federal Energy Conservation Standards........................ 13-72
 

13.10.3.3 State Energy and Water Conservation Standards ............................ 13-75
 

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13.10.3.4 Refrigerant Phase-out....................................................................... 13-76
 

13.10.3.5 Restriction of Hazardous Substance Directive ................................ 13-77
 

13.10.3.6 International Energy Conservation Standards ................................. 13-78
 

13.10.3.7 International Test Procedures .......................................................... 13-79
 

13.11 CONCLUSIONS.......................................................................................................... 13-79
 

13.11.1.1 Conventional Cooking Products Industry........................................ 13-79
 

13.11.1.2 Microwave Ovens Industry.............................................................. 13-83
 

13.11.1.3 Commercial Clothes Washers Industry ........................................... 13-85
 

LIST OF TABLES 

Table 13.2.1 SBA and NAICS Classification of Small Businesses Potentially Affected by This
 

Rulemaking................................................................................................................................ 13-5
 

Table 13.4.1 GRIM Financial Parameters Based on 1999-2006 Weighted Company Financial
 

Data.......................................................................................................................................... 13-13
 

Table 13.4.2 Cost of Equity Calculation................................................................................. 13-15
 

Table 13.4.3 Cost of Debt Calculation.................................................................................... 13-15
 

Table 13.4.4 Cooktops and Ovens Baseline Efficiency Levels and TSLs.............................. 13-16
 

Table 13.4.5 Microwave Ovens Baseline Energy Factor Efficiency Levels and TSLs.......... 13-16
 

Table 13.4.6 Microwave Ovens Standby Power Efficiency Levels and TSLs....................... 13-16
 

Table 13.4.7 Commercial Clothes Washers Baseline Efficiency Levels and TSLs ............... 13-17
 

Table 13.4.8 Total NES-Shipments Forecast in 2012............................................................. 13-17
 

Table 13.4.9 Base Case Distribution of Efficiencies for Cooktops and Ovens Estimated in 2012
 

in the NES................................................................................................................................ 13-18
 

Table 13.4.10 Base Case Energy Factor Distribution of Efficiencies for Microwave Ovens in
 

2012 Estimated in the NES...................................................................................................... 13-18
 

Table 13.4.11 Base Case Standby Power Distribution of Efficiencies for Microwave Ovens in
 

2012 Estimated in the NES...................................................................................................... 13-18
 

Table 13.4.12 Base Case Distribution of Efficiencies for Top-Loading Commercial Clothes
 

Washers in 2012 Estimated in the NES ................................................................................... 13-18
 

Table 13.4.13 Base Case Distribution of Efficiencies for Front-Loading Commercial Clothes
 

Washers in 2012 Estimated in the NES ................................................................................... 13-18
 

Table 13.4.14 Distribution of Electric Coil Cooktop Shipments in the Standards Case – Rollup
 

Scenario.................................................................................................................................... 13-19
 

Table 13.4.15 Distribution of Electric Smooth Cooktop Shipments in the Standards Case in 2012
 

– Rollup Scenario..................................................................................................................... 13-19
 

Table 13.4.16 Distribution of Gas Cooktop Shipments in the Standards Case in 2012 – Rollup
 

Scenario.................................................................................................................................... 13-19
 

Table 13.4.17 Distribution of Electric Standard Oven Shipments in the Standards Case in 2012 –
 

Rollup Scenario........................................................................................................................ 13-19
 

Table 13.4.18 Distribution of Electric Self-Clean Oven Shipments in the Standards Case in 2012
 

– Rollup Scenario..................................................................................................................... 13-20
 

Table 13.4.19 Distribution of Gas Standard Oven Shipments in the Standards Case in 2012 –
 

Rollup Scenario........................................................................................................................ 13-20
 

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Table 13.4.20 Distribution of Gas Self-Clean Oven Shipments in the Standards Case in 2012 –
 

Rollup Scenario........................................................................................................................ 13-20
 

Table 13.4.21 Distribution of Energy Factor Microwave Oven Shipments in the Standards Case
 

Table 13.4.22 Distribution of Standby Power Microwave Oven Shipments in the Standards Case
 

Table 13.4.23 Distribution of Top-Loading Commercial Clothes Washer Shipments in the
 

Table 13.4.24 Distribution of Front-Loading Commercial Clothes Washer Shipments in the
 

Table 13.4.25 Base Case Production Costs (2006$) used in the GRIM for Electric Coil Cooktops
 

Table 13.4.26 Base Case Production Costs (2006$) used in the GRIM for Electric Smooth
 

Table 13.4.28 Base Case Production Costs (2006$) used in the GRIM for Electric Standard
 

Table 13.4.29 Base Case Production Costs (2006$) used in the GRIM for Electric Self-Clean
 

Table 13.4.30 Base Case Production Costs (2006$) used in the GRIM for Gas Standard Ovens
 

Table 13.4.31 Base Case Production Costs (2006$) used in the GRIM for Gas Self-Clean Ovens
 

Table 13.4.32 Base Case Energy Factor Production Costs (2006$) used in the GRIM for
 

Table 13.4.33 Base Case Standby Power Production Costs (2006$) used in the GRIM for
 

Table 13.4.34 Base Case Production Costs (2006$) used in the GRIM for Top-Loading
 

Table 13.4.35 Base Case Production Costs (2006$) used in the GRIM for Front-Loading
 

Table 13.4.38 Standby Power Conversion Capital Expenditure for Microwave Ovens by TSL13­

Table 13.4.40 Product Conversion Expenses for Conventional Cooking Products Industry by
 

Table 13.4.41 Energy Factor Product Conversion Expenses for Microwave Ovens Industry by
 

Table 13.4.42 Standby Power Product Conversion Expenses for Microwave Ovens Industry by
 

Table 13.4.43 Product Conversion Expenses for Commercial Clothes Washers Industry by TSL
 

in 2012 – Rollup Scenario........................................................................................................ 13-20
 

in 2012 – Rollup Scenario........................................................................................................ 13-21
 

Standards Case in 2012 – Rollup Scenario.............................................................................. 13-21
 

Standards Case in 2012 – Rollup Scenario.............................................................................. 13-21
 

.................................................................................................................................................. 13-23
 

Cooktops .................................................................................................................................. 13-23
 

Table 13.4.27 Base Case Production Costs (2006$) used in the GRIM for Gas Cooktops.... 13-23
 

Ovens ....................................................................................................................................... 13-23
 

Ovens ....................................................................................................................................... 13-23
 

.................................................................................................................................................. 13-23
 

.................................................................................................................................................. 13-24
 

Microwave Ovens .................................................................................................................... 13-24
 

Microwave Ovens .................................................................................................................... 13-24
 

Commercial Clothes Washers.................................................................................................. 13-24
 

Commercial Clothes Washers.................................................................................................. 13-24
 

Table 13.4.36 Conversion Capital Expenditure for Conventional Cooking Products by TSL... 13­

25
 

Table 13.4.37 Energy Factor Conversion Capital Expenditure for Microwave Ovens by TSL. 13­

26
 

26
 

Table 13.4.39 Conversion Capital Expenditure for Commercial Clothes Washers by TSL .. 13-27
 

TSL .......................................................................................................................................... 13-27
 

TSL .......................................................................................................................................... 13-28
 

TSL .......................................................................................................................................... 13-28
 

.................................................................................................................................................. 13-29
 

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Table 13.5.1 Changes in Industry Net Present Value for Electric Cooktops (Preservation of
 

Gross Margin Percentage Markup).......................................................................................... 13-31
 

Table 13.5.2 Changes in Industry Net Present Value for Electric Cooktops (Preservation of
 

Table 13.5.3 Changes in Industry Net Present Value for Gas Cooktops (Preservation of Gross
 

Table 13.5.4 Changes in Industry Net Present Value for Gas Cooktops (Preservation of Gross
 

Table 13.5.5 Changes in Industry Net Present Value for Electric Ovens (Preservation of Gross
 

Table 13.5.6 Changes in Industry Net Present Value for Electric Ovens (Preservation of Gross
 

Table 13.5.7 Changes in Industry Net Present Value for Gas Ovens (Preservation of Gross
 

Table 13.5.8 Changes in Industry Net Present Value for Gas Ovens (Preservation of Gross
 

Table 13.6.1 Energy Factor Changes in Industry Net Present Value for Microwave Ovens
 

Table 13.6.2 Energy Factor Changes in Industry Net Present Value for Microwave Ovens
 

Table 13.6.3 Standby Power Changes in Industry Net Present Value for Microwave Ovens
 

Table 13.6.4 Standby Power Changes in Industry Net Present Value for Microwave Ovens
 

Table 13.7.1 Changes in Industry Net Present Value for Top-Loading Commercial Clothes
 

Table 13.7.2 Changes in Industry Net Present Value for Top-Loading Commercial Clothes
 

Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand
 

Table 13.7.3 Changes in Industry Net Present Value for Front-Loading Commercial Clothes
 

Table 13.7.4 Changes in Industry Net Present Value for Front-Loading Commercial Clothes
 

Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand
 

Table 13.7.5 Changes in Industry Net Present Value for Top-Loading and Front-Loading
 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base Case
 

Table 13.7.6 Changes in Industry Net Present Value for Top-Loading and Front-Loading
 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price
 

Table 13.9.2 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 100,000
 

Table 13.9.3 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 1,500,000
 

Gross Margin (Absolute Dollars) Markup).............................................................................. 13-31
 

Margin Percentage Markup) .................................................................................................... 13-31
 

Margin (Absolute Dollars) Markup)........................................................................................ 13-31
 

Margin Percentage Markup) .................................................................................................... 13-31
 

Margin (Absolute Dollars) Markup)........................................................................................ 13-32
 

Margin Percentage Markup) .................................................................................................... 13-32
 

Margin (Absolute Dollars) Markup)........................................................................................ 13-32
 

(Preservation of Gross Margin Percentage Markup) ............................................................... 13-38
 

(Preservation of Gross Margin (Absolute Dollars) Markup)................................................... 13-38
 

(Preservation of Gross Margin Percentage Markup) ............................................................... 13-38
 

(Preservation of Gross Margin (Absolute Dollars) Markup)................................................... 13-38
 

Washers (Preservation of Gross Margin Percentage Markup – Base Case Shipments).......... 13-43
 

Shipments) ............................................................................................................................... 13-43
 

Washers (Preservation of Gross Margin Percentage Markup – Base Case Shipments).......... 13-43
 

Shipments) ............................................................................................................................... 13-44
 

Shipments) ............................................................................................................................... 13-44
 

Elasticity of Demand Shipments) ............................................................................................ 13-44
 

Table 13.9.1 DOE Estimate of LVM Clothes Washer Sales and Unit Shipments in 2006 .... 13-51
 

units Per Year........................................................................................................................... 13-53
 

units Per Year........................................................................................................................... 13-53
 

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Table 13.9.4 Depreciation Lifetime Assumptions for a Low and High Volume Manufacturer. 13­

53
 

Table 13.9.5 Per Unit Depreciation Costs for a Low and High Volume Manufacturer ......... 13-54
 

Table 13.9.6 Per Unit Impacts of a $10 Million R&D Expense at Various Product Lifetimes.. 13­

54
 

Table 13.9.7 Total Per Unit Profit for a LVM after Depreciation and R&D Disadvantage... 13-55
 

Table 13.9.8 Comparison of the LVM’s 2007 Financials with DOE’s Green-Field Assumptions
 

.................................................................................................................................................. 13-55
 

Table 13.10.1 Conventional Cooking Products Industry Estimated Employment Impacts in 2012
 

.................................................................................................................................................. 13-61
 

Table 13.10.2 Microwave Ovens Industry Estimated Employment Impacts in 2012 for Energy
 

Factor Standards....................................................................................................................... 13-63
 

Table 13.10.3 Microwave Ovens Industry Estimated Employment Impacts in 2012 for Standby
 

Power Standards....................................................................................................................... 13-64
 

Table 13.10.4 Commercial Clothes Washer Industry Estimated Employment Impacts in 2012 13­

66
 

Table 13.10.5 Other DOE and Federal Actions Affecting the Cooking Products Industry
 

(Conventional Cooking Products and Microwave Ovens) ...................................................... 13-73
 

Table 13.10.6 Other DOE and Federal Actions Affecting the CCW Industry ........................ 13-74
 

Table 13.10.6 State Commercial Clothes Washer Regulations Similar to EPACT 2005....... 13-75
 

Table 13.10.7 California State Energy and Water Conservation Standards for Commercial
 

Clothes Washers....................................................................................................................... 13-76
 

Table 13.10.8 California Water Conservation Standards for Residential Clothes Washers... 13-76
 

LIST OF FIGURES 

Figure 13.4.1 Using the GRIM to Calculate Cash Flow......................................................... 13-11
 

Figure 13.5.1 Annual Net Cash Flows for Electric Cooktops (Preservation of Gross Margin
 

Percentage)............................................................................................................................... 13-33
 

Figure 13.5.2 Annual Net Cash Flows for Electric Cooktops (Preservation of Gross Margin
 

(Absolute Dollars)) .................................................................................................................. 13-33
 

Figure 13.5.3 Annual Net Cash Flows for Gas Cooktops (Preservation of Gross Margin
 

Percentage)............................................................................................................................... 13-34
 

Figure 13.5.4 Annual Net Cash Flows for Gas Cooktops (Preservation of Gross Margin
 

(Absolute Dollars)) .................................................................................................................. 13-34
 

Figure 13.5.5 Annual Net Cash Flows for Electric Ovens (Preservation of Gross Margin
 

Percentage)............................................................................................................................... 13-35
 

Figure 13.5.6 Annual Net Cash Flows for Electric Ovens (Preservation of Gross Margin
 

(Absolute Dollars)) .................................................................................................................. 13-35
 

Figure 13.5.7 Annual Net Cash Flows for Gas Ovens (Preservation of Gross Margin Percentage)
 

.................................................................................................................................................. 13-36
 

Figure 13.5.8 Annual Net Cash Flows for Gas Ovens (Preservation of Gross Margin (Absolute
 

Dollars)) ................................................................................................................................... 13-36
 

Figure 13.6.1 Energy Factor Annual Net Cash Flows for the Microwave Oven Industry
 

(Preservation of Gross Margin Percentage Markup) ............................................................... 13-39
 

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Figure 13.6.2 Energy Factor Annual Net Cash Flows for the Microwave Oven Industry
 

(Preservation of Gross Margin (Absolute Dollars) Markup)................................................... 13-40
 

Figure 13.6.3 Standby Power Annual Net Cash Flows for the Microwave Oven Industry
 

(Preservation of Gross Margin Percentage Markup) ............................................................... 13-40
 

Figure 13.6.4 Standby Power Annual Net Cash Flows for the Microwave Oven Industry
 

(Preservation of Gross Margin (Absolute Dollars) Markup)................................................... 13-41
 

Figure 13.7.1 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers
 

(Preservation of Gross Margin Percentage Markup – Base Case Shipments)......................... 13-45
 

Figure 13.7.2 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers
 

(Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments) .. 13­

45
 

Figure 13.7.3 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers
 

(Preservation of Gross Margin Percentage Markup – Base Case Shipments)......................... 13-46
 

Figure 13.7.4 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers
 

(Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments) .. 13­

46
 

Figure 13.7.5 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial Clothes
 

Washers (Preservation of Gross Margin Percentage Markup – Base Case Shipments).......... 13-47
 

Figure 13.7.6 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial Clothes
 

Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand
 

Shipments) ............................................................................................................................... 13-48
 

Figure 13.10.1 Cooking Products Industry Cost Structure..................................................... 13-59
 

Figure 13.10.2 Commercial Clothes Washers Industry Cost Structure ................................... 13-59
 

Figure 13.10.3 Total Conventional Cooking Products Industry Domestic Employment by Year
 

.................................................................................................................................................. 13-62
 

Figure 13.10.4 Total Microwave Ovens Industry Domestic Employment by Year for Energy
 

Factor Standards....................................................................................................................... 13-64
 

Figure 13.10.5 Total Microwave Ovens Industry Domestic Employment by Year for Standby
 

Power Standards....................................................................................................................... 13-65
 

Figure 13.10.6 Total Commercial Clothes Washer Industry Domestic Employment by Year13-67
 

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CHAPTER 13. MANUFACTURER IMPACT ANALYSIS 

13.1 INTRODUCTION 

In determining whether a standard is economically justified, the U.S Department of 

Energy (DOE) is required to consider “the economic impact of the standard on the manufacturers 

and on the consumers of the products subject to such a standard.” (42 U.S.C. 6313(a)(6)(B)(i)) 

The law also calls for an assessment of the impact of any lessening of competition as determined 

in writing by the Attorney General. Id. DOE conducted a manufacturer impact analysis (MIA) 

to estimate the financial impact of higher energy conservation standards on manufacturers of 

cooking products and commercial clothes washers (CCWs), and to assess the impact of such 

standards on employment and manufacturing capacity. The MIA has both quantitative and 

qualitative aspects. 

The quantitative part of the MIA primarily relies on Government Regulatory Impact 

Models (GRIMs), industry-cash-flow models adapted for each product in this rulemaking. The 

GRIM inputs include information on industry cost structure, shipments, and pricing strategies. 

The GRIM’s key output is the industry net present value (INPV). The model estimates the 

financial impact of higher energy conservation standards for each product by comparing changes 

in INPV between a base case and the various trial standard levels (TSLs). The qualitative part of 

the MIA addresses factors such as product characteristics, characteristics of particular 

manufacturers, and market and product trends. It also assesses the impact of standards on 

subgroups of manufacturers. 

13.2 METHODOLOGY 

DOE conducted the MIA in three phases. Phase I, “Industry Profile,” consisted of 

preparing an industry characterization for the cooking products and CCW industries, including 

data on market share, sales volumes and trends, pricing, employment, and financial structure. 

Phase II, “Industry Cash Flow,” focused on the cooking products and CCW industries 

individually. Three major product categories were identified for this rulemaking: 

•	 Conventional cooking products, consisting of cooktops, standard ovens, self-cleaning 

ovens, and ranges fueled by either gas or electricity. 

•	 Microwave ovens 

•	 Commercial clothes washers. 

DOE developed three separate GRIMs to prepare an industry cash flow analysis for the 

industry of each product category. Using publicly available information developed in Phase I, 

DOE adapted each GRIM’s generic structure to facilitate analysis of new standards for cooking 

products and amended standards for CCWs. 

In Phase III, “Sub-Group Impact Analysis,” DOE interviewed manufacturers representing 

25 to 82 percent of unit shipments of cooking products, depending on the specific cooking 

product category, and approximately 100 percent of CCW sales. This group included both large 

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and small manufacturers, providing a representative cross-section of the industries. During these 

interviews, DOE discussed financial topics specific to each manufacturer and obtained each 

manufacturer’s view of the industry as a whole. The interviews provided valuable information 

that DOE used to evaluate the impacts of new or amended standards on manufacturers’ cash 

flows, investment requirements, and employment levels. The following subsections describe 

more specifically the steps DOE took in developing the information on which it based the MIA. 

13.2.1 Phase I: Industry Profile 

In Phase I of the MIA, DOE prepared a profile of the conventional cooking products, 

microwave oven, and CCW industries that built upon the market and technology assessment 

prepared for this rulemaking (see chapter 3 of this Technical Support Document (TSD)). Before 

initiating the detailed impact studies, DOE collected qualitative and quantitative financial 

information and past and present market data. This included estimated market shares, corporate 

operating ratios, wages, employment, and production cost ratios for several home appliance 

manufacturers. The industry profile included a top-down cost analysis of cooking products and 

CCW manufacturers that DOE used to derive cost and preliminary financial inputs for the 

GRIMs (e.g., revenues; material; labor; overhead; depreciation; selling, general and 

administrative expenses (SG&A); and research and development (R&D) expenses). 

DOE also used public information to further calibrate its initial characterization of the 

conventional cooking products, microwave oven, and CCW industries, including Securities and 

Exchange Commission (SEC) 10–K reports, Standard & Poor’s (S&P) stock reports, Dun and 

Bradstreet company profiles, corporate annual reports, and U.S. Census Bureau’s 2006 Annual 

Survey of Manufactures (2006 ASM). In addition, DOE relied on information from its 

engineering analysis, life-cycle cost analysis, and analysis of markups to determine product 

prices to characterize these industries. DOE also interviewed three manufacturers of CCWs that 

collectively represent approximately 100 percent of U.S. CCW sales. These preliminary 

interviews were designed to solicit key concerns, industry structure, and other data points for the 

subsequent ANOPR analysis. 

13.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide 

In Phase II, DOE performed industry cash-flow analyses and prepared written guidelines 

for interviewing manufacturers. Phase II focused on the financial impacts of new standards on 

the conventional cooking product and microwave oven industries, and amended standards on the 

CCW industry. Phase II also focused on the financial impacts of new standby power standards 

on the microwave oven industry. New or amended standards can affect manufacturers in these 

industries in three distinct ways: (1) require additional investment, (2) raise production costs, 

and (3) impact revenues through higher prices and possibly lower shipments. The analytical tool 

DOE uses for calculating the financial impacts of new or amended energy conservation standards 

on manufacturers is the GRIM. DOE performed a cash flow analysis using a separate GRIM for 

the conventional cooking products, microwave ovens, and CCW industries to quantify these 

impacts. 

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13.2.2.1 Industry Cash-Flow Analysis 

The GRIM uses several factors to determine a series of annual cash flows for the year 

standards become effective and several years after implementation. These factors include annual 

expected revenues; costs of sales; selling, general and administrative (SG&A) costs; taxes; and 

capital expenditures related to new standards. Inputs to the GRIM include manufacturing costs, 

shipments forecasts, and prices developed in other analyses. DOE derived the manufacturing 

costs from the engineering analysis and information provided by the industry, and estimated 

typical manufacturer markups from public financial reports and interviews with manufacturers. 

Where applicable, DOE used figures from its 1996 Technical Support Document for Residential 

Cooking Products (1996 TSD) revised by current production volumes and the Producer Price 

Index (PPI). DOE developed alternative markup scenarios for each GRIM based on discussions 

with manufacturers during the rulemaking. DOE’s shipments analysis, presented in chapter 10 

of this TSD, provided the basis for the shipments projection under each TSL in each GRIM. The 

financial parameters were developed using publicly available data of manufacturers of products 

covered by this rulemaking. These parameters were revised with information submitted 

confidentially during manufacturer interviews. The results of the GRIM are compared against 

base case projections equivalent to current Federal efficiency levels for CCWs, and baseline 

efficiency levels defined in the 1996 TSD for all cooking product categories. The financial 

impact of new or amended energy conservation standards is the difference between the baseline 

and the standards-impacted sets of discounted annual cash flows. 

13.2.2.2 Interview Guide 

During Phase III of the MIA, DOE conducted interviews with manufacturers that cover 

all or some cooking product categories and manufacturers of CCWs to gather information on the 

effects of new and amended energy conservation and standby power standards on revenues and 

finances, direct employment, capital assets, and on industry competitiveness. Prior to the 

interviews, DOE distributed a standard interview guide for each major product category that 

provided a starting point to identify relevant issues and help identify the impacts of new and 

amended energy conservation standards on individual manufacturers or sub groups of 

manufacturers. The interview guide covered current organizational characteristics, industry 

infrastructure, manufacturer cash-flow analysis, a competitive impacts assessment, an 

employment impacts assessment, and a manufacturing capacity impacts assessment. The 

interview guides used to conduct the manufacturer interviews are found in Appendix 13B of this 

TSD. 

13.2.3 Phase III: Sub-Group Analysis 

During the course of the MIA, DOE interviewed manufacturers representing 25 to 82 

percent of unit shipments of cooking products, depending on the specific cooking product 

category, and approximately 100 percent of CCWs sales. Many of these same companies also 

participated in interviews for the engineering analysis. However, the MIA interviews broadened 

the discussion from primarily technology-related issues to include business related topics. One 

objective was to obtain feedback from industry on the approaches used in the GRIM and to 

isolate key issues and concerns. During interviews, DOE defined two appliance manufacturer 

sub groups that could be impacted by the energy conservation standards. For cooking products, 

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DOE identified two small businesses that manufacture only residential cooking products. For 

CCW, due to one manufacturer’s focus on the laundry business, its lower total shipment volume, 

and lower revenues compared to its competitors, one manufacturer was identified as a “LowVolume Manufacturer” (LVM). The following sections summarize the methodology and 

findings of this assessment. 

13.2.3.1 Manufacturer Interviews 

The information gathered in Phase I and the cash-flow analysis performed in Phase II are 

supplemented with information gathered during interviews with manufacturers during Phase III. 

The interview process has a key role in the manufacturer impact analyses, since it provides an 

opportunity for interested parties to express their views privately on important issues, allowing 

confidential or sensitive information to be considered in the rulemaking process. 

DOE prepared four different interview guides – one for manufacturers of conventional 

cooking products (cooktops, ovens, and ranges), one for microwave oven manufacturers dealing 

with energy factor standards, one for microwave oven manufacturers regarding standby power 

standards, and one for CCW manufacturers. DOE used these interviews to tailor each GRIM to 

incorporate unique financial characteristics for each group of products. Within each of these 

manufacturer groups, DOE contacted companies from its database of manufacturers, which 

provided a representation of each industry. Small and large companies, subsidiaries and 

independent firms, and public and private corporations were interviewed. Interviews were 

scheduled well in advance in order to provide every opportunity for key individuals to be 

available for comment. Although a written response to the questionnaire was acceptable, DOE 

preferred an interactive interview process because it helped clarify responses and provide the 

opportunity to identify additional issues. 

DOE conducted detailed interviews with all manufacturers that agreed to participate to 

gain insight into the range of potential impacts and how this range varies with each TSL. The 

resulting qualitative and quantitative information are valuable inputs for the GRIMs that were 

developed for each of the product categories. 

13.2.3.2 Revised Industry Cash-Flow Analysis 

In Phase II of the MIA, DOE provided manufacturers with preliminary GRIM input 

financial figures for review and evaluation. During the interviews, DOE requested comment and 

suggestions regarding the values selected for the parameters. Upon completion of the interviews, 

DOE revised its industry cash flow models based on the feedback provided through the 

interviews. More information on how DOE calculated the parameters for the industry GRIMs is 

found in section 13.4.3 of this chapter. 

13.2.3.3 Manufacturer Sub-Group Analysis 

Using average cost assumptions to develop an industry cash flow estimate is not adequate 

for assessing differential impacts among sub groups of manufacturers. Small, category-focused 

manufacturers and low volume manufacturers, or manufacturers exhibiting a cost structure that 

differs significantly from the industry average could be more negatively affected. Ideally, DOE 

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would consider the impact on every manufacturer individually; however, it typically uses the 

results of the industry characterization to group manufacturers exhibiting similar characteristics. 

During the interview process, DOE discussed the potential sub groups and sub group members 

that have been identified for the analysis. DOE looked to the manufacturers and other 

stakeholders to suggest what sub groups or characteristics are the most appropriate for the 

analysis. 

13.2.3.4 Small-Business Manufacturer Subgroup 

DOE used the small business size standards published on March 11, 2008, as amended, 

by the Small Business Administration (SBA) to determine whether any small entities would be 

required to comply with the rule. 61 FR 3286 and codified at 13 CFR Part 121. The size 

standards are listed by North American Industry Classification System (NAICS) code and 

industry description. DOE used the SBA limits and NAICS classifications as shown in Table 

13.2.1 to determine if any small businesses would be affected by this rulemaking. For the 

product categories under review, the SBA bases its small business definition on the total number 

of employees for a business, its subsidiaries, and its parent companies. Whenever an aggregated 

business entity has less than the listed number of employees, it is considered a small business. 

Table 13.2.1 SBA and NAICS Classification of Small Businesses Potentially Affected by 

This Rulemaking 

Industry Description Revenue Limit Employee Limit NAICS 

Residential Laundry Equipment Manufacturing N/A 1,000 335224 

Commercial Laundry Equipment Manufacturing N/A 500 333312 

Household Cooking Appliance Manufacturing N/A 750 335221 

DOE surveyed the Association of Home Appliance Manufacturers (AHAM) members 

directory to identify manufacturers of cooking products and CCWs. DOE also asked 

stakeholders and AHAM representatives within the cooking products and CCW industries if they 

were aware of any other small business manufacturers. DOE then consulted publicly available 

data, purchased company reports from vendors like Dun and Bradstreet, and contacted 

manufacturers, where needed, to determine if they meet the SBA’s definition of a small business 

manufacturing facility and have their manufacturing facilities located within the United States. 

Based on this analysis, DOE estimates that there are two small businesses that 

manufacture conventional cooking products. DOE is not aware of any small businesses in the 

microwave oven product category. Like all other manufacturers that were identified as 

supplying the U.S. market, DOE contacted both small businesses making conventional cooking 

appliances to solicit an interview. Both small businesses replied with varying amounts of 

information that consisted of written responses and/or interviews. Besides posing the standard 

MIA interview questions, DOE solicited any data that would detail differential impacts on these 

companies that may result from a standard. 

DOE found some differences in the R&D emphasis and marketing strategies between 

small business manufacturers and large manufacturers. These two manufacturers sell residential 

equipment that is differentiated from larger manufacturers’ offerings due to size or use (i.e., have 

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a standing pilot). In addition to the elimination of standing pilots, any rule affecting products 

manufactured by these small businesses will impact them disproportionately because of their size 

and their focus on cooking appliances. However, due to the low number of competitors that 

agreed to be interviewed, DOE was not able to characterize this industry segment with a separate 

cash-flow analysis due to concerns about maintaining confidentiality and uncertainty regarding 

the quantitative impact on revenues of a standing pilot ban. Consequently, DOE used the same 

GRIM, which models each product class separately, to represent the small businesses affected by 

standards and performed a qualitative evaluation of the differential impacts on these 

manufacturers. Impacts on these small businesses are found in section 13.8. 

One category-focused manufacturer of laundry equipment has significant CCW market 

share, features much smaller revenues than its diversified competitors, but is not a small business 

per the definition of the SBA for either residential or commercial laundry equipment. DOE 

subsequently assigned this manufacturer its own sub-category, the LVM, to evaluate the 

disproportionate impacts of any CCW rulemaking on this manufacturer. The impacts on this sub 

group are found in section 13.9. 

13.2.3.5 Manufacturing Capacity Impact 

One of the significant outcomes of new or amended energy conservation and standby 

power standards could be the consequential obsolescence of existing manufacturing assets, 

including tooling and investment. The manufacturer interview guide has a series of questions to 

help identify impacts on manufacturing capacity, specifically capacity utilization and plant 

location decisions in the United States and North America with and without a standard; the 

ability of manufacturers to upgrade or remodel existing facilities to accommodate the new 

requirements due to new or amended energy conservation and standby power standards; the 

nature and value of stranded assets, if any; and estimates for any one-time restructuring and other 

charges, where applicable. 

13.2.3.6 Employment Impact 

The impact of new or amended energy conservation and standby power standards on 

employment is an important consideration in the rulemaking process. To assess how domestic 

employment patterns might be affected, the interviews explored current employment trends in 

the conventional cooking products, microwave oven, and CCW industries. In addition, the 

interviews solicited manufacture views on changes in employment patterns that may result from 

more stringent standard levels. The employment impacts section of the interview guide focused 

on current employment levels associated with manufacturers at each of their production 

facilities, expected future employment levels with and without new or amended energy 

conservation and standby power standards, and differences in workforce skills and issues related 

to the retraining of employees. 

13.2.3.7 Cumulative Regulatory Burden 

DOE recognizes and seeks to mitigate the overlapping effects on manufacturers due to 

new or amended energy conservation and standby power standards and other regulatory actions 

affecting the same products. DOE analyzed and considered the impact on manufacturers of 

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multiple, product-specific regulatory actions. Based on its own research and discussions with 

manufacturers, DOE identified several regulations relevant to cooking products and CCW 

manufacturers including: Federal energy conservation standards for other products manufactured 

by cooking products and CCW manufacturers, and other environmental regulations. 

13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES 

Each MIA starts by asking: “What are the key issues for your company regarding the 

energy conservation standard rulemaking?” This open question initiates dialogue with the 

manufacturers, enabling them to identify the issues that they feel DOE should explore and 

discuss further during the interview. The following section describes key issues mentioned for 

all product categories under review. Manufacturers indicated that, for the most part, the risks 

associated with these issues increase with more stringent TSLs. 

13.3.1 Conventional Cooking Products 

13.3.1.1 Lack of Cost-Effective Design Options for Energy Conservation Standards 

All manufacturers believe that available products are already highly efficient and that 

additional energy savings are not cost-effective. For example, according to multiple 

manufacturers, any changes to the cavity of ovens and ranges require extensive engineering, 

significant capital investments, and result in a substantial price increase for consumers. 

Switching current parts, such as heating elements, insulation, or door seals, may not be capital 

intensive from a manufacturing point of view, but would require extensive engineering resources 

(e.g., redesigning, testing, and certification), which carry a high cost. Absent standards, 

efficiency improvements which initially appear first in high-end products tend to naturally trickle 

down the product line over time. Finally, all manufacturers stated that increases in prices are not 

easily accepted by consumers in the market place. Due to the high initial costs and long payback 

periods, consumers will experience price increases by any cooking efficiency standard set by 

DOE. 

13.3.1.2 Standing Pilot Ignition Systems 

Manufacturers of conventional cooking products with standing pilot lights believe there 

are several issues regarding the elimination of standing pilot lights including; (1) the consumer 

utility of standing pilot ignition systems; (2) refurbishment of existing equipment with standing 

pilot ignition; and (3) the effects of ignition system switching. 

• Consumer utility of standing pilot ignition systems – According to manufacturers, 

cooktops, ovens, and ranges with standing pilot ignition systems provide a unique 

performance characteristic and meet unique consumer needs since they can operate 

without the use of electricity. The unique consumer utility of standing pilot ignition 

includes: (1) providing safe ignition where electrical supply is unavailable (such as 

lodges and hunting cabins), and (2) providing safe ignition where religious and cultural 

practices prohibit the use of electronic ignition systems. Multiple manufacturers stated 

that remote areas which do not have electricity or have religious objections to line power 

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in the home will be impacted disproportionately because there currently are no 

alternatives for such consumers. 

• Refurbishment of existing equipment with standing pilot ignitions – One 

manufacturer stated that if standing pilot ignition systems are eliminated on new 

equipment, that the refurbishment of used units would increase. Without alternatives, 

customers would be forced to extend the lifetime of these products, which would 

correspond to decreased revenues for manufacturers. Multiple manufacturers also stated 

that aftermarket alternatives not intended for indoor cooking appliances could potentially 

be installed and would result in safety issues: Unless the ignition system is installed by 

the manufacturer of the cooking product, it may not perform to safety standards and may 

cause potential fire hazards because of incorrect installation and operation. 

• Effects of ignition system switching – Multiple manufacturers mentioned that the 

power cords on gas cooking appliances are intentionally kept short to ensure that they are 

only used with outlets specifically intended for these appliances. These manufacturers 

expressed a concern that consumers may balk at the cost of retrofitting line power behind 

a range, oven, or cooktop and would resort to using extension cords instead, a potential 

safety hazard. According to one manufacturer, the cost of installing an outlet for 

electronic ignition systems is costly and negates the savings from less fuel use. 

13.3.1.3 Profitability 

All manufacturers stated that energy conservation standards have the potential to greatly 

harm their profitability. Several manufacturers stated it is impossible to pass along cost 

increases to customers because of the competitive nature of the industry: Any cost increase due 

to standards set by DOE would thus automatically lower profit margins. Several manufacturers 

also stated that cooking standards have the potential to lower the market share of domestic 

manufacturers. Multiple manufacturers stated that any standard that creates the need for a 

complete redesign eliminates the competitive advantage of domestic firms. 

13.3.2 Microwave Ovens 

13.3.2.1 Standby Power 

All manufacturers of microwave ovens are concerned that proposed standby power 

additions to the microwave oven test procedure could reduce consumer utility. For example, one 

manufacturer stated that it is not aware of cooking sensors that do not require standby power and 

thus a low standby power standard could lead to the elimination of cooking sensors from its 

products. However, multiple manufacturers stated that they already use or are in the process of 

adopting no-standby cooking sensors. All manufacturers stated that low standby power levels 

would impact display and controls choices which would also affect consumer utility. 

Manufacturers stated that standards have the potential to eliminate remaining U.S. production 

due to already tight margins. 

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13.3.2.2 Profitability 

As with conventional cooking products, manufacturers of microwave ovens stated that 

high energy factor and standby power standards have the potential to hurt profitability. 

Manufacturers typically earn a premium on higher-end models while low-end models are 

extremely commoditized. The premium on high-end equipment would be squeezed if standby 

power standards eliminated product differentiators or energy factor standards forced high-end 

features to lower end models. 

13.3.3 Commercial Clothes Washers 

13.3.3.1 Product Class Separation 

All interviewed manufacturers stated that the CCW product class should be separated into 

two distinct product classes: top-loading washers and front-loading washers. All manufacturers 

stated that the mode of access and the orientation of the wash basket inside the washer have 

unique utilities for end users and therefore should be subject to separate energy conservation 

standards. 

13.3.3.2 Potential Elimination of Top-Loading (Vertical-Axis) Washers 

All manufacturers stated that high TSLs could potentially eliminate the top-loading 

washer product category, forcing manufacturers to only offer front-loading washers, a move 

which one manufacturer asserts is in violation of NAECA provisions protecting consumer utility. 

Even with two product categories, manufacturers are concerned that a top-loading CCW with 

max-tech efficiency but poor wash performance could cause consumer rejection and lead to a de 

facto front-loading standard. According to some manufacturers, higher TSLs are technically 

feasible with non-agitator top-loading platforms in a residential setting. However, multiple 

manufacturers stated that the adverse operating conditions in commercial settings make more 

efficient top-loading washers undesirable for that setting. 

The elimination of top-loading washers would present problems for laundromats and 

route operators who own and operate CCWs: Existing inventories of replacement parts for toploading washers would become obsolete as manufacturers transition to incompatible platforms, 

potentially representing significant stranded capital. Furthermore, replacement parts for highefficiency washers can be more expensive than replacement parts for standard top-loading 

clothes washers. 

All manufacturers currently make their top-loading CCWs in the United States, while 

front-loading CCWs are manufactured in the U.S. and abroad. Therefore, an energy 

conservation standard that increases the efficiency of top-loading machines would 

disproportionately affect U.S. production facilities. Multiple manufacturers stated that any 

resultant increases in the production of front-loading clothes washers would mainly benefit nondomestic manufacturing facilities. 

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13.3.3.3 Reduced Cleaning Performance and Consumer Dissatisfaction for Top-Loading 

Washers 

All manufacturers stated that the implementation of design options due to the 

conformance to energy conservation standards for top-loading CCW can potentially cause 

reduction in the cleaning performance and hence consumer dissatisfaction. All manufacturers 

stated that consumer satisfaction is of high priority and that disruptions can be detrimental to 

their market share. 

All manufacturers stated that overloading the washers is common practice for consumers 

and that some technologies found in residential washers are inapplicable because of that. 

Another consideration is cycle length, which owners and end-users like to be as short as 

possible.a According to all manufacturers, cycle time is critical for both consumers and 

customers. For customers, the longer the cycle, the less time there is available for consumers to 

use washers (i.e., smaller number of consumers equate to decreased revenues for CCW owners). 

For consumers, the longer the cycle time the less practical or desirable it is to use machines. 

13.3.3.4 Test Procedure Implications 

Several manufacturers stated that using the residential clothes washers test procedure for 

CCWs is inappropriate due to the very different usage patterns for residential versus commercial 

clothes washers. For example, all manufacturers agree that most, if not all, CCW cycles will 

feature full loads unlike the residential test procedure, which assumes a mix of load sizes. 

Features like load size switches and adaptive fill that boost test results per the current test 

procedure (which assumes variable load sizes) are thus unlikely to have any noticeable impact on 

actual CCW end-use energy consumption. While one manufacturer supported the continued use 

of the residential test procedure in the absence of better data, another manufacturer expressed 

support for a test procedure change which would change the test procedure load size to be 100 

percent full for every wash. According to multiple manufacturers, R&D dollars should be 

focused on improvements that represent concrete energy savings and not on technology that 

provide efficiency credits per the test procedure, but which provide no energy savings under 

actual operating conditions. 

13.4 GRIM INPUTS AND ASSUMPTIONS 

The GRIM serves as the main tool for assessing the impact on industry due new or 

amended energy conservation standards. In the microwave oven GRIM, DOE also assess the 

impact of new standby power standards. DOE relies on several sources to obtain inputs for the 

GRIM. Data and assumptions from these sources are then feed into an accounting model that 

details the cash flow on a baseline basis, as well as calculates the impacts on manufacturers due 

to energy conservation and standby standards. Three GRIM models were developed, one for 

each product category (i.e., conventional cooking products, microwave ovens, and CCWs). 

a In stock configuration, CCWs typically run on a 26 minute cycle. Higher-efficiency residential clothes washers 

can run for more than an hour per cycle. 

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13.4.1 Overview of the GRIM 

The basic structure of the GRIM, illustrated in Figure 13.4.1, is an annual cash flow 

analysis that uses manufacturer prices, manufacturing costs, shipments, and industry financial 

information as inputs, and accepts a set of regulatory conditions such as changes in costs, 

investments, and associated margins. The GRIM spreadsheet uses a number of inputs to arrive at 

a series of annual cash flows, beginning with the base year of the analysis, 2007, and continuing 

explicitly through 2042. The model calculates the INPV by summing the stream of annual 

discounted cash flows during this period.1 

Figure 13.4.1 Using the GRIM to Calculate Cash Flow 

The GRIM projects cash flows using standard accounting principles and compares 

changes in INPV between the base case scenario and the standard case scenario, evaluating 

changes induced by the amended energy conservation or standby power standards. The 

difference in INPV between the base case and the standard case(s) represents the estimated 

financial impact of the amended energy conservation standard on manufacturers. Appendix 13C 

provides more technical details and user information for the GRIM. 

13.4.2 Sources GRIM Inputs 

The GRIM uses several different sources for data inputs in determining the cash flows for 

the industry, including corporate annual reports, company profiles, Census data, credit ratings, 

the shipments model, the engineering analysis, and the manufacturer interviews. 

13.4.2.1 Corporate Annual Reports 

Corporate annual reports to the Securities and Exchange Commission (SEC 10-Ks) 

provided many of the financial inputs to the GRIM.2 These reports exist for publicly held 

companies and are freely available to the general public. DOE developed average financial 

inputs to the GRIM by examining the annual SEC 10-K reports filed by publicly-traded 

manufacturers primarily engaged in appliance manufacturing and whose combined product range 

includes cooktops, ovens, ranges, microwaves, and commercial clothes washers. Because these 

companies are typically diversified, producing a range of different appliances, an industry 

average was assumed by DOE to be representative for the manufacture of each type of appliance. 

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Since these companies do not provide detailed information about their individual product lines, 

DOE had to use the financial information for the entire companies to represent the financial 

parameters in all three GRIMs. In determining financial parameters for the industries, DOE 

weighted corporate financial information contained in the SEC 10-Ks by each company’s 

estimated market share to arrive at industry-weighted averages. DOE used corporate annual 

reports to derive the following GRIM inputs: 

• Tax rate, 

• Working capital, 

• Sales, general, and administration expenses (SG&A), 

• Research and development (R&D) expenses, 

• Depreciation, 

• Capital expenditures, and 

• Net property, plant, and equipment (PPE). 

DOE also used information from company SEC 10-K reports to calibrate the GRIM’s 

operating profit margin against the industry weighted average. 

13.4.2.2 Standard and Poor Credit Ratings 

Standard and Poor (S&P) provides independent credit ratings, research, and financial 

information. S&P reports are available for a nominal fee. DOE relied on S&P reports to 

determine the industry’s average cost of debt for the cost of capital calculation. 

13.4.2.3 Dun and Bradstreet Reports 

Dun and Bradstreet (D&B) provides independent research regarding company cash 

flows, revenues, employees, and credit-worthiness. Besides conducting manufacturer interviews, 

DOE used D&B reports to profile several manufacturers which had the potential to be small 

businesses. 

13.4.2.4 Shipment Model 

The GRIM used shipment projections derived from DOE’s shipments model in the 

national impact analysis. The model relied on historical shipments data for cooking products and 

CCWs from AHAM for the NOPR analysis. Chapter 10 of the TSD describes the methodology 

and analytical model DOE used to forecast shipments. 

13.4.2.5 Engineering Analysis 

During the engineering analysis, DOE used data submitted from AHAM, information 

from the 1996 TSD, and manufacturer interviews to develop manufacturing cost estimates for 

conventional cooking products, microwave ovens, and CCWs. The analysis provided labor, 

materials, and overhead production costs which are representative of the conventional cooking 

products, microwave ovens, and CCW industries. For cooking products, the costs determined in 

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the 1996 TSD were adjusted to 2006 prices based on the producer price index (PPI).b The input 

costs used for CCWs were obtained from information submitted by AHAM and from 

manufacturer interviews. 

13.4.2.6 Manufacturer Interviews 

During the course of the MIA, DOE conducted interviews with manufacturers 

representing approximately 75 percent of the conventional cooking appliance industry, 35 

percent of microwave manufacturers, and approximately 100 percent of the CCWs industry. 

During these discussions, DOE obtained information, which it used to determine and verify 

GRIM input assumptions for each industry. Key topics discussed during the interviews and 

reflected in the GRIM include: 

•	 Conversion capital expenditures (one-time investments in property, plant, and 

equipment.) 

•	 Product conversion expenses (one-time investments in research, product 

development, testing, and marketing). 

•	 The portion of the conversion capital expenditures that companies use to replace 

stranded assets. 

•	 Product cost structure: The portion of the manufacturer production costs related to 

materials, labor, overhead, and depreciation costs. 

•	 Projected total shipment and shipment distribution mix 

•	 Engineering analysis estimated manufacturer production costs. 

13.4.3 Financial Parameters 

Table 13.4.1 provides financial parameters for three public companies engaged in 

manufacturing and selling cooking products and commercial clothes washers. The values listed 

are averages over an eight-year period (1999-2006). 

Table 13.4.1 GRIM Financial Parameters Based on 1999-2006 Weighted Company 

Financial Data 

Parameter 

IndustryWeighted 

Average 

Manufacturer 

A C D 

Tax Rate (% of Taxable Income) 33.9 6.6 34.1 34.5 

Working Capital (% of Revenue) 2.9 9.6 5.6 2.0 

SG&A (% of Revenue) 13.0 12.7 12.3 13.2 

R&D (% of Revenues) 2.3 2.3 2.0 2.4 

Depreciation (% of Revenues) 3.4 3.9 3.4 3.3 

Capital Expenditures (% of Revenues) 3.5 1.9 3.4 3.6 

Net Property, Plant, and Equipment 

(% of Revenues) 19.9 17.3 21.6 19.4 

b For more information on the PPI, please see the Bureau of Labor Statistics web-site at: http://www.bls.gov 

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These companies constitute a significant portion of the cooking products and CCW 

industries. For other companies in the industry, public data is not available and was not used to 

calculate the parameters. The values used in the GRIMs, therefore, represent the industry’s 

weighted average estimates using financial data from three publicly traded manufacturers. 

During manufacturer interviews, manufacturers of cooking products and CCWs were asked to 

review the parameters listed in Table 13.4.1 and comment on how the parameters related to their 

specific industry. Where applicable, the parameters were then adjusted for the GRIM for each 

industry. 

13.4.4 Corporate Discount Rate 

DOE used the weighted-average cost of capital (WACC) for the industry as the discount 

rate to calculate the INPV. A company’s assets are financed by a combination of debt and 

equity. The WACC is the total cost of debt and equity weighted by their respective proportions 

in the capital structure of the industry.1 DOE estimated the WACC for the cooking products and 

commercial clothes washers industries based on several representative companies, using the 

following formula: 

WACC = After-Tax Cost of Debt x (Debt Ratio) + Cost of Equity x (Equity Ratio) 

The cost of equity is the rate of return that equity investors (including, potentially, the 

company) expect to earn on a company’s stock. These expectations are reflected in the market 

price of the company’s stock. The capital asset pricing model (CAPM) provides one widely used 

means to estimate the cost of equity. According to the CAPM, the cost of equity (expected 

return) is: 

Cost of Equity = Riskless Rate of Return + β x Risk Premium 

where: 

Riskless rate of return is the rate of return on a “safe” benchmark investment, 

typically considered the short-term Treasury Bill (T-Bill) yield. 

Risk premium is the difference between the expected return on stocks and the 

riskless rate. 

Beta (β) is the correlation between the movement in the price of the stock and that 

of the broader market. In this case, Beta equals one if the stock is perfectly 

correlated with the S&P 500 market index. A Beta lower than one means the 

stock is less volatile than the market index. 

DOE determined that the industry average cost of equity for cooking products and CCWs 

industries is 17.9 percent as calculated in Table 13.4.2. 

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Table 13.4.2 Cost of Equity Calculation
 

Parameter 

IndustryWeighted 

Average (%) 

Manufacturer 

A C D 

(1) Average Beta 

(2002 – 2006 year) 1.31 1.0* 1.77 1.17 

(2) Yield on 10 Year T-Bill 

(1990-2006) 5.9 - - -

(3) Market Risk Premium 

(1926-1999) 9.2 - - -

Cost of Equity (2)+[(1)*(3)] 17.9 - - -

Equity/Total Capital 37.2 23.7 -49.8 64.6 

* Estimated Beta 

Bond ratings are a tool to measure default risk and arrive at a cost of debt. Each bond 

rating is associated with a particular spread. One way of estimating a company’s cost of debt is 

to treat it as a spread (usually expressed in basis points) over the risk-free rate. DOE used this 

method to calculate the cost of debt for all three manufacturers. S&P had bond ratings for all 

three manufacturers, so DOE used these ratings to estimate the manufacturers’ cost of debt by 

adding the relevant spread to the risk-free rate. 

In practice, investors use a variety of different maturity Treasury bonds to estimate the 

risk-free rate. DOE used a long-term Treasury bond return (10-year bond return) because it 

captures long-term inflation expectations and is less volatile than short-term rates. The risk free 

rate is estimated to be approximately six percent, which is the average 10-year Treasury bond 

return over the period of 1990 to 2006. 

For the cost of debt, S&P’s Credit Services provided the average spread of corporate 

bonds for the three public manufacturers over the period 2002-2006. To this, DOE added the 

industry-weighted average spread to the average T-Bill yield over the same period. Since 

proceeds from debt issuance are tax deductible, DOE adjusted the gross cost of debt by the 

industry average tax rate to determine the net cost of debt for the industry. Table 13.4.3 presents 

the derivation of the cost of debt. Also shown is the capital structure of the industry, i.e. the debt 

ratio (debt/total capital). 

Table 13.4.3 Cost of Debt Calculation 

Parameter 

IndustryWeighted 

Average (%) 

Manufacturer 

A C D 

S&P Bond Rating -­ B­ BBB BBB 

(1) Yield on 10 year T-Bill 

(1990-2002) 5.9 - - -

(2) Gross Cost of Debt 8.2 13.9 8.1 8.1 

(3) Tax Rate 34 6.6 34.1 34.5 

Net Cost of Debt (2)x((1)­

(3)) 5.4 - - -

Debt/Total Capital 62.8 76.3 149.8 35.4 

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DOE estimated the conventional cooking products, microwave ovens, and CCW 

industries’ WACC to be approximately 10.1 percent. Subtracting an inflation rate of 2.9 percent 

between 1990 and 2006, the inflation adjusted WACC, and the corporate discount rate used in 

the GRIM, is 7.2 percent. 

13.4.5 Trial Standard Levels 

DOE developed TSLs for conventional cooking products, microwave ovens, and CCWs. 

As previously discussed, the effects of TSLs on cooktops, ovens, and ranges are examined in one 

GRIM, the effects of TSLs for microwave ovens are examined in another, and the effects of 

TSLs for CCWs examined in a final GRIM. Chapter 9 of the TSD describes the methodology 

DOE used to determine each TSL for each of the separate GRIMs. The efficiency levels used in 

the GRIMs are presented in Table 13.4.4 through Table 13.4.7. 

Table 13.4.4 Cooktops and Ovens Baseline Efficiency Levels and TSLs 

Product Class Efficiency 

Metric Baseline TSL 1 TSL 2 TSL 3 TSL 4 

Electric Coil Cooktops EF 0.7370 0.7370 0.7690 0.7690 0.7690 

Electric Smooth 

Cooktops EF 0.7420 0.7420 0.7420 0.7420 0.7530 

Gas Cooktops EF 0.1560 0.3990 0.3990 0.3990 0.4200 

Electric Standard Ovens EF 0.1066 0.1066 0.1163 0.1163 0.1209 

Electric Self-Clean Oven EF 0.1099 0.1099 0.1099 0.1099 0.1123 

Gas Standard Oven EF 0.0298 0.0583 0.0583 0.0583 0.0600 

Gas Self-Clean Oven EF 0.0540 0.0540 0.0540 0.0625 0.0632 

Table 13.4.5 Microwave Ovens Baseline Energy Factor Efficiency Levels and TSLs
 

Product Class Efficiency 

Metric 

Baseline TSL 1a TSL 2a TSL 3a TSL 4a 

Microwave 

Ovens 

EF 0.557 0.586 .0588 0.597 0.602 

Table 13.4.6 Microwave Ovens Standby Power Efficiency Levels and TSLs
 

Product Class Efficiency 

Metric 

Baseline TSL 1b TSL 2b TSL 3b TSL 4b 

Microwave 

Ovens 

W 4.0 2.0 1.5 1.0 0.02 

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Table 13.4.7 Commercial Clothes Washers Baseline Efficiency Levels and TSLs
 

Product Class Efficiency Metric Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Top-Loading MEF 1.26 1.42 1.60 1.76 1.76 1.76 

WF 9.5 9.5 8.5 8.3 8.3 8.3 

Front-Loading MEF 1.72 1.80 2.00 2.00 2.20 2.35 

WF 8.0 7.5 5.5 5.5 5.1 4.4 

13.4.6 NES-Shipments Forecast 

The GRIM estimates manufacturer revenues based on total-unit-shipment forecasts and 

the distribution of these values by efficiency level. Changes in the efficiency mix at each 

standard level are a key driver of manufacturer finances. For this analysis, the GRIM used the 

national energy savings (NES) shipments forecasts for cooktops, ovens, microwave ovens, and 

CCWs from 2007 to 2042. Further explanation of approaches and calculations of total shipments 

can be found in the shipment analysis section of this TSD (chapter 10). Total shipments 

forecasted in the shipment analysis for all efficiency levels in 2012 are shown in Table 13.4.8 

and are further detailed below. 

Table 13.4.8 Total NES-Shipments Forecast in 2012 

Product Class Total Industry Shipments* 

Electric Coil Cooktops 2,370,300 

Electric Smooth Cooktops 2,798,000 

Gas Cooktops 3,690,700 

Electric Standard Ovens 1,366,500 

Electric Self-Clean Ovens 4,230,600 

Gas Standard Ovens 1,432,200 

Gas Self-Clean Ovens 1,763,600 

Microwave Ovens 16,116,700 

Top-Loading Commercial Clothes Washers 152,100 

Front-Loading Commercial Clothes Washers 39,900 

* Estimates rounded to the nearest hundred 

13.4.6.1 Base Case Shipments Forecast 

As part of the shipment analysis, DOE estimated the shipment distribution by efficiency 

level for cooktops and ovens, microwave ovens, and CCWs. Table 13.4.9 through Table 13.4.12 

show the base case distributions of shipments by TSL estimated in the NES for various product 

classes for 2012. 

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Table 13.4.9 Base Case Distribution of Efficiencies for Cooktops and Ovens Estimated in 

2012 in the NES 

Product Class Efficiency Metric 

Base Case Distribution of Shipments by Efficiencies 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 

Electric Coil Cooktops EF 100% 0% 0% 0% 0% 

Electric Smooth Cooktops EF 100% 0% 0% 0% 0% 

Gas Cooktops EF 6.8% 92.3% 0% 0% 0% 

Electric Standard Ovens EF 100% 0% 0% 0% 0% 

Electric Self-Clean Oven EF 100% 0% 0% 0% 0% 

Gas Standard Oven EF 17.6% 82.4% 0% 0% 0% 

Gas Self-Clean Oven EF 100% 0% 0% 0% 0% 

Table 13.4.10 Base Case Energy Factor Distribution of Efficiencies for Microwave Ovens 

in 2012 Estimated in the NES 

Shipments 

Efficiency Level 

(EF) 

Baseline 

0.557 

TSL 1a 

0.586 

TSL 2a 

0.588 

TSL 3a 

0.597 

TSL 4a 

0.602 

Baseline 

0.557 100% 0% 0% 0% 0% 

Table 13.4.11 Base Case Standby Power Distribution of Efficiencies for Microwave Ovens 

in 2012 Estimated in the NES 

Shipments 

Efficiency Level 

(W) 

Baseline 

4.0 

TSL 1b 

2.0 

TSL 2b 

1.5 

TSL 3b 

1.0 

TSL 4b 

0.02 

Baseline 

4.0 46.2% 34.6% 19.2% 0% 0% 

Table 13.4.12 Base Case Distribution of Efficiencies for Top-Loading Commercial Clothes 

Washers in 2012 Estimated in the NES 

Shipments 

Efficiency Level 

(MEF/WF) 

Baseline 

1.26/9.5 

TSL 1 

1.42/9.5 

TSL 2 

1.60/8.5 

TSL 3, 4, 5 

1.76/8.3 

Baseline 

1.26/9.5 63.7% 33.3% 0.0% 3.0% 

Table 13.4.13 Base Case Distribution of Efficiencies for Front-Loading Commercial 

Clothes Washers in 2012 Estimated in the NES 

Shipments 

Efficiency Level 

(MEF/WF) 

Baseline 

1.72/8.0 

TSL 1 

1.80/7.5 

TSL 2, 3 

2.00/5.5 

TSL 4 

2.20/5.1 

TSL 5 

2.35/4.4 

Baseline 

1.72/8.0 7.3% 4.4% 85.3% 1.5% 1.5% 

13.4.6.2 Standards Case Shipments Forecast 

To examine the effects of amended energy conservation standards on shipments, which 

affect the INPV, DOE used the base case shipments described in the previous section. For the 

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standards case, DOE assumed shipments at lower efficiencies were most likely to roll up into 

higher efficiency levels in response to an increase in energy conservation standards. This 

pessimistic scenario assumes that demand for high efficiency equipment is a function of its price 

without regards for the standard level. Table 13.4.14 through Table 13.4.23 show the 

distributions of efficiencies for the various equipment classes in 2012 under the roll-up scenario. 

Table 13.4.14 Distribution of Electric Coil Cooktop Shipments in the Standards Case – 

Rollup Scenario 

TSL Baseline TSL 1, 2, 3, 4 

(EF) 0.7370 0.7690 

Baseline 

0.7370 100% 0% 

TSL 1, 2, 3, 4 

0.7690 100% 

Table 13.4.15 Distribution of Electric Smooth Cooktop Shipments in the Standards Case in 

2012 – Rollup Scenario 

TSL Baseline, TSL 4 

(EF) TSL 1, 2, 3 0.7530 

0.7420 

Baseline, 

TSL 1, 2, 3 100% 0% 

0.7420 

TSL 4 

0.7530 100% 

Table 13.4.16 Distribution of Gas Cooktop Shipments in the Standards Case in 2012 – 

Rollup Scenario 

TSL 

(EF) 

Baseline 

0.1560 

TSL 1, 2, 3 

0.3990 

TSL 4 

0.4200 

Baseline 

0.1560 6.8% 93.2% 0% 

TSL 1, 2, 3 

0.3990 100% 0% 

TSL 4 

0.4200 100% 

Table 13.4.17 Distribution of Electric Standard Oven Shipments in the Standards Case in 

2012 – Rollup Scenario 

TSL 

(EF) 

Baseline, 

TSL 1 

0.1066 

TSL 2, 3 

0.1163 

TSL 4 

0.1209 

Baseline, 

TSL 1 

0.1066 

100% 0% 0% 

TSL 2, 3 

0.1163 100% 0% 

TSL 4 

0.1209 100% 

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Table 13.4.18 Distribution of Electric Self-Clean Oven Shipments in the Standards Case in 

2012 – Rollup Scenario 

TSL Baseline, TSL 4 

(EF) TSL 1, 2, 3 0.1123 

0.1099 

Baseline, 

TSL 1, 2, 3 100% 0% 

0.1099 

TSL 4 

0.1123 100% 

Table 13.4.19 Distribution of Gas Standard Oven Shipments in the Standards Case in 2012 

– Rollup Scenario 

TSL 

(EF) 

Baseline 

0.0298 

TSL 1, 2, 3 

0.0583 

TSL 4 

0.0600 

Baseline 

0.0298 17.6% 82.4% 0% 

TSL 1, 2, 3 

0.0583 100% 0% 

TSL 4 

0.0600 100% 

Table 13.4.20 Distribution of Gas Self-Clean Oven Shipments in the Standards Case in 

2012 – Rollup Scenario 

TSL 

(EF) 

Baseline, 

TSL 1, 2 

0.0540 

TSL 3 

0.0625 

TSL 4 

0.0632 

Baseline, 

TSL 1, 2 

0.0540 

100% 0% 0% 

TSL 3 

0.0625 100% 0% 

TSL 4 

0.0632 100% 

Table 13.4.21 Distribution of Energy Factor Microwave Oven Shipments in the Standards 

Case in 2012 – Rollup Scenario 

TSL 

(EF) 

Baseline 

0.557 

TSL 1a 

0.586 

TSL 2a 

0.588 

TSL 3a 

0.597 

TSL 4a 

0.602 

Baseline 

0.557 100% 0% 0% 0% 0% 

TSL 1 

0.586 100% 0% 0% 0% 

TSL 2 

0.588 100% 0% 0% 

TSL 3 

0.597 100% 0% 

TSL 4 

0.602 100% 

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Table 13.4.22 Distribution of Standby Power Microwave Oven Shipments in the Standards 

Case in 2012 – Rollup Scenario 

TSL 

(Watts/H) 

Baseline 

4.0 

TSL 1b 

2.0 

TSL 2b 

1.5 

TSL 3b 

1.0 

TSL 4b 

0.02 

Baseline 

4.0 46.2% 34.6% 19.2% 0% 0% 

TSL 1 

2.0 80.8% 19.2% 0% 0% 

TSL 2 

1.5 100% 0% 0% 

TSL 3 

1.0 100% 0% 

TSL 4 

0.02 100% 

Table 13.4.23 Distribution of Top-Loading Commercial Clothes Washer Shipments in the 

Standards Case in 2012 – Rollup Scenario 

TSL 

(MEF/WF) 

Baseline 

1.26/9.5 

TSL 1 

1.42/9.5 

TSL 2 

1.60/8.5 

TSL 3, 4,5 

1.76/8.3 

Baseline 

1.26/9.5 63.7% 33.3% 0.0% 3.0% 

TSL 1 

1.42/9.5 97.0% 0.0% 3.0% 

TSL 2 

1.60/8.5 97.0% 3.0% 

TSL 3, 4, 5 

1.76/8.3 100.0% 

Table 13.4.24 Distribution of Front-Loading Commercial Clothes Washer Shipments in 

the Standards Case in 2012 – Rollup Scenario 

TSL 

(MEF/WF) 

Baseline 

1.72/8.0 

TSL 1 

1.80/7.5 

TSL 2, 3 

2.00/5.5 

TSL 4 

2.20/5.1 

TSL 5 

2.35/4.4 

Baseline 

1.72/8.0 7.3% 4.4% 85.3% 1.5% 1.5% 

TSL 1 

1.80/7.5 11.7% 85.3% 1.5% 1.5% 

TSL 2, 3 

2.00/5.5 97.0% 1.5% 1.5% 

TSL 4 

2.20/5.1 98.5% 1.5% 

TSL 5 

2.35/4.4 100.0% 

13.4.6.3 Price Elasticity of Demand Shipments Scenario 

In the microwave oven and CCW GRIMs, DOE modeled a shipment scenario that 

considers the impacts of changes in relative prices on consumer demand for each product. As 

described in the purchase price, operating cost, and household income impacts found in the 

shipments model in chapter 10, this shipment scenario estimates how the combined effects of 

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increases in purchase price and decreases in operating costs due to new energy conservation 

standards affect shipments. DOE calculated the relative price elasticity of demand over time to 

determine how shipments would likely change after a standard sets a higher initial purchase price 

and lower operating costs. For the microwave oven and CCW GRIM shipments under the “price 

elasticity scenario,” the effects from the increase in product purchase prices offset the effects 

from decreased operating costs, resulting in a net decrease in shipments. See chapter 10 for more 

details on the shipment scenarios. 

13.4.6.4 Economic Growth Shipments Scenario 

In all three GRIMs, DOE modeled three shipment scenarios that consider the impacts of 

changes in the overall U.S economy. These shipment scenarios are based on the Energy 

Information Administration’s (EIA) 2007 Annual Energy Outlook Report (AEO2007) for the 

period 1990–2030.3 AEO2007 provides three scenarios: the Reference case, the High Economic 

Growth case, and the Low Economic Growth case. DOE does not present the GRIM results for 

the economic growth shipment scenarios. However, this option is left as an option for the user to 

select in both GRIMs. It is also possible for the user to combine the price elasticity scenario with 

an economic scenario in the microwave oven and CCW GRIMs. See chapter 10 for more details 

on the economic growth shipment scenarios. 

13.4.7 Production Costs 

Changes in production costs impact revenues and gross profits. As shown in the 

engineering analysis (chapter 5), products that are more efficient usually cost more to produce 

than baseline products. For the MIA, DOE used the manufacturing production costs (MPCs) 

derived in the engineering analysis, with appropriate production volume estimates. For instance, 

more efficient products sold under existing energy conservation standards are manufactured at 

lower production volumes than standard efficiency products. Enacting more stringent energy 

conservation standards will increase production volumes for more efficient units. 

As described in chapter 5, the costs of conventional cooking products and microwave 

ovens were calculated using data found in the 1996 TSD adjusted by production volume and the 

producer price index. The costs of CCWs were calculated using data supplied by AHAM and 

interviews with manufacturers. The GRIM included the proportion of costs devoted to labor, 

materials, overhead, and depreciation that make up the full cost of production or MPCs. DOE 

estimated the proportion of costs associated with each cost category by using information 

provided by AHAM4

and U.S. Census Bureau’s Current Industry Reports (CIR)5 and 2006 ASM 

for cooking products and CCWs (see section 13.10.1.1 for derivation of the industry cost 

structures). Table 13.4.25 through Table 13.4.34 provide the MPC results used in the GRIM for 

cooktops and ovens, microwave ovens, and CCWs. 

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Table 13.4.25 Base Case Production Costs (2006$) used in the GRIM for Electric Coil 

Cooktops 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, 

TSL 1 (0.7370) $7.21 $68.70 $2.23 $3.50 $81.63 

TSL 2, 3, 4 

(0.7690) $7.41 $70.62 $2.29 $3.59 $83.91 

Table 13.4.26 Base Case Production Costs (2006$) used in the GRIM for Electric Smooth 

Cooktops 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, 

TSL 1, 2, 3 (0.7420) $7.87 $75.02 $2.43 $3.82 $89.14 

TSL 4 (0.7530) $15.74 $149.99 $4.86 $7.64 $178.23 

Table 13.4.27 Base Case Production Costs (2006$) used in the GRIM for Gas Cooktops
 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline (0.1560) $7.87 $74.98 $2.43 $3.82 $89.09 

TSL 1, 2, 3 (0.3390) $8.93 $85.13 $2.76 $4.33 $101.15 

TSL 4 (0.4200) $10.70 $101.96 $3.30 $5.19 $121.15 

Table 13.4.28 Base Case Production Costs (2006$) used in the GRIM for Electric Standard 

Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, TSL 1 

(0.1066) $12.91 $123.01 $3.99 $6.26 $146.17 

TSL 2, 3 (0.1163) $13.34 $127.09 $4.12 $6.47 $151.01 

TSL 4 (0.1209) $17.47 $166.51 $5.40 $8.48 $197.86 

Table 13.4.29 Base Case Production Costs (2006$) used in the GRIM for Electric SelfClean Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, 

TSL 1, 2, 3, (0.1099) $16.35 $155.82 $5.05 $7.93 $185.15 

TSL 4 (0.1123) $20.23 $192.83 $6.25 $9.82 $229.13 

Table 13.4.30 Base Case Production Costs (2006$) used in the GRIM for Gas Standard 

Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline (.0298) $13.67 $130.28 $4.22 $6.63 $154.80 

TSL 1, 2, 3 (.0583) $14.99 $142.90 $4.63 $7.27 $169.80 

TSL 4 (.0600) $17.57 $167.40 $5.43 $8.52 $198.91 

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Table 13.4.31 Base Case Production Costs (2006$) used in the GRIM for Gas Self-Clean 

Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, TSL 1, 2 

(0.0540) $19.45 $185.37 $6.01 $9.44 $220.26 

TSL 3 (0.0625) $20.42 $194.63 $6.31 $9.91 $231.27 

TSL 4 (0.0632) $20.92 $199.34 $6.46 $10.15 $236.86 

Table 13.4.32 Base Case Energy Factor Production Costs (2006$) used in the GRIM for 

Microwave Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline (0.557) $10.62 $101.18 $3.28 $5.15 $120.23 

TSL 1a (0.586) $11.38 $108.49 $3.52 $5.52 $128.91 

TSL 2a (0.588) $12.20 $116.29 $3.77 $5.92 $138.18 

TSL 3a (0.597) $13.49 $128.56 $4.17 $6.54 $152.76 

TSL 4a (0.602) $15.13 $144.20 $4.67 $7.34 $171.34 

Table 13.4.33 Base Case Standby Power Production Costs (2006$) used in the GRIM for 

Microwave Ovens 

TSL 

(W) 

Labor Material Overhead Depreciation MPC 

Baseline (4.0) $10.60 $100.99 $3.27 $5.14 $120.00 

TSL 1b (2.0) $10.62 $101.24 $3.28 $5.15 $120.30 

TSL 2b (1.5) $10.66 $101.55 $3.29 $5.17 $120.67 

TSL 3b (1.0) $10.73 $102.23 $3.31 $5.20 $121.47 

TSL 4b (0.02) $11.05 $105.31 $3.41 $5.36 $125.13 

Table 13.4.34 Base Case Production Costs (2006$) used in the GRIM for Top-Loading 

Commercial Clothes Washers 

TSL 

(MEF/WF) 

Labor Material Overhead Depreciation MPC 

Baseline (1.26/9.5) $32.47 $219.72 $20.57 $12.21 $284.97 

TSL 1 (1.42/9.5) $40.97 $277.26 $25.96 $15.41 $359.60 

TSL 2 (1.60/8.5) $47.26 $319.82 $29.94 $17.77 $414.80 

TSL 3, 4, 5 (1.76/8.3) $48.93 $331.08 $31.00 $18.40 $429.40 

Table 13.4.35 Base Case Production Costs (2006$) used in the GRIM for Front-Loading 

Commercial Clothes Washers 

TSL 

(MEF/WF) 

Labor Material Overhead Depreciation MPC 

Baseline (1.72/8.0) $66.96 $453.10 $42.42 $25.17 $587.65 

TSL 1 (1.80/7.5) $66.96 $453.10 $42.42 $25.17 $587.65 

TSL 2, 3 (2.00/5.5) $68.52 $463.64 $43.41 $25.76 $601.32 

TSL 4 (2.20/5.1) $71.27 $482.27 $45.15 $26.80 $625.49 

TSL 5 (2.35/4.4) $74.21 $502.16 $47.01 $27.90 $651.28 

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13.4.8 Conversion Costs 

New or amended energy conservation standards typically cause manufacturers to incur 

one-time conversion costs to bring their production facilities and product designs into 

compliance with new regulations. For the purpose of the MIA, DOE classified these one-time 

conversion costs into two major groups: conversion capital expenditures and product conversion 

expenses. Conversion capital expenditures are one-time investments in property, plant, and 

equipment to adapt or change existing production facilities so that new product designs can be 

fabricated and assembled under the new regulation. Product conversion expenses are one-time 

investments in research, development, testing, and marketing focused on making product designs 

comply with new or amended energy conservation standards. The following sections describe in 

greater detail the inputs DOE used in the GRIM. 

13.4.8.1 Conversion Capital Expenditures 

DOE evaluated the level of capital investment needed to comply with the new or 

amended energy conservation and standby power standards at each TSL. For each TSL, DOE 

estimated the proportion of the products on the market will have to be redesigned to meet that 

TSL efficiency level. The higher the TSL, the greater the proportion of the products on the 

market that will require a redesign. 

For conventional cooking products, DOE updated the conversion capital expenditure 

figures in the 1996 TSD with current manufacturing volumes and 2006 PPI figures. During 

interviews, manufacturers were asked to comment on the figures. When manufacturers 

responded with information about the necessary tooling costs at each TSL, the 1996 figures were 

revised based on the weighted market share of the companies responding. Where manufacturers 

did not comment, the updated figures from the 1996 TSD were used. Conversion capital at 

TSL1 through TSL3 is relatively small because the component switches for all product classes 

do not involve substantial changes to existing production equipment. However, at TSL 4 some 

product classes have changes that involve significant alterations to the cavity, which would 

require costly tooling changes. Table 13.4.36 summarizes the breakdown of conversion capital 

expenditure by TSL for the conventional cooking products industry. 

Table 13.4.36 Conversion Capital Expenditure for Conventional Cooking Products by TSL 

TSL 

Total Industry Conversion Capital Expenditure (2006$ million) by Product Class 

Electric 

Coil 

Cooktops 

Electric 

Smooth 

Cooktops 

Gas 

Cooktops 

Electric 

Standard 

Oven 

Electric 

Self-Clean 

Oven 

Gas 

Standard 

Oven 

Gas 

SelfClean 

Oven 

Industry 

Total 

Baseline $0 $0 $0 $0 $0 $0 $0 $0 

TSL 1 $0 $0 $2.2 $0 $0 $1.8 $0 $4.0 

TSL 2 $0 $0 $2.2 $0.8 $0 $1.8 $0 $4.7 

TSL 3 $0 $0 $2.2 $0.8 $0 $1.8 $5.8 $10.6 

TSL 4 $0 $73.1 $3.3 $125.9 $53.9 $55.1 $16.9 $328.2 

For microwave ovens, DOE used a platform approach to estimate the conversion capital 

costs. For standby power standards, DOE used information submitted during manufacturer 

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interviews, conversations with industry experts, and product catalogs to estimate the percentage 

of platforms at each TSL that would require minor tooling changes to accommodate more 

efficient components and the cost of the tooling. DOE then weighted the costs of manufacturers 

that submitted information to account for the tooling necessary for all manufactures in the 

industry. For energy factor standards, DOE assumed that there were no capital conversion costs 

for TSL 1a through TSL 3a. Component switches for these TSLs do not require changes to the 

microwave enclosure or cavity because these design options all have standard hole locations that 

will not be altered if more efficient components are used. However, TSL 4a would involve 

substantial conversion capital because reflective surfaces would require stamping die changes. 

DOE estimated the tooling cost per platform for reflective surfaces and weighted the cost to 

account for the number of platforms offered by the industry. Table 13.4.37 and Table 13.4.38 

summarize the breakdown of conversion capital expenditure by TSL for the microwave oven 

industry for both energy conservation and standby power standards. 

Table 13.4.37 Energy Factor Conversion Capital Expenditure for Microwave Ovens by 

TSL 

TSL Total Industry Conversion Capital 

Expenditure (2006$ million) 

Baseline $0 

TSL 1a $0 

TSL 2a $0 

TSL 3a $0 

TSL 4a $75.0 

Table 13.4.38 Standby Power Conversion Capital Expenditure for Microwave Ovens by 

TSL 

TSL Total Industry Conversion Capital 

Expenditure (2006$ million) 

Baseline $0 

TSL 1b $3.8 

TSL 2b $4.1 

TSL 3b $4.5 

TSL 4b $7.5 

For CCWs, DOE used a platform approach to estimate the conversion capital costs for 

top-loading and front-loading washers. DOE used conversations with industry experts and 

product catalogs to estimate the number platforms at each TSL that would require tooling 

changes to accommodate newly redesigned washers. DOE assumed that a manufacturer that did 

not have any available products that met or exceeded a given TSL would have to make 

substantial tooling changes, either modifying existing tooling or ordering new sets. For 

manufacturers that had existing washers that were close to a given TSL or had more efficient 

washers, DOE lowered the cost of the tooling because it assumed these washers would not be as 

greatly redesigned and would not require as substantial changes to its existing manufacturing 

equipment. Table 13.4.39 summarizes the breakdown of conversion capital expenditure by TSL 

for the CCW industry. 

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Table 13.4.39 Conversion Capital Expenditure for Commercial Clothes Washers by TSL
 

TSL 

Total Industry Conversion Capital 

Expenditure (2006$ million) by Product Class 

Top-Loading CCW Front-Loading CCW 

Baseline $0 $0 

TSL 1 $0 $0 

TSL 2 $1.0 $0.6 

TSL 3 $2.0 $0,6 

TSL 4 $2.0 $1.4 

TSL 5 $2.0 $3.9 

13.4.8.2 Product Conversion Expenses 

DOE conducted interviews with manufacturers to better understand the many steps that 

manufacturers have to take before they can release new or improved products. The magnitude of 

the required investments varies by manufacturer and the TSL analyzed. 

Multiple manufacturers estimate that the time and resources spent on research and 

development, testing, and certification of products would be significant depending on the design 

path chosen to achieve higher efficiency. 

For conventional cooking products, DOE used the conversion capital expenditure figures 

in the 1996 TSD updated by current manufacturing volumes and 2006 PPI figures. DOE also 

used manufacturer responses, weighted market share, when manufacturers provided their own 

conversion costs during interviews. At higher TSLs, manufacturers must perform reliability 

testing and certify a greater portion of their existing platforms, increasing the conversion 

expenses. Design costs also increase at higher TSLs because there is a greater chance that the 

component interacts with other parts of the platform, lengthening the redesign time and cost. 

Table 13.4.40 summarizes the breakdown of product conversion expenses by TSL for the 

conventional cooking products industry. 

Table 13.4.40 Product Conversion Expenses for Conventional Cooking Products Industry 

by TSL 

TSL 

Total Industry Product Conversion Expenses (2006$ million) by Product Class 

Electric 

Coil 

Cooktops 

Electric 

Smooth 

Cooktops 

Gas 

Cooktops 

Electric 

Standard 

Oven 

Electric 

Self-Clean 

Oven 

Gas 

Standard 

Oven 

Gas 

SelfClean 

Oven 

Industry 

Total 

Baseline $0 $0 $0 $0 $0 $0 $0 $0 

TSL 1 $0 $0 $9.4 $0 $0 $9.4 $0 $18.7 

TSL 2 $9.6 $0 $9.4 $20.8 $0 $9.4 $0 $49.2 

TSL 3 $9.6 $0 $9.4 $20.8 $0 $9.4 $9.4 $58.5 

TSL 4 $9.6 $12.2 $20.8 $48.9 $18.7 $58.3 $42.1 $210.6 

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For microwave ovens, DOE estimated the engineering, reliability testing, and product 

development expenses per platform necessary at each TSL. DOE multiplied the estimate of 

these development costs per platform by its approximation of the number of platforms available 

in the U.S. For standby power, conversion costs become more expensive at higher TSLs as the 

complexity of further lowering standby power increases, substantially driving up engineering 

time and also increasing the testing and product development time. For the first three energy 

factor TSLs (TSL 1a through TSL 3a), the product conversion costs increases are fairly stable. 

Engineering, testing, and product development costs do not double with each additional switch 

out because there are efficiencies with doing the redesigns simultaneously (i.e., the testing only 

has to be completed once). However, there is a large jump in conversion expenses at TSL 4a 

because there are stamping, material, and other substantial changes to the basic function of each 

platform. Table 13.4.41 and Table 13.4.42 summarize the breakdown of product conversion 

expenses by TSL for the microwave oven industry for both energy conservation and standby 

power standards. 

Table 13.4.41 Energy Factor Product Conversion Expenses for Microwave Ovens Industry 

by TSL 

TSL Total Industry Product Conversion Expenses 

(2006$ million) 

Baseline $0 

TSL 1a $60.0 

TSL 2a $75.0 

TSL 3a $90.0 

TSL 4a $225.0 

Table 13.4.42 Standby Power Product Conversion Expenses for Microwave Ovens 

Industry by TSL 

TSL Total Industry Product Conversion Expenses 

(2006$ million) 

Baseline $0 

TSL 1b $37.5 

TSL 2b $67.5 

TSL 3b $82.5 

TSL 4b $135.0 

For CCWs, DOE used a product platform approach to estimate the product conversion 

costs for top-loading and front-loading washers. DOE used conversations with industry experts 

and product catalogs to estimate the number platforms at each TSL that would need to be 

redesigned. DOE assumed that a manufacturer that did not have any available products that 

met or exceeded a given TSL would have to completely redesign, test, and certify a new product. 

For manufacturers that had existing washers that were close to a given TSL or had more efficient 

washers, DOE assumed it would cost some fraction of the cost of a complete redesign, 

depending on how close the existing washers were to the necessary efficiency. Table 13.4.43 

summarizes the breakdown of product conversion expenses by TSL for the CCW industry. 

13-28 

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Table 13.4.43 Product Conversion Expenses for Commercial Clothes Washers Industry by 

TSL 

TSL 

Total Industry Product Conversion 

Expenditure (2006$ million) by Product Class 

Top-Loading CCW Front-Loading CCW 

Baseline $0 $0 

TSL 1 $0 $0 

TSL 2 $15 $3 

TSL 3 $30 $3 

TSL 4 $30 $6.7 

TSL 5 $30 $19.5 

13.4.9 Markups 

To understand how baseline and more efficient products are differentiated, DOE 

reviewed manufacturer catalogs and utilized information gathered from manufacturers. To 

estimate the prices at which manufacturers sell their products, DOE applied markups to the 

production costs it had developed earlier. DOE considered different markup scenarios for each 

major product category (conventional cooking products, microwave ovens, and CCWs). DOE 

then used markup scenarios to bound the range of expected product prices following new or 

amended energy conservation standards. For each product class, DOE used the markup 

scenarios that best characterized the prevailing markups and described the range of market 

responses manufacturers expect as a result of new or amended energy conservation and standby 

power standards. 

After discussions with manufacturers, DOE believes there are two distinct markup 

scenarios: preservation-of-gross-margin-percentage and preservation of gross margin (in absolute 

dollars). 

13.4.9.1 Preservation of Gross Margin Percentage 

The gross margin is defined as revenues less costs of goods sold. Under the preservationof-gross-margin-percentage scenario in the conventional cooking products, microwave oven, and 

CCW GRIMs, DOE applied a single uniform “gross margin percentage” markup to 

manufacturing production costs across all efficiency levels. As production costs increase by 

efficiency level, this scenario implies that the absolute dollar markup will increase also. DOE 

used a non-production cost markup of 1.26, which includes SG&A expenses; research and 

development expenses; interest; and profit. This markup is consistent with the one DOE 

assumed in the base case for the GRIM. Most manufacturers stated it is optimistic to assume that 

they could maintain their gross margin percentages despite production cost increases due to 

energy conservation or standby power standards. Therefore, DOE assumes that this scenario 

represents a high bound to industry profitability under an energy conservation standard. 

13-29 

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13.4.9.2 Preservation of Gross Margin (Absolute Dollars) 

The implicit assumption behind the “preservation of gross margin (absolute dollars)” 

markup scenario is that the industry will lower its markups in response to the standards to 

maintain only its gross margin (in absolute dollars). This means the percentage difference 

between MPC and selling price will decrease in the standards case compared to the base case and 

the gross margin percentage will be lower. The industry would do so by passing through its 

increased production costs to customers, while increased R&D and selling, general, and 

administrative expenses directly lower profit. DOE implemented this scenario in the microwave 

oven and conventional cooking products GRIMs by lowering the production cost markups for 

each TSL to yield approximately the same gross margin in dollars in the standards cases in the 

year standard are effective (2012) as is yielded in the base case. This scenario is less optimistic 

than the preservation of gross margin percentage scenario. 

13.5 CONVENTIONAL COOKING PRODUCTS INDUSTRY FINANCIAL IMPACTS 

Using the inputs and scenarios described in the previous sections, the GRIM estimated 

indicators of financial impacts on the conventional cooking products industry. The following 

sections detail additional inputs and assumptions related only to cooktops, ovens, and ranges. 

The main results of the MIA also reported in this section and consist of two key financial 

metrics: INPV and annual cash flows. 

13.5.1 Impacts on Industry Net Present Value 

The INPV measures the industry value and is used in the MIA to compare the economic 

impacts of different TSLs. The INPV is different from DOE’s NPV applied to the whole U.S. 

economy. The INPV is the sum of all net cash flows discounted at the industry’s cost of capital 

or discount rate. The GRIM estimated cash flows between 2007 and 2042, consistent with the 

forecast period used in the national impact analysis (chapter 11). 

In the MIA, DOE compares the INPV of the base case (no amended energy conservation 

standards) to that of each TSL. The difference between the base case INPV and a standards case 

INPV is an estimate of the economic impacts that implementing that particular TSL would have 

on the entire industry. For the conventional cooking products industry, DOE examined the two 

markup scenarios described in the mark-up section above. Table 13.5.1 through Table 13.5.8 

provide the INPV estimates for the conventional cooking products industry under the different 

scenarios. 

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Table 13.5.1 Changes in Industry Net Present Value for Electric Cooktops (Preservation of 

Gross Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 357 357 355 355 434 

Change in INPV (2006 $ millions) - 0 (2) (2) 77 

(%) - 0.00% -0.56% -0.56% 21.62% 

Table 13.5.2 Changes in Industry Net Present Value for Electric Cooktops (Preservation of 

Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 357 357 346 346 (26) 

Change in INPV (2006 $ millions) - 0 (11) (11) (383) 

(%) - 0.00% -3.18% -3.18% -107.19% 

Table 13.5.3 Changes in Industry Net Present Value for Gas Cooktops (Preservation of 

Gross Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 287 282 282 282 315 

Change in INPV (2006 $ millions) - (5) (5) (5) 28 

(%) - -1.74% -1.74% -1.74% 9.83% 

Table 13.5.4 Changes in Industry Net Present Value for Gas Cooktops (Preservation of 

Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 287 275 275 275 146 

Change in INPV (2006 $ millions) - (12) (12) (12) (141) 

(%) - -4.12% -4.12% -4.12% -49.12% 

Table 13.5.5 Changes in Industry Net Present Value for Electric Ovens (Preservation of 

Gross Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 793 793 785 785 782 

Change in INPV (2006 $ millions) - 0 (8) (8) (10) 

(%) - 0.00% -0.99% -0.99% -1.27% 

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Table 13.5.6 Changes in Industry Net Present Value for Electric Ovens (Preservation of 

Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 793 793 773 773 324 

Change in INPV (2006 $ millions) - 0 (19) (19) (469) 

(%) - 0.00% -2.43% -2.43% -59.16% 

Table 13.5.7 Changes in Industry Net Present Value for Gas Ovens (Preservation of Gross 

Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 466 459 459 460 420 

Change in INPV (2006 $ millions) - (7) (7) (6) (47) 

(%) - -1.57% -1.57% -1.38% -10.04% 

Table 13.5.8 Changes in Industry Net Present Value for Gas Ovens (Preservation of Gross 

Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 466 457 457 426 285 

Change in INPV (2006 $ millions) - (10) (10) (41) (181) 

(%) - -2.10% -2.10% -8.68% -38.80% 

13.5.2 Impacts on Annual Cash Flow 

While NPV is useful for evaluating the long-term effects of amended energy conservation 

standards, short-term changes in cash flow are also important indicators of the industry’s 

financial situation. For example, a large investment over a period of one or two years could 

strain the industry’s access to capital. Consequently, the sharp drop in financial performance 

could cause investors to flee, even though recovery may be near. Thus, a short-term disturbance 

can have long-term effects that the INPV calculation does not capture. To get an idea of the 

behavior of annual net cash flows, DOE reports the annual net or free cash flows from 2007 

through 2042 for the different TSL levels. Figure 13.5.1 through Figure 13.5.8 present the 

annual net cash flows for the base case and each of the four TSLs for the conventional cooking 

products industry assuming the different markup scenarios. 

13-32 

EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$60 

2006$ Millions 

$50 

$40 

$30 

$20 

$10 

$­

$(10) 

$(20) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.5.1 Annual Net Cash Flows for Electric Cooktops (Preservation of Gross Margin 

Percentage) 

Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario
 

$60
 

2006$ Millions 

$50 

$40 

$30 

$20 

$10 

$­

$(10) 

$(20) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.5.2 Annual Net Cash Flows for Electric Cooktops (Preservation of Gross Margin 

(Absolute Dollars)) 

13-33 

EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$60 

2006$ Millions 

$50 

$40 

$30 

$20 

$10 

$­

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.5.3 Annual Net Cash Flows for Gas Cooktops (Preservation of Gross Margin 

Percentage) 

Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario
 

$60
 

Energy Conservation Standards 

Effective Date $50 March 2012 

2006$ Millions $40 

$30 

$20 

$10 

$­

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.5.4 Annual Net Cash Flows for Gas Cooktops (Preservation of Gross Margin 

(Absolute Dollars)) 

13-34 

EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$140 

2006$ Millions 

$120 

$100 

$80 

$60 

$40 

$20 

$­

$(20) 

$(40) 

$(60) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.5.5 Annual Net Cash Flows for Electric Ovens (Preservation of Gross Margin 

Percentage) 

Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario
 

$140
 

2006$ Millions 

$120 

$100 

$80 

$60 

$40 

$20 

$­

$(20) 

$(40) 

$(60) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.5.6 Annual Net Cash Flows for Electric Ovens (Preservation of Gross Margin 

(Absolute Dollars)) 

13-35 

EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$80 

2006$ Millions 

$60 

$40 

$20 

$­

$(20) 

$(40) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.5.7 Annual Net Cash Flows for Gas Ovens (Preservation of Gross Margin 

Percentage) 

Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario
 

$80
 

2006$ Millions 

$60 

$40 

$20 

$­

$(20) 

$(40) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.5.8 Annual Net Cash Flows for Gas Ovens (Preservation of Gross Margin 

(Absolute Dollars)) 

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Prior to the effective date of the amended energy conservation standard, cash flows are 

driven by the level of capital investments and product conversion expenses and the proportion of 

these investments spent every year. After the standard announcement date, industry cash flows 

begin to decline as companies use their financial resources to prepare for the new standard. The 

more stringent the energy conservation standard, the greater the impact on industry cash flows in 

the years running up to the effective date, as capital expenditures and product development costs 

depress cash flows from operations. In addition to capital expenditures and product development 

expenses, manufacturers may also have to write down the value of existing tooling, equipment, 

and intellectual property whose value is impacted by an efficiency standard. 

Efficiency standards have the potential of creating stranded assets, i.e. tools, equipment, 

and even intellectual property that would have enjoyed longer use, if the efficiency standard had 

not made them obsolete. For example, if a manufacturer has a stamping die for a gas cooktops 

which can only be used with standing pilot ignition systems, then a ban on standing pilot ignition 

systems could make the die functionally obsolete well before it used up from actual use. 

Similarly, a patent on a particular type of standing pilot ignition system potentially loses any 

residual value once its target market disappears. 

For all conventional cooking products, TSL 1 through TSL 3 have similar impacts in the 

years prior to the effective date because these TSLs all have relatively low capital and product 

conversion expenses compared to industry revenues. These expenses are large for many 

products at TSL 4, creating a large, negative cash flow for many conventional cooking products 

at this TSL. In the preservation of gross margin percentage markup scenario, a one time writedown on stranded assets yields a tax shield and that increases cash flows from operations for 

electric and gas ovens. 

In the years following the standard, the impact on cash flow depends on the operating 

revenue. Higher TSLs have a positive impact on cash flows relative to the base case if 

manufacturers are able to fully pass along costs to consumers (the preservation of gross margin 

percentage markup scenario) and lower cash flow relative to the base case if manufacturers can 

only recover a portion of their increased costs (the preservation of gross margin in absolute 

dollars markup scenario). The magnitude of the positive cash flow impact under the preservation 

of gross margin percentage scenario and the negative cash flow impact under the preservation of 

gross margin (absolute dollars) scenario depends on the incremental cost of standards compliant 

products. The higher the relative cost, the larger the impact on operating revenue and cash flow 

in the years following the effective date of the standard. 

13.6 MICROWAVE OVEN INDUSTRY FINANCIAL IMPACTS 

Using the inputs and assumptions described in the previous sections, the GRIM produced 

indicators of financial impacts on the microwave oven industry. The following sections detail 

additional inputs relating only to microwave ovens, including the main MIA results for such 

ovens: INPV, and annual cash flows. 

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13.6.1 Impacts on Industry Net Present Value 

As previously stated, the INPV measures the industry value and is used in the MIA to 

compare the economic impacts of different TSLs. For the microwave ovens industry, the GRIM 

estimated cash flows between 2007 and 2042, consistent with the forecast period used in the 

national impact analysis (chapter 11). 

In the MIA, DOE compares the INPV of the base case (no new energy conservation or 

standby power standards) to that of each TSL. The difference between the base case INPV and a 

standards case INPV is an estimate of the economic impacts that implementing that particular 

TSL would have on the entire industry. For the microwave oven industry, DOE examined the 

two markup scenarios described in the mark-up section above. Table 13.6.1 through 

Table 13.6.4 provide the NPV estimates for the microwave oven industry under the different 

scenarios. 

Table 13.6.1 Energy Factor Changes in Industry Net Present Value for Microwave Ovens 

(Preservation of Gross Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1a 2a 3a 4a 

INPV (2006 $ millions) 1,450 1,494 1,567 1,687 1,717 

Change in INPV (2006 $ millions) - 44 117 237 267 

(%) - 3.04% 8.09% 16.34% 18.44% 

Table 13.6.2 Energy Factor Changes in Industry Net Present Value for Microwave Ovens 

(Preservation of Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1a 2a 3a 4a 

INPV (2006 $ millions) 1,450 1,250 1,064 775 284 

Change in INPV (2006 $ millions) - (199) (386) (675) (1,165) 

(%) - -13.74% -26.62% -46.56% -80.39% 

Table 13.6.3 Standby Power Changes in Industry Net Present Value for Microwave Ovens 

(Preservation of Gross Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1b 2b 3b 4b 

INPV (2006 $ millions) 1,450 1,428 1,414 1,413 1,415 

Change in INPV (2006 $ millions) - (22) (35) (37) (35) 

(%) - -1.50% -2.44% -2.52% -2.40% 

Table 13.6.4 Standby Power Changes in Industry Net Present Value for Microwave Ovens 

(Preservation of Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1b 2b 3b 4b 

INPV (2006 $ millions) 1,450 1,424 1,402 1,378 1,278 

Change in INPV (2006 $ millions) - (26) (48) (71) (172) 

(%) - -1.77% -3.28% -4.92% -11.87% 

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EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

 

13.6.2 Impacts on Annual Cash Flow 

To get an idea of the behavior of annual net cash flows, DOE reports the annual net or 

free cash flows from 2007 through 2042 for the different TSL levels. Figure 13.6.1 through 

Figure 13.6.4 present the annual net cash flows for the base case and each of the four energy 

factor and standby power TSLs for the microwave oven industry assuming the different markup 

scenarios. 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$160 

Energy Conservation Standards 

Effective Date 

$140 March 2012 

$120 

$100 

$80 

$60 

$40 

$20 

$­

$(20) 

2006$ Millions 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.6.1 Energy Factor Annual Net Cash Flows for the Microwave Oven Industry 

(Preservation of Gross Margin Percentage Markup) 

13-39 

EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

 

Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario 

$120 

2006$ Millions 

$100 

$80 

$60 

$40 

$20 

$­

$(20) 

$(40) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.6.2 Energy Factor Annual Net Cash Flows for the Microwave Oven Industry 

(Preservation of Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario
 

$120
 

2006$ Millions 

$100 

$80 

$60 

$40 

$20 

$­

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Baseline TSL1 TSL2 TSL3 TSL4 

Energy Conservation Standards 

Effective Date 

March 2012 

Figure 13.6.3 Standby Power Annual Net Cash Flows for the Microwave Oven Industry 

(Preservation of Gross Margin Percentage Markup) 

13-40 

EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$100 

$120 

Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario 

Energy Conservation Standards 

Effective Date 

March 2012 

$80 

$60 

$40 

$20 

$­

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

2006$ Millions 

Baseline TSL1 TSL2 TSL3 TSL4 

Figure 13.6.4 Standby Power Annual Net Cash Flows for the Microwave Oven Industry 

(Preservation of Gross Margin (Absolute Dollars) Markup) 

Prior to the effective date of the amended energy conservation standard, cash flows are 

driven by the level of capital investments and product conversion expenses and the proportion of 

these investments spent every year. After the standard announcement date, industry cash flows 

begin to decline as companies use their financial resources to prepare for the new standard. As 

expected, the more stringent the energy conservation standard, the greater the impact on industry 

cash flows in the years prior to the effective date. In the years before a standard becomes 

effective, capital investments and product conversion costs depress cash flows from operations. 

Since the capital and conversion costs are the same regardless of the markup scenario, the 

impacts in the years prior to the effective date of the standards for both energy factor and 

cooking efficiency standards. The combined product conversion and capital conversion costs are 

larger for energy factor standards than standby power standards, making the impacts on cash 

flow greater for standby power standards (most noticeably so at max-tech). Since DOE assumed 

that standards compliant microwave ovens would be based on existing products, no capital assets 

are stranded due to standards. Consequently, there is not a one time injection of cash in the year 

of the standards from a write-down. 

The markup scenario has a large impact on cash flows in the year the standard takes 

effect. The preservation of gross margin percentage immediately restores the original cash flow 

for both energy factor and standby power standards. Higher selling prices increase operating 

profit and increase cash flow due to a higher depreciation expense. Since depreciation is a noncash expense, it does not require an outflow of cash but does lower operating profit. Therefore, 

this expense gets added back to cash flow. 

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EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the preservation of gross margin (absolute dollar) scenario for cooking efficiency, 

cash flow decreases in 2012 because operating profit decreases as manufacturers cannot fully 

pass on all increased expenses. In addition, since revenue increases greatly that year, there is a 

one-time need to boost working capital, lowering cash flow for 2012 only. For the preservation 

of gross margin (absolute dollars) the impact on operating profit and the need to boost working 

capital in 2012 are not as great for standby power because the incremental manufacturing costs 

are low for all TSLs. Therefore, cash flow increases in 2012 for standby power standards. After 

2012, higher TSLs have a positive impact on cash flows relative to the base case if 

manufacturers are able to fully pass along costs to consumers (the preservation of gross margin 

percentage markup scenario) and lower cash flow relative to the base case if manufacturers can 

only recover a portion of their increased costs (the preservation of gross margin in absolute 

dollars markup scenario). 

The magnitude of the positive cash flow impact under the preservation of gross margin 

percentage scenario and the negative cash flow impact under the preservation of gross margin 

(absolute dollars) scenario depends on the incremental cost of standards compliant products. The 

higher the relative cost, the larger the impact on operating revenue and cash flow in the years 

following the effective date of the standard. Since the incremental costs are greater for cooking 

efficiency, the positive impacts on cash flow under the preservation of gross margin percentage 

markup scenario and the negative impacts on cash flow under the preservation of gross margin 

(absolute dollars scenario are greater for cooking efficiency than standby power. 

13.7 COMMERCIAL CLOTHES WASHERS INDUSTRY FINANCIAL IMPACTS 

Using the inputs described in the previous sections, the GRIM produced indicators of 

financial impacts on the CCW industry. The following sections detail additional inputs and 

assumptions relating only to CCWs, including the MIA results for two key financial metrics: 

INPV, and annual cash flows. 

13.7.1 Impacts on Industry Net Present Value 

As previously stated, the INPV measures the industry value and is used in the MIA to 

compare the economic impacts of different TSLs. For the CCW industry, the GRIM estimated 

cash flows between 2007 and 2042, consistent with the forecast period used in the national 

impact analysis (chapter 11). 

In the MIA, DOE compares the INPV of the base case (no new energy conservation 

standards) to that of each TSL. The difference between the base case INPV and a standards case 

INPV is an estimate of the economic impacts that implementing that particular TSL would have 

on the entire industry. For the CCW industry, DOE examined a scenario where manufactures 

will be able maintain gross margins as a percentage of revenues and unit shipments will not be 

impacted regardless of new energy conservation standards. DOE also considered a scenario 

where manufacturers will maintain their gross margin as a percentage of revenues, but total 

industry shipments will decrease yearly due the combined effects of increases in purchase price 

and decreases in operating costs due to new energy conservation standards. These scenarios 

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EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

were chosen because all CCW manufacturers that were interviewed expressed little concern 

about preserving gross margin after the effective date of the standard, regardless of efficiency 

level. Rather, manufacturers were concerned about the potential of increased selling prices to 

shrink the size of the CCW market and the potentially large investments necessary to meet 

standards. The price elasticity scenario takes both of these concerns into consideration. Table 

13.7.1 through Table 13.7.6 provide the NPV estimates for the CCW industry under these two 

scenarios. 

Table 13.7.1 Changes in Industry Net Present Value for Top-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Base Case Shipments) 

Preservation of Gross Margin Percentage Markup with Base Case Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2006 $ 

millions) 36 40 34 23 23 23 

Change in INPV 

(2006 $ 

millions) - 3.6 (2.0) (13.6) (13.6) (13.6) 

(%) - 9.93% -5.38% -37.18% -37.18% -37.18% 

Table 13.7.2 Changes in Industry Net Present Value for Top-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand 

Shipments) 

Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand 

Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2006 $ 

millions) 36 39 32 20 20 20 

Change in INPV 

(2006 $ 

millions) - 2.7 (4.1) (16.1) (16.1) (16.1) 

(%) - 7.49% -11.30% -44.16% -44.16% -44.16% 

Table 13.7.3 Changes in Industry Net Present Value for Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Base Case 

Shipments) 

Preservation of Gross Margin Percentage Markup with Base Case Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2006 $ 

millions) 19 19 17 17 15 3 

Change in INPV 

(2006 $ 

millions) - 0.0 (2.0) (2.0) (4.4) (16.0) 

(%) - 0.00% -10.67% -10.67% -22.91% -83.52% 

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EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 13.7.4 Changes in Industry Net Present Value for Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of 

Demand Shipments) 

Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand 

Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2006 $ 

millions) 19 19 17 17 15 3 

Change in INPV 

(2006 $ 

millions) - 0.0 (2.0) (2.0) (4.5) (16.3) 

(%) - 0.00% -10.70% -10.70% -23.58% -84.93% 

Table 13.7.5 Changes in Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base 

Case Shipments) 

Preservation of Gross Margin Percentage Markup with Base Case Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2006 $ 

millions) 56 59 52 41 38 26 

Change in INPV 

(2006 $ 

millions) - 4 (4) (15) (18) (30) 

(%) - 6.51% -6.37% -26.50% -32.02% -53.13% 

Table 13.7.6 Changes in Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price 

Elasticity of Demand Shipments) 

Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand 

Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2006 $ 

millions) 56 58 50 38 35 23 

Change in INPV 

(2006 $ 

millions) - 3 (6) (17) (20) (32) 

(%) - 4.91% -10.27% -31.09% -36.83% -58.19% 

13.7.2 Impacts on Annual Cash Flow 

To get an idea of the behavior of annual net cash flows, DOE reports the annual net or 

free cash flows from 2007 through 2042 for the different TSL levels. Figure 13.7.1 and Figure 

13.7.2 present the annual net cash flows for the base case and each of the five TSLs for the CCW 

industry assuming the different shipments scenarios. 

13-44 

EE-2006-STD-0127 COMMENT 41.2
Scenario

 

 

 

 

 

 

 

 

 

 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$20 

2006$ Millions 

$15 

$10 

$5 

$­

$(5) 

$(10) 

$(15) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year Baseline TSL1 TSL2 TSL3 TSL4 TSL5 

Figure 13.7.1 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Base Case Shipments) 

Preservation of Gross Margin Percentage Markup - Price Elasticity of Demand Shipments 

$20 

2006$ Millions 

$15 

$10 

$5 

$­

$(5) 

$(10) 

$(15) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

Baseline TSL1 TSL2 TSL3 TSL4 TSL5 

Figure 13.7.2 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand 

Shipments) 

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EE-2006-STD-0127 COMMENT 41.2
Scenario

 

 

 

 

 

 

 

 

 

 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$20 

2006$ Millions 

$15 

$10 

$5 

$­

$(5) 

$(10) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year Baseline TSL1 TSL2 TSL3 TSL4 TSL5 

Figure 13.7.3 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Base Case Shipments) 

Preservation of Gross Margin Percentage Markup - Price Elasticity of Demand Shipments 

$20 

2006$ Millions 

$15 

$10 

$5 

$­

$(5) 

$(10) 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year Baseline TSL1 TSL2 TSL3 TSL4 TSL5 

Figure 13.7.4 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand 

Shipments) 

13-46 

EE-2006-STD-0127 COMMENT 41.2
 

 

 

 

 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year 

$(20) 

$(15) 

$(10) 

$(5) 

$­

$5 

$10 

$15 

$20 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

Baseline TSL1 TSL2 TSL3 TSL4 TSL5 

Figure 13.7.5 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Base Case 

Shipments) 

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EE-2006-STD-0127 COMMENT 41.2
Scenario

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preservation of Gross Margin Percentage Markup - Price Elasticity of Demand Shipments 

$(20) 

$(15) 

$(10) 

$(5) 

$­

$5 

$10 

$15 

$20 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Year Baseline TSL1 TSL2 TSL3 TSL4 TSL5 

Figure 13.7.6 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of 

Demand Shipments) 

Prior to the effective date of the amended energy conservation standard, cash flows are 

driven by the level of capital investments and product conversion expenses and the proportion of 

these investments spent every year. After the standard announcement date, industry cash flows 

begin to decline as manufacturers use their financial resources to prepare for the new standard. 

Because higher TSLs require more expensive redesigns and tooling to accommodate newly 

redesigned washers, more stringent the energy conservation standards have a greater impact on 

industry cash flows in the years prior to the effective date for both top-loading and front-loading 

washers. 

While the impact on cash flows from the necessary investments does not appear 

prohibitively burdensome in the previous graphs, standards do greatly alter the industry cash 

flows. For top-loading washers, the max-tech efficiency reduces cash flow by 454 percent 

compared to the base case in the year prior to the effective date of the standard. For frontloading washers, the max-tech efficiency reduces cash flow by 668 percent compared to the base 

case in the year prior to the effective date of the standard. Based on conversations with 

manufacturers, DOE modeled that redesigned washers would be based on existing washers, and 

hence no capital assets would be stranded due to standards. Consequently, there is no one time 

injection of cash in the year of the standards from asset write-down. In the years following the 

standard, the impact on cash flow depends on the operating revenue. Companies receive positive 

cash flows from operating profit after taxes. However, since higher TSLs do not have a 

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significant impact on net profit, standards do not significantly alter cash flow in the years after 

the effective date of the standard. 

13.8 IMPACTS ON COOKING PRODUCTS SMALL BUSINESSES 

DOE identified three manufacturers of gas-fired ovens, stoves, and cooktops with 

standing pilot lights. Two of the three manufacturers are classified as small businesses by the 

SBA, while the third is a large, diversified appliance manufacturer. DOE found some 

differences in the R&D emphasis and marketing strategies between small business manufacturers 

and large manufacturers. These two smaller businesses tend to focus on appliance sizes not 

offered by larger manufacturers. 

During the MIA, DOE contacted both small businesses and one of them agreed to be 

interviewed. DOE characterized the businesses based on this interview and D&B reports for 

both companies. The two small cooking businesses are privately held and each employs less 

than 300 employees.c Both businesses manufacture only residential cooking appliances. One of 

these appliance manufacturers produces just ranges, while the other produces cooktops, ranges, 

hoods, wall ovens, and cooking ventilation equipment. Both companies have annual revenues of 

less than $60 million. 

DOE found that, as it pertains to the elimination of standing pilots, small manufacturers 

shared many of the same concerns as the large manufacturer. The large and small companies are 

concerned that eliminating standing pilots could leave some customers without access to 

electricity without alternatives. For example, certain religious groups and remote areas (hunting 

cabins) would be forced to prolong the life of existing products. In addition, customers that 

currently use standing pilots could be forced to install an electrical outlet near a standardscompliant stove. These manufacturers expected a decrease in revenues as existing customers 

prolong the lifetime of existing products when forced with a costly installation or no viable 

alternative. 

Though the small manufactures shared many of the concerns as the large manufacturer, 

the small businesses will be much more impacted by a standard that eliminates standing pilots. 

The two small businesses indicated that 25 percent or more of their entire production consists of 

such niche products, now that most manufacturers have switched to electronic ignition in their 

gas-fired cooking appliances. In addition to the elimination of standing pilots, any rule affecting 

products manufactured by these small businesses will impact them disproportionately because of 

their size and their focus on cooking appliances. However, due to the low number of competitors 

that agreed to be interviewed, DOE could not characterize this industry segment with a separate 

cash-flow analysis due to concerns about maintaining confidentiality. 

At TSL 1 for gas-ovens and gas cooktops, the elimination of standing pilot lights would 

eliminate one of the niches that these two small businesses serve in the cooking appliance 

industry. Both businesses also manufacture ovens and cooktops with electronic ignition systems, 

c The SBA classifies a residential cooking appliance manufacturer as a small business if it has less than 750 

employees. Refer to: http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf 

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but the ignition source would no longer be a differentiator within the industry as it is today. The 

result would be a potential loss of market share since consumers would be able to choose from a 

wider variety of competitors, all of which operate at much higher production scales. 

For all other TSLs concerning conventional cooking appliances, the impact on small, 

focused business entities will be proportionately greater than for their competitors since these 

businesses lack the scale to afford significant R&D expenses, capital expansion budgets, etc. 

DOE could not gauge the extent of the difference since manufacturers did not respond to all 

proposed investment requirements by TSL during interviews. However, research associated with 

other small entities in prior rulemakings suggests that many costs associated with complying 

with rulemakings are fixed, regardless of production volume. 

Since all domestic manufacturers already manufacture all of their conventional cooking 

appliances with electronic ignition modules as a standard feature or as an option for consumers, 

the cost of converting the remaining three domestic manufacturers exclusively to electronic 

ignition modules would be modest. However, given their focus and scale, any conventional 

cooking appliance rule will affect these two domestic small businesses disproportionately 

compared to their larger and more diversified competitor. 

13.9	 IMPACTS ON THE LOW-VOLUME COMMERCIAL CLOTHES WASHER 

MANUFACTURER 

13.9.1 Introduction 

The U.S. CCW market has three principal manufacturers. While two of them are welldiversified appliance manufacturers, the third is an LVM. In addition to being focused 

exclusively on laundry products, the LVM derives 87 percent of its clothes washer revenues 

from sales to commercial market segments. Prior to 1999, the LVM manufactured over 300,000 

residential washers and 100,000 CCWs annually. Due to a restructuring of its business, the 

LVM was contractually barred from manufacturing residential clothes washers from 1999 until 

2004. While its subsequent SEC 10-K reports show significant growth in the residential market 

segment, Table 13.9.1 shows commercial sales still make up the overwhelming majority of its 

clothes washer shipments. As a result, the LVM will be affected disproportionately by any 

changes to the CCW energy efficiency requirements than its larger competitors, which are more 

diversified and for whom CCW sales amount to less than 2 percent of their total clothes washer 

sales. Appendix 13A further details the importance of the commercial clothes washer business 

to the LVM. 

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Table 13.9.1 DOE Estimate of LVM Clothes Washer Sales and Unit Shipments in 2006
 

Market 

Segment 

Drum 

Axis 

Estimated 

Revenue 

($MM) 

Percentage Revenue of 

Clothes Washer 

Business 

Unit Shipment 

Volume by Sales 

Channel 

Commercial Top $42.5 59.9% 81,502 

Front $19.2 27.0% 22,234 

Residential Top $8.7 12.3% 19,586 

Front $0.6 0.8% 707 

Total Clothes Washer Shipments 124,028 

13.9.2 Low Volume Manufacturer Competitiveness 

The financial reasons that LVM has been able to stay competitive in the commercial 

laundry business range from its well depreciated machinery and legacy design to its successful 

customer and service networks. The LVM does not currently face a significant, inherent 

disadvantage in top-loading washers because these washers are based on legacy platforms for 

models originally produced at much higher volumes. Decades of production experience at 

higher volumes and a legacy design that has evolved gradually translates into lower per unit 

R&D expenses. As a result, the LVM’s depreciation cost for top-loading washers is in line with 

those of manufactures which produce at higher volumes. Finally, the large installed base of toploading machines and stock of repair parts ensure a large market for replacement machines. The 

LVM sells its products to route operators and distributors who sell laundry services to end-users 

and who typically service the machines. Because the top-loading CCW design has not 

significantly changed since its introduction, route operators and distributors’ large inventory of 

service parts and repair knowledge represent a significant switching cost, discouraging customers 

from adopting competing platforms when a washer is replaced. A market disruption, such as the 

wholesale adoption of front-loading CCWs, could place the LVM at risk of losing market share. 

13.9.3 Effects of a Transition to Front-Loading (Horizontal-Axis) Platforms 

During comments following the ANOPR, the LVM stated that its most efficient toploading washer reaches an MEF of 1.50. However, this washer uses a “partial drain” rinse which 

has not been fully embraced by the market. Consequently, the LVM believes that any standard 

above a 1.42 MEF (TSL 3 through TSL 5) would only allow it to manufacturer front-loading 

washers. The LVM also stated that top-loading CCW with an MEF greater than 1.42 would have 

to be based on non-traditional technologies (technologies that do no use a traditional agitator). 

The LVM stated that these non-traditional washers employ technologies that are proprietary and 

which would require an unjustifiable investment for the LVM due to the size of the CCW 

market. Finally, the LVM stated that there have been issues with the performance of these 

products which have caused consumers to reject them. 

DOE based the efficiency levels for top-loading washers on existing CCW. However, the 

LVM’s comments indicate that, due to the high design costs, uncertain technology, and potential 

rejection from consumers, the LVM would not invest in designing a non-traditional, top-loading 

washer. Rather, for any standard greater than 1.42 MEF, the LVM has stated that it would invest 

in expanding the production of its exiting front-loading washers to meet demand. If DOE energy 

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conservation standards required the LVM to exclusively manufacture front-loading machines for 

the CCW market, the LVM projects that significant redesigns would be needed in order to make 

the design more cost competitive. Front-loading CCWs currently manufactured by the LVM 

have high variable costs due to a design that minimized required capital expenditures. Current 

LVM front-loading clothes washer designs are also relatively recent (market introduction: 1999) 

and lack the decades of refinement that the LVM has put into its top-loading designs. The frontloading designs have not benefited from long-term, high-volume cost optimization because they 

have never been produced in volumes higher than about 25,000 units per year. The LVM 

produces these machines to fill a niche in the industry for customers who will pay a premium for 

more energy efficient designs. 

If a top-loading standard greater than a 1.42 MEF caused the LVM to only offer frontloading washers, the LVM would have to make significant investments in capital and 

engineering to redesign its front-loading machines to a lower cost and to expand production. 

Depending on CCW unit demand, the LVM’s competitors may or may not need to undertake 

similar line expansions of their combined residential and commercial clothes washer fabrication 

and assembly lines if they decided not to invest in a non-traditional, top-loading CCW. Such a 

need for expansion would depend on the amount of spare capacity that their current 

manufacturing facilities have. For example, the LVM’s principal competitor ships about 7.5 

million clothes washers domestically per year, so its share of the U.S. CCW market represents 

approximately 1.5 percent of its total domestic clothes washer shipments. 

Assuming that this larger competitor produces 80 percent top-loading and 20 percent 

front-loading clothes washers, a marginal transfer of 80,000 CCWs to the front-loading 

manufacturing line would represent approximately a 5 percent front-loading manufacturing line 

expansion. By comparison, the LVM would have to quadruple its front-loading clothes washer 

production to reach the same volumes. Furthermore, unlike the LVM, these larger competitors 

can base their front-loading CCW designs on high-volume residential platforms that have already 

benefited from years of refinement and production at high volumes. 

13.9.4 Fixed Cost Impacts on a Low Volume Manufacturer 

In order to determine how a lower production volume can disproportionately affect a 

manufacturer, DOE determined the costs needed to build a “green-field” manufacturing facility 

to produce a new line of front-loading CCWs. To represent a manufacturer with low production 

volume, DOE determined the upfront capital and engineering costs to build a facility to produce 

100,000 units annually. For a manufacturer with a high production volume (1.5 million units 

annually), DOE assumed that the same line would be used to build both residential and 

commercial clothes washers. As a result, the upfront and depreciation costs would be spread 

over the entire volume. DOE used information provided by manufacturers, AHAM, and industry 

experts to estimate the total costs of a green-field manufacturing facility. Table 13.9.2 and Table 

13.9.3 show the upfront costs to build the facility for the manufacturers with low and high 

production volumes. 

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Table 13.9.2 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 

100,000 units Per Year. 

Total 

Equipment 

Investment 

($MM) 

Total 

Conveyer 

Investment 

($MM) 

Total 

Tooling 

Investment 

($MM) 

Total 

Building 

Cost 

($MM) 

Total Capital 

Investment 

($MM) 

Manufacturer with 

Low Production 

Volume 

$13.53 $1.51 $17.65 $21.43 $54.12 

Table 13.9.3 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 

1,500,000 units Per Year. 

Total 

Equipment 

Investment 

($MM) 

Total 

Conveyer 

Investment 

($MM) 

Total 

Tooling 

Investment 

($MM) 

Total 

Building 

Cost 

($MM) 

Total Capital 

Investment 

($MM) 

Manufacturer with 

High Production 

Volume 

$76.6 $10.4 $39.6 $100 $226.8 

After determining the total costs needed to design a new line of products and build a new 

facility, DOE depreciated the equipment, tooling, and building to examine how these upfront 

costs would impact the cost of each unit for a low and high volume manufacturer. In order to 

determine the depreciation costs, DOE estimated depreciation over the useful lives of the 

equipment, building, and tooling using the straight line method. The assumptions used for the 

lifetime of the equipment, building, and tooling for a low and high volume production facility are 

shown in Table 13.9.4. 

Table 13.9.4 Depreciation Lifetime Assumptions for a Low and High Volume 

Manufacturer 

Average 

Equipment 

Life 

(Years) 

Average 

Tooling 

Life 

(Years) 

Building 

Life 

(Years) 

Average Plant 

Depreciation 

Life 

(Years) 

Manufacturer with Low 

Production Volume 

(100,000 units per year) 

10.17 7.53 25 15.2 

Manufacturer with High 

Production Volume 

(1,500,000 units per year) 

10.77 2.99 25 15.69 

Table 13.9.5 shows depreciation expenses per unit for a low and high volume 

manufacturer, as well as the cost disadvantage for a low volume manufacturer. If a redesigned 

front-loading washer were built in a low volume, green-field manufacturing facility, a low 

volume manufacturer would incur a significant depreciation cost disadvantage. In comparison 

to a manufacturer with a high production volume, DOE estimated that this disadvantage would 

be approximately $40.07 per unit. 

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Table 13.9.5 Per Unit Depreciation Costs for a Low and High Volume Manufacturer
 

Equipment Building Tooling 

Total 

Depreciation 

Cost Per Unit 

Manufacturer with Low 

Production Volume 

(100,000 units per year) 

$17.56 $11.97 $32.79 $62.32 

Manufacturer with High 

Production Volume 

(1,500,000 units per year) 

$6.27 $3.91 $12.07 $22.25 

Low Volume Per Unit 

Disadvantage $11.29 $8.06 $20.72 $40.07 

In addition to a depreciation cost disadvantage, a low volume manufacturer would also 

incur a per unit R&D cost disadvantage. To quantify the R&D cost disadvantage, DOE assumed 

that both types of manufacturers would have the same engineering costs to design a new line of 

front-loading washers. Based on information provided by manufacturers and industry experts, 

DOE estimated it would cost $10 million to redesign a front-loading washer from the ground up. 

If the product lifetime is assumed to be 7 years, a LVM would incur a R&D cost disadvantage of 

approximately $13.33 per unit. The impacts at other product lifetimes are shown in Table 13.9.6. 

Table 13.9.6 Per Unit Impacts of a $10 Million R&D Expense at Various Product Lifetimes 

Product Lifetime (years) 

7 10 20 

Low Volume Per Unit R&D 

(100,000 units per year) $14.29 $10 $5 

High Volume Per Unit R&D 

(1,500,000 units per year) $0.95 $.67 $0.33 

Low Volume Per Unit 

Disadvantage $13.33 9.33 $4.67 

In summary, if a new standard forces a low volume manufacturer to invest in a greenfield manufacturing facility to make front-loading units, a low volume manufacturer would incur 

a combined depreciation and R&D cost disadvantage of $53.40, $49.40, or $44.74 per-unit, 

depending on the assumed product lifetime. Based on a review of SEC 10-K forms and data 

provided by industry, DOE estimates that the earnings before interest and taxes for a frontloading washer is $51 per unit under present market conditions. 

The per-unit cost impacts of R&D and capital investments suggest that a low volume 

manufacturer would most likely not invest in such an extensive project. It would not be 

economically justified to make the necessary investment for the green-field manufacturing plant 

because the depreciation and R&D cost disadvantages after the investment are severe enough to 

completely erode profits, assuming that front-loading CCWs remain as profitable as they have 

been traditionally. Manufacturers have stated that if the CCW industry were to transition to 

front-loading CCWs, commoditization and lower prices are likely to follow. Either affect would 

put even greater pressure on earnings before interest, taxes, and amortization (EBITA) per-unit. 

Table 13.9.7 summarizes the estimated profit per unit after the disadvantage from depreciation 

and R&D expenses that a manufacturer with low production volume will incur at various product 

lifetimes. 

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Table 13.9.7 Total Per Unit Profit for a LVM after Depreciation and R&D Disadvantage
 

Product Lifetime (years) 

5 7 10 20 

Estimated Industry 

Average Profit 

from Front-loading 

Washer 

$51.00 

Low Volume Per 

Unit Profit after 

Depreciation and 

R&D Cost 

Disadvantage 

-$7.73 -$2.40 $1.60 $6.27 

Based on this analysis, it is likely that any standard that necessitates a departure from 

current designs would have substantial negative impacts on a LVM and could cause it to cease 

the production of CCWs. 

13.9.5 Financial Position of the LVM 

If the LVM in the CCW industry were required to build the green-field site described in 

13.9.4 to comply with a front-loading standard, the investments would represent a significant 

hardship. The LVM would devote almost all of its planned R&D expenses to the project and 

would have to spend approximately 6.5 times the planned annual capital expenses. Table 13.9.8 

below compares the LVM’s 2007 expenditures on capital and R&D with the amounts DOE 

assumed would be needed to build a green-field facility for a new line of front-loading washers. 

Even though the necessary R&D expenses are lower than capital, R&D will have a significant 

impact on the profitability of the company the years in which they are incurred. R&D costs 

cannot be amortized so every additional dollar spent on R&D directly lowers profit. If the LVM 

had invested in the redesign in 2007, it would have reversed net income to a loss. 

Table 13.9.8 Comparison of the LVM’s 2007 Financials with DOE’s Green-Field 

Assumptions 

LVM’s 2007 

Expense* 

DOE’s 

Expected 

Expense for a 

Green-Field 

site 

DOE’s Expected 

Expense as a 

Percentage of 

the LVM’s 2007 

Expense 

DOE’s Expected 

Expense as a 

Percentage of the 

LVM’s 2007 

Operating 

Income 

DOE’s 

Expected 

Expense as a 

Percentage of 

the LVM’s 

2007 Net 

Income 

Capital 

Expenditures 

$8.3 Million $54.12 Million 649.1% 105.1% 548.3% 

R&D 

Expenditures 

$10.9 Million $10.0 Million 91.7% 19.4% 101.3% 

*Source: LVM 2007 SEC 10-K 

The current financial position of the LVM makes these one-time expenses even more 

costly. Its indebtedness and current schedule of payments may make it more difficult to raise the 

additional capital needed to make the necessary changes to accommodate an exclusively frontloading line, as the firm is highly leveraged. According to the LVM’s 2007 SEC 10-K report, on 

December 31, 2007, it had $341.8 million of long-term debt or 4.94 times the adjusted EBITA. 

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The report also stated that the indebtedness has the potential to put the LVM at a disadvantage 

compared to other manufacturers that do not carry significant long-term liabilities. The debt can 

also affect current operations by requiring a substantial portion of the cash flow from operations 

to make payments on the debt, reducing the available cash to fund working capital, capital 

expenditures, acquisitions, research and development, and planned expansion into consumer 

laundry. Due to this highly leveraged financial structure, interest represents a significant 

expense. The interest expense was 2.31 times the adjusted EBITA, or $34.7 million in 2007. 

Due to the current structure of the LVM’s debt, it is unlikely that current credit lines 

could pay for the up-front costs of constructing a new front-loading manufacturing facility. The 

LVM’s 2007 10-K report stated that because of the covenants on the principal line of credit, only 

an additional $3.9 million could be borrowed. The LVM would likely have to seek a new line of 

credit to finance the changes needed to build a green-field facility and design a new line of 

washers. This would further increase the interest expense and strain the availability of cash for 

working capital, capital expenditures, and R&D. Finally, the timing of these expenditures would 

come a particularly bad period for the LVM. According to the 2007 SEC 10-K report, in 2012, 

the LVM has $184.2 million of its long-term debt due. Because it will most likely be refinancing 

a large portion of its debt at that time, it is likely that the credit and interest terms will be more 

stringent. 

13.9.6 Additional Impacts on the Low Volume Manufacturer 

The lower overall production volumes make it likely that the LVM will continue to face 

higher purchased parts costs and lower productivity, putting more upward pressure on 

manufacturing cost. The LVM is not projected to be able to produce CCWs at a scale that would 

allow it to overcome these disadvantages since it would have to increase its production volume 

by multiples to do so. As mentioned above, the LVM expects commoditization and lower profits 

if the CCW market were to transition to exclusively front-loading CCWs. The LVM noted that 

baseline top-loading clothes washers have a long history of price competition and 

commoditization. Should the CCW market shift to exclusive use of front-loading clothes 

washers due to concerns about the wash quality of top-loading CCWs that can meet 

1.76MEF/8.3WF, for example, a similar commoditization is likely to occur for front-loading 

CCWs, causing margin pressure. 

Thus, on top of a line expansion to cover the vast increase front-loading CCW demand 

(up to 400 percent, if demand is not impacted), expected margin pressure would require a 

redesign of the current front-loading CCW to be more cost competitive. Given the high costs of 

such a redesign, the required manufacturing investments, the low expected returns, and the 

probably cost disadvantages shown in 13.9.4, the LVM has stated that it would most likely exit 

from the CCW industry under such circumstances. Even if the LVM decided to stay in the CCW 

market, it could be capacity constrained due to the investment and line expansion requirements 

and hence its market share could shrink as competitors supply what the LVM cannot. 

As previously stated, the well depreciated machinery and legacy top-loading design helps 

mitigate a natural cost disadvantage in depreciation and R&D that would be eliminated if the 

LVM had to shift a significant proportion of its production to front-loading washers. In addition, 

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the LVM maintains a competitive advantage through its successful customer and service 

network. Lastly, a market disruption, such as a fast transition to front-loading CCWs would put 

the LVM at a greater disadvantage than its competitors since the LVM doesn’t have the scale to 

quickly deliver cost-effective front-loading clothes washers for the CCW market. 

13.9.7 Consequences of Higher Energy Conservation Standards on the LVM 

Due to its manufacturing scale and focus on the CCW industry, any efficiency standard 

affecting the CCW industry will impact the LVM disproportionately compared to its more 

diversified competitors that derive less than 2 percent of their revenues from the CCW market. 

The LVM has stated that any large-scale investments without adequate returns would likely force 

it to exit the residential-style CCW business, which would cause it material harm and damage 

CCW-market competition. As shown in section 13.9.4, an investment of that scale will still put 

the firm at a depreciation and R&D cost disadvantage that significantly erodes profits. A 

wholesale plant refit could become sufficiently expensive as to justify the construction of a new 

facility or to outsource production entirely. 

The LVM stated that its U.S. facility would no longer be viable if washer production 

ceased. The domestic washer production equates to approximately 22 percent of the LVM’s 

total revenue. However, the roughly 124,000 annual washer shipments are vital to the facility as 

they give the facility the manufacturing scale: To remain competitive with larger companies, the 

LVM must spread its overhead, equipment, tooling, raw material, and purchased parts purchases 

over as large a volume as possible. Though extractors and tumbler dryers are important to 

overall revenue at the facility, the higher volume of the washer lines is critical to bringing down 

overhead. In addition, the LVM believes that it has remained successful by offering a complete 

line of commercial laundry equipment. It expects that the volume of all other equipment would 

fall if it no longer offered the most basic laundry equipment. The volume of dryers would be 

especially impacted because many washer sales are coupled with dryers. 

Based on the commercial washer revenues reported in Appendix 13A and using the 

employment assumptions in section 13.10.1, DOE estimates there are approximate 150 

production workers at the LVM manufacturing products directly covered by this rulemaking. In 

addition, DOE estimates that there are 20 non-production employees attributable to CCWs at the 

facility. The domestic facility also manufactures residential top-loading washers, standard 

dryers, front-loading residential washers, washer-extractors and tumbler dryers. If the LVM 

decided to no longer produce any soft mount washers or standard dryers at the facility because it 

could not sell dryers without selling washers, approximately 292 production and 40 nonproduction jobs would be lost. Including all production workers involved in covered and noncovered products, the closure of the LVM domestic manufacturing plant equates to a loss of 

approximately 600 factory employees. 

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13.10 OTHER IMPACTS 

13.10.1 Employment 

13.10.1.1 Methodology 

To quantitatively assess the impacts of energy conservation standards on cooking 

products and CCW manufacturing employment, DOE used the GRIM to estimate the domestic 

labor expenditures and number of employees in the base case and at each TSL from 2007 

through 2042 for the conventional cooking products, microwave oven, and CCW industries. 

DOE used statistical data from the U.S. Census Bureau’s 2006 ASM and 2006 Current Industry 

Report (2006 CIR), the results of the engineering analysis, and interviews with manufacturers to 

estimate the inputs necessary to calculate industry-wide labor expenditures and domestic 

employment levels. 

DOE constructed the industry cost structure using publicly available information from the 

2006 ASM and SEC 10-K reports filed by publicly owned manufacturers. The labor percentage 

of the industry cost structure is calculated by dividing total production worker wages by the total 

value of shipments. For cooking products, which covers both conventional cooking products and 

microwave ovens, DOE used the same industry cost structure constructed from 2006 ASM data 

classified under NAICS 335221 (household cooking appliance manufacturing). For CCW, DOE 

used the industry cost structure for the household laundry equipment manufacturing (NAICS 

335224) because it most closely aligns with the cost structure of CCW. CCW manufacturing is 

classified under NAICS 333312, but the 2006 ASM only provides data for NAICS 33331 

(commercial and service industry machinery manufacturing). The data for this broad code does 

not provide the level of detail necessary for calculating employment in the smaller CCW 

industry. 

The labor percentage and other components of the industry cost structure for cooking 

products and CCW are show in Figure 13.10.1 and Figure 13.10.2 below. 

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Income from
 

Operations, 5.9%
 

Materials, 66.8% 

SG&A, 12.5% 

R&D, 2.2% 

Overhead, 2.2% 

Labor (production 

workers), 7.0% 

Depreciation, 3.4% 

Figure 13.10.1 Cooking Products Industry Cost Structure
 

Labor (production 

workers), 9.0% 

R&D, 2.2% 

SG&A, 12.5% 

Materials, 61.2% 

Overhead, 5.7% 

Depreciation, 3.4% 

Income from 

Operations, 5.9% 

Figure 13.10.2 Commercial Clothes Washers Industry Cost Structure 

To determine the total annual labor expenditure on production labor, the value of 

production labor in the industry cost structure was converted to a percentage of the cost of goods 

sold (COGS). In the GRIMs, the labor expenditures in each year are calculated by multiplying 

the COGS or MPCs by the labor percentage of COGS. As a result, higher TSLs have greater 

direct labor costs because more efficient products have higher MPCs. 

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To calculate the annual domestic labor expenditures, DOE used the 2006 CIR to estimate 

the percentage of domestic production in each industry. DOE estimated that approximately 27 

percent of conventional cooking products and 4 percent of microwave ovens are manufactured 

and sold in the U.S. Census data was not available for CCW production. Approximately 81 

percent of residential washer production is manufactured domestically for U.S. consumption. 

Since no census data was available for CCW individually, DOE used the residential domestic 

production percentage for CCW. Manufacturer interviews confirmed that the domestic 

production of CCW closely mirrors the residential market. 

DOE multiplied the total annual labor expenditures in the GRIM by the percentage of 

U.S. production for domestic consumption to calculate domestic labor expenditures for 

production labor in each industry. The domestic annual labor expenditures in the GRIMs were 

converted to domestic production employment levels by dividing production labor expenditures 

by the annual payment per production worker (production worker hours times the labor rate 

found in the 2006 ASM).d The number of non-production employees was calculated by 

multiplying the number of production workers by the ratio of non-production workers to 

production workers calculated using the employment data in the 2006 ASM. 

The domestic annual labor expenditures and employment levels were calculated for the 

base case and at each TSL. The impacts on domestic employment due to standards can be 

assessed by comparing the employment results in the base case to the results at each TSL. In all 

GRIMs, the employment results represent U.S. production workers that are impacted by this 

rulemaking. U.S. workers involved in manufacturing or supporting products for exports would 

not be impacted and are not included as part of the labor impacts. 

13.10.1.2 Conventional Cooking Products 

The GRIM calculates that the conventional cooking products industry’s domestic labor 

expenditure for production labor in 2012 is approximately $58 million (total COGS in 2012 

times the production labor percentage of COGS times the percentage of U.S production). Using 

the $13.84 wage rate and 1,940 production hours per year per employee found in the 2006 ASM, 

the GRIM estimates there are approximately 2,146 U.S. production employees involved in 

manufacturing conventional cooking products covered by this rulemaking. In addition, DOE 

estimates that 282 non-production employees in the U.S. support convention cooking product 

productione

. The employment spreadsheet of the convention cooking products GRIM shows the 

annual domestic employment impacts in further detail. 

d 2006 ASM labor rates and production hours per year per employee are very similar to figures reported in the 

engineering analysis. DOE used 2006 ASM figures to ensure a consistent set of publicly available data is used for 

the manufacturing employment analysis. 

e As defined in the 2006 ASM, production workers number include “workers (up through the line-supervisor 

level) engaged in fabricating, processing, assembling, inspecting, receiving, storing, handling, packing, 

warehousing, shipping (but not delivering), maintenance, repair, janitorial and guard services, product 

development, auxiliary production for plant's own use (e.g., power plant), recordkeeping, and other services 

closely associated with these production operations at the establishment covered by the report. Employees 

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2012 

Table 13.10.1 illustrates the impact of new energy conservation standards on domestic 

employment levels at each TSL for the conventional cooking products industry calculated by the 

GRIM. 

Table 13.10.1 Conventional Cooking Products Industry Estimated Employment Impacts in 

Trial Standard Level Base 

Case TSL 1 TSL 2 TSL 3 TSL 4 

Total Number of Domestic 

Conventional Cooking Products 

Production Employees in 2012 

2,146 2,153 2,163 2,181 2,731 

Change in Total Number of Domestic 

Conventional Cooking Products 

Production Employees in 2012 Due to 

Standards 

- 7 17 35 585 

Total Number of Domestic 

Conventional Cooking Products NonProduction Employees in 2012 282 282 284 286 358 

Total Number of Domestic 

Conventional Cooking Products 

Employees in 2012 

2,428 2,435 2,447 2,467 3,090 

Figure 13.10.3 shows total annual domestic employment levels for each TSL calculated 

by the GRIM. 

above the working-supervisor level are excluded from this item.” Non-production workers are defined as 

“employees of the manufacturing establishment including those engaged in factory supervision above the linesupervisor level. It includes sales (including driver-salespersons), sales delivery (highway truck drivers and 

their helpers), advertising, credit, collection, installation and servicing of own products, clerical and routine 

office functions, executive, purchasing, financing, legal, personnel (including cafeteria, medical, etc.), 

professional, and technical employees. Also included are employees on the payroll of the manufacturing 

establishment engaged in the construction of major additions or alterations utilized as a separate work force.” 

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Total Employment 

0 

500 

1,000 

1,500 

2,000 

2,500 

3,000 

3,500 

4,000 

4,500 

2006 

2008 

2010 

2012 

2014 

2016 

2018 

2020 

2022 

2024 

2026 

2028 

2030 

2032 

2034 

2036 

2038 

2040 

2042 

Year 

Total Domestic Employment (# of

workers) 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 

Energy Conservation 

Standards Effective Date 

January 2012 

Figure 13.10.3 Total Conventional Cooking Products Industry Domestic Employment by 

Year 

Currently, approximately 27 percent of conventional cooking products sold in the U.S. 

are manufactured in the U.S. DOE expects that there would be positive employment impacts 

among domestic conventional cooking products manufacturers for TSL 1 through TSL 4. 

Because production employment expenditures are assumed to be a fixed percentage of COGS 

and the MPCs increase with more efficient products, labor tracks the increased prices in the 

GRIM. The GRIM predicts a gradual increase in domestic employment after standards. 

The results predicted in the GRIM potentially overstate the domestic employment 

impacts. From the engineering analysis, higher TSLs correspond to switches to more efficient 

components. Because many components are sourced for both large and small manufacturers, 

labor is more a function of units shipped, not production costs as calculated in the GRIM. For 

these manufacturers, the greater labor expenditures for more efficient components are born by 

their suppliers. However, since shipments are expected to increase gradually over time in the 

shipments model, employment levels for manufacturers of cooking products would still increase 

at all TSLs. 

For TSL 1 through TSL 3, the GRIM employment results do not overstate the impacts 

and agree with the bottoms up analysis in the engineering. The incremental costs for more 

efficient components at these TSLs are relatively small. In response to standards, manufacturers 

would most likely not alter employment levels significantly because inserting a more efficient 

component does not necessarily require more labor. 

At TSL 4 the GRIM may overstate the employment impacts. The incremental costs for 

components are large at TSL 4, making the employment impacts more substantial. It is likely 

that the large, positive impacts in employment due to the incremental cost increase overstate the 

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impacts that would result from increased shipments over time. This overstatement is caused by 

the assumption of constant labor content as a percentage of revenue. For TSL 4 in particular, the 

design options involve component substitution which substantially increase the cost of purchase 

parts but should not result in a proportionate increase in labor costs. 

The employment conclusions ignore the possible relocation of domestic jobs to lowerlabor-cost countries, which may occur independently of new standards or may be influenced by 

the level of investments required by new standards. Because the labor impacts in the GRIM do 

not take relocation into account, the labor impacts would be different if manufacturers chose to 

relocate to lower cost countries. The relatively small capital costs at TSL 1 through TSL 3 make 

relocation less likely. However, at all TSLs manufacturers face significant product conversion 

costs that correspond to redesigning products and testing components on all platforms. These 

significant conversion costs put pressure on manufactures at all TSLs to cut costs. At TSL 4, 

manufacturers face both significant capital and product conversion costs, which put even greater 

pressure on cost reduction and for plant relocation to lower-cost countries. 

13.10.1.3 Microwave Ovens 

The GRIM calculates that the domestic industry labor expenditure for microwave oven 

production workers in 2012 is approximately $6 million. Using the $13.84 wage rate and 1,940 

production hours per year per employee found in the 2006 ASM, the GRIM estimates there are 

approximately 229 U.S. production employees involved in manufacturing microwave ovens 

covered by this rulemaking (total COGS in 2012 times the production labor percentage of COGS 

times the percentage of U.S production). In addition, DOE estimates that 30 indirect employees 

in the U.S. support microwave oven production. The employment spreadsheet of the microwave 

oven GRIM shows the annual domestic employment impacts due to both energy factor and 

standby power standards in further detail. 

Table 13.10.2 illustrates the impact of new cooking efficiency standards on employment 

levels at each TSL for the microwave oven industry calculated by the GRIM. 

Table 13.10.2 Microwave Ovens Industry Estimated Employment Impacts in 2012 for 

Energy Factor Standards 

Trial Standard Level Base 

Case TSL 1 TSL 2 TSL 3 TSL 4 

Total Number of Domestic Microwave 

Oven Production Employees in 2012 229 246 264 292 327 

Change in Total Number of Domestic 

Microwave Oven Production 

Employees in 2012 Due to Standards 

- 17 34 62 98 

Total Number of Domestic Microwave 

Oven Non-Production Employees in 

2012 

30 32 35 38 43 

Total Number of Domestic Microwave 

Oven Employees in 2012 260 278 298 330 370 

Table 13.10.3 illustrates the impact of new standby power standards on employment 

levels at each TSL for the microwave oven industry calculated by the GRIM. 

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Table 13.10.3 Microwave Ovens Industry Estimated Employment Impacts in 2012 for 

Standby Power Standards 

Trial Standard Level Base 

Case TSL 1 TSL 2 TSL 3 TSL 4 

Total Number of Domestic Microwave 

Oven Production Employees in 2012 229 230 230 232 239 

Change in Total Number of Domestic 

Microwave Oven Production 

Employees in 2012 Due to Standards 

- 1 1 2 9 

Total Number of Domestic Microwave 

Oven Non-Production Employees in 

2012 

30 30 30 30 31 

Total Number of Domestic Microwave 

Oven Employees in 2012 260 260 260 262 270 

Figure 13.10.4 shows annual domestic employment levels for each TSL calculated by the 

GRIM for energy factor standards. 

Total Employment 

0 

100 

200 

300 

400 

500 

600 

2006 

2008 

2010 

2012 

2014 

2016 

2018 

2020 

2022 

2024 

2026 

2028 

2030 

2032 

2034 

2036 

2038 

2040 

2042 

Year 

Total Domestic

Employement (# of Workers) 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 

Energy Conservation Standards 

Effective Date 

January 2012 

Figure 13.10.4 Total Microwave Ovens Industry Domestic Employment by Year for Energy 

Factor Standards. 

Figure 13.10.5 shows annual domestic employment levels for each TSL calculated by the 

GRIM for standby power standards. 

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Total Employment 

0 

50 

100 

150 

200 

250 

300 

350 

400 

2006 

2008 

2010 

2012 

2014 

2016 

2018 

2020 

2022 

2024 

2026 

2028 

2030 

2032 

2034 

2036 

2038 

2040 

2042 

Year 

Total Domestic

Employement (# of Workers) 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 

Energy Conservation Standards 

Effective Date 

January 2012 

Figure 13.10.5 Total Microwave Ovens Industry Domestic Employment by Year for 

Standby Power Standards. 

Approximately 96 percent of microwave ovens sold in the United States are imported. 

Because most microwave ovens are produced abroad, any standard on energy factor or standby 

power has a larger impact on labor in other countries. U.S. companies are all still impacted by 

the product conversion, conversion capital, and higher MPCs. However, the impacts of 

standards on domestic employment would be small. 

From the engineering analysis, higher TSLs correspond to switches to more efficient 

components for both energy factor and standby power standards. Because many components are 

sourced for both large and small manufacturers, labor is more a function of units shipped, not 

production costs as calculated in the GRIM. However, since shipments are expected to increase 

gradually over time in the shipments model, employment levels for manufacturers of microwave 

ovens would still increase at all TSLs. 

For all energy factor and standby power TSLs, the GRIM calculates an increase in 

domestic employment due to energy conservation standards because production labor 

expenditures are assumed to be a fixed percentage of COGS and MPCs increase with more 

efficient products. For all TSLs, the GRIM employment results agree with the bottoms up 

analysis in the engineering. However, the incremental costs for more efficient components at all 

TSLs are relatively small. Consequently, in response to standards, domestic manufacturers 

would most likely not alter employment levels much because inserting a more efficient 

component does not necessarily require more labor. 

The employment conclusions ignore the possible relocation of domestic jobs to lowerlabor-cost countries, which may occur independently of new standards or may be influenced by 

the level of investments required by new standards. Since most microwave ovens are already 

imported and the employment impacts in the GRIM are small, the actual impacts on domestic 

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employment would be mostly impacted if any U.S. manufacturer decided to shift remaining U.S. 

production to lower-cost-countries. 

13.10.1.4 Commercial Clothes Washers 

The GRIM calculates that the CCW industry’s domestic labor expenditure for production 

workers in 2012 is approximately $7 million (total COGS in 2012 times the production labor 

percentage of COGS times the percentage of U.S production). Using the $19.75 wage rate and 

1,890 production hours per year per employee found in the 2006 ASM, the GRIM estimates there 

are approximately 178 U.S. production employees involved in manufacturing CCW products 

covered by this rulemaking. The employment spreadsheet of the GRIM shows the annual 

employment impacts in further detail. 

Table 13.10.4 illustrates the impact of new energy conservation standards on employment 

levels at each TSL for the CCW industry calculated by the GRIM. 

Table 13.10.4 Commercial Clothes Washer Industry Estimated Employment Impacts in 

2012 

Trial Standard Level Base 

Case TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Total Number of Domestic CCW 

Production Employees in 2012 178 196 216 222 224 227 

Change in Total Number of Domestic 

CCW Production Employees in 2012 

Due to Standards 

- 18 38 44 46 48 

Total Number of Domestic CCW NonProduction Employees in 2012 24 27 30 30 31 31 

Total Number of Domestic CCW 

Oven Employees in 2012 202 223 246 252 255 258 

Figure 13.10.6 shows annual domestic employment levels for each TSL calculated by the 

GRIM. 

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Direct Employment 

0 

50 

100 

150 

200 

250 

300 

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 

Year 

Total Domestic Employment (# of workers) 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Energy Conservation 

Standards Effective Date 

January 2012 

Figure 13.10.6 Total Commercial Clothes Washer Industry Domestic Employment by Year 

Because employment expenditures are assumed to be a fixed percentage of COGS and 

the MPCs increase with more efficient products, the GRIM predicts an increase in employment 

after standards. As discussed in manufacturing interviews, there are a variety of manufacturers 

with different capabilities. Since two out of the three manufacturers are large, diversified 

manufacturers that treat CCW as an extension of their residential washer lines, the domestic 

employment in the GRIM would only include those production workers involved in making 

commercial washers for U.S. consumption. The third manufacturer is a low volume 

manufacturer with the majority of its production focused on CCW and commercial laundry 

equipment rather than residential clothes washers. The domestic employment figures in the 

GRIM would only include those production workers directly involved in CCW manufacturing. 

Due to the uncertainty in the business decisions of where to manufacture washers after 

standards, DOE presents a range of potential employment impacts if the potential for relocation 

is considered. If all manufacturers do not change sourcing and production facility locations in 

response to standards, amended energy conservation standards have the potential to increase the 

number of U.S. production workers as shown in Table 13.2.1. The proposed standard could 

result in the loss of 178 production jobs if all U.S. manufacturers source standards-compliant 

washers or shift U.S. production abroad. 

At each TSL, manufacturers face different pressure that could impact their employment 

decisions. Currently, all top-loading CCW are produced in the U.S., whereas front-loading 

CCWs are produced both domestically and abroad. At TSL 1, the GRIM predicts that there will 

be positive direct employment impacts. Efficiency improvements are likely to increase the labor 

content of top-loading washers. All manufacturers already make front-loading and top-loading 

CCWs that either meet or exceed the efficiency requirements of TSL 1. Manufacturers have 

stated that they are not likely to relocate production because capital and conversion investments 

(if any) at this TSL are small. 

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At TSLs 2 and 3, one of the CCW manufacturers has an existing top-loading CCW, 

another has an existing top-loading residential washer that could be modified for CCW-use, and 

the remaining manufacturer would have to reengineer its top-loading platform to meet the 

efficiency levels of TSL 2 and 3. Similarly, two of the three CCW manufacturers have existing 

front-loading CCWs that meet the efficiency levels of TSL 2 and 3, whereas the remaining CCW 

manufacturer would have to source a different front-loading CCW from its current supplier. 

Though there are capital and conversion costs associated with the modifications for two of the 

manufacturers, it is likely that the higher labor content needed for the more efficient washers 

would increase employment, as predicted in the GRIM. Manufacturers stated they are not likely 

to relocate production at this TSL. 

At TSL 3, all CCW manufacturers have to update either a front-loading or a top-loading 

CCW to meet the efficiency levels. For two of the three manufacturers, the impacts will be 

greater since their top-loading CCWs will be impacted, which represent approximately 80 

percent of each of their current production volumes. The remaining CCW manufacturer will have 

to update/change the front-loading CCW it currently sources from a domestic supplier. While 

this manufacturer will not incur any capital-expenditure from having to shift its product sourcing, 

it will still incur some costs for product development, field testing, payment system integration, 

etc. of the new platform. 

For TSL 4 and above, the efficiency levels for top-loading CCWs remain the same as for 

TSL 3. Therefore the impacts on the top-loading operations at these manufacturers will remain 

the same at these higher TSLs also. Currently, only one of the three major CCW manufacturers 

currently produces a front-loading CCW that can meet the efficiency levels of TSL 4 and 5. For 

TSL 4 and 5, both remaining manufacturers would have to modify existing front-loading CCWs 

or outsource them from other manufacturers. For example, one of the two manufacturers already 

sources its front-loading CCWs from another domestic supplier, whose private-label CCWs are 

based on a residential platform and whose performance is identical to that of the residential 

platform. This supplier also makes more-efficient front-loading CCWs that it could private label 

instead. One of their models almost reaches the efficiency level of TSL 5, and minor 

modifications to the wash temperature or wash programs may allow it to extend its efficiency 

level to 2.35MEF/4.4WF. 

TSL 4 and above have a higher impact on manufacturers than TSL 3 and below, since 

these TSLs require manufacturers to update two product platforms (i.e., front-loading and toploading) rather than one. Thus, the required investments for product development would roughly 

double, an expense that the industry volume makes hard to bear. For example, the LVM is 

unlikely to be able to afford two concurrent product development cycles since they would require 

more manpower, investment, etc. than the LVM has funds for. Thus, such a scenario could 

cause the LVM to abandon one or both of its CCW platforms, causing it material harm and 

potentially having an adverse impact on the competitiveness of the CCW industry. Because the 

commercial production is treated as an extension of the residential washers, it is difficult to 

estimate the number of domestic manufacturing jobs that would be eliminated if either large 

manufacturer decreased CCW production at TSL 4 through TSL 5. The severity of the impact 

would depend upon how much domestic production remained after the standard. 

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Finally, the LVM’s sourcing decision will have a large impact on the employment 

impacts for the industry. The LVM stated that standards could force it to exit the CCW industry 

if the necessary investments cannot be justified. The LVM also stated that it cannot 

manufacturer top-loading washers above TSL 2. Using the employment assumptions and the 

revenues reported in Appendix 13-A, DOE estimates that if the LVM exited the CCW market in 

response to standards it would directly impact 150 production workers. However, the LVM also 

stated that its U.S. facility would no longer be viable if washer production ceased. Washer sales 

are vital to the facility because they add substantial scale for spreading overhead, lead to coupled 

dryer sales, and allow them to offer a full range of laundry equipment to their customers. If all 

soft mount washers and standard dryer production ceased at the facility, approximately 292 

production jobs would be lost. If the entire facility were closed, approximately 600 employees 

would be impacted. The employment impacts for the LVM are discussed individually in section 

13.9.7. 

13.10.2 Production Capacity 

13.10.2.1 Conventional Cooking Products Production Capacity Impacts 

According to the manufacturers of gas cooking products, amended energy conservation 

standards should not significantly affect production capacity, except at the max-tech levels. For 

example, in interviews, all manufacturers of cooking products with standing pilot lights stated 

they also manufacture products that do not use this type of ignition. Since manufacturers of gas 

cooking appliances with standing pilot ignitions typically also sell otherwise-identical appliances 

with electronic ignition systems, manufacturers stated that they expected impacts on 

manufacturing capacity due to changes in the ignition systems to be minimal. Thus, DOE 

believes manufacturers will be able to maintain manufacturing capacity levels and continue to 

meet market demand under amended energy conservation standards. For most other products 

and efficiencies, manufacturers can modify existing equipment to accommodate redesigned 

products with more efficient components without significantly impacting production volumes. 

However, max-tech levels for standard electric ovens and standard gas ovens strand some 

existing manufacturing equipment and tooling, and would require substantial product 

development and retooling. DOE believes setting a standard at this level could lead to short term 

capacity problems for these products if manufacturers cannot make the tooling changes in time to 

meet the standard. For the other efficiencies, manufacturers will be able to retool without 

causing capacity constraints. 

13.10.2.2 Microwave Oven Production Capacity Impacts 

According to the majority of microwave oven manufacturers, new energy conservation 

standards will not significantly affect production capacity. As with conventional cooking 

products, any necessary microwave oven redesigns involve component switches that will not 

change the fundamental assembly of the equipment. However, manufacturers anticipate 

significant changes to tooling for TSL 4 for energy factor standards and minor changes to tooling 

at all TSLs for standby power standards. For all efficiency levels for energy factor and standby 

power standards, the most significant conversion costs are the research and development (R&D), 

testing, and certification of products with more-efficient components, which does not affect 

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production line capacity. Thus, DOE believes manufacturers will be able to maintain 

manufacturing capacity levels and continue to meet market demand under new energy 

conservation standards. 

13.10.2.3 Commercial Clothes Washer Capacity Impacts 

According to the majority of CCW manufacturers, new energy conservation standards 

could potentially impact manufacturers’ production capacity depending on the efficiency level 

required. Necessary redesigns of front-loading and top-loading CCWs will not change the 

fundamental assembly of the product or cause a drastic increase in the volume requirements of 

one type of washer. Thus, DOE believes manufacturers will be able to maintain manufacturing 

capacity levels and continue to meet market demand under new energy conservation standards. 

However, a very high efficiency standard for top-loading clothes washers could cause a 

manufacturer to abandon further manufacture of top-loading clothes washers after the effective 

date (if end-users reject the wash performance of higher-efficiency top-loading CCWs due to 

concerns about wash quality, for example). Instead of manufacturing top-loading clothes 

washers, the manufacturers could elect to switch their entire production over to front-loading 

clothes washers. Since top-loading and front-loading clothes washers share few, if any parts, are 

built on completely separate assembly lines, and are built at very different production volumes, a 

manufacturer may not be able to make a platform switch from top-loading to front-loading 

washers without significant impacts on product development and capital expenses, along with 

capacity constraints. 

For example, multiple manufacturers stated during interviews that front-loading CCWs 

represent a relatively small segment of their total production volumes. Thus, their front-loading 

production capacity may need to be substantially expanded to meet the demand that their topproduction lines used to meet. This expansion could possibly affect capacity until new 

production lines come on-line to service demand. In addition, manufacturers stated that the 

higher prices of front-loading washers could lead to a decrease in shipments. This could lead to 

a permanently lower production capacity as machines are repaired and the product lifetime of 

existing washers is extended. 

13.10.3 Cumulative Regulatory Burden 

While any one regulation may not impose a significant burden on manufacturers, the 

combined effects of several impending regulations may have serious consequences for some 

manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single 

regulation may overlook this cumulative regulatory burden. For the cumulative regulatory 

burden analysis, DOE describes other significant product-specific regulations that could affect 

conventional cooking products, microwave oven, and CCW manufactures that will take effect 

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three years before or three years after the effective date of the amended energy conservation 

standards for these productsf. 

Companies which produce a wide range of regulated products may be faced with more 

capital and product development expenditures than competitors with a narrower scope of 

products. Regulatory burdens can prompt companies to exit the market or reduce their product 

offerings, potentially reducing competition. Especially smaller companies can be impacted by 

regulatory costs since such companies have lower sales volumes over which they can amortize 

the costs of meeting new regulations. DOE considers that a proposed standard is not 

economically justified if it contributes to an unacceptable level of cumulative regulatory burden. 

In addition to the energy conservation regulations on conventional cooking products, 

microwave ovens, and CCWs, several other Federal regulations and pending regulations apply to 

these products and other equipment produced by the same manufacturers. DOE recognizes that 

each regulation can significantly impact manufacturers’ financial operations. The following 

sections provide a qualitative discussion of some of these regulations and standards. 

13.10.3.1 Standby Power Requirements 

Section 310 of the Energy Independence and Security Act of 2007 (EISA) amends 

Section 325 of the EPCA to require DOE to regulate standby mode and off mode energy 

consumption as part of an energy conservation standard for all covered products, including 

residential ranges and ovens and microwave ovens, for which a final rule is adopted after July 

10, 2010. For products covered by this rulemaking, the EISA specifies that the test procedure for 

residential ranges and ovens and microwave ovens be amended to include measurement of 

standby mode and off mode energy consumption, taking into consideration the most current 

version of International Electrotechnical Commission’s (IEC) Standards 62301 Household 

electrical appliances – Measurement of standby power (IEC 62301). According to the EISA, an 

energy conservation standard for cooking products that would be put forth from this rulemaking 

is not required to incorporate standby mode and off mode energy consumption. However, in the 

ANOPR, DOE stated it intends to initiate a test procedure change to measure microwave oven 

standby power for reasons that: 1) standby power consumption represents a significant 

proportion of microwave oven annual energy consumption, and 2) the range of standby power 

consumptions among microwave ovens currently on the market suggests that the likely impact of 

a standard would be significant. 

Besides the test procedure change for products in this rulemaking, manufacturers stated a 

concerned with the EISA requirement that all covered products measure standby power and off 

mode. Manufactures stated that this requirement will impose a heavy burden on their testing 

facilities going forward. In addition, because the test procedure change will affect all covered 

products, manufacturers expressed a concern that this had the potential to create many 

overlapping regulatory compliance costs in the future. 

f The effective date for conventional cooking products, microwave oven, and CCW and PTHP is three years from
 

the date of publication of the final rule.
 

The effective date for standard size PTAC and PTHP is four years from the date of publication of this final rule
 

(approximately September, 2012).
 

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13.10.3.2 Additional Federal Energy Conservation Standards 

Besides the energy conservation regulations on conventional cooking products, 

microwave ovens and CCWs, several other Federal regulations and pending regulations apply to 

other products and equipment produced by the same manufacturers. DOE recognizes that each 

regulation can significantly impact manufacturers’ financial operations. Multiple regulations 

affecting the same manufacturer can quickly strain manufacturers’ profits and possibly cause an 

exit from the market. Table 13.10.5 and Table 13.10.6 list the Federal regulations that could also 

affect manufacturers of the conventional cooking products, microwave oven, and CCW 

industries in the three years leading up to and the three years preceding the effective date of the 

amended energy conservation standards for these products. It must be noted that while the list of 

products is long, the amount of cumulative burden on any particular firm is extremely variable 

since the product scope of each company is different. 

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Table 13.10.5 Other DOE and Federal Actions Affecting the Cooking Products Industry 

(Conventional Cooking Products and Microwave Ovens) 

Regulation Approximate 

Effective Date* 

Number of 

Impacted 

Companies 

from the 

MTA 

Estimated 

Industry Total 

Conversion 

Expenses** 

(millions) 

Residential Refrigerators and 

Freezers 2010* 18 N/A† 

Residential Clothes Washers 2014* 14 N/A† 

Dishwashers 2012 14 N/A† 

Room Air Conditioners 2014* 9 N/A† 

Battery Chargers 2014* 5 N/A† 

Dehumidifiers 2012 4 N/A† 

Residential Furnaces 

2015* 3 $97 (2006$)g 

Commercial Clothes Washers 2012* 3 See section 13.4.8 

Packaged Terminal Air Conditioners 

and Heat Pumps 2012* 3 N/A† 

External Power Supplies 2014* 3 N/A† 

Residential Fluorescent and 

Incandescent Lamps 2012* 2 N/A† 

Residential Water Heaters 2015* 2 N/A† 

Commercial Beverage Vending 

Machine 2012* 2 

N/A† 

Commercial Refrigeration 

Equipment 2012* 2 $112 (2007$)h 

Commercial Unitary Air 

Conditioners and Heat Pumps 2010 2 N/A† 

Ceiling Fans and Ceiling Fan Light 

Kits 2010 1 N/A† 

Commercial Distribution 

Transformers 2010 1 $13.5 (2006$)i 

*The dates listed are an approximation. The exact dates are pending final DOE action.
 

** Total conversion expenses include both capital and equipment conversion expenses for the rulemaking specific
 

industries.
 

† For energy conservation standards for ongoing rulemakings that are awaiting DOE final action, DOE does not 

have finalized estimated total industry conversion expense. For minimum performance requirements prescribed by 

the Energy Policy Act of 2005 (EPACT 2005), DOE did not estimate total industry conversion expenses because a 

g Estimated industry conversion expenses were published in the TSD for the November 2007 residential furnace 

final rule. 72 FR 65136. The TSD for the 2007 residential furnace final rule can be found at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnace_boiler_fr.html 

h Estimated industry conversion expenses were published in the TSD for the August 2008 commercial refrigeration 

equipment NOPR. 73 FR 50119. The TSD for the 2008 commercial refrigeration equipment NOPR can be found at: 

http://www1.eere.energy.gov/buildings/appliance_standards/commercial/refrig_equip_nopr.html 

i Estimated industry conversion expenses were published in the TSD for the October 2007 distribution transformers 

final rule. 72 FR 58190. The TSD for the 2007 distribution transformers final rule can be found at: 

http://www1.eere.energy.gov/buildings/appliance_standards/commercial/distribution_transformers_finalrule.html 

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MIA was not completed as part of a rulemaking. 42 U.S.C. 6291-6317. For minimum performance requirements 

prescribed by the Energy Independence and Security Act of 2007 (EISA), DOE did not estimate total industry 

conversion expenses because a MIA was not completed as part of a rulemaking. Pub. L. 110-140. 

Table 13.10.6 Other DOE and Federal Actions Affecting the CCW Industry 

Regulation Approximate Effective 

Date* 

Number of Impacted 

Companies from the 

MTA 

Estimated Total 

Conversion 

Expenses** 

Residential Clothes 

Washers 2014* 6 N/A† 

Residential Refrigerators 

and Freezers 2010* 5 N/A† 

Dishwashers 2012 4 N/A† 

Packaged Terminal Air 

Conditioners and Heat 

Pumps 

2012* 4 

N/A† 

Room Air Conditioners 2014* 3 N/A† 

Cooking Products 2012* 3 See section 13.4.8 

Battery Chargers 2014* 2 N/A† 

Dehumidifiers 2012 2 N/A† 

Residential Furnaces 2015* 2 $97 (2006$)g 

External Power Supplies 2014* 2 N/A† 

Residential Fluorescent 

and Incandescent Lamps 2012* 1 N/A† 

Residential Water 

Heaters 2015* 1 N/A† 

Commercial Beverage 

Vending Machines 2012* 1 N/A† 

*The dates listed are an approximation. The exact dates are pending final DOE action 

** Total conversion expenses include both capital and equipment conversion expenses. 

† For energy conservation standards for ongoing rulemakings that are awaiting DOE final action, DOE does not 

have finalized estimated total industry conversion expense. For minimum performance requirements prescribed by 

EPACT 2005, DOE did not estimate total industry conversion expenses because a MIA was not completed as part of 

a rulemaking. 42 U.S.C. 6291-6317. For minimum performance requirements prescribed by EISA 2007, DOE did 

not estimate total industry conversion expenses because a MIA was not completed as part of a rulemaking. Pub. L. 

110-140. 

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Additional investments necessary to meet these potential standards could have significant 

impacts on manufacturers of the covered products. However, DOE has limited data on the 

importance of these other regulated products for manufacturers of conventional cooking 

products, microwave ovens, and CCW. Differences in market shares and manufacturing 

processes of other regulated products for each manufacture could cause varying degrees of 

burdens on these manufactures. Therefore, DOE only estimated the cost of compliance to meet 

other energy conservation standards for regulated products if DOE had published a final rule. 

While any company that manufacturers products covered in pending rulemakings has the 

potential to incur overlapping investments to comply with other standards, manufacturers of 

CCWs could be greatly impacted by the upcoming rule covering residential clothes washers. 

Manufacturers of CCW typically manufacture much of the washer on the same assembly lines as 

their residential washers. Any changes that are needed to comply with this rule have potential 

interactions with the production of residential washers. Depending on the standard level that is 

chosen for residential washers, the production lines for both products may have to be 

significantly altered. 

13.10.3.3 State Energy and Water Conservation Standards 

In addition to Federal regulations, cooking products and CCW manufacturers are also 

subject to State energy and water conservation standards. CCWs are covered by the State 

standards listed in Table 13.10.7. 

Table 13.10.7 State Commercial Clothes Washer Regulations Similar to EPACT 2005 

State Effective Date Difference from EPACT 2005 

Arizona MEF and WF: 1/1/08 Standards effective one year later than EPACT 2005 

California MEF: 1/1/05 WF: 1/1/07 MEF standard effective two years earlier than EPACT 2005 

Connecticut MEF and WF: 7/1/06 Standards effective six months earlier than EPACT 2005 

Maryland MEF and WF: 3/1/07 Standards effective two months later than EPACT 2005 

New Jersey MEF: 1/1/07 WF: 1/1/10 Water factor standard effective three years later than EPACT 

2005 

Oregon MEF and WF: 1/1/08 Standards effective one year later than EPACT 2005 

Rhode Island MEF and WF: 1/1/07 Identical to EPACT 2005 

Washington MEF - For Sale: 1/1/07 MEF – 

Installation: 1/1/08 Does not address water factor 

As presented in the table above, the State of California mandates energy and water 

conservation standards for commercial front-loading and commercial top-loading automatic 

clothes washers. Table 13.10.8 provides the State’s CCW energy conservation standards, which 

are dependent on clothes container capacity, and the water conservation standards, which are 

effective two years after the MEF standards. 

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Table 13.10.8 California State Energy and Water Conservation Standards for Commercial 

Clothes Washers 

Clothes Washer Clothes Container Minimum MEF Maximum Water 

Classification Compartment Effective January Factor Effective 

Capacity (ft3) 1, 2005 January 1, 2007 

Front-loading < 3.5 ft3 1.26 9.5 

< 1.6 ft3 0.65 9.5 

Top-loading ≥ 1.6 ft3 and < 4.0 ft3 1.26 9.5 

In addition to the efficiency standards discussed above, the State of California requires 

that commercial top-loading semi-automatic clothes washers and commercial suds-saving 

clothes washers manufactured on or after January 1, 2005 have an unheated rinse water option. 

Additionally, California issued minimum water conservation standards for residential 

clothes washers. While this does not directly affect products covered by the rulemakings, DOE 

is aware that this standard may have impacts on manufacturers of CCWs and other household 

appliances. Although Federal standards exist for the energy consumption of residential clothes 

washers, no such standard exists for the water efficiency. On September 16, 2005, the California 

Energy Commission (CEC) issued a petition for an exemption from Federal preemption to seek 

to apply its own State regulation. DOE accepted written comments regarding this California 

petition until April 7, 2006. Table 13.10.9 provides the State’s proposed residential clothes 

washer water conservation standards and their respective effective dates. 

Table 13.10.9 California Water Conservation Standards for Residential Clothes Washers 

Clothes Washer Maximum Water Factor (gallons/cu. ft.) 

Classification Effective January 1, 2007 Effective January 1, 2010 

Top-loading 8.5 6.0 

Front-loading 8.5 6.0 

On December 28, 2006, DOE issued a decision denying the California petition. 71 FR 

78157. The denial of the petition was based on three factors. First, DOE determined that it does 

not have the statutory authority to prescribe a rule for California that would become effective by 

January 1, 2007, the first of two compliance dates contained in Title 20, section 1605.2(p)(1) of 

the California Code of Regulations. Second, DOE ruled that CEC had not established by a 

preponderance of the evidence that the State of California has unusual and compelling water 

interests, a condition required by EPCA for DOE to grant California a waiver from Federal 

preemption. 42 USC 6297(d)(1)(B). Finally, a preponderance of evidence showed that the 

California regulation would likely result in the unavailability of a class of residential clothes 

washers, specifically top-loader machines, in California. 

13.10.3.4 Refrigerant Phase-out 

In 1987, the United Nations Environment Programme (UNEP) adopted the Montreal 

Protocol on Substances that Deplete the Ozone Layer (“Montreal Protocol”), which regulates the 

phase-out of ozone-depleting substances through a collaborative and international effort. In 

1988, the United States ratified the Montreal Protocol and thus committed to the phase-out. 

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In 1990, the Clean Air Act was amended to include Title VI, “Stratospheric Ozone 

Protection,” to implement the Montreal Protocol. (42 U.S.C 7671, et seq.) Title VI mandated 

the phase-out by 2020 of HCFC refrigerants for use in new air-conditioning systems. (42 U.S.C. 

7671d) Title VI, however, also authorized the U.S. Environmental Protection Agency (EPA) to 

accelerate this date if certain criteria were met, (42 U.S.C. 7671e) and EPA subsequently adopted 

a rule on December 10, 1993 to require the phase-out of HCFC refrigerants for use in new 

equipment by 2010. 58 FR 65018. R-22, a refrigerant currently used by manufacturers of 

heating, ventilation, and air-conditioning (HVAC) systems, is an HCFC refrigerant. Phase-out of 

this refrigerant could have a significant impact on manufacturing, performance, and cost of 

HVAC equipment. Many of the same manufacturers that produce conventional cooking 

products, microwave ovens, and CCWs also manufacture equipment that utilizes R-22 

refrigerant. These manufacturers will need to convert their manufacturing process and designs to 

meet the refrigerant requirements in addition to energy conservation standards. 

13.10.3.5 Restriction of Hazardous Substance Directive 

According to manufacturers, the Restriction of Hazardous Substance Directivej (RoHS) 

will have some global impact on manufacturing of electrical and electronic equipment. Under 

the directive, all manufacturers are banned from placing on the European Union (EU) market 

new electrical and electronic equipment containing more than agreed-upon levels of lead, 

cadmium, mercury, hexavalent chromium, polybrominated biphenyl and polybrominated 

diphenyl ether flame retardants. Although there is no Federal regulation on RoHS, California 

has passed SB 20: Electronic Waste Recycling Act of 2003. Under this law, California limits the 

amount of hazards substances included in the RoHS directive that can be sold in California. 

In addition, several northeastern states have placed a ban on any product that contains 

more than 1 ounce of mercury (a substance listed in RoHS). This primarily affects mercurybased gas valves found in commercial and residential conventional cooking products. 

Manufacturers of conventional cooking products have said that these bans and RoHS will have 

some impacts in the way the electronic components in the cooktops and ovens are incorporated 

into the design. Currently, these manufacturers have electronic components in the cooktop and 

oven designs that contain substances banned by the RoHS and mercury limit passed by 

northeastern states. However, manufacturers do not anticipate these restrictions will 

significantly impact the cooking products industry as a whole. 

A significant worry to manufacturers is the uncertainty about the future of RoHS. One 

manufacturer stated that California’s resumption of the RoHS initiative demonstrates the ease 

with which any state could selectively choose to ban its products. One manufacturer stated that 

there are number of exemptions found in RoHS which must be periodically renewed by the EU. 

Manufacturers use a number of these exempted substances in their products and are not sure if 

the exemptions will be renewed. Lastly, confirming RoHS-compliance will place additional 

testing burdens on manufacturers. 

j Further information about RoHS can be found at 

http://eur-lex.europa.eu/LexUriServ/site/en/oj/2003/l_037/l_03720030213en00190023.pdf 

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Most manufacturers interviewed for this rulemaking are already compliant with the 

RoHS directive. The most significant cumulative regulatory burden for gas cooking appliance 

manufacturers is a state-by-state restriction on mercuryk, which affects the gas valves used in 

their appliances. Most gas cooking appliance manufacturers have already eliminated mercury 

switches or already have plans in place to do so. However, all appliance manufacturers are 

concerned about potential restrictions of other hazardous substances in the future, such as fire 

protection materials, which could be costly to remove from existing products. 

13.10.3.6 International Energy Conservation Standards 

Commercial Clothes Washers 

DOE is not aware of any foreign standards covering CCWs. However, several foreign 

standards cover residential clothes washers, and DOE understands that this rulemaking may still 

impact some North American manufacturers in the home appliance industry. 

The Canadian government regulates the efficiency of residential clothes washers. This 

standard applies to standard or compact electrically operated household clothes washers that are 

top- or front-loaded, and that have an internal control system that regulates the water temperature 

without the need for user intervention subsequent to initiation of machine operation. The current 

standards went into effect January 1, 2007, with increases in the standards for some product 

classes compared to the previous standards which had been in effect since January 1, 2004. 

Mexico mandates energy conservation standards for residential clothes washers sold in 

the country, however the standard does not apply to clothes washers that do not use electricity or 

are used for commercial or industrial applications. 

Cooking Products 

Canada does set energy conservation standards for cooking products. However, these 

standards are less stringent than those of the United States. Manufacturers stated their concern 

that Canada will begin to regulate products at the provincial level. Canada doesn’t have Federal 

pre-emption clauses for efficiency standards like the United States, so province-by-province 

standards could create a patchwork of standards and result in even greater testing costs. 

DOE surveyed foreign regulatory and non-regulatory programs, identifying Korea’s estandby program, Australia’s standby program, and Japan’s Top Runner Program. All of them 

aim to meet or exceed the goals of the International Energy Agency (IEA)’s One-Watt program 

to lower standby power consumption below 1 W for microwave ovens.l Korea’s e-standby 

k For example, the Interstate Mercury Education & Reduction Clearinghouse (IMERC) is a coalition of Northeast 

states coordinating the banning of products containing mercury, see 

http://www.newmoa.org/prevention/mercury/imerc.cfm 

l IEA Energy Information Centre, Standby Power Use and the IEA “1-Watt Plan” 

http://www.iea.org/textbase/subjectqueries/standby.asp 

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program currently has a voluntary labeling program for microwave ovens with less than 1 W of 

standby power. The program is currently transitioning to a mandatory 1 W maximum standby 

limit by the year 2010. Australia has plans to implement a mandatory 1 W standard by the year 

2012. In accordance with Japan’s Top Runner Program, Japanese appliance manufacturers made 

a voluntary declaration to reduce standby power consumption of microwave ovens without a 

timer as close to 0 W as possible and that of microwave ovens with a timer to 1 W or lower. 

13.10.3.7 International Test Procedures 

Currently, manufacturers of conventional cooking products are principally impacted by 

foreign regulation due to the need to use a separate test procedure for foreign markets. 

Depending on the country where the regulation is from, manufacturers must use a separate test 

procedure for exported products. A similar situation exists for exports of CCWs to Australia. 

Manufacturers often have to contract foreign laboratories to conduct tests at the foreign 

locations. 

13.11 CONCLUSIONS 

The following sections summarize the different impacts for the scenarios DOE believes 

are most likely to capture the range of impacts on conventional cooking products, microwave 

ovens, and CCW manufacturers as a result of both new and amended energy conservation 

standards. DOE also notes that while these scenarios bound the range of most plausible impacts 

on manufacturers, there potentially could be circumstances which cause manufacturers to 

experience impacts outside of this range. 

13.11.1.1 Conventional Cooking Products Industry 

To assess the lower end of the range of potential impacts for the conventional cooking 

products industry, DOE considered a scenario in which the industry gross margin percentage in 

the base case is preserved in the standards case (i.e., the markup is held constant for all products 

at all TSLs). Thus, a manufacturer is able to fully pass on any additional costs due to standards 

and maintain the percentage margin between COGS and manufacturing selling price. Thus, if 

unit sales remain constant, the gross margin in absolute dollars will increase after a standard 

comes into effect. 

To assess the higher end of the range of potential impacts for the conventional cooking 

products industry, DOE considered the scenario reflecting the preservation of industry gross 

margin in absolute dollars. Under this scenario, DOE assumed that the industry cannot pass on 

all additional costs due to efficiency-related changes (i.e., the markup decreases for all TSLs in 

the standards case.) Thus, the absolute gross margin is held constant. This means the percentage 

difference between manufacturer production cost and selling price will decrease in the standards 

case compared to the base case and the gross margin percentage will be lower. As a result, the 

industry will make the same gross margin in absolute dollars post-standard in a scenario with 

constant shipments but the industry will also have a lower INPV since the gross margin 

percentage is eroding. 

Electric Cooktops 

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At TSL 1, the impact on INPV and cash flow for electric cooktops is zero. At this level, 

DOE assumed both electric coil and smooth cooktops would have the same efficiency level as 

the baseline. Therefore, no impacts are reported at TSL 1. 

At TSL 2 and TSL 3, the impact on INPV and cash flow varies depending on 

manufacturers’ ability to maintain gross margins as a percentage of revenues constant as the 

manufacturing product cost (MPC) increases as a result of standards. DOE estimated the 

impacts in INPV at TSL 2 and TSL 3 to range from -$2 million to -$11 million, or a change in 

INPV of -0.56 percent to -3.18 percent. At this level, the industry cash flow would decrease by 

approximately 12 percent, to $18.3 million, compared to the base-case value of $20.8 million in 

the year leading up to the standards. DOE does not expect significant impacts at TSL 2 and TSL 

3 because the investments needed to conform to the standards are relatively small compared to 

overall SG&A and R&D annual costs. In addition, product price increases would benefit 

manufacturers if they can fully pass along MPC increases to customers. However, overall INPV 

would decline in all scenarios at these standard levels because, according to manufacturers, the 

research and engineering costs needed to achieve these levels would exceed the relatively small 

capital expenditures and incremental costs at this standard level. 

At TSL 4, the impact on INPV and cash flow will vary significantly depending on the 

manufacturers’ ability to maintain a constant gross margin percentage as MPCs increase due to 

standards. DOE estimated the impacts in INPV to range from approximately positive $77 

million to -$383 million, or a change in INPV of 21.62 percent to -107.19 percent. At this level, 

the industry cash flow decreases by approximately 168 percent, to -$14.1 million, compared to 

the base-case value of $20.8 million in the year leading up to the standards. At this TSL, if 

manufacturers are able to maintain their gross margin as a percentage of revenues, the impacts of 

higher manufacturing costs would be negated by the increases in total revenues. However, if 

manufacturers can only maintain their absolute dollar gross margin, then the impacts at TSL 4 

would completely erode manufacturers’ profits. According to manufacturers, the energy savings 

at this level are not economically justified because both consumers and manufacturers will 

experience negative impacts. Consumers would experience significantly higher prices, while 

manufacturers will experience decreased profits, lower revenues, and much higher R&D costs. 

Gas Cooktops 

At TSL 1, TSL 2, and TSL 3, the impact on INPV and cash flow varies depending on 

manufacturers’ ability to fully maintain their gross margins as the MPCs increase as a result of 

the standards. These TSLs are equivalent to the elimination of standing pilot lights. DOE 

estimated the impacts in INPV at TSL 1, TSL 2, and TSL 3 to range from -$5 million up to -$12 

million, or a change in INPV of -1.74 percent up to -4.12 percent. At this level, the industry cash 

flow decreases by approximately 19 percent, to $14.3 million, compared to the base case value of 

$17.6 million in the year leading up to the standards. Since more than 90 percent of the 

equipment being sold is already at or above this level (i.e., most products do not have standing 

pilot lights), those manufacturers that do not fall below the efficiency levels specified by TSL 1, 

TSL 2, and TSL 3 will not have to make additional modifications to their product lines to 

conform to the amended energy conservation standards. DOE expects the lower end of the 

impacts to be reached, which indicates that industry revenues and costs will not be significantly 

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negatively impacted as long as manufacturers can maintain their gross margin as a percentage of 

revenues. 

Analysis shows that although the elimination of standing pilot lights may not 

significantly impact large manufacturers, small manufacturers that rely on revenues from these 

products will be significantly impacted. In MIA interviews, all manufacturers of standing pilotequipped gas appliances expressed concern about the potential elimination of standing pilots. 

Two small businesses, which both focus solely on cooking appliances, produce standing pilotequipped products which comprise nearly half of their total annual gas product shipments and 

which they consider to be a differentiator from their larger, more-diversified competitors. While 

all these manufacturers also make comparable cooking appliances with electronic ignition 

systems, these two small businesses are likely to be disproportionately impacted by a ban on 

standing pilot ignition systems. DOE contacted both manufacturers multiple times to better 

understand the potential business impact of a standing pilot ban and believes that, while standing 

pilot ignition systems are a differentiator, gas cooking products made by these manufacturers are 

primarily differentiated by non-standard unit widths and other features. Thus, while the potential 

elimination of standing pilot lights would lead to some decrease in differentiation, the main 

differentiators, notably non-standard unit sizes, will remain. 

At TSL 4, the analysis shows that the impact on INPV and cash flow continues to vary 

significantly depending on the manufacturers’ ability to pass on increases in MPCs to the 

customer. DOE estimated the impacts in INPV at TSL 4 to range from approximately positive 

$28 million to -$141 million, or a change in INPV of positive 9.83 percent to -49.12 percent. At 

this level, the industry cash flow decreases by approximately 38 percent, to $10.9 million, 

compared to the base case value of $17.6 million in the year leading up to the standards. At this 

level, the component switch also carries substantial redesign costs. Sealed burners affect the 

design of the entire cooktop, making product conversion and capital conversion costs much 

larger than a simpler component switch. At this TSL, if manufacturers can maintain their gross 

margin as a percentage of revenues, the impacts of higher manufacturing costs would be negated 

by the increases in total revenues. However, if manufacturers can only maintain their absolute 

dollar gross margin, then the impacts of TSL 4 would significantly erode manufacturers’ profits. 

Electric Ovens 

At TSL 1, the projected impact on INPV and cash flow for electric ovens is zero. At this 

level, DOE assumed both electric standard and self-cleaning ovens would have the same 

efficiency level as the baseline. Therefore, DOE reported no impacts at TSL 1. 

At TSL 2 and TSL 3, the impact on INPV and cash flow varies depending on 

manufacturers’ ability to maintain gross margin as a percentage of revenues as the MPCs 

increase as a result of standards. DOE estimated the impacts in INPV at TSL 2 and TSL 3 to 

range from -$8 million to -$19 million, or a change in INPV of approximately -.99 percent to ­

2.43 percent. At these levels, the industry cash flow would decrease by approximately 12 

percent, to $40.4 million, compared to the base-case value of $46.1 million in the year leading up 

to the standards. DOE does not expect significant impacts at TSL 2 and TSL 3 because the 

investments needed to conform to the standards are relatively small in comparison to overall 

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SG&A and R&D annual costs. In addition, product cost increases would benefit manufacturers 

if they can fully pass along MPC increases to customers. 

At TSL 4, the analysis shows that impacts on INPV and cash flow would vary 

significantly depending on the manufacturers’ ability to maintain gross margin as MPCs increase 

due to standards. DOE estimated the impacts in INPV to range from approximately -$10 million 

to -$469 million, or a change in INPV of -1.27 percent to -59.16 percent. At this level, the 

industry cash flow would decrease by approximately 194 percent, to -$43.3 million, compared to 

the base-case value of $46.1 million in the year leading up to the standards. At this level, the 

increase in efficiency also carries substantial redesign costs. Forced convection and reducing 

conduction losses affect the design of the entire cavity, making product conversion and capital 

conversion costs much larger than a simpler component switch. In addition, if manufacturers can 

maintain their gross margin as a percentage of revenues, the impacts of higher manufacturing 

costs would be relatively small. However, if manufacturers can only maintain their absolute 

dollar gross margin, then the impacts of TSL 4 would decrease the INPV of the industry by close 

to half. 

Gas Ovens 

At TSL 1 and TSL 2, the impact on INPV and cash flow varies depending on 

manufacturers’ ability to fully maintain their gross margins as the MPC increases as a result of 

standards. These TSLs are equivalent to the elimination of standing pilot lights from gas 

cooking products. DOE estimated the impacts in INPV at TSL 1 and TSL 2 to range from a -$7 

million up to -$10 million, or a change in INPV of -1.57 percent up to -2.10 percent. At this 

level, the industry cash flow decreases by approximately 11 percent, to $25.6 million, compared 

to the base case value of $28.8 million in the year leading up to the standards. Since more than 

80 percent of the equipment being sold is already at or above this level (i.e., most products do 

not have standing pilot lights), those manufacturers that do not fall below the efficiency levels 

specified by TSL 1 and TSL 2 would not have to make additional modifications to their product 

lines to conform to the amended energy conservation standards. DOE expects the lower end of 

the impacts to be reached, which indicates that industry revenues and costs are not significantly 

negatively impacted as long as manufacturers can maintain their gross margin as a percentage of 

revenues. The analysis shows that although the elimination of standing pilot lights may not 

significantly impact large manufacturers, small manufacturers that rely on revenues from these 

products would be impacted significantly. 

At TSL 3, the impact on INPV and cash flow continues to vary depending on the 

manufacturers’ ability to pass on increases in MPCs to the customer. DOE estimated the impacts 

in INPV at TSL 3 to range from approximately -$6 million to -$41 million, or a change in INPV 

of -1.38 percent to -8.68 percent. At this level, the analysis shows that the industry cash flow 

decreases by approximately 27 percent, to $20.9 million, compared to the base case value of 

$28.8 million in the year leading up to the standards. 

At TSL 4, the impact on INPV and cash flow varies significantly depending on the 

manufacturers’ ability to pass on increases in MPCs to the customer. DOE estimated the impacts 

in INPV at TSL 4 to range from approximately -$47 million to -$181 million, or a change in 

INPV of -10.04 percent to -38.80 percent. At this level, the analysis shows that the industry cash 

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flow decreases by approximately 190 percent, to -$26.0 million, compared to the base case value 

of $28.8 million in the year leading up to the standards. At this TSL, if manufacturers can 

maintain their gross margin as a percentage of revenues, the projected increase in total revenues 

negates the impacts of higher manufacturing costs. However, if manufacturers can only maintain 

their absolute dollar gross margin, then the impacts of TSL 4 would significantly erode 

manufacturers’ profits. 

13.11.1.2 Microwave Ovens Industry 

To assess the lower end of the range of potential impacts for the microwave oven 

industry, DOE considered the scenario reflecting the preservation of gross margin percentage. 

As production cost increases with efficiency, this scenario implies manufacturers will be able to 

maintain gross margins as a percentage of revenues. To assess the higher end of the range of 

potential impacts for the microwave oven industry, DOE considered the scenario reflecting 

preservation of gross margin in absolute dollars. Under this scenario, DOE assumed that the 

industry can maintain its gross margins in absolute dollars after the standard effective date. The 

industry would do so by passing through its increased costs to customers without increasing its 

gross margin in absolute dollars. 

Energy Factor Standards 

TSL 1a represents an improvement in cooking efficiency from the baseline level of 0.557 

EF to 0.586 EF. At TSL 1a, the impact on INPV and cash flow varies greatly depending on the 

manufacturers and their ability to pass on increases in MPCs to the customer. DOE estimated 

the impacts in INPV at TSL 1a to range from less than $44 million to -$199 million, or a change 

in INPV of 3.04 percent to -13.74 percent. At this level, the industry cash flow decreases by 

approximately 18 percent, to $71.7 million, compared to the base-case value of $87.3 million in 

the year leading up to the standards. 

TSL 2a represents an improvement in cooking efficiency from the baseline level of 0.557 

EF to 0.588 EF. At TSL 2a, the impact on INPV and cash flow would be similar to TSL 1a and 

depend on whether manufacturers can fully recover the increases in MPCs from the customer. 

DOE estimated the impacts in INPV at TSL 2a to range from $117 million to -$386 million, or a 

change in INPV of 8.09 percent to -26.62 percent. At this level, the industry cash flow decreases 

by approximately 22 percent, to $67.9 million, compared to the base-case value of $87.3 million 

in the year leading up to the standards. 

TSL 3a represents an improvement in cooking efficiency from the baseline level of 0.557 

EF to 0.597 EF. At TSL 3a, the impact on INPV and cash flow continues to vary depending on 

the manufacturers and their ability to pass on increases in MPCs to the customer. DOE 

estimated the impacts in INPV at TSL 3a to range from approximately $237 million to -$675 

million, or a change in INPV of 16.34 percent to -46.56 percent. At this level, the industry cash 

flow decreases by approximately 27 percent, to $64.0 million, compared to the base-case value 

of $87.3 million in the year leading up to the standards. 

TSL 4a represents an improvement in cooking efficiency from the baseline level of 

0.557 EF to 0.602 EF. At TSL 4a, DOE estimated the impacts in INPV to range from 

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approximately $267 million to -$1,165 million, or a change in INPV of 18.44 percent to -80.39 

percent. At this level, the industry cash flow decreases by approximately 101 percent, to -$1.0 

million, compared to the base-case value of $87.3 million in the year leading up to the standards. 

At higher TSLs, manufacturers have a harder time fully passing on larger increases in MPCs to 

the customer. 

Due to the similarities in design requirements to meet each TSL, the results for each TSL 

are dependent on the ability of manufacturers to pass along increases in costs and the additional 

conversion costs. The engineering analysis assumes that each TSL adds an additional 

component switch-out. For example, to reach TSL 2, manufacturers must switch the fan in 

addition to switching the power supply required to meet TSL 1. The high conversion costs 

associated with these switches drive INPV negative if incremental costs are only partially passed 

along to consumers. If the incremental costs are fully passed along to consumers, which 

manufacturers stated was unlikely due to fierce competition in the industry, the higher purchase 

prices are enough to overcome the high product conversion and capital conversion costs, thereby 

making INPV positive. The magnitude of the positive cash flow impact under the preservation 

of gross margin percentage scenario and the negative cash flow impact under the preservation of 

gross margin (absolute dollars) scenario depends on the incremental cost of standards-compliant 

products. The higher the relative cost, the larger the impact on operating revenue and cash flow 

in the years following the effective date of the standard. Since higher TSLs correspond to higher 

relative costs, the impacts of the markup scenarios are greater at higher TSLs. 

Standby Power Standards 

TSL 1b represents an improvement in standby power from the baseline level of 4.0 W to 

2.0 W. At TSL 1b, the impact on INPV and cash flow varies depending on the manufacturers’ 

ability to pass on increases in MPCs to the customer. DOE estimated the impacts in INPV at 

TSL 1b to range from less than -$22 million to -$26 million, or a change in INPV of -1.50 

percent to -1.77 percent. At this level, the industry cash flow decreases by approximately 13 

percent, to $76.1 million, compared to the base-case value of $87.3 million in the year leading up 

to the standards. 

TSL 2b represents an improvement in standby power from the baseline level of 4.0 W to 

1.5 W. At TSL 2b, the impact on INPV and cash flow would be similar to TSL 1b and depend 

on whether manufacturers can fully recover the increases in MPCs from the customer. DOE 

estimated the impacts in INPV at TSL 2b to range from -$35 million to -$48 million, or a change 

in INPV of -2.44 percent to -3.28 percent. At this level, the industry cash flow decreases by 

approximately 22 percent, to $68.2 million, compared to the base-case value of $87.3 million in 

the year leading up to the standards. 

TSL 3b represents an improvement in standby power from the baseline level of 4.0 W to 

1.0 W. At TSL 3b, the impact on INPV and cash flow continues to vary depending on the 

manufacturers and their ability to pass on increases in MPCs to the customer. DOE estimated 

the impacts in INPV at TSL 3b to range from approximately -$37 million to -$71 million, or a 

change in INPV of -2.52 percent to -4.92 percent. At this level, the industry cash flow decreases 

by approximately 27 percent, to $64.1 million, compared to the base-case value of $87.3 million 

in the year leading up to the standards. 

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TSL 4b represents an improvement in standby power from the baseline level of 4.0 W to 

0.02 W. At TSL 4b, DOE estimated the impacts in INPV to range from approximately -$35 

million to -$172 million, or a change in INPV of -2.40 percent to -11.87 percent. At this level, 

the industry cash flow decreases by approximately 43 percent, to $49.3 million, compared to the 

base-case value of $87.3 million in the year leading up to the standards. At higher TSLs, 

manufacturers have a harder time fully passing on larger increases in MPCs to the customer. At 

TSL 4b, the conversion costs are higher than for TSL 1b, TSL 2b, and TSL 3b because the 

design of all microwave platforms must be more significantly altered. 

For standby power standards, conversion costs become more expensive at higher TSLs as 

the complexity of further lowering standby power increases, substantially driving up engineering 

time and also increasing the testing and product development time. If the increased production 

costs are fully passed on to consumers (the preservation of gross margin percentage scenario), 

the operating revenue from higher prices is not enough to overcome the negative impacts from 

the substantial conversion costs. The incremental costs are small for each TSL, meaning the 

positive impact on cash flows is small compared to the conversion costs. As a result of the small 

incremental costs and large conversion expenses, INPV is negative for all TSLs under the 

preservation of gross margin percentage scenario. If the incremental costs are not fully passed 

along to customers (the preservation of gross margin (absolute dollars) scenario), the negative 

impacts on INPV are amplified at each TSL. 

13.11.1.3 Commercial Clothes Washers Industry 

For CCWs, the major source of uncertainty voiced by manufacturers during the 

interviews is the impact of higher standards on the number of CCWs sold. Pricing and profit 

margin issues were not emphasized as they were for cooking products. Future product sales are 

particularly important considering the high capital costs (particularly design costs) in comparison 

to the small number of products sold. In light of the concern over future shipments, DOE 

modeled two MIA scenarios, based on two shipment projections from the NIA. 

To assess the lower end of the range of potential impacts for the CCW industry, DOE 

considered a scenario wherein unit shipments will not be impacted regardless of new energy 

conservation standards – this scenario is called the base case shipments scenario. To assess the 

higher end of the range of potential impacts for the CCW industry, DOE considered a scenario in 

which total industry shipments would decrease due the combined effects of increases in purchase 

price and decreases in operating costs due to new energy conservation standards – this scenario 

is called the price elastic of demand scenario. In both scenarios it is assumed that manufacturers 

will be able maintain the same gross margins (as a percentage of revenues) that is currently 

obtained in the base case. 

At TSL 1, the impact on INPV and cash flow varies depending on the manufacturers’ 

ability to maintain revenues as shipments decrease due to the price elasticity. DOE estimated the 

impacts in INPV at TSL 1 to range from positive $3.6 million to positive $2.7 million, or a 

change in INPV of 6.51 percent to 4.91 percent. At this level, the industry cash flow does not 

decrease from the base-case value of $3.8 million in the year leading up to the standards. Since 

all manufacturers have top-loading and front-loading washers already above this level, DOE 

assumed that there would be no product conversion or conversion capital costs. 

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At TSL 2, DOE estimated the impacts in INPV at TSL 2 to range from -$3.5 million to ­

$5.7 million, or a change in INPV of -6.37 percent to -10.27 percent. At this level, the industry 

cash flow decreases by approximately 153 percent, to -$2.0 million, compared to the base-case 

value of $3.8 million in the year leading up to the standards. To conform to the standards at TSL 

2, DOE estimated that at least one manufacturer will need to redesign and retool a line of toploading washers that falls below this standard level. Since over 88 percent of front-loading 

washers exceed this level, DOE assumed that there would be relatively small product conversion 

and conversion capital costs for these washers. 

At TSL 3 DOE estimated the impacts in INPV at TSL 3 to range from -$14.7 million to ­

$17.3 million, or a change in INPV of -26.5 percent to -31.09 percent. At this level, the industry 

cash flow decreases by approximately 320 percent, to -$8.3 million, compared to the base case 

value of $3.8 million in the year leading up to the standards. Since over 88 percent of frontloading washers exceed this level, DOE assumed that there would be relatively small product 

conversion and conversion capital costs for these washers. However, at TSL 3 manufacturers 

stated that significant product redesigns and line retooling would be required to conform to the 

top-loading standard. Two manufacturers do not have any knowledge base for the technology 

needed to meet this standard, thereby leading to a substantial redesign expense. Beyond the 

concerns captured in the GRIM model, other issues we raised by manufacturers at TSL 3. For 

top-loading CCW, multiple manufacturers stated that customers could see a reduction in wash 

quality or reject new designs based on a perceived reduction in wash quality. As a consequence 

they believe that a significant portion of the industry could potentially shift from top-loading 

designs to front-loading designs. For manufacturers that do not produce large volumes of frontloading washers this would require significant capital to expand front-loading production lines 

and may force them to redesign their current models to reduce cost. The uncertainty in product 

class shifting adds to the perceived financial risks of adopting a TSL 3 for front-loading washers. 

The department seeks comment on the possible magnitude of this shift. 

At TSL 4, DOE estimated the impacts in INPV at TSL 4 to range from -$17.8 million to ­

$20.5 million, or a change in INPV of -32.02 percent to -36.83 percent. At this level, the 

industry cash flow decreases by approximately 367 percent, to -$10.0 million, compared to the 

base-case value of $3.8 million in the year leading up to the standards. As with TSL 3, the toploading standard remains at max-tech at TSL 4, and the impacts as previously stated for this 

product class. Currently, 97 percent of front-loading washers shipped do not meet TSL 4, 

resulting in multiple manufacturers having to also redesign existing front-loading products to 

conform to the standard. The $8.1 million in product conversion and capital conversion costs to 

redesign and retool for the front-loading standard, while not appearing that substantial on a 

nominal basis, are significant for manufacturers due to low volumes of front-loading washers. 

Adjusting for shipment volumes, investing $8.1 million in front-loading washers is equivalent to 

investing over $26 million in top-loading washers. These investment costs are also high 

compared to the industry value of $19 million for front-loading washers. Consequently, it could 

be difficult for manufactures to justify the investments necessary to reach TSL 4 for frontloading washers. 

At TSL 5, DOE estimated the impacts to range from -$29.5 million to -$32.3 million, or a 

change in INPV of -53.13 percent to -58.19 percent. At this level, the industry cash flow 

decreases by approximately 527 percent, to -$16.1 million, compared to the base-case value of 

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$3.8 million in the year leading up to the standards. The top-loading standard remains at max 

tech at TSL 5. Almost all front-loading washers currently sold do not meet TSL 5. Since most 

manufacturers do not have existing washers that are close to meeting TSL 5, the redesign and 

tooling costs drive INPV extremely negative. At TSL 5, manufactures would have to invest 

$23.4 million in front-loading washer in an industry valued at $19 million. It could be difficult 

for manufactures to justify the investments necessary to reach max tech for both top-loading and 

front-loading washers. 

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REFERENCES
 

1	 McKinsey & Company, Inc. Valuation: Measuring and Managing the Value of 

Companies, 3rd Edition, Copeland, Koller, Murrin. New York: John Wiley & Sons, 2000. 

2	 Securities and Exchange Commission, Annual 10-K Reports, Various Years, 

Washington D.C., <www.sec.gov>. 

3	 U.S. Department of Energy-Energy Information Administration. Annual Energy Outlook 

2007 with Projections to 2030, February, 2007. Washington, DC. DOE/EIA-0383(2007). 

4	 Association of Home Appliance Manufacturers. AHAM 2005 Fact Book, 2005. Washington, 

DC. 

5	 “Table 2 – Quantity and Value of Shipments of Refrigeration, Air-Conditioning, and 

Warm Air Heating Equipment: 2005 and 2004.” 2000 - 2005 Current Industrial Reports 

(CIR). U.S. Census Bureau, July 2006. 

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