12A-0



## APPENDIX 12A. MANUFACTURER IMPACT ANALYSIS INTERVI EW

GUIDES: LIQUID-IMMERSED AND MV DRY-TYPE

TABLE OF CONTENTS

12A.1 Liquid-Immersed MIA Interview Guide 12A-1

12A.2 Medium-Voltage Dry-Type MIA Interview Guide 12A-10

12A-i12A-1



### 12A.1 Liquid-Immersed MIA Interview Guide



## Liquid-Immersed

Distribution Transformer Energy Conservation Standards Rulemaking Manufacturer Impact Analysis Interview Guide

Navigant Consulting, Inc. May 200512A-2

1. KEY ISSUES The Department of Energy (DOE) is currently conside ring six Trial Standard Levels (TSLs). The TSLs are presented below as they apply to the representa tive units selected for detailed analysis. In resp onding to this questionnaire, please refer to the table of TSLs below.

Product Class Product Class 1 (1-phase) Product Class 2 (3-phase)

Design Lines DL1

10-167 kVA
(rectangular tank) DL2

10-167 kVA
(round tank) DL3

250-883 kVA DL4

15-500 kVA DL5

750-2500 kVA

Representative Unit 50 kVA 25 kVA 500 kVA 150 kVA 1500 kVA

Base Case None None

TSL1 / TP-1 98.90% 98.70% 99.30% 98.90% 99.30%

TSL2 99.04% 98.73% 99.38% 99.08% 99.36%

TSL3 99.19% 98.76% 99.46% 99.26% 99.42%

TSL4 99.33% 98.79% 99.54% 99.45% 99.47%

TSL5 99.49% 98.96% 99.74% 99.58% 99.71%

TSL6 99.59% 99.46% 99.75% 99.61% 99.71%
Note: Efficiencies are specified at the NEMA TP1 t emperature and loading conditions.

1.1 What are the key issues for your company regarding the distribution transformer energy conservation standard rulemaking?

1.2 How significant are the above key issues at each Tr ial Standard Level?

1.3 How can we most effectively incorporate these issue s in the Manufacturer Impact Analysis?

2. COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS The Department’s interest concerning manufacturer i mpact is focused at the plant or profit center leve l directly pertinent to transformer production. Howe ver, the context within which the plant operates an d the details of plant production and costs are not readi ly available from the published literature, so the Department invites you to provide these details con fidentially in your own words to the extent practic al. The organizational setting around the transformer p rofit center is of interest to round out the Depart ment’s understanding of the probable future of the transfo rmer manufacturing activity with and without energy efficiency standards.

2.1 Do you have a parent company, and/or any subsidiari es relevant to the transformer industry?

2.2 Where are your production facilities located, and w hat is the product mix manufactured at each

location?

2.3 What are your employment levels at these facilities ?

2.4 What are your product lines, niches and relative st rengths in the liquid-immersed market?12A-3

3. FINANCIAL PARAMETERS Navigant Consulting has built a model of industry f inancial impacts called the Government Regulatory Impact Model (GRIM), using publicly available data on distribution transformer manufacturers. This questionnaire attempts to understand how your compa ny’s financial situation differs from our industry aggregate picture.

3.1 Please compare your financial parameters to th e GRIM parameters tabulated below.

GRIM Input Definition Our Industry

Estimate Your Industry

Estimate (if significantly different) Your Business

Segment’s Actual (if significantly different)

Income Tax Rate Corporate effective income tax

rate (percentage of earnings before tax) 30.0%

Weighted Average Cost of Capital (WACC) Inflation-adjusted weighted

average of corporate cost of debt and return on equity 8.9%

Working Capital, net Current assets less current

liabilities (percentage of revenues) 15.4%

SG&A Selling, general, and

administrative expenses (percentage of revenues) 12.5%

R&D Research and development

expenses (percentage of revenues) 1.4%

Depreciation Amortization of fixed assets

(percentage of revenues) 1.7%

Capital Expenditures Outlay of money to acquire or

improve capital assets (percentage of revenues, not including acquisition or sale of business units) 1.9%

PPE, net Plant, Property, and Equipment

less accumulated depreciation 16.6%

3.2 How might new efficiency standards alter your c ompany’s financial parameters?

4. MORE EFFICIENT DESIGNS The Department’s engineering analysis models improv ements in efficiency by considering alternative combinations of design factors such as core steels, winding conductors, and joint configurations. The Department would like to understand what changes ma y be necessary in your product designs for the production of higher efficiency liquid-immersed dis tribution transformers.12A-4

4.1 What are your current design features? For each de sign line, which materials are used to build your non-evaluated transformers? What joint types are u sed?

4.2 Does your company build TP1-compliant transformers? How do these designs compare to your nonevaluated transformers?

4.3 Does your company build transformers that significa ntly exceed TP1 efficiency levels? Which designs are used to exceed TP1? Which designs would you li kely use to meet the various TSLs?

4.4 Are there any other manufacturing issues that DOE s hould be aware of in terms of producing more energy efficient transformers at your facility?

4.5 Do you currently fabricate your own cores and coils ? Would the standard level change your business practices with respect to such make vs. buy decisio ns?

5. MATERIAL PRICES AND AVAILABILITY

5.1. In its revised Engineering Analysis, the Department updated its price assumptions for material inputs. The Department considered two price scenarios: 1) 5 -year average for the years 2000-2004 (2004 US$), and 2) typical first quarter 2005 prices. Th e prices assumed to be paid by transformer manufacturers are shown in the table below. In you r experience are these prices representative of the industry as a whole? Are the prices that your comp any pays significantly different? If so, does this confer a disadvantage to your firm?

Item and Description Material Price (2000-2004) Material Price

(Q1 2005)

M2 core steel $0.95 $1.71

M3 core steel $0.80 $1.63

M4 core steel $0.76 $1.56

M6 core steel $0.70 $1.42

ZDMH (mechanically-scribed core steel) $1.47 $2.75

SA1 (amorphous) – finished core, volume production $1.80 $2.50

Copper wire, formvar, round #10-20 $1.55 $2.25

Copper wire, enameled, round #7-10 $1.51 $2.21

Copper wire, enameled, rectangular sizes $1.76 $2.6 5

Aluminum wire, formvar, round #9-17 $1.43 $1.56

Aluminum wire, formvar, round #7-10 $1.46 $1.58

Copper strip, thickness range 0.02-0.045 $2.32 $2.9 2

Copper strip, thickness range 0.030-0.060 $2.24 $2. 84

Aluminum strip, thickness range 0.02-0.045 $1.54 $1 .66

Aluminum strip, thickness range 0.045-0.080 $1.45 $ 1.69

Mineral Oil $1.71 $2.40

* Five year average (2000 through 2004) for materia ls expressed in 2004$ per lb. Average compiled by Paul Goethe, Optimized Program Service, January 2005.12A-5

5.2. In the Department’s analysis, material costs are ma rked up to determine the manufacturer sales price. In light of the large increases of material costs, have you changed your material markup factors or practices?

5.3. Are the materials necessary to build more energy ef ficient transformers readily available?

5.4. Have your company’s procurement practices changed i n response to recent commodity price volatility?

5.5. Have recent material price changes affected your co mpany’s business?

6. SHIPMENT PROJECTIONS

6.1 An efficiency standard can affect shipments by chan ging product attributes, marketing approaches, product availability, and price. For the ANOPR and NOPR, a small sensitivity of liquid-immersed shipments to price is modeled. Do you consider thi s to be appropriate?

6.2 What is your company’s approximate market share in each of the liquid-immersed design lines? Within each design line, is your proportion of ship ments at each kVA rating the same as the industry average?

6.3 Would you expect your market share to change once s tandards become effective? Does your outlook change with higher efficiency levels?

7. CONVERSION COSTS An increase in efficiency standards may cause your company to incur one-time costs. We call these conversion costs because they are the costs of chan ging your business to comply with new efficiency standards. The GRIM considers three types of conve rsion costs:

• Conversion Capital Expenditures—One-time investment s in plant, property, and equipment (PPE) necessitated by an efficiency standard. These may be completely incremental to existing PPE or they could involve replacement of existing PPE.

• Product Conversion Expenses—One-time expenses in re search, product development, testing, and marketing necessitated by an appliance efficiency s tandard.

• Annual Compliance Costs (not technically a conversi on cost) – On-going expenses incurred to comply with efficiency standards, typically to meet testin g requirements.12A-6

7.1 What level of conversion costs do you anticipate in curring under the different Trial Standard Levels? Refer to the tables below to provide your company’s estimates. Please provide additional qualitative information to help us understand the nature of you r investments.

Liquid-Immersed – Conversion Capital Expenditures

(thousands U.S.$) Trial Standard

Level Building Equipment Tooling Other

TSL1 (TP-1)

TSL2

TSL3

TSL4

TSL5

TSL6

Liquid-Immersed – Product Conversion Expenses

(thousands U.S.$) Trial Standard

Level Research &

Product Development Testing Marketing Other

TSL1 (TP-1)

TSL2

TSL3

TSL4

TSL5

TSL6

7.2 What portion of your conversion capital expenditure s will go towards replacing existing assets that would become obsolete under an efficiency standard? Does your answer depend upon the TSL?

7.3 What are the depreciation periods for the three typ es of capital expenditures (building, equipment, tooling)?

7.4 What specific annual compliance costs (after the ef fective date) do you anticipate incurring to comply with standards? Will they vary with standard level ? Would they vary over time (e.g., increase with sales)?12A-7

8. PRODUCT MIX Current differences in product mix (distribution of product sales by efficiency level) among manufactu rers can lead to different reactions to and impacts from new efficiency standards. The GRIM calculates financial results at each efficiency level to captu re some of these effects.

8.1 What is the typical efficiency of a non-evaluated t ransformer for each representative unit?

8.2 What percentage of product in each design line is T P1-compliant (industry-wide)? Do significant fractions of product exceed TP1 efficiency levels ( industry-wide)? Comment on any differences between the industry’s distribution of product effi ciencies and your company’s.

8.3 Do you expect the product efficiency mix to shift o ver time in the base case? Why or why not?

8.4 For each design line and corresponding TSL, please comment on the potential for marketing premium products (i.e., those with efficiencies significant ly above of the TSL). What might be the percentage of premium efficiency products sold at each TSL?

9. MARKUPS AND PROFITABILITY One of the primary objectives of the Manufacturer I mpact Analysis is to assess the impact of Trial Standard Levels on industry and sub-group profitabi lity. In this section, we would like your assistan ce understanding how the Trial Standard Levels would i mpact your company’s markups and profitability.

9.1 The non-production cost markup is defined as the fa ctor applied to the full production costs to arrive at the Manufacturer Selling Price. The Manufacturer S elling Price allows the company to recover all costs, both production and non-production, and to e arn a profit. The Department used a nonproduction cost markup of 1.25 for SG&A, R&D, inter est, and profit. This represents a 20% gross margin on sales price.

9.1.1 How does the industry average of 1.25 compare with your non-production cost markup?

9.1.2 Has the average mark-up changed as a result of high er material costs?

9.1.3 Is the mark-up on a TP1 product different?

9.2 What other factors might change the industry’s prof itability?

9.3 Has recent commodity price volatility affected the industry’s profitability?

10. REFURBISHMENT

10.1 How do you expect new standards to impact the size and profitability of the refurbished distribu tion

transformer market?12A-8

11. CUMULATIVE REGULATORY BURDEN Cumulative regulatory burden refers to the burden t hat industry faces from overlapping effects of new or revised DOE standards and/or other regulatory actio ns affecting the same products or industry.

11.1 Are there other recent or impending regulatio ns that distribution transformers face (from DOE or otherwise)? How might an energy efficiency standar d impact the cumulative regulatory burden faced by your company?

11.2 Are there any other DOE standards that would p ose a significant impact on your company (any division) within three years of the proposed effect ive date for efficiency standards (2010)?

11.3 Under what circumstances would you be able to coordinate any expenditures related to metrificatio n, other regulations, and distribution transformer eff iciency standards, thereby lessening the cumulative

burden?

12. EXPORTS / FOREIGN COMPETITION / OUTSOURCING Disparity between domestic and foreign efficiency s tandards could impact exports or imports. Labor content and material changes - resulting from effic iency standards - may impact sourcing decisions.

12.1 Does the bulk of your company’s transformer pr oduction occur domestically? Absent standards, are production facilities being relocated to foreign co untries? Would standards impact your domestic vs. foreign manufacturing decision? How?

12.2 Could a new standard affect your export sales? What would the resulting impact be, if any, on yo ur manufacturing operations and profitability?

12.3 What percentage of the U.S. market has been ca ptured by foreign competition? Would standards have an impact on foreign competition? How?

13. DIRECT EMPLOYMENT IMPACT ASSESSMENT The impact of new energy efficiency standards on em ployment is an important consideration in the rulemaking process. This section of the interview guide seeks to explore current trends in transforme r production employment and solicit manufacturer view s on how domestic employment patterns might be affected by new energy efficiency standards.

13.1 Would your domestic employment levels change under new energy efficiency standards?

13.2 Would the workforce skills necessary under new ener gy efficiency standards require extensive retraining or replacement of employees?

14. CONSOLIDATION New efficiency standards can alter the competitive dynamics of the market. This can include prompting companies to enter or exit the market, or to merge. The DOE and the Justice Department are both12A-9

interested in any potential reduction in competitio n that would result from a new efficiency standard.

14.1 Please comment on industry consolidation and related trends over the last 5 years.

14.2 In the absence of new standards, do you expec t any industry consolidation? Please describe your expectations.

14.3 How would new standards affect your ability t o compete?

14.4 Could new standards disproportionately advanc e or harm the competitive positions of some firms (e.g., small businesses)?

14.5 Could new standards result in disproportionate economic or performance penalties for particular consumer subgroups?

14.6 Could new standards result in products that wi ll be less desirable to consumers (not considering price effects)? Which attributes could be affected?

15. NICHE PRODUCTS

The definition of a distribution transformer exclud es certain types of transformers from this rulemaki ng. For transformers that are covered, DOE is intereste d in whether new standard levels for some sub-group s of products might threaten their viability because of either technical or commercial considerations.

15.1 Do you have any products whose viability coul d be threatened by a higher efficiency standard? I f so, please identify the threatened products and the thr eshold Trial Standard Level that poses a threat.

15.2 What would you have to do in order to ensure t he viability of those products?

15.3 For the purposes of the GRIM, DOE has separate d the distribution transformer industry into three main groups – liquid-immersed, low voltage dry, and medium voltage dry. Are there other industry groupings that might be meaningful?

16. EFFECTIVE DATE OF STANDARDS The effective date for new standards after the regu lation is promulgated is currently expected to be 2 010 (final rule to be published in 2007).

16.1 Is this 3-year lead time for retooling, redes ign, and compliance demonstration feasible/adequate ? If the answer depends on the new standard level, pleas e explain.

16.2 If the effective date were postponed, would the burden of the standard on your company be reduc ed?

17. MISCELLANEOUS

17.1 Are there any federal tax credits or other incentiv e programs to encourage you to produce energy

efficient transformers?12A-10



### 12A.2 Medium-Voltage Dry-Type MIA Interview Guide



## MV Dry-Type

Distribution Transformer Energy Conservation Standards Rulemaking Manufacturer Impact Analysis Interview Guide

Navigant Consulting, Inc. May 200512A-11

1. KEY ISSUES The Department of Energy (DOE) is currently conside ring six Trial Standard Levels (TSLs). The TSLs are presented below as they apply to the representa tive units selected for detailed analysis. In resp onding to this questionnaire, please refer to the table of TSLs below.

Product Class Product Class 6 (MV 3-phase, 20-45 kV BIL) Product Class 8 (MV 3-phase, 60-95 kV BIL)

Design Lines DL9

15-500 kVA DL10

750-2500 kVA DL11

15-500 kVA DL12

750-2500 kVA

Representative Unit 300 kVA 1500 kVA 300 kVA 1500 kVA

Base Case None None

TSL1 / TP-1 98.60% 99.10% 98.50% 99.00%

TSL2 98.82% 99.20% 98.67% 99.12%

TSL3 99.04% 99.30% 98.84% 99.23%

TSL4 99.26% 99.39% 99.01% 99.35%

TSL5 / TSL6 99.41% 99.51% 99.09% 99.51%

Product Class Product Class 10 (MV 3-phase, 110-150 kV BIL)

Design Lines DL13

225-2500 kVA

Representative Unit 2000 kVA

Base Case None

TSL1 / TP-1 99.00%

TSL2 99.15%

TSL3 99.30%

TSL4 99.45%

TSL5 / TSL6 99.55%
Note: Efficiencies are specified at the NEMA TP1 t emperature and loading conditions. Also, efficienc y standards for the MV dry-type single-phase transformers will be based on the corresponding three-phase analog (e .g., the 100 kVA single-phase efficiency standard will be based upon the 300 kVA three-phase standard).

1.4 What are the key issues for your company regarding the distribution transformer energy conservation standard rulemaking?

1.5 How significant are the above key issues at each Tr ial Standard Level?

1.6 How can we most effectively incorporate these issue s in the Manufacturer Impact Analysis?12A-12

2. COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS The Department’s interest concerning manufacturer i mpact is focused at the plant or profit center leve l directly pertinent to transformer production. Howe ver, the context within which the plant operates an d the details of plant production and costs are not readi ly available from the published literature, so the Department invites you to provide these details con fidentially in your own words to the extent practic al. The organizational setting around the transformer p rofit center is of interest to round out the Depart ment’s understanding of the probable future of the transfo rmer manufacturing activity with and without energy efficiency standards.

2.5 Do you have a parent company, and/or any subsidiari es relevant to the transformer industry?

2.6 Where are your production facilities located, and w hat is the product mix manufactured at each

location?

2.7 What are your employment levels at these facilities ?

2.8 What are your product lines, niches and relative st rengths in the medium-voltage dry-type market?

4. FINANCIAL PARAMETERS Navigant Consulting has built a model of industry f inancial impacts called the Government Regulatory Impact Model (GRIM), using publicly available data on distribution transformer manufacturers. This questionnaire attempts to understand how your compa ny’s financial situation differs from our industry aggregate picture.

3.1 Please compare your financial parameters to th e GRIM parameters tabulated below.

GRIM Input Definition Our Industry

Estimate Your Industry

Estimate Your Business

Segment’s Actual

Income Tax Rate Corporate effective income tax rate

(percentage of earnings before tax) 33.9%

Weighted Average Cost of Capital (WACC) Inflation-adjusted weighted average

of corporate cost of debt and return on equity 8.9%

Working Capital, net Current assets less current liabilities

(percentage of revenues) 10.6%

SG&A Selling, general, and administrative

expenses (percentage of revenues) 13.5%

R&D Research and development expenses

(percentage of revenues) 1.1%

Depreciation Amortization of fixed assets

(percentage of revenues) 1.8%

Capital Expenditures Outlay of money to acquire or

improve capital assets (percentage of revenues, not including acquisition or sale of business units) 2.1%

PPE, net Plant, Property, and Equipment less

accumulated depreciation 16.1%12A-13

3.2 How might new efficiency standards alter your c ompany’s financial parameters?

4. MORE EFFICIENT DESIGNS The Department’s engineering analysis models improv ements in efficiency by considering alternative combinations of design factors such as core steels, winding conductors, and joint configurations. The Department would like to understand what changes ma y be necessary in your product designs for the production of higher efficiency medium-voltage dry- type distribution transformers.

4.6 What are your current design features? For each de sign line, which materials are used to build your non-evaluated transformers? What joint types are u sed?

4.7 Does your company build TP1-compliant transformers? How do these designs compare to your nonevaluated transformers?

4.8 Does your company build transformers that significa ntly exceed TP1 efficiency levels? Which designs are used to exceed TP1? Which designs would you li kely use to meet the various TSLs?

4.9 Are there any other manufacturing issues that DOE s hould be aware of in terms of producing more energy efficient transformers at your facility?

4.10 Do you currently fabricate your own cores and coils ? Would the standard level change your business practices with respect to such make vs. bu y decisions?

5. MATERIAL PRICES AND AVAILABILITY

5.6. In its revised Engineering Analysis, the Department updated its price assumptions for material inputs. The Department considered two price scenarios: 1) 5 -year average for the years 2000-2004 (2004 US$), and 2) typical first quarter 2005 prices. Th e prices assumed to be paid by transformer manufacturers are shown in the table below. In you r experience are these prices representative of the industry as a whole? Are the prices that your comp any pays significantly different? If so, does this confer a disadvantage to your firm?12A-14 Item and Description Material Price (2000-2004) Material Price

(Q1 2005)

H-O DR core steel (laser-scribed) $0.99 $1.85

M3 core steel $0.80 $1.63

M4 core steel $0.76 $1.56

M5 core steel $0.72 $1.47

M6 core steel $0.70 $1.42

M19 core steel (26 gauge) $0.56 $0.82

M36 core steel (29 gauge) $0.50 $0.69

M36 core steel (26 gauge) $0.45 $0.65

M43 core steel (26 gauge) $0.43 $0.58

Copper wire, rectangular 0.1 x 0.2, Nomex wrapped $ 2.00 $2.69

Aluminum wire, rectangular 0.1 x 0.2, Nomex wrapped $2.06 $2.05

Impregnation (per gallon) $17.80 $19.00

* Five year average (2000 through 2004) for materia ls expressed in 2004$ per lb. Average compiled by Paul Goethe, Optimized Program Service, January 2005.

5.7. In the Department’s analysis, material costs are ma rked up to determine the manufacturer sales price. In light of the large increases of material costs, have you changed your material markup factors or practices?

5.8. Are the materials necessary to build more energy ef ficient transformers readily available?

5.9. Have your company’s procurement practices changed i n response to recent commodity price volatility?

5.10. Have recent material price changes affected your co mpany’s business?

6. SHIPMENT PROJECTIONS

6.4 An efficiency standard can affect shipments by chan ging product attributes, marketing approaches, product availability, and price. In the ANOPR, the Department assumed that industry-wide dry-type shipments do not vary by standard level (i.e., ther e is no consumer sensitivity to price). For the NOPR, a small sensitivity of dry-type shipments to price may be introduced. Do you consider this to be appropriate?

6.5 What is your company’s approximate market share in each of the medium-voltage design lines? Within each design line, is your proportion of ship ments at each kVA rating the same as the industry average?

6.6 Would you expect your market share to change once s tandards become effective? Does your outlook change with higher efficiency levels?12A-15

7. CONVERSION COSTS An increase in efficiency standards may cause your company to incur one-time costs. We call these conversion costs because they are the costs of chan ging your business to comply with new efficiency standards. The GRIM considers three types of conve rsion costs:

• Conversion Capital Expenditures—One-time investment s in plant, property, and equipment (PPE) necessitated by an efficiency standard. These may be completely incremental to existing PPE or they could involve replacement of existing PPE.

• Product Conversion Expenses—One-time expenses in re search, product development, testing, and marketing necessitated by an appliance efficiency s tandard.

• Annual Compliance Costs (not technically a conversi on cost) – On-going expenses incurred to comply with efficiency standards, typically to meet testin g requirements.

7.5 What level of conversion costs do you anticipate in curring under the different Trial Standard Levels? Refer to the tables below to provide your company’s estimates. Please provide additional qualitative information to help us understand the nature of you r investments.

MV Dry-Type – Conversion Capital Expenditures

(thousands U.S.$) Trial Standard

Level Building Equipment Tooling Other

TSL1 (TP-1)

TSL2

TSL3

TSL4

TSL5 / TSL6

MV Dry-Type – Product Conversion Expenses

(thousands U.S.$) Trial Standard

Level Research &

Product Development Testing Marketing Other

TSL1 (TP-1)

TSL2

TSL3

TSL4

TSL5 / TSL6

7.6 What portion of your conversion capital expenditure s will go towards replacing existing assets that would become obsolete under an efficiency standard? Does your answer depend upon the TSL?

7.7 What are the depreciation periods for the three typ es of capital expenditures (building, equipment,12A-16

tooling)?

7.8 What specific annual compliance costs (after the ef fective date) do you anticipate incurring to comply with standards? Will they vary with standard level ? Would they vary over time (e.g., increase with sales)?

8. PRODUCT MIX Current differences in product mix (distribution of product sales by efficiency level) among manufactu rers can lead to different reactions to and impacts from new efficiency standards. The GRIM calculates financial results at each efficiency level to captu re some of these effects.

8.5 What is the typical efficiency of a non-evaluated t ransformer for each representative unit?

8.6 What percentage of product in each design line is T P1-compliant (industry-wide)? Do significant fractions of product exceed TP1 efficiency levels ( industry-wide)? Comment on any differences between the industry’s distribution of product effi ciencies and your company’s.

8.7 Do you expect the product efficiency mix to shift o ver time in the base case? Why or why not?

8.8 For each design line and corresponding TSL, please comment on the potential for marketing premium products (i.e., those with efficiencies significant ly above of the TSL). What might be the percentage of premium efficiency products sold at each TSL?

9. MARKUPS AND PROFITABILITY One of the primary objectives of the Manufacturer I mpact Analysis is to assess the impact of Trial Standard Levels on industry and sub-group profitabi lity. In this section, we would like your assistan ce understanding how the Trial Standard Levels would i mpact your company’s markups and profitability.

9.4 The non-production cost markup is defined as the fa ctor applied to the full production costs to arrive at the Manufacturer Selling Price. The Manufacturer S elling Price allows the company to recover all costs, both production and non-production, and to e arn a profit. The Department used a nonproduction cost markup of 1.25 for SG&A, R&D, inter est, and profit. This represents a 20% gross margin on sales price.

9.4.1 How does the industry average of 1.25 compare with your non-production cost markup?

9.4.2 Has the average mark-up changed as a result of high er material costs?

9.4.3 Is the mark-up on a TP1 product different?

9.5 What other factors might change the industry’s prof itability?

9.6 Has recent commodity price volatility affected the industry’s profitability?12A-17

10. REFURBISHMENT

10.1 How do you expect new standards to impact the size and profitability of the refurbished distribu tion

transformer market?

11. CUMULATIVE REGULATORY BURDEN Cumulative regulatory burden refers to the burden t hat industry faces from overlapping effects of new or revised DOE standards and/or other regulatory actio ns affecting the same products or industry.

11.1 Are there other recent or impending regulatio ns that distribution transformers face (from DOE or otherwise)? How might an energy efficiency standar d impact the cumulative regulatory burden faced by your company?

11.2 Are there any other DOE standards that would p ose a significant impact on your company (any division) within three years of the proposed effect ive date for efficiency standards (2010)?

11.3 Under what circumstances would you be able to coordinate any expenditures related to metrificatio n, other regulations, and distribution transformer eff iciency standards, thereby lessening the cumulative

burden?

12. EXPORTS / FOREIGN COMPETITION / OUTSOURCING Disparity between domestic and foreign efficiency s tandards could impact exports or imports. Labor content and material changes - resulting from effic iency standards - may impact sourcing decisions.

12.1 Does the bulk of your company’s transformer pr oduction occur domestically? Absent standards, are production facilities being relocated to foreign co untries? Would standards impact your domestic vs. foreign manufacturing decision? How?

12.2 Could a new standard affect your export sales? What would the resulting impact be, if any, on yo ur manufacturing operations and profitability?

12.3 What percentage of the U.S. market has been ca ptured by foreign competition? Would standards have an impact on foreign competition? How?

13. DIRECT EMPLOYMENT IMPACT ASSESSMENT The impact of new energy efficiency standards on em ployment is an important consideration in the rulemaking process. This section of the interview guide seeks to explore current trends in transforme r production employment and solicit manufacturer view s on how domestic employment patterns might be affected by new energy efficiency standards.

13.3 Would your domestic employment levels change under new energy efficiency standards?

13.4 Would the workforce skills necessary under new ener gy efficiency standards require extensive retraining or replacement of employees?12A-18

14. CONSOLIDATION New efficiency standards can alter the competitive dynamics of the market. This can include prompting companies to enter or exit the market, or to merge. The DOE and the Justice Department are both interested in any potential reduction in competitio n that would result from a new efficiency standard.

14.1 Please comment on industry consolidation and related trends over the last 5 years.

14.2 In the absence of new standards, do you expec t any industry consolidation? Please describe your expectations.

14.3 How would new standards affect your ability t o compete?

14.4 Could new standards disproportionately advanc e or harm the competitive positions of some firms (e.g., small businesses)?

14.5 Could new standards result in disproportionate economic or performance penalties for particular consumer subgroups?

14.6 Could new standards result in products that wi ll be less desirable to consumers (not considering price effects)? Which attributes could be affected?

15. NICHE PRODUCTS

The definition of a distribution transformer exclud es certain types of transformers from this rulemaki ng. For transformers that are covered, DOE is intereste d in whether new standard levels for some sub-group s of products might threaten their viability because of either technical or commercial considerations.

15.1 Do you have any products whose viability coul d be threatened by a higher efficiency standard? I f so, please identify the threatened products and the thr eshold Trial Standard Level that poses a threat.

15.2 What would you have to do in order to ensure t he viability of those products?

15.3 For the purposes of the GRIM, DOE has separate d the distribution transformer industry into three main groups – liquid-immersed, low voltage dry, and medium voltage dry. Are there other industry groupings that might be meaningful?

16. EFFECTIVE DATE OF STANDARDS The effective date for new standards after the regu lation is promulgated is currently expected to be 2 010 (final rule to be published in 2007).

16.1 Is this 3-year lead time for retooling, redes ign, and compliance demonstration feasible/adequate ? If the answer depends on the new standard level, pleas e explain.

16.2 If the effective date were postponed, would the burden of the standard on your company be reduc ed?12A-19

17. MISCELLANEOUS

17.1 Are there any federal tax credits or other incentive programs to encourage you to produce energy

e fficient transformers?