APPENDIX 13A. MANUFACTURER IMPACT ANALYSIS INTERVIEW GUIDE AND

GOVERNMENT R EGULATORY IMPACT MODEL (GRIM)

TABLE O F CONTENTS

**13A.1 M**  **ANUFACTURER IMPACT**  **ANALYSIS INTERVIEW**  **GUIDE........................... 13A­1**

**13A.1.1 Manufacturer**  **impact analysis**  **interview guide** 

**............................................. 13A­1** 

**13A.1.2 General**  **Service Fluorescent**  **and Incandescent**  **Reflector Lamps**  **Energy**

**Conservation Standards**  **Rulemaking Manufacturer**  **Impact Analysis**  **Interview**

**Guide for**  **Small Businesses** 

**....................................................................... 13A­11** 

**13A.2 G**  **OVERNMENT REGULATORY**  **IMPACT MODEL** 

**............................................ 13A­12** 

**13A.2.1 Introduction**  **and Purpose** 

**............................................................................ 13A­12** 

**13A.2.2 Model**  **Description....................................................................................... 13A­12** 

**13A.2.3 Detailed**  **Cash Flow**  **Example...................................................................... 13A­15** 

**13A­i**APPENDIX 13A. MANUFACTURER IMPACT ANALYSIS INTERVIEW GUIDE AND

GOVERNMENT R EGULATORY IMPACT MODEL

13A.1 M ANUFACTURER IMPACT ANALYSIS INTERVIEW GUIDE

13A.1.1 Manufacturer impact analysis interview guide

**13A­1**

## Lamps Rulemaking

Manufacturer I mpact Analysis Interview Guide: General Service

Fluorescent Lamps and Incandescent Reflector Lamps

**April 23,**  **2008**

**13A­2**1 KEY ISSUES

**1.1 W**  **hat a**  **re the**  **key lamp**  **manufacturing issues**  **for your**  **company related**  **to energy** 

**conservation standards**  **and this**  **rulemaking?**

**1.2 F**  **or t**  **he issues**  **identified, how**  **significant are**  **they for**  **each efficiency**  **level? See**  **section**

**6.1 o**  **f t**  **his interview**  **guide for**  **a description**  **of efficiency**  **levels.**

**1.3 H**  **ow can**  **we most**  **effectively incorporate**  **these issues**  **in the**  **Manufacturer Impact** 

**Analysis (MIA)?** 

**1.4 M**  **ax Te**  **ch: DOE**  **is required**  **to consider**  **the maximum**  **technically feasible**  **energy**

**conservation standard.**  **DOE’s efficiency**  **levels considered**  **in the**  **ANOPR were**  **based on** 

**commercially available**  **product. Table**  **1.4.1 lists**  **the highest**  **efficacy lamp**  **in each**  **product class** 

**that DOE**  **analyzed. Please**  **provide any**  **efficacy improvements**  **that may**  **be possible**  **as well**  **as**

**the associated**  **cost increase**  **expected for**  **such a**  **lamp.**

Table 1 .4.1 Maximum Technically Feasible Lamps

Product Class Highest E fficacy Commercially

Available Product Analyzed Potential

E fficacy

Improvement Associated C ost

Increase

4­foot M BP

CCT ≤ 4500K **28W T**  **8**

**2,725 initial**  **lumens**

8­foot S P Slimline

CCT ≤ 4500K **55W T**  **8**

**5,700 initial**  **lumens**

8­foot R DC HO

CCT ≤ 4500K **86W T**  **8**

**8,200 initial**  **lumens**

IRL, S tandard

Spectrum **Improved H**  **IR**

**(e.g., 40W**  **PAR30 4,000hr** 

**17.0 lm/W)** 

2 COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

**DOE i**  **s interested**  **in understanding**  **manufacturer impact**  **at the**  **plant or**  **profit center**  **level**

**directly pertinent**  **to GSFL**  **and IRL**  **production. However,**  **the context**  **within which**  **the plant** 

**operates and**  **the details**  **of plant**  **production and**  **costs are**  **not readily**  **available from**  **the published** 

**literature. Therefore,**  **DOE invites**  **you to**  **provide these**  **details confidentially**  **in your**  **own words** 

**to the**  **extent possible**  **and practical.**  **Understanding the**  **organizational setting**  **around the**  **GSFL**

**and IRL**  **industries profit**  **center will**  **help DOE**  **understand the**  **probable future**  **of the**  **GSFL and** 

**IRL manufacturing**  **activity with**  **and without**  **energy conservation**  **standards.**

**2.1 D**  **o y**  **ou have**  **a parent**  **company, and/or**  **any subsidiaries**  **relevant to**  **the GSFL**  **and IRL** 

**industries?**

**2.2 D**  **o y**  **ou manufacture**  **any equipment**  **other than**  **GSFL and**  **IRL? If**  **so, what**  **other**

**products do**  **you manufacture?** 

**13A­3 2.3**  **What p**  **ercentage of**  **your total**  **manufacturing corresponds**  **to GSFL**  **and IRL?** 

**2.4 W**  **here a**  **re your**  **production facilities**  **located, and**  **what types**  **of products**  **are**

**manufactured at**  **each location?**  **Could you**  **provide figures**  **for your**  **company’s manufacturing**  **at**

**each location**  **by product**  **type (GSFL,**  **IRL, or**  **other), and**  **efficiency (i.e.,**  **provide the**  **product**

**mix for**  **each location).** 

**2.5 A**  **t a**  **particular facility,**  **would potential**  **GSFL and**  **IRL redesigns**  **be difficult**  **to**

**implement? If**  **so, would**  **your company**  **modify the**  **existing facility**  **or develop**  **a new**  **facility?**

**2.6 W**  **hat a**  **re your**  **employment levels**  **at each**  **of these**  **facilities?**

**2.7 W**  **hat a**  **re your**  **company’s total**  **GSFL and**  **IRL production**  **volumes (i.e.,**  **units per**  **year)**

**for the**  **past 5**  **years? What**  **are the**  **production volumes**  **of your**  **five highest**  **volume product** 

**classes?**

**2.8 W**  **hat a**  **re your**  **equipment lines,**  **niches, and**  **relative strengths**  **in the**  **GSFL and**  **IRL**

**market?**

**2.9 A**  **re t**  **here any**  **niche manufacturers,**  **small businesses,**  **and/or component**  **manufacturers**

**for which**  **the adoption**  **of new**  **standards would**  **have a**  **severe impact?**  **If so,**  **would**

**manufacturers of**  **this equipment**  **have different**  **incremental impacts**  **from implemented**  **energy**

**conservation standards**  **than from**  **the rest**  **of the**  **industry?**

3 FINANCIAL P ARAMETERS

**Navigant C**  **onsulting, Inc.**  **has developed**  **a “strawman”**  **model of**  **the GSFL**  **and IRL**  **industry**

**financial performance**  **called the**  **GRIM, using**  **publicly available**  **data on**  **lighting manufacturers.** 

**(e.g., U.S.**  **Securities and**  **Exchange Commission**  **(SEC) 10­K**  **Forms) This**  **section attempts**  **to**

**understand how**  **your company’s**  **financial situation**  **differs from**  **our industry**  **aggregate picture.** 

**3.1 P**  **lease c**  **ompare your**  **financial parameters**  **to the**  **GRIM parameters**  **tabulated below.** 

**13A­4**Table 3.1 Financial Parameters for Lamp Manufacturers

GRIM Input Definition G RIM

E stimated

Value Your A ctual (if

significantly

different from our

estimate)

Income T ax Rate **Corporat e**  **( average)**  **effective**

**income tax**  **paid (percentage**  **of**

**earnings before**  **interest and** 

**taxes, EBIT)**  **16.2%**

D i scount R ate **Wei ghted**  **a verage**  **cost of**  **capital**

**(inflation­adjusted weighted** 

**average of**  **corporate cost**  **of debt** 

**and return**  **on equity)**  **18.4%**

W orki ng C apital **Current a**  **ssets less**  **current**

**liabilities (percentage**  **of**

**revenues) 12.1%** 

S G& A **S el**  **ling, g**  **eneral, and** 

**administrative expenses** 

**(percentage of**  **revenues) 19.6%** 

R & D **R esearch**  **a nd**  **development**

**expenses (percentage**  **of**

**revenues) 6.6%** 

D epreci ation **A mort**  **ization o**  **f fixed**  **assets**

**(percentage of**  **revenues) 3.5%** 

C api tal E xpenditures **Out lay**  **o f**  **cash to**  **acquire or** 

**improve capital**  **assets**

**(percentage of**  **revenues, not** 

**including acquisition**  **or sale**  **of**

**business units)**  **3.6%**

C osts o f Goods Sold **Incl udes**  **m aterial,**  **labor,**

**overhead, and**  **depreciation 70.39%** 

**3.2 How**  **would you**  **expect new**  **energy conservation**  **standards impact**  **your company’s** 

**financial parameters?** 

4 PRODUCTION COST BREAKDOWN

**To help**  **u nderstand**  **the industry**  **and costs**  **associated with**  **manufacturing GSFL**  **and IRL,**  **DOE**

**will study**  **the effects**  **of energy**  **conservation standards**  **on the**  **full production**  **costs breakdowns.** 

**DOE will**  **estimate the**  **industry average**  **percentage of**  **each cost**  **in the**  **full production**  **cost.**

**4.1 C**  **ould y**  **ou please**  **provide the**  **breakdown in**  **the total**  **production costs**  **for lamps**  **by the** 

**percentage for**  **labor, materials,**  **overhead, and**  **depreciation by**  **filling in**  **the table**  **below?**

Labor % of full Materials % o f full Overhead % of full Depreciation % of full

producti on c osts production c osts production c osts production c osts

**13A­5 4.2**  **Do t**  **he percentages**  **for the**  **full production**  **costs found**  **above vary**  **significantly between** 

**IRL and**  **GSFL?**

**4.3 W**  **ithin t**  **he covered**  **IRL and**  **GSFL, do**  **the percentages**  **vary significantly**  **by efficiency** 

**level?**

5 SHIPMENT P ROJECTIONS AND MARKET SHARES

**A new**  **energy conservation**  **standard can**  **change overall**  **shipments by**  **changing product** 

**attributes, marketing**  **approaches, equipment**  **availability, and**  **price. The**  **GRIM bases**  **revenue**

**projections on**  **the shipments**  **modeled in**  **the National**  **Impact Analysis**  **Spreadsheet (NIA)** 

**prepared by**  **NCI. The**  **NIA includes**  **shipment forecasts**  **for the**  **baseline (absent**  **new standards)** 

**and new**  **standards at**  **each efficiency**  **level being**  **analyzed.**

**5.1 W**  **hat i**  **s your**  **company’s approximate**  **market share**  **of the**  **GSFL and**  **IRL industries?** 

**5.2 W**  **ould y**  **ou expect**  **your market**  **share to**  **change once**  **higher energy**  **conservation**

**standards become**  **effective?**

6 CONVERSION COSTS

**An i**  **ncrease in**  **energy conservation**  **standards may**  **cause your**  **company to**  **incur one­time**  **capital**

**and product**  **conversion costs** 

**. DOE**  **calls these**  **conversion costs**  **because they**  **are the**  **costs of** 

**changing your**  **business to**  **comply with**  **new energy**  **conservation standards.** 

**6.1 W**  **hat l**  **evel of**  **conversion costs**  **do you**  **anticipate incurring**  **under the**  **different efficiency** 

**levels? Refer**  **to the**  **tables below**  **to provide**  **your company’s**  **estimates. Please**  **provide**

**additional qualitative**  **information to**  **help us**  **understand the**  **nature of**  **your investments.** 

**13A­6**Table 6.1 GSFL: 4­Foot Medium Bipin Product Class

Standard Investment N umbers for Comment Design O ption for Each Baseline

Level C onversi on

C apital

Expenditure Product

C onversion

Expenses Stranded

A ssets 40W T 12 34W T 12 32W T 8

Basel ine **7 00**  **s eries**  **600 s**  **eries**

**­**

EL 1 **Improved**

**7 00**  **series**

**or 800** 

**series 700**  **s eries** 

**­**

EL 2 **800 s**  **eries 800**  **s eries**  **700 s**  **eries**

EL 3 **Improved**

**8 00**  **series Improved**  **8 00** 

**series 800**  **s eries** 

EL 4 **Improved**

**8 00**  **series**

**–**

**30W lamp** 

**available**

EL 5 **Improved**

**8 00**  **series**

**–**

**28W lamp** 

**available**

Table 6.2 GSFL: 8­Foot Single Pin Slimline Product Class

Standard

Level Investment N umbers for Comment Design O ption for Each Baseline

Conversi on

C apital

Expenditure Product

C onversion

Expenses Stranded

A ssets 75W T 12 60W T 12 59W T 8

Basel ine **7 00**  **s eries** 

**­ ­** 

EL 1 **800 s**  **eries 600**  **s eries** 

**­**

EL 2 **Improved**

**8 00**  **series 700**  **s eries** 

**­**

EL 3 **Improved**

**8 00**  **series Improved**  **7 00** 

**series 700**  **s eries** 

EL 4 **800 s**  **eries**

EL 5 **Improved**

**8 00**  **series**

**–**

**57W and** 

**55W**

**available**

**13A­7**Table 6.3 GSFL: 8­Foot Recessed Double Contact High Output Product Class

Standard Investment N umbers for Comment Design O ption for Each Baseline

Level C onversi on

C apital

Expenditure Product

C onversion

Expenses Stranded

A ssets 110W T 12 95W T 12 86W T 8

Basel ine **7 00**  **s eries**  **600 s**  **eries**

**­**

EL 1 **800 s**  **eries**

**­ ­** 

EL 2 **700 s**  **eries**

**­**

EL 3 **800 s**  **eries**

**­**

EL 4 **700 s**  **eries**

EL 5 **800 s**  **eries**

Table 6.4 IRL Conversion Costs Product Class

Standard

Level Conversion

C apital

Expenditures Product

C onversion

Expenses Stranded

A ssets Design O ption

Basel ine **H al**  **ogen (**  **3,000 hr)** 

EL 1 **Improved H**  **alogen (2,500­3,000**  **hr)**

EL 2 **Hal ogen**  **I nfrared**  **(3,000 hr)** 

EL 3 **Improved H**  **alogen Infrared**  **(4,000 hr)** 

***** **Not e:**  **“ improved”**  **design options**  **may employ**  **the use**  **technologies such**  **as improved**  **optics, enhanced**  **reflector**

**materials, or**  **higher efficiency**  **filaments. “Improved**  **halogen” and**  **“improved halogen**  **infrared” lamps**  **may have** 

**approximately a**  **10 percent**  **efficacy improvement**  **over the**  **“halogen” and**  **“halogen infrared”**  **lamps, respectively.** 

**6.2 If**  **D OE**  **were to**  **regulate the**  **nominal 4­foot**  **T5 fluorescent**  **lamp it**  **would be**  **required to** 

**analyze both**  **the standard**  **efficacy 28W**  **T5 lamp**  **(2,900 initial**  **lumens) as**  **well as**  **the premium** 

**efficacy 28W**  **T5 lamp**  **(3,050 initial**  **lumens) offered**  **by OSI.**  **What would**  **be the**  **conversion**

**capital expenditures,**  **product conversion**  **expenses, and**  **stranded assets**  **associated with**  **energy**

**conservation standards**  **set at**  **the higher**  **efficacy T5**  **lamp?**

**6.3 D**  **OE i**  **s required**  **to consider**  **the maximum**  **technically feasible**  **energy conservation** 

**standard. DOE’s**  **efficiency levels**  **currently being**  **considered are**  **based on**  **commercially**

**available product.**  **As discussed**  **earlier in**  **section 1.4,**  **if higher**  **efficiency products**  **can be** 

**manufactured, what**  **would be**  **the conversion**  **capital expenditures,**  **product conversion**  **expenses,**

**and stranded**  **assets associated**  **with increasing**  **energy conservation**  **standards to**  **that level?** 

**6.4 W**  **hat i**  **s your**  **depreciation period**  **for the**  **capital expenditures**  **(building, equipment,**  **and**

**tooling)?**

7 MARKUPS A ND PROFITABILITY

**One o**  **f the**  **primary objectives**  **of the**  **MIA is**  **to assess**  **the impact**  **of efficiency**  **levels on**  **industry**

**profitability. In**  **this section,**  **DOE would**  **like your**  **assistance in**  **understanding how**  **the**

**13A­8 efficiency**  **levels would**  **impact your**  **company’s revenues**  **and profitability.**  **The following** 

**questions will**  **assist DOE**  **in developing**  **industry revenues**  **and profitability**  **for a**  **base­case cash** 

**flow and**  **several standards**  **cases using**  **the GRIM**  **model.**

**In o**  **rder to**  **assess industry**  **revenue, DOE**  **needs to**  **determine manufacturing**  **selling price.** 

**During the**  **Framework workshop,**  **manufacturers suggested**  **DOE obtain**  **market or**  **consumer**

**prices first**  **and work**  **backwards to**  **derive manufacturing**  **selling price.** 

**7.1 D**  **OE n**  **eeds to**  **translate market**  **(or consumer**  **purchasing) prices**  **for lamps**  **into**

**manufacturing selling**  **prices. DOE**  **estimates that**  **manufacturing selling**  **price is**  **approximately**

**60% of**  **consumer (end­user)**  **prices for**  **GSFL and**  **approximately 70%**  **of consumer**  **prices for** 

**IRL. Referencing**  **DOE’s medium**  **prices in**  **Table 7.3.1**  **through Table**  **7.3.8 in**  **Chapter 7**  **of the** 

**technical support**  **document (TSD),**  **please comment**  **on these**  **approximations of**  **manufacturing**

**selling price.**  **Also, please**  **comment on**  **whether these**  **percentages vary**  **with lamp**  **type or** 

**efficacy.**

**7.2 O**  **ne p**  **otential effect**  **of standards**  **is to**  **commoditize what**  **are currently**  **premium products.** 

**Do profit**  **levels vary**  **by product**  **class? Do**  **profit levels**  **vary by**  **efficiency level?**  **Please explain** 

**why or**  **why not?** 

**7.3 D**  **o y**  **ou expect**  **changes in**  **your estimated**  **profitability following**  **the new**  **energy**

**conservation standard?**  **If so,**  **please explain**  **why.**

8 CUMULATIVE R EGULATORY BURDEN

**Cumulative r**  **egulatory burden**  **refers to**  **the burden**  **that industry**  **faces from**  **overlapping effects**  **of**

**new or**  **revised DOE**  **standards and/or**  **other regulatory**  **actions affecting**  **the same**  **products or** 

**industry.**

**8.1 A**  **re t**  **here other**  **recent or**  **impending regulations**  **that lamp**  **manufacturers face**  **(from DOE** 

**or otherwise)?**  **What level**  **of investment**  **are you**  **expecting to**  **incur as**  **a result**  **of these** 

**regulations?**

**8.2 U**  **nder w**  **hat circumstances**  **would you**  **be able**  **to coordinate**  **any expenditures**  **related to** 

**other regulations**  **thereby lessening**  **the cumulative**  **burden?**

9 EXPORTS / FOREIGN COMPETITION / OUTSOURCING

**Disparity b**  **etween domestic**  **and foreign**  **energy conservation**  **standards could**  **impact exports**  **or**

**imports. Labor**  **content and**  **material changes,**  **resulting from**  **energy conservation**  **standards, may** 

**impact sourcing**  **decisions.**

**9.1 W**  **hat p**  **ercentage of**  **your company’s**  **GSFL and**  **IRL sales**  **are domestically** 

**manufactured? Absent**  **standards, are**  **production facilities**  **being relocated**  **to foreign**  **countries?**

**Would new**  **energy conservation**  **standards impact**  **your domestic**  **vs. foreign**  **manufacturing**

**decision?**

**13A­9 9.2**  **Does y**  **our company**  **export domestically**  **manufactured GSFLs**  **and/or IRLs?**  **If so,**  **to**

**what regions**  **do you**  **export your**  **equipment? What**  **percentage of**  **sales can**  **be attributed**  **to each?** 

**9.3 W**  **ould a**  **new standard**  **be expected**  **to affect**  **your export**  **sales? What**  **would the**  **resulting**

**impact be,**  **if any,**  **on your**  **manufacturing operations**  **and profitability?** 

**9.4 A**  **re y**  **our foreign**  **exports of**  **domestically manufactured**  **lamps affected**  **by energy** 

**conservation standards**  **in other**  **countries?**

**9.5 W**  **hat p**  **ercentage of**  **the U.S.**  **market for**  **GSFLs and**  **IRLs has**  **been captured**  **by foreign** 

**competition? Would**  **standards have**  **an impact**  **on foreign**  **competition?**

**9.6 W**  **hat i**  **s your**  **outlook for**  **the future**  **operation of**  **your company**  **and the**  **GSFL and**  **IRL**

**industries with**  **regard to**  **exports?**

10 D IRECT EMPLOYMENT IMPACT ASSESSMENT

**The i**  **mpact of**  **new energy**  **conservation standards**  **on employment**  **is an**  **important consideration** 

**in the**  **rulemaking process.**  **This section**  **of the**  **interview guide**  **seeks to**  **explore current**  **trends in** 

**lamp production**  **employment and**  **solicit manufacturer**  **views on**  **how domestic**  **employment**

**patterns might**  **be affected**  **by new**  **energy conservation**  **standards.**

**10.1 W**  **ould y**  **our domestic**  **employment levels**  **change under**  **new energy**  **conservation**

**standards? If**  **so, please**  **explain how**  **they would**  **change.**

**10.2 W**  **ould t**  **he workforce**  **skills necessary**  **under new**  **energy conservation**  **standards require** 

**extensive retraining**  **or replacement**  **of employees?** 

11 C ONSOLIDATION

**New energy**  **conservation standards**  **can alter**  **the competitive**  **dynamics of**  **the market.**  **This can** 

**include prompting**  **companies to**  **enter or**  **exit the**  **market, or**  **to merge.**  **DOE and**  **the Justice** 

**Department are**  **both interested**  **in any**  **potential reduction**  **in competition**  **that would**  **result from**  **a**

**new energy**  **conservation standard.** 

**11.1 I**  **n t**  **he absence**  **of new**  **standards, do**  **you expect**  **any industry**  **consolidation? Please** 

**describe your**  **expectations.**

**11.2 H**  **ow would**  **new standards**  **affect your**  **ability to**  **compete?**

**11.3 C**  **ould n**  **ew standards**  **disproportionately advance**  **or harm**  **the competitive**  **positions of** 

**some firms**  **(e.g., small**  **businesses)?**

**13A­10**13A.1.2 General Service Fluorescent and Incandescent Reflector Lamps Energy

Conservation Standards Rulemaking Manufacturer Impact Analysis Interview Guide for

Small Businesses



### General Service Fluorescent and Incandescent Reflector Lamps

Energy Conservation Standards Rulemaking

Manufacturer Impact Analysis Interview Guide for Small Businesses

**1. Are**  **y ou**  **aware of**  **the US**  **Department of**  **Energy’s (DOE’s)**  **on­going rulemaking**  **to**

**establish national**  **minimum energy**  **conservation standards**  **for certain**  **general service**  **fluorescent**

**lamps and**  **incandescent reflector**  **lamps? Would**  **you like**  **to be**  **added to**  **DOE’s email**  **database**

**for updates**  **relating to**  **this rulemaking?** 

**2. W**  **e a**  **re assessing**  **the impacts**  **of a**  **potential minimum**  **energy conservation**  **standard on** 

**small businesses.**  **Is your**  **company a**  **small business**  **(defined as**  **less than**  **1,000 employees**  **by the** 

**US Small**  **Business Administration**  **(SBA), including**  **all subsidiaries**  **and parent**  **companies, and** 

**employees in**  **all countries**  **where you**  **operate)?**

**3. W**  **ould a**  **minimum energy**  **conservation standard**  **set higher**  **than current**  **standards for** 

**incandescent reflector**  **lamps or**  **general service**  **fluorescent lamps**  **(whereby all**  **your competitors** 

**would also**  **required to**  **meet the**  **same standard),**  **cause any**  **burdens on**  **your business?**  **If so,** 

**please explain.**  **Please consider**  **costs such**  **as new**  **designs, capital**  **investment, prototype**  **testing,**

**and marketing**  **that might**  **be required.** 

**4. A**  **re t**  **here any**  **reasons that**  **a small**  **business such**  **as yours**  **might be**  **at a**  **competitive**

**disadvantage relative**  **to a**  **larger business**  **under mandatory**  **energy conservation**  **standards?**

**Please consider**  **such factors**  **as technical**  **expertise, capital**  **budgets, bulk**  **purchasing power**  **for**

**materials, etc.** 

**13A­11**13A.2 GOVERNMENT REGULATORY IMPACT MODEL

13A.2.1 I ntroduction and Purpose

**The p**  **urpose of**  **the Government**  **Regulatory Impact**  **Model (GRIM)**  **is to**  **help quantify**  **the**

**impacts of**  **energy conservation**  **standards and**  **other regulations**  **on manufacturers.**  **The basic** 

**mode of**  **analysis is**  **to estimate**  **the change**  **in value**  **of the**  **industry or**  **manufacturers(s) following** 

**a regulation**  **or a**  **series of**  **regulations. The**  **model structure**  **also allows**  **an analysis**  **of multiple** 

**products with**  **regulations taking**  **effect over**  **a period**  **of time,**  **and of**  **multiple regulations**  **on the** 

**same products.** 

**Industry n**  **et present**  **value is**  **defined, for**  **the purpose**  **of this**  **analysis, as**  **the discounted** 

**sum of**  **industry free**  **cash flows**  **plus a**  **discounted terminal**  **value. The**  **model calculates**  **the**

**actual cash**  **flows by**  **year and**  **then determines**  **the present**  **value of**  **those cash**  **flows both**  **without**

**an energy**  **conservation standard**  **(i.e., the**  **base case)**  **and under**  **different trial**  **standard levels** 

**(TSLs).**

**Output f**  **rom the**  **model consists**  **of summary**  **financial metrics,**  **graphs of**  **major variables,** 

**and, when**  **appropriate, access**  **to the**  **complete cash**  **flow calculation.** 

13A.2.2 M odel Description

**The b**  **asic structure**  **of the**  **GRIM is**  **a standard**  **annual cash**  **flow analysis**  **that uses** 

**manufacturer selling**  **prices, manufacturing**  **costs, a**  **shipments forecast,**  **and financial**  **parameters**

**as inputs**  **and accepts**  **a set**  **of regulatory**  **conditions as**  **changes in**  **costs and**  **investments. The** 

**cash flow**  **analysis is**  **separated into**  **two major**  **blocks: income**  **and cash**  **flow. The**  **income**

**calculation determines**  **net operating**  **profit after**  **taxes. The**  **cash flow**  **calculation converts**  **net**

**operating profit**  **after taxes**  **into an**  **annual cash**  **flow by**  **including investment**  **and non­cash**  **items.**

**Below are**  **definitions of**  **listed items**  **on the**  **printout of**  **the output**  **sheet (see**  **Section J.2.3).** 

(1) U nit S ales: **Total annual**  **shipments for**  **the industry**  **were obtained**  **from the**  **National**

**Impact Analysis**  **Spreadsheet;**

(2) R evenues: **A nnual**  **revenues ­ computed**  **by multiplying**  **equipment unit**  **price at**  **each**

**efficiency level**  **by the**  **appropriate manufacturer**  **markup;**

(3) L abor: **Th e**  **portion of**  **cost of**  **goods sold**  **(COGS) that**  **includes direct**  **labor, commissions,** 

**dismissal pay,**  **bonuses, vacation,**  **sick leave,**  **social security**  **contributions, fringe,**  **and**

**assembly labor**  **up­time;**

(4) M aterial **: Th**  **e portion**  **of COGS**  **that includes**  **materials;**

(5) O verhead: **Th e**  **portion of**  **COGS that**  **includes indirect**  **labor, indirect**  **material, energy**  **use,**

**maintenance, depreciation,**  **property taxes,**  **and insurance**  **related to**  **assets. While**  **included**

**in overhead,**  **the depreciation**  **is shown**  **as a**  **separate line**  **item;**

**13A­12**(6) Depreciation: **A nnual**  **depreciation computed**  **as a**  **percentage of**  **COGS. While**  **included in** 

**overhead, the**  **depreciation is**  **shown as**  **a separate**  **line item;** 

(7) S tranded A ssets: **In the**  **year the**  **standard becomes**  **effective, a**  **one time**  **write­off of** 

**stranded assets**  **is accounted**  **for;**

(8) S tandard S G&A: **Selling, general,**  **and administrative**  **costs are**  **computed as**  **a percentage** 

**of** Revenues (2) **;**

(9) R &D: **G RIM**  **separately accounts**  **for ordinary**  **research and**  **development (R&D)**  **as a** 

**percentage of**  Revenues (2) **;**

(10) P roduct C onversion Expense: **Product conversion**  **expenses are**  **one­time investments**  **in**

**research, development,**  **testing, and**  **marketing focused**  **on making**  **product designs**  **comply**

**with the**  **amended energy**  **conservation standard.**  **GRIM allocates**  **these costs**  **over the** 

**period between**  **the standard’s**  **announcement and**  **effective dates;** 

(11) E arnings B efore Interest and Taxes (EBIT): **Includes profits**  **before deductions**  **for**

**interest paid**  **and taxes;** 

(12) E BIT as a Percentage of Sales: **GRIM calculates**  **EBIT as**  **a percentage**  **of sales**  **to**

**compare with**  **the industry’s**  **average reported**  **in financial**  **statements;**

(13) Tax es: **Ta xes**  **on** EBIT (11) **are calculated**  **by multiplying**  **the tax**  **rate contained**  **in Major** 

**Assumptions by**  EBIT (11)

**.**

(14) Ne t O perating Profits After Taxes (NOPAT): **Computed by**  **subtracting** Cost of Goods

Sold ((3) to (6))

**,** SG&A (8)

**,** R&D (9)

**,** Product Conversion Expense (10)

**, and**  Taxes (13)

**from** Revenues (2)

**.**

(15) NO PAT r epeated **: NOPAT**  **is repeated**  **in the**  **Statement of**  **Cash Flows;** 

(16) De preciation r epeated **: Depreciation**  **is added**  **back in**  **the Statement**  **of Cash**  **Flows**

**including stranded**  **assets because**  **both are**  **non­cash expenses;** 

(17) C hange i n Working Capital **: Change**  **in cash**  **tied up**  **in accounts**  **receivable, inventory,**  **and**

**other cash**  **investments necessary**  **to support**  **operations is**  **calculated by**  **multiplying**

**working capital**  **(as a**  **percentage of**  **revenues) by**  **the change**  **in annual**  **revenues.**

(18) C ash F low From Operations **: Calculated**  **by taking**  NOPAT (15)

**, adding**  **back non­cash** 

**items such**  **as a**  Depreciation (16)

**, and**  **subtracting out**  Change in Working Capital (17) **;**

(19) O rdinary C apital Expenditures: **Ordinary investments**  **in property,**  **plant, and**  **equipment to** 

**maintain and**  **replace existing**  **production assets,**  **computed as**  **a percentage**  **of** Revenues (2) **;**

(20) C onversion C apital Expenditures: **Conversion capital**  **expenditures are**  **one­time**

**investments in**  **property, plant,**  **and equipment**  **to adapt**  **or change**  **existing production** 

**13A­13 facilities**  **so that**  **new product**  **designs can**  **be fabricated**  **and assembled**  **under the**  **new**

**regulation;**

(21) C apital I nvestment: **Total investments**  **in property,**  **plant, and**  **equipment are**  **computed by** 

**adding** Ordinary Capital Expenditures (19) **and** Conversion Capital Expenditures (20) **;**

(22) F ree C ash Flow: **Annual cash**  **flow from**  **operations and**  **investments; computed**  **by**

**subtracting** Capital Investment (21) **from** Cash Flow from Operations (18) **;**

(23) Te rminal V alue: **Estimate of**  **the continuing**  **value of**  **the industry**  **after 2042.**  **Computed**

**by growing**  **the Free**  **Cash Flow**  **in year**  **2042 at**  **a constant**  **rate in**  **perpetuity;**

(24) P resent V alue Factor: **Factor used**  **to calculate**  **an estimate**  **of the**  **present value**  **of an** 

**amount to**  **be received**  **in the**  **future;**

(25) Di scounted C ash Flow: Free Cash Flows (22) **multiplied by**  **the** Present Value Factor

(24)

**. For**  **2042 the**  **discounted cash**  **flow includes**  **the discounted**  Terminal Value (23) **; and** 

(26) I ndustry V alue thru 2042: **The sum**  **of** Discounted Cash Flows (25)

**.**

**13A­14**13A.2.3DetailedCashFlowExample**13A­15**