13-i 

### CHAPTER 13. M ANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS 13.1 INTRODUCTION ......................................................................................................... 13-1 13.2 METHODOLOGY ........................................................................................................ 13-1 13.2.1 Phase I: Industry Profile..................................................................................... 13-1 13.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide............................ 13-2 13.2.2.1 Industry Cash-Flow Analysis............................................................... 13-2 13.2.2.2 Interview Guide ................................................................................... 13-2 13.2.3 Phase III: Sub-Group Analysis .......................................................................... 13-3 13.2.3.1 Manufacturer Interviews...................................................................... 13-3 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 ............................................. 13-4 13.2.3.5 Manufacturing Capacity Impact .......................................................... 13-5 13.2.3.6 Employment Impact............................................................................. 13-5 13.2.3.7 Cumulative Regulatory Burden ........................................................... 13-5 13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES.......................................... 13-5 13.3.1 General Service Fluorescent Lamps .................................................................. 13-6 13.3.1.1 Rare Earth Phosphor Availability and Price ........................................ 13-6 13.3.1.2 Reduction in Product Portfolio ............................................................ 13-6 13.3.1.3 Profit Margin Impact............................................................................ 13-6 13.3.2 Incandescent Reflector Lamps........................................................................... 13-6 13.3.2.1 Product Performance Issues................................................................. 13-6 13.3.2.2 Xenon Gas Availability and Price........................................................ 13-7 13.3.2.3 Elimination of Product Types in the Manufacturers’ Product Portfolio 13- 7 13.3.2.4 Elimination of Small Diameter Lamps ................................................ 13-7 13.3.2.5 Competition.......................................................................................... 13-7 13.3.2.6 Market Erosion..................................................................................... 13-8 13.4 GRIM INPUTS AND ASSUMPTIONS........................................................................ 13-8 13.4.1 Overview of the GRIM ...................................................................................... 13-8 13.4.2 Sources GRIM Inputs ........................................................................................ 13-9 13.4.2.1 Corporate Annual Reports ................................................................... 13-9 13.4.2.2 Standard and Poor Credit Ratings...................................................... 13-10 13.4.2.3 Shipment Model................................................................................. 13-10 13.4.2.4 Product Price Determination.............................................................. 13-10 13.4.2.5 Manufacturer Interviews.................................................................... 13-10 13.4.3 Financial Parameters........................................................................................ 13-11 13.4.4 Corporate Discount Rate.................................................................................. 13-11 13.4.5 Trial Standard Levels....................................................................................... 13-14 13.4.6 NIA Shipments Forecast.................................................................................. 13-14 13.4.6.1 GSFL Base-Case Shipment Scenarios............................................... 13-15 13.4.6.2 IRL Base-Case Shipment Scenarios .................................................. 13-15 13.4.6.3 GSFL Standards Shipment Scenarios ................................................ 13-16 13.4.6.4 IRL Standards Shipment Scenarios ................................................... 13-1613-ii



### 13.4.7 Production Costs .............................................................................................. 13-16 1 3.4.8 Conversion Costs ............................................................................................. 13-19 13.4.8.1 Capital Conversion Expenses ............................................................ 13-20 13.4.8.2 Product Conversion Expenses............................................................ 13-22 13.4.9 Markups ........................................................................................................... 13-23 13.4.9.1 Flat Markup........................................................................................ 13-23 13.4.9.2 Four-Tier Markup .............................................................................. 13-24 13.5 GSFL INDUSTRY FINANCIAL IMPACTS.............................................................. 13-28 13.5.1 Impacts on Industry Net Present Value ........................................................... 13-28 13.5.2 Impacts on GSFL Annual Cash Flow .............................................................. 13-33 13.6 IRL INDUSTRY FINANCIAL IMPACTS................................................................. 13-42 13.6.1 Impacts on Industry Net Present Value ........................................................... 13-43 13.6.2 Impacts on Annual Cash Flow......................................................................... 13-45 13.7 OTHER IMPACTS...................................................................................................... 13-51 13.7.1 Employment..................................................................................................... 13-51 13.7.1.1 GSFL Employment ............................................................................ 13-51 13.7.1.2 IRL Employment ............................................................................... 13-52 13.7.2 Manufacturing Capacity................................................................................... 13-61 13.7.3 Cumulative Regulatory Burden ....................................................................... 13-62 13.7.3.1 Federal DOE Regulations on Other Products Produced by the GSFL and IRL Manufacturers........................................................................................... 13-62 13.7.3.2 EISA 2007 Requirements .................................................................. 13-64 13.7.3.3 Restriction of Hazardous Substances Directive................................. 13-65 13.7.3.4 Reporting Requirements .................................................................... 13-65 13.7.4 Impacts on Small-Business Subgroup ............................................................. 13-66 13.8 CONCLUSIONS.......................................................................................................... 13-66 13.8.1 GSFL................................................................................................................ 13-66 13.8.2 IRL ................................................................................................................... 13-69 REFERENCES ........................................................................................................................ 13-72

LIST OF TABLES

Table 13.4.1 GRIM Financial Parameters Based on 2002-2007 Weighted Company Financial Data.......................................................................................................................................... 13-11 Table 13.4.2 Cost of Equity Calculation.................................................................................. 13-12 Table 13.4.3 Cost of Debt Calculation..................................................................................... 13-13 Table 13.4.4 GSFL Efficacy Levels by Product Class and TSL ............................................. 13-14 Table 13.4.5 IRL Efficacy Levels by TSL............................................................................... 13-14 Table 13.4.6 Total GSFL NIA-Shipments Forecast in 2012 and 2042 for the Existing Technologies Base Case .......................................................................................................... 13-15 Table 13.4.7 Total GSFL NIA-Shipments Forecast in 2012 and 2042 for the Emerging Technologies Base Case .......................................................................................................... 13-15 Table 13.4.8 Total IRL NIA-Shipments Forecast in 2012, 2020, and 2042 for the Existing Technologies Base Case .......................................................................................................... 13-1613-iii



### Table 13.4.9 Total IRL NIA-Shipments Forecast in 2012, 2020, and 2042 for the Emerging Te chnologies Base Case .......................................................................................................... 13-16 Table 13.4.10 Base-Case Production Costs (2007$) used in the GRIM for 4-Foot Medium Bipin Product Classes ........................................................................................................................ 13-17 Table 13.4.11 Base-Case Production Costs (2007$) used in the GRIM for 8-Foot Single Pin Slimline Product Classes.......................................................................................................... 13-17 Table 13.4.12 Base-Case Production Costs (2007$) used in the GRIM for 8-Foot Recessed Double Contact High Output Product Classes......................................................................... 13-18 Table 13.4.13 Base-Case Production Costs (2007$) used in the GRIM for 4-Foot T5 Product Class......................................................................................................................................... 13-18 Table 13.4.14 Base-Case Production Costs (2007$) used in the GRIM for 4-Foot T5 High Output Product Class ........................................................................................................................... 13-18 Table 13.4.15 Base-Case Production Costs (2007$) used in the GRIM for IRL Covered Product Classes...................................................................................................................................... 13-19 Table 13.4.16 Base-Case Production Costs (2007$) used in the GRIM for IRL Non-Covered Product Classes ........................................................................................................................ 13-19 Table 13.4.17 Capital Conversion Expenses for GSFL by Product Class............................... 13-20 Table 13.4.18 Capital Conversion Expenses for the IRL Industry.......................................... 13-22 Table 13.4.19 GSFL Product Conversion Expenses by Product Class.................................... 13-22 Table 13.4.20 Product Conversion Expenses for the IRL Industry ......................................... 13-23 Table 13.4.21 Four-Tier Markup for GSFL: 4-Foot Medium Bipin Product – Existing Technologies Base Case .......................................................................................................... 13-25 Table 13.4.22 Four-Tier Markup for GSFL: 8-Foot Single Pin Slimline Product – Existing Technologies Base Case .......................................................................................................... 13-25 Table 13.4.23 Four-Tier Markup for GSFL: 8-Foot Recessed Double Contact – Existing Technologies Base Case .......................................................................................................... 13-25 Table 13.4.24 Four-Tier Markup for GSFL: 4-Foot T5 Product Class – Existing Technologies Base Case................................................................................................................................. 13-26 Table 13.4.25 Four-Tier Markup for GSFL: 4-Foot T5 High Output Product – Existing Technologies Base Case .......................................................................................................... 13-26 Table 13.4.26 Four-Tier Markup for GSFL: 4-Foot Medium Bipin Product – Emerging Technologies Base Case .......................................................................................................... 13-27 Table 13.4.27 Four-Tier Markup for GSFL: 8-Foot Single Pin Slimline Product – Emerging Technologies Base Case .......................................................................................................... 13-27 Table 13.4.28 Four-Tier Markup for GSFL: 8-Foot Recessed Double Contact – Emerging Technologies Base Case .......................................................................................................... 13-27 Table 13.4.29 Four-Tier Markup for GSFL: 4-Foot T5 Product Class – Emerging Technologies Base Case................................................................................................................................. 13-28 Table 13.4.30 Four-Tier Markup for GSFL: 4-Foot T5 High Output Product – Emerging Technologies Base Case .......................................................................................................... 13-28 Table 13.5.1 Changes in Base-Case Industry Net Present Values for the GSFL Industry...... 13-29 Table 13.5.2 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution .............................................................................................................................. 13-2913-iv



### Table 13.5.3 Changes in Industry Net Present Value for the GSFL Industry with a Four-Tier M arkup Scenario, Existing Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution .............................................................................................................................. 13-29 Table 13.5.4 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution .............................................................................................................................. 13-30 Table 13.5.5 Changes in Industry Net Present Value for the GSFL Industry with a Four-Tier Markup Scenario, Existing Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution................................................................................................................ 13-30 Table 13.5.6 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution .............................................................................................................................. 13-30 Table 13.5.7 Changes in Industry Net Present Value for the GSFL Industry with a Four-Tier Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution................................................................................................................ 13-30 Table 13.5.8 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution................................................................................................................ 13-31 Table 13.5.9 Changes in Industry Net Present Value for the GSFL Industry with a Four-Tier Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution............................................................................................................ 13-31 Table 13.5.10 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution .............................................................................................................................. 13-31 Table 13.5.11 Changes in Industry Net Present Value for the GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution................................................................................................................ 13-31 Table 13.5.12 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution .............................................................................................................................. 13-32 Table 13.5.13 Changes in Industry Net Present Value for the GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution................................................................................................................ 13-32 Table 13.5.14 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution .............................................................................................................................. 13-32 Table 13.5.15 Changes in Industry Net Present Value for the GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution................................................................................................................ 13-32 Table 13.5.16 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution................................................................................................................ 13-33 Table 13.5.17 Changes in Industry Net Present Value for the GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution............................................................................................................ 13-33 Table 13.6.1 Changes in Base-Case Industry Net Present Values for the GSFL Industry...... 13-4313-v



### Table 13.6.2 Changes in Industry Net Present Value for IRL Industry Under the Existing Te chnologies Base Case - Product Substitution Scenario - Shift in Efficacy Distribution ..... 13-44 Table 13.6.3 Changes in Industry Net Present Value for IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario – Roll-Up in Efficacy Distribution13-44 Table 13.6.4 Changes in Industry Net Present Value for IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution... 13- 44 Table 13.6.5 Changes in Industry Net Present Value for IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution

............................................................................................................................... ................... 13-44 Table 13.6.6 Changes in Industry Net Present Value for IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario - Shift in Efficacy Distribution..... 13-45 Table 13.6.7 Changes in Industry Net Present Value for IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario – Roll-Up in Efficacy Distribution... 13- 45 Table 13.6.8 Changes in Industry Net Present Value for IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution... 13- 45 Table 13.6.9 Changes in Industry Net Present Value for IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution

............................................................................................................................... ................... 13-45 Table 13.7.1 Change in the Average Number of Domestic Employees in the IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario - Shift in Efficacy Distribution .............................................................................................................................. 13-53 Table 13.7.2 Change in the Average Number of Domestic Employees in the IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario – Roll-Up in Efficacy Distribution .............................................................................................................................. 13-54 Table 13.7.3 Change in the Average Number of Domestic Employees in the IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution .............................................................................................................................. 13-54 Table 13.7.4 Change in the Average Number of Domestic Employees in the IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution .............................................................................................................................. 13-54 Table 13.7.5 Change in the Average Number of Domestic Employees in the IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario - Shift in Efficacy Distribution .............................................................................................................................. 13-55 Table 13.7.6 Change in the Average Number of Domestic Employees in the IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario – Roll-Up in Efficacy Distribution .............................................................................................................................. 13-55 Table 13.7.7 Change in the Average Number of Domestic Employees in the IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution .............................................................................................................................. 13-55 Table 13.7.8 Change in the Average Number of Domestic Employees in the IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution .............................................................................................................................. 13-56 Table 13.7.9 Other DOE and Federal Actions Affecting the GSFL and IRL Industries......... 13-6313-vi



### Table 13.7.10 EISA 2007 GSIL Standards.............................................................................. 13-64 Ta ble 13.7.11 EISA 2007 Modified Spectrum GSIL Standards.............................................. 13-64

LIST OF FIGURES

Figure 13.4.1 Using the GRIM to Calculate Cash Flow............................................................ 13-9 Figure 13.5.1 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution .............. 13-34 Figure 13.5.2 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Existing Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution 13-34 Figure 13.5.3 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution.......... 13-35 Figure 13.5.4 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Existing Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution 13- 35 Figure 13.5.5 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution .. 13-36 Figure 13.5.6 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution .............................................................................................................................. 13-36 Figure 13.5.7 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution.. 13- 37 Figure 13.5.8 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution .............................................................................................................................. 13-37 Figure 13.5.9 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution .............. 13-38 Figure 13.5.10 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution.. 13- 38 Figure 13.5.11 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution .................................................................................................................................................. 13-39 Figure 13.5.12 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution .................................................................................................................................................. 13-39 Figure 13.5.13 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution .............................................................................................................................. 13-40 Figure 13.5.14 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution .............................................................................................................................. 13-4013-vii



### Figure 13.5.15 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Em erging Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution .............................................................................................................................. 13-41 Figure 13.5.16 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution .............................................................................................................................. 13-41 Figure 13.6.1 Annual Net Cash Flow for IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario - Shift in Efficacy Distribution..................................... 13-46 Figure 13.6.2 Annual Net Cash Flow for IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario – Roll-Up in Efficacy Distribution............................... 13-47 Figure 13.6.3 Annual Net Cash Flow for IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution.............................. 13-47 Figure 13.6.4 Annual Net Cash Flow for IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution........................ 13-48 Figure 13.6.5 Annual Net Cash Flow for IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario - Shift in Efficacy Distribution.................................... 13-48 Figure 13.6.6 Annual Net Cash Flow for IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario – Roll-Up in Efficacy Distribution.............................. 13-49 Figure 13.6.7 Annual Net Cash Flow for IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution.............................. 13-49 Figure 13.6.8 Annual Net Cash Flow for IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution........................ 13-50 Figure 13.7.1 Total IRL Industry Employment by Year Under the Existing Technologies Base Case - Product Substitution Scenario - Shift in Efficacy Distribution..................................... 13-56 Figure 13.7.2 Total IRL Industry Employment by Year Under the Existing Technologies Base Case - Product Substitution Scenario – Roll-Up in Efficacy Distribution............................... 13-57 Figure 13.7.3 Total IRL Industry Employment by Year Under the Existing Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution.............................. 13-57 Figure 13.7.4 Total IRL Industry Employment by Year Under the Existing Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution........................ 13-58 Figure 13.7.5 Total IRL Industry Employment by Year Under the Emerging Technologies Base Case – Product Substitution Scenario - Shift in Efficacy Distribution.................................... 13-58 Figure 13.7.6 Total IRL Industry Employment by Year Under the Emerging Technologies Base Case – Product Substitution Scenario – Roll-Up in Efficacy Distribution.............................. 13-59 Figure 13.7.7 Total IRL Industry Employment by Year Under the Emerging Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution.............................. 13-59 Figure 13.7.8 Total IRL Industry Employment by Year Under the Emerging Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution........................ 13-6013-1 

### CHAPTER 13. M ANUFACTURER 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 general service fluorescent lamps (GSFL) and incandescent reflector lamps (IRL), 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 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 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 the preparation of an industry characterization for both the GSFL and IRL industries, including data on market share, sales volumes and trends, pricing, employment and financial structure. Phase II, “Industry Cash Flow,” focused on the GSFL and IRL industries individually. In this phase, DOE used two separate GRIMs to prepare an industry cash flow analysis for GSFL and IRL. For the quantitative portion of the MIA analysis, DOE analyzed the same product classes used in the national impact analysis (NIA) and the life-cycle cost (LCC) analysis. Using publicly available information developed in Phase I, DOE adapted each GRIM’s generic structure to facilitate analysis of amended energy conservation standards. In Phase III, “Sub-Group Impact Analysis,” DOE interviewed manufacturers representing over 90 percent of domestic GSFL and 85 percent of IRL sales. The companies interviewed included both large and small manufacturers, and members and non-members of the National Electrical Manufacturers Association (NEMA) to provide 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 GSFL and IRL industries. The interviews provided valuable information that DOE used to evaluate the impacts of amended energy conservation standards on manufacturers’ cash flows, manufacturing capacities, and employment levels.

13.2.1 Phase I: Industry Profile
In Phase I of the MIA, DOE prepared a profile of the GSLF and IRL industries that built upon the market and technology assessment prepared for this rulemaking (see chapter 3 of this13-2



### TSD). Before initiating the detailed impact studies, DOE collected qualitative and quantitative f inancial information and past and present market data. This included estimated market shares of GSFL and IRL manufacturers, corporate operating ratios, wages, employment, and production cost ratios. The industry profile included a topdown cost analysis of GSFL and IRL manufacturers that DOE used to derive cost and preliminary financial inputs for the GRIM (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 industry, including Securities and Exchange Commission (SEC) 10–K and 20-F reports, Standard & Poor’s (S&P) stock reports, and corporate annual reports. In addition, DOE relied on information from its engineering analysis, product price determination, LCC, and markups analysis to characterize the GSFL and IRL manufacturing industries.

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 amended standards on the GSFL and IRL industries. Amended energy conservation standards can affect GSFL and IRL manufacturers 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 amended energy conservation standards on manufacturers is the GRIM. DOE performed a cash flow analysis using the GRIM for the GSFL and IRL industries to quantify these impacts.

13.2.2.1 Industry Cash-Flow Analysis
Both GRIMs use 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 shipments; expected revenues; costs of sales; SG&A costs; taxes; and capital expenditures related to amended standards. Inputs to the GRIMs included shipment and price forecasts developed in other analyses. DOE derived the manufacturing costs using the retail prices from the product price determination, an estimated retail markup from public financial reports, and interviews with manufacturers. DOE developed alternative markup scenarios based on discussions with manufacturers during the rulemaking. DOE’s shipments analysis, presented in chapter 10 of this TSD, provided the basis for the shipment projections under each TSLs in the GRIMs. Another input, financial parameters, was developed based on publicly available data and confidentially submitted manufacturer information. The results of the GRIM at each TSL are compared against two separate base-case projections, which represent the GSFL and IRL industry absent standards. The financial impact of amended energy conservation standards is the difference between the two sets of discounted annual cash flows.

13.2.2.2 Interview Guide
During Phase III of the MIA, DOE conducted interviews with GSFL and IRL manufacturers to gather information on the effects of amended energy conservation standards on revenues and finances, direct employment, capital assets, and on industry competitiveness. Prior to the interviews, DOE distributed an interview guide that provided a starting point to identify13-3



### relevant issues and help identify the impacts of amended energy conservation standards on i ndividual manufacturers or sub-groups of manufacturers. The interview guide covered current organizational characteristics, industry structure, inputs to the 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 13A of this TSD.

13.2.3 Phase III: Sub-Group Analysis
During the course of the MIA, DOE interviewed manufacturers representing close to 90 percent of domestic GSFL and 85 percent of domestic IRL lighting sales. These 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 assumptions used in the GRIM and to isolate key issues and concerns. DOE defined two distinctive subgroups for both GSFL and IRL that could be impacted by the amended energy conservation standards: major or large manufacturers, and small businesses manufacturers. 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 established two subgroups for the MIA corresponding to large manufacturers and small business manufacturers of GSFL and IRL found within the industries. Based on this decision, DOE prepared one interview guide with questions related to both GSFL and IRL manufacturing for large and small manufacturers. These interview guides were used to tailor the GRIMs to incorporate unique financial characteristics for each product type. Within each of these subgroups, DOE contacted companies from its database of manufacturers, which provided a representation of each subgroup. 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 GSFL and IRL manufacturers that agreed to participate to gain insight into the range of potential impacts and to how this range varies at each TSL. During the interviews, DOE solicited information on the possible impacts of energy conservation standards on sales, direct employment, capital assets, and industry competitiveness. Both qualitative and quantitative information are valuable to the interview process. Finally, a separate GRIM was developed for both the GSFL and IRL industries.13-4



### 13.2.3.2 R evised 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 model 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. Smaller manufacturers, niche players, or manufacturers exhibiting a cost structure that differs significantly from the industry average could be more negatively affected. Ideally, DOE 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. Lighting manufacturing is classified under NAICS 335110 “Electric Lamp Bulb and Part Manufacturer.” To be categorized as a small business, a manufacturer of lighting and its affiliates may employ a maximum of 1,000 employees.

During its market survey, DOE created a list of every company that manufactures both covered and non-covered GSFL and IRL for sale in the United States. DOE also asked stakeholders and industry representatives if they were aware of any other small manufacturers. DOE then reviewed publicly available data and contacted companies on its list, when needed, to determine whether they meet the SBA’s definition of a small business manufacturer in the GSFL or IRL industries. In total, DOE contacted 57 companies that could potentially be small businesses. During initial review of the 57 companies in its list, DOE either contacted or researched each company to determine if it manufactures covered GSFL and IRL. Based on its research, DOE screened out companies that did not offer lamps covered by this rulemaking. Consequently, DOE estimated that only 12 companies out of the 57 listed were potentially small business manufacturers of covered products. DOE contacted these potential small business manufacturers to request an interview about the possible impacts on small business manufacturers. Out of the 12 potential small business manufacturers, DOE interviewed four while the remaining companies declined or did not respond to the request. Based on its initial screening and subsequent interviews, DOE identified only one company as a small business manufacturer of covered GSFL based on SBS’s definition of small business manufacturer.13-5



### 13.2.3.5 M anufacturing Capacity Impact
One of the significant outcomes of amended energy conservation 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 amending energy conservation standards; the ability of manufacturers to upgrade or remodel existing facilities to accommodate the new requirements due to amended energy conservation standards; the nature and value of stranded assets, if any; and estimates for any one-time restructuring charges.

13.2.3.6 E mployment Impact
The impact of amended energy conservation standards on employment is an important consideration in the rulemaking process. To assess how domestic employment patterns might be affected, the interview explored current employment trends in the lighting industry. In addition, the interview 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 an amended energy conservation standard, and differences in workforce skills and issues related to the retraining of employees.

13.2.3.7 C umulative Regulatory Burden
DOE recognizes and seeks to mitigate the overlapping effects on manufacturers of amended energy conservation standards and other regulatory actions affecting the same products. DOE analyzed and considered the impact on manufacturers of multiple, product-specific regulatory actions. Based on its own research and discussions with manufacturers, DOE identified several regulations relevant to GSFL and IRL manufacturers. These regulations include: (1) Federal energy conservation standards and minimum performance requirements prescribed by the Energy Policy Act of 2005 (EPACT 2005) and the Energy Security Act of 2007 (EISA 2007) for other products manufactured by these companies; (2) environmental regulations; and (3) reporting requirements.

13.3 M ANUFACTURER IMPACT ANALYSIS KEY ISSUES
The first question of each of the MIA interview guides asks: “What are the key issues for your company regarding the GSFL or IRL energy conservation standards rulemaking?” This open question initiated dialogue with the manufacturers, enabling them to identify key points that DOE would explore and discuss during the interview. This section describes the key issues manufacturers felt were of the highest importance in relation to the GSFL and IRL energy conservation standards rulemaking and that would have the most significant impact on the industries. Manufacturers indicated that, for the most part, the risks associated with these issues increase with more stringent TSLs. The issues are overall concerns that many manufacturers expressed and in most cases, are dependent upon the type of product (GSFL or IRL).13-6



### 13.3.1 G eneral Service Fluorescent Lamps

13.3.1.1 Rare Earth Phosphor Availability and Price
All of the GSFL manufacturers DOE interviewed are concerned about the availability and price of rare earth phosphors. Due to the importation of rare earth phosphors, any increases in duties paid to producing countries, such as China, could have significant impacts on lamp manufacturing costs. Any increase in lamp material costs directly affects manufacturer profitability. According to manufacturers, meeting higher energy conservation standards for GSFL would require an increase in rare earth phosphor content in lamp coatings. These manufacturers stated that higher energy conservation standards would drive up demand for and prices of rare earth phosphors, which are already in short supply. In addition, manufacturers stated that the continued growth in the CFL market will erode future supply, jeopardizing the cost-effectiveness of the standards. Depending on the lamp type, rare earth phosphors can be the highest input cost of a GSFL. Some manufacturers also noted that higher standards could drive manufacturing processes to China, where the vast majority of rare earth phosphors are mined. Issues with rare earth phosphors are specifically addressed in appendix 3C of the TSD.

13.3.1.2 Reduction in Product Portfolio
Some manufacturers are concerned that energy conservation standards will force manufacturers to eliminate some product lines, shrinking their overall marketability. According to manufacturers, the ability to survive in the industry is related to the companies’ diverse product portfolios. Companies benefit from a wide range of products and efficacies. Depending on the characteristics of the product, manufacturers can up-sell to products that reap higher profits. Manufacturers are concerned that reducing the product portfolio will reduce options for customers and, ultimately, profitability.

13.3.1.3 Profit Margin Impact
All manufacturers stated that energy conservation standards have the potential to greatly harm their profitability. Manufacturers enjoy a higher profit margin on higher efficacy or premium products than lower-end or baseline products. Since higher efficacy or premium products tend to incorporate design options that increase efficacy, a high energy conservation standard would commoditize such products and subsequently lower the overall manufacturer markup on shipments. Several manufacturers stated it is very difficult to pass along cost increases to customers because of the competitive nature of the industry. Therefore, they believe any cost increase due to standards set by DOE would automatically lower profit margins.

13.3.2 Incandescent Reflector Lamps

13.3.2.1 Product Performance Issues
All manufacturers stated that implementation of design options to meet the proposed energy conservation standards could cause a reduction in product lifetime. Manufacturers stated that all candidate standard levels analyzed in the advanced notice of proposed rulemaking could be met by lamps that combine improved technology with shorter life. In addition to this broad possibility, manufacturers indicated that the product lifetime of infrared lamps that meet efficacy13-7



### levels prescribed by TSL3, TSL4, and TSL5 could be lowered due to the “hot shock” a



### a pplication problem. If infrared lamps are installed in a live fixture, sections of the lamp’s filament can fuse together, possibly decreasing the lifetime by 25 to 30 percent. Manufacturers are concerned that both the performance issues of hot shock and shorter life could impact consumers’ acceptance of covered IRL products. Any dissatisfaction resulting lower lifetimes of standards-compliant lamps could hasten the shift to competing technologies, which have much longer lifetimes.

13.3.2.2 Xenon Gas Availability and Price
According to several manufacturers, most higher efficacy model lamps at each TSL use xenon to increase efficacy. While using a different fill gas does not require significant capital investments, manufacturers stated that xenon prices have increased as much as ten-fold in the past few years. In the short term, global supplies of xenon are limited by existing production capacity, so the IRL industry has to compete with other industries, such as medical applications, that are better able to support higher prices. For more information on DOE’s analysis of this issue, see appendix 3B of the TSD.

13.3.2.3 Elimination of Product Types in the Manufacturers’ Product Portfolio
Manufacturers are concerned that at higher efficacy levels, all lamps will need to switch to all infrared technology, significantly reducing product offerings.

13.3.2.4 Elimination of Small Diameter Lamps
Manufacturers are concerned that energy conservation standards could eliminate smaller diameter lamps. Because of the small size, all manufacturers use a single-ended quartz burner in lamps smaller than parabolic aluminized reflector (PAR)30, limiting potential efficacy improvements. Although DOE scales its standard to smaller diameter lamps and there are existing PAR20 lamps at all TSLs, manufacturers are concerned that the improvements for small diameter lamps at high TSLs could be impossible or cost prohibitive.

13.3.2.5 Competition
Manufacturers stated that some TSLs could affect competition within the industry. For example, one manufacturer has a patent on silverized reflectors. While DOE did not establish any TSL that would mandate using this technology ( i.e. , there are alternate technology pathways to all TSLs that do not require the use of the silverized reflector), this manufacturer could meet TSL 2 with cheaper lamps than its competitors. One manufacturer has a cross license on the technology, but has not made silverized lamps recently and would incur substantial capital and conversion costs to produce them. There are competitive concerns at TSL 4 and TSL 5 as well. Two manufacturers have a full line of products that currently meet TSL 4. The third

a Hot shock, as described by manufacturers, occurs when sections of the lamp’s filament fuse together due to in stallation of the lamp in a live fixture. Due to its structure, the filament is very sensitive to motion and can easily bend during installation. As current passes through the filament, the filament’s temperature increases significantly. If a lamp is installed while current is passing through the filament (i.e., the fixture is live), a bending of the filament can potentially cause the bended segment to fuse together permanently.13-8



### manufacturer has some products at this level, but is concerned that it would have to incur

s ignificantly larger capital conversion costs at TSL 4 and TSL 5 to redesign and manufacture different burners, which could put it at a competitive disadvantage. Only one manufacturer currently has a full line of products at TSL 5. At TSL 5, similar to TSL2, standards-compliant lamps could combine halogen infrared (HIR) technology with an improved reflector, potentially putting the company that does not have access to silverized reflectors or equivalent technology at a disadvantage.

13.3.2.6 Market Erosion
Manufacturers stated that emerging technologies is already starting to penetrate the IRL market. A standard on IRL would be unique because it would force investments in a market that would shrink over the entire lifetime of the investment. Depending on market penetration of emerging technologies, these investments might never be recouped. Also, manufacturers are concerned that a standard on IRL could hasten the switch to emerging technologies by lowering the difference in their first cost price. If the standard did increase the natural migration toward new technology, it would be less likely that manufacturers would make the substantial investments to modify IRL production equipment. Finally, manufacturers are concerned that the BR exemptions in EISA 2007 could also erode the market: The higher the IRL standard, the lower the relative cost of the exempted incandescent lamps. If a lower relative cost causes a large shift to exempted incandescent lamps, it is less likely that investments in improved halogen lamps could be justified.

13.4 GRIM INPUTS AND ASSUMPTIONS
The GRIM serves as the main tool for assessing the impact on industry due to the imposition of amended energy conservation standards. DOE relied on several sources to obtain inputs for the GRIMs. Data and assumptions from these sources are then fed into an accounting model that calculates the base-case cash flows, as well as the impacts on manufacturers due to amended energy conservation standards. Two GRIM models were developed, one for GSFL and one for IRL.

13.4.1 Overview of the GRIM
The basic structure of the GRIM, illustrated in Figure 13.4.1 is a standard annual cash flow analysis that uses manufacturer selling prices, shipments, and industry financial information as inputs, and accepts a set of regulatory conditions such as changes in costs, shipments, 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 to 2042. The model calculates the INPV by summing the stream of annual discounted cash flows during this period. 113-9



### Figure 13.4.1 Using the GRIM to Calculate Cash Flow
The GRIM projected cash flows using standard accounting principles and compared

c hanges in INPV between the selected base-case scenario and different TSLs for the amended energy conservation standard (the standard-case scenario). 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 13A 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, credit ratings, the shipments model, the engineering analysis, the product price determination, and the manufacturer interviews.

13.4.2.1 Corporate Annual Reports
Corporate annual reports to the SEC provided many of the financial inputs to the GRIM. 2 

### Th ese reports exist for publicly held companies and are freely available to the general public. DOE developed average financial inputs to the GRIMs by examining the annual SEC 10-K and 20-F reports filed by publicly-traded companies that manufacture lighting products including GSFL and IRL. The SEC 10-Ks and 20-Fs provide consistent financial data for the consolidated corporation but do not provide detailed financial information for the company’s lighting product lines. Because these companies are typically diversified, producing a range of different products, an industry average was assumed by DOE to be representative for the manufacture of both GSFL and IRL. Some SEC reports are therefore more relevant than others are to the analysis of the GSFL and IRL industries, depending on the prominence that business has in the company’s overall operations. In determining financial parameters for GSFL and IRL, DOE weighted corporate financial information contained in the SEC 10-Ks or 20-Fs by each company’s estimated share in the lighting industry to arrive at industry-weighted averages. DOE used corporate annual reports to derive the following GRIM inputs:

• Tax rate, • Working capital,13-10



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

• Research and development (R&D) expenses, • Capital expenditures, and • Net property, plant, and equipment (PPE).

13.4.2.2 Standard and Poor Credit Ratings
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 Shipment Model
The GRIM used shipment projections derived from DOE’s shipments model in the NIA. The model relied on NEMA historical shipments data for GSFL and IRL for the NOPR analysis.As described in the discussion of cash flows in sections 13.5.2 and 13.6.2, DOE used two basecase shipment scenarios to characterize the GSFL and IRL industries absent standards. One scenario modeled the industry where emerging technologies does not erode the market (the Existing Technologies base case) and the other assumed new technologies begin to erode the market (Emerging Technologies base case). In the standard cases, the GRIMs include all shipment scenarios from the NIA. Chapter 10 of the TSD describes the methodology and analytical model DOE used to forecast shipments.

13.4.2.4 Product Price Determination
During the product price determination, DOE developed end-user prices (retail) for lamp and lamp-and-ballast designs analyzed by discounting published list prices (i.e., “blue book pricing”). The product price determination (chapter 7) discussed the pricing methodology and results. By combining the results of the engineering analysis and the product price determination, DOE derived the necessary product price inputs for use in the GRIMs.

13.4.2.5 Manufacturer Interviews
During the course of the MIA, DOE conducted interviews with manufacturers representing over 90 percent of the GSFL and 85 percent of the IRL industry. During these discussions, DOE obtained information, which it used to determine and verify GRIM input assumptions. Key topics discussed during the interviews and reflected in the GRIM include:

• Capital conversion expenses (one-time investments in property, plant, and equipment.) • Product conversion expenses (one-time investments in research, equipment development, testing, and marketing). • The portion of the capital conversion expenses that companies use to replace stranded assets. • Product cost structure:13-11 

### • The portion of the manufacturer production costs related to materials, l abor, overhead, and depreciation costs. • Projected total shipment and shipment distribution mix.

13.4.3 Financial Parameters
Table 13.4.1 provides financial parameters for five public companies engaged in manufacturing and selling of lighting products. The values listed are averages over a five-year period (2002-2007).

Table 13.4.1 GRIM Financial Parameters Based on 2002-2007 Weighted Company Financial Data
Manufacturer

Parameter IndustryWeighted Average A B C D E

Tax Rate (% of Taxable Income) 19.2 11.4 22.7 34.6 -12.0 41.3
Working Capital (% of Revenue) 13.7 18.9 7.3 12.4 1.5 27.2

SG&A (% of Revenue) 22.0 22.3 17.7 34.0 25.3 21.9

R&D (% of Revenues) 5.8 7.6 5.6 1.3 4.1 0.5
Capital Expenditures (% of Revenues) 3.2 2.8 4.3 1.6 4.7 3.4
Net Property, Plant, and Equipment (% of Revenues) 13.9 15.7 11.3 10.1 40.8 29.8



### These companies constitute a significant portion of the GSFL and IRL industries. For other companies in the industry, the public data is not available or the lighting segment figures could not be adequately disaggregated from other businesses segments and were not used for the analysis. The values used in the GRIM, therefore, represent the industry’s weighted average estimated with financial data from five publicly traded manufacturers weighted by their respective market shares. During manufacturer interviews, manufacturers stated that the financial parameters listed in Table 13.4.1 would not be significantly different between GSFL and IRL industries. Therefore, for the GRIM, DOE assumed the financial parameters would be the same for both GSFL and IRL industries.

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. Because a company’s assets are financed by a combination of debt and equity, the industry WACC is the total cost of debt and equity weighted by the composite companies’ respective proportions of debt and equity in the capital structure of the industry. 1


### D OE made its initial estimate of the WACC for both the GSFL and IRL industries using publicly available information of the five companies used to derive the financial parameters. As described13-12



### below, DOE revised its estimate of the discount rate after independently researching the industry W ACC.
DOE made its initial estimate of the IRL and GSFL WACC 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 initially determined that the industry average cost of equity for the lighting industry is 22.1 percent, as calculated in Table 13.4.2.

Table 13.4.2 Cost of Equity Calculation
Manufacturer

Parameter IndustryWeighted Average (%) A B C D E (1) Average Beta (2002 – 2007 year) 1.78 2.00 1.59 1.78 1.00 1.00
(2) Yield on 10 Year TBill (1990-2007) 5.8 - - - - - (3) Market Risk Premium (1926-1999) 9.2 - - - - - Cost of Equity (2)+((1)*(3)) 22.1 - - - - -

Equity/Total Capital 90.9 94.7 98.1 64.4 1.1 78.7



### 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 is13-13



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

m ethod to calculate the cost of debt for all five manufacturers. S&P had bond ratings for most manufacturers, so DOE used these ratings to estimate the manufacturers’ cost of debt by adding the relevant spread to the risk-free rate. There were two manufacturers with no S&P bond rating available. In this case, DOE used the company’s size and interest coverage ratio to arrive at the spread of corporate debt over risk-free securities. The interest coverage ratio measures a company’s ability to service its debt-financing obligation through its earnings. 2



### I n 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 as approximately six percent, which is the average 10-year Treasury bond return over the period of 1990 to 2007.

For the cost of debt, S&P’s Credit Services provided the average spread of corporate b onds for four of the six public manufacturers over the period 2002-2007. 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
Manufacturer

Parameter IndustryWeighted Average (%) A B C D E S&P Bond Rating -- A- AA- BBB- CCC A (1) Yield on 10 year T-Bill (1990-2007) 5.8 - - - - - (2) Gross Cost of Debt 7.5 7.8 6.8 8.1 15.8 7.6 (3) Tax Rate 19.2 11.4 22.7 34.6 -12.0 41.3 Net Cost of Debt (2)x((1)- (3)) 6.1 - - - - - Debt/Total Capital 9.1 5.3 1.9 35.6 98.9 21.3



### Using the publicly available information above, DOE initially estimated the GSFL and IRL industries’ WACC to be approximately 20.7 percent. Subtracting an inflation rate of 2.9 percent between 1990 and 2007, the inflation adjusted WACC, and the corporate discount rate used in the strawman GRIMs was 17.8 percent.

To verify the accuracy of its initial calculation, DOE used an independent report on the cost of capital. Morningstar, Inc. sells these reports broken down by Standard Industrial Classification (SIC) Code. GSFL and IRL manufacturing is classified under SIC code 3641 (Electric Lamp Bulbs and Tubes). Morningstar had a cost of capital report available for SIC code 364 (Electrical Lighting and Wiring Equipment) that DOE used to judge the accuracy of its initial WACC. The WACC shown in that report varied significantly from DOE’s calculation using publicly available data. Because of the large discrepancy between the independent report13-14



### and the calculation using public data, DOE asked manufacturers to comment on the industry W ACC during interviews. DOE revised its number based on manufacturer comments. Using the weighted market share of manufacturers that commented on the initial industry WACC, DOE used 10.01 percent as the discount rate in the GSFL and IRL GRIM.

13.4.5 Trial Standard Levels
DOE developed five TSLs for both GSFL and IRL . Chapter 9 of the TSD describes the methodology DOE used to determine each TSL. The lamp efficacies used in the GSFL and IRL GRIMs are presented in Table 13.4.4 and Table 13.4.5, respectively.

Table 13.4.4 GSFL Efficacy Levels by Product Class and TSL
T rial Standard Levels (lm/W) Product Class Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 4-Foot Medium Bipin (MBP) 75 80 83 87 90 92 8-Foot Single Pin (SP) Slimline 80 86 92 95 97 98 8-Foot Recessed Double Contact High Output (RDC HO) 80 83 86 88 92 95 4-Foot T5 Miniature Bipin Standard Output (MiniBP SO) 86 100 100 100 100 106 4-Foot T5 Miniature Bipin High Output (MiniBP HO) 76. 89 89 89 89 89



### Table 13.4.5 IRL Efficacy Levels by TSL Trial Standard Levels (lm/W) ( Technology Pathway)

Product Class Baseline

(Halogen) TSL 1

(Improved Halogen (Xenon)) TSL 2

(Long Life HIR, Improved Halogen (Silver)) TSL 3

(HIR) TSL 4

(Improved HIR) TSL 5

(Improved HIR Plus)

IRL Standard Spectrum > 2.5 inches < 125 V 10.5 (40–50 Watts)

11.0 (51–66 Watts) 12.5 (67–85 Watts) 14.0 (86–115 Watts) 14.5 (116–155 Watts) 15.0 (156–205 Watts) 4.6P 0.27 4.8P 0.27 5.5P 0.27 6.2P 0.27 6.9P 0.27

P = rated wattage



### 13.4.6 NIA Shipments Forecast
The GRIM estimates manufacturer revenues based on total-unit-shipment forecasts and the distribution of these values by product class and lamp efficacy. Changes in the efficacy mix at each standard level are a key driver of manufacturer finances. For this analysis, the GRIM used the NIA shipments forecasts for both GSFL and IRL from 2007 to 2042. Further explanation of assumptions and calculations of total shipments can be found in the shipment analysis section of this TSD (chapter 10). For the NIA, DOE forecasted several different of13-15



### shipment scenarios that were affected by emerging technologies in the market and consumer
p urchasing habits. These shipment scenarios are further explained in the following sections.

13.4.6.1 GSFL Base-Case Shipment Scenarios
For the GSFL GRIM, DOE incorporated the two base-case shipment scenarios from the NIA (existing technologies and emerging technologies). In the Existing Technologies base-case shipment scenario, DOE assumed that in the base case customers would not migrate to emerging technologies. In the emerging technologies scenario, GSFL shipments are eroded in the base case as more customers purchase emerging technologies rather than covered GSFL. An extensive explanation of each shipment base-case scenario can be found in chapter 10 of the TSD. Table 13.4.6 and Table 13.4.7 show total industry shipments for each product class of GSFL in 2012 and 2042 Existing and Emerging Technologies base-case shipments.

Table 13.4.6 Total GSFL NIA-Shipments Forecast in 2012 and 2042 for the Existing Technologies Base Case

Product Class Total Industry Shipments In 2012* Total Industry Shipments In 2042*
4-Foot MBP 479,177,000 645,323,000 8-Foot SP Slimline 22,448,000 6,873,000 8-Foot RDC HO 17,654,000 2,320,000 4-Foot T5 MiniBP SO 24,225,000 105,863,000 4-Foot T5 MiniBP HO 23,610,000 67,857,000 * Estimates rounded to the nearest hundred


### Table 13.4.7 Total GSFL NIA-Shipments Forecast in 2012 and 2042 for the Emerging T echnologies Base Case

Product Class Total Industry Shipments in 2012* Total Industry Shipments in 2042*
4-Foot MBP 479,177,000 490,528,000 8-Foot SP Slimline 22,448,000 6,873,000 8-Foot RDC HO 17,654,000 2,320,000 4-Foot T5 MiniBP SO 24,225,000 79,906,000 4-Foot T5 MiniBP HO 23,610,000 67,857,000 * Estimates rounded to the nearest hundred



### 13.4.6.2 I RL Base-Case Shipment Scenarios
For the IRL GRIM, DOE also incorporated the two base-case shipment scenarios from the NIA (Existing Technologies and Emerging Technologies) for the period of 2007 to 2042. An extensive explanation of each shipment base-case scenario can be found in chapter 10 of the TSD. Table 13.4.8 and Table 13.4.9 show total industry shipments for each product class of IRL in 2012 and 2042 Existing and Emerging Technologies base-case shipments. The tables include the base-case shipments in 2020 because the impacts under the Emerging Technologies base case are most apparent in the years after the standard becomes effective and the differences between the base cases are easily demonstrated in 2020.13-16



### Table 13.4.8 Total IRL NIA-Shipments Forecast in 2012, 2020, and 2042 for the Existing T echnologies Base Case
Lumen Package T otal Industry

Shipments in 2012* Total Industry Shipments in 2020* Total Industry Shipments in 2042* PAR38 90W 56,459,000 62,990,000 88,566,000 PAR38 75W 44,065,000 49,163,000 69,124,000 PAR30 50W 30,738,000 35,759,000 51,180,000 * Estimates rounded to the nearest hundred



### T able 13.4.9 Total IRL NIA-Shipments Forecast in 2012, 2020, and 2042 for the Emerging Technologies Base Case
Lumen Package T otal Industry

Shipments in 2012* Total Industry Shipments in 2020* Total Industry Shipments in 2042* PAR38 90W 52,393,000 31,655,000 52,978,000 PAR38 75W 40,892,000 24,700,000 41,349,000 PAR30 50W 28,417,000 17,318,000 30,058,000 * Estimates rounded to the nearest hundred



### 13.4.6.3 G SFL Standards Shipment Scenarios
All shipment forecasts in the GSFL GRIM are obtained from the GSFL NIA. Consequently the GSFL GRIM included two efficacy distribution scenarios (shift and roll-up), and two lighting expertise scenarios (high and market segment-based lighting expertise). For additional details on the various shipment scenarios, see TSD chapter 10.

13.4.6.4 IRL Standards Shipment Scenarios

To characterize consumer behavior in the IRL standards-case GRIM, DOE considered the four shipment scenarios found in the NIA. The IRL GRIM considered two efficacy distributions scenarios (shift and roll-up) and two product substitution scenarios (product substitution and no product substitution). See chapter 10 of the TSD for additional details on the IRL standards-case shipment scenarios.

13.4.7 Production Costs
Changes in product costs impact revenues and gross profits. As shown in the product price determination (chapter 7), products that are more efficacious cost more than baseline products for a given product class. For the MIA, DOE derived manufacturing production costs by discounting the end user prices found in the NIA b 

### by typical markups along the retail d istribution chain. To calculate manufacturer selling prices (MSP) from these end-user prices, DOE divided the medium end-user prices in the NIA by a typical markup for retail locations that sell the covered products. For both GSFL and IRL products, DOE estimates the markup for retail prices to MSP to be 1.50. DOE calculated the markup for retail locations using the revenues and

b The retail prices used in the GRIM differ from those shown in the product price determination. The retail prices

u sed in the GRIM reflect scaled retail prices. To generate shipments, DOE established an average lamp lifetime for each lamp type (e.g., 4-foot T8 MBP). Because most lamps have lifetimes that differ from this average lifetime, DOE scaled the retail lamp prices found in the product price determination in order to accurate calculate industry

revenue.13-17



### cost of goods sold (COGS) from the annual reports of publicly traded companies. To determine

m anufacturer production costs (MPC) from MSP, DOE divided by the manufacturer markup calculated with the other GRIM financial inputs. For both GSFL and IRL products, DOE estimates the markup from MSP to MPC is 1.52.

Table 13.4.10 through Table 13.4.14 provide the total MPCs and MSPs associated with each analyzed GSFL product class in the GRIM. Total annual COGS for the industry were calculated by multiplying the MPCs by the unit shipments for each product and summing the results. During manufacturing interviews, manufacturers provided the breakdown of COGS, which DOE weighted by market share to determine the industry-wide breakdown of labor, materials, overhead, and depreciation.

Table 13.4.10 Base-Case Production Costs (2007$) used in the GRIM for 4-Foot Medium Bipin Product Classes

Product C lass TSL Lamp

Efficacy Retail

Prices MSP MPC
76.8 $2.06 $1.38 $0.91 78.0 $2.42 $1.61 $1.06 Baseline 77.9 $1.53 $1.02 $0.67

80.5 $4.53 $3.02 $1.99 82.4 $2.71 $1.81 $1.19 TSL 1 82.9 $5.02 $3.34 $2.20

85.3 $4.97 $3.31 $2.18 TSL 2 87.8 $5.10 $3.40 $2.24 4 – Foot T12 MBP

TSL 3 91.2 $4.99 $3.33 $2.19

TSL 2 86.2 $1.79 $1.19 $0.78 TSL 3 90.8 $2.79 $1.86 $1.22

92.3 $2.44 $1.63 $1.07 93.8 $3.56 $2.37 $1.56 TSL 4 93.0 $2.95 $1.96 $1.29

95.4 $2.86 $1.91 $1.26 4 – Foot T8 MBP

TSL 5 97.3 $3.34 $2.23 $1.47



### Table 13.4.11 Base-Case Production Costs (2007$) used in the GRIM for 8-Foot Single Pin Slimline Product Classes

Product C lass TSL Lamp

Efficacy Retail

Prices MSP MPC
Baseline 85.6 $5.61 $3.74 $2.46

87.3 $8.66 $5.77 $3.80 TSL 1 87.6 $3.29 $2.19 $1.44

92.0 $7.66 $5.10 $3.36 TSL 2 92.6 $5.54 $3.69 $2.43 8 – Foot T12 SP Slimline
TSL 3 97.5 $5.74 $3.82 $2.52

TSL 3 94.8 $3.93 $2.62 $1.72 TSL 4 98.2 $6.01 $4.01 $2.64

101.5 $5.69 $3.79 $2.50 101.8 $3.87 $2.58 $1.70 8 – Foot T8 SP Slimline TSL 5 103.6 $4.84 $3.23 $2.1213-18



### Table 13.4.12 Base-Case Production Costs (2007$) used in the GRIM for 8-Foot Recessed D ouble Contact High Output Product Classes

Product C lass TSL Lamp Efficacy Retail

Prices MSP MPC
80.1 $6.44 $4.29 $2.82 Baseline 82.5 $3.72 $2.48 $1.63 TSL 1 83.2 $11.84 $7.89 $5.19 TSL 2 86.1 $6.59 $4.39 $2.89

87.6 $12.35 $8.23 $5.42 8 – Foot T 12 RDC HO TSL 3 88.9 $12.64 $8.42 $5.54 91.9 $5.09 $3.39 $2.23 TSL 4 93.0 $6.94 $4.63 $3.05 8 – Foot T8 RDC HO TSL 5 95.3 $8.34 $5.56 $3.66



### Table 13.4.13 Base-Case Production Costs (2007$) used in the GRIM for 4-Foot T5 Product Class
Product

C lass TSL Lamp Efficacy Retail

Prices MSP MPC
Baseline 86.0 $1.47 $0.98 $0.65 TSL1, 2, 3, 4 104.3 $3.27 $2.18 $1.44

109.7 $4.32 $2.88 $1.90 4 – Foot T5 MiniBP SO TSL 5 111.5 $3.27 $2.18 $1.44



### Table 13.4.14 Base-Case Production Costs (2007$) used in the GRIM for 4-Foot T5 High Output Product Class

Product C lass TSL Lamp

Efficacy Retail Prices MSP MPC
Baseline 76.0 $2.00 $1.33 $0.88

92.9 $4.44 $2.96 $1.95 4 – Foot T5 MiniBP HO TSL 1, 2,

3, 4, 5 98.0 $5.25 $3.50 $2.30



### For the IRL GRIM, DOE included the proportion of costs devoted to labor, materials, overhead, and depreciation that make up the full cost of each product. Using information obtained during manufacturer interviews weighted by market share, DOE estimated the proportion of product costs associated with each cost category. Table 13.4.15 and Table 13.4.16 provides the production cost assumptions used in the GRIM for IRL.13-19



### Table 13.4.15 Base-Case Production Costs (2007$) used in the GRIM for IRL Covered P roduct Classes
MPC Breakdown Lumen Package TSL Lamp Efficacy Retail

Price MSP Labor Materials Overhead Depreciation MPC

Baseline 14.6 $4.80 $3.20 $0.49 $0.98 $0.53 $0.11 $2.11
TSL 1 15.3 $5.68 $3.78 $0.58 $1.16 $0.62 $0.12 $2.49

15.9 $6.26 $4.17 $0.64 $1.28 $0.69 $0.14 $2.75 TSL 2 16.6 $6.10 $4.06 $0.62 $1.25 $0.67 $0.13 $2.68
TSL 3 18.0 $6.26 $4.17 $0.64 $1.28 $0.69 $0.14 $2.75
TSL 4 19.8 $7.50 $5.00 $0.77 $1.54 $0.82 $0.16 $3.29 PAR38 90W

TSL 5 21.0 $8.03 $5.35 $0.82 $1.64 $0.88 $0.18 $3.52

Baseline 14.0 $4.80 $3.20 $0.49 $0.98 $0.53 $0.11 $2.11
TSL 1 14.6 $5.68 $3.78 $0.58 $1.16 $0.62 $0.12 $2.49

15.3 $6.26 $4.17 $0.64 $1.28 $0.69 $0.14 $2.75 TSL 2 15.9 $6.10 $4.06 $0.62 $1.25 $0.67 $0.13 $2.68
TSL 3 17.5 $6.26 $4.17 $0.64 $1.28 $0.69 $0.14 $2.75
TSL 4 19.1 $7.50 $5.00 $0.77 $1.54 $0.82 $0.16 $3.29 PAR38 75W

TSL 5 20.3 $8.03 $5.35 $0.82 $1.64 $0.88 $0.18 $3.52

Baseline 12.6 $4.23 $2.82 $0.43 $0.87 $0.46 $0.09 $1.86
TSL 1 13.2 $5.11 $3.40 $0.52 $1.05 $0.56 $0.11 $2.24

13.5 $5.70 $3.80 $0.58 $1.17 $0.63 $0.13 $2.50 TSL 2 14.0 $5.53 $3.68 $0.57 $1.13 $0.61 $0.12 $2.43
TSL 3 15.1 $5.70 $3.80 $0.58 $1.17 $0.63 $0.13 $2.50
TSL 4 17 $6.93 $4.62 $0.71 $1.42 $0.76 $0.15 $3.04 PAR30 50W

TSL 5 19.1 $7.46 $4.97 $0.76 $1.53 $0.82 $0.16 $3.27



### Table 13.4.16 Base-Case Production Costs (2007$) used in the GRIM for IRL Non-Covered Product Classes

Lumen Package Lamp Type Lamp Efficacy Retail

Price MSP MPC Compact Fluorescent Lamps (CFL) 50 $7.19 $4.79 $3.15 PAR38 90W Bulged Reflector

Lamps (BR) 10.8 $1.66 $1.11 $0.73

CFL 52.2 $7.19 $4.79 $3.15 PAR38 75W BR 12.2 $1.66 $1.11 $0.73

CFL 46.9 $5.92 $3.94 $2.60 PAR30 50W BR 9.5 $1.38 $0.92 $0.61



### 13.4.8 C onversion Costs
New or amended energy conservation standards typically cause manufacturers to incur one-time conversion costs to bring their production facilities and product designs in compliance with the new regulation. For the purpose of the MIA, DOE classified these one-time conversion costs into two major groups, capital conversion expenses and product conversion expenses. Capital conversion expenses are one-time investments in property, plant, and equipment to adapt or change existing production facilities so that new product designs can be fabricated and13-20



### assembled under the new regulation. Product conversion expenses are one-time investments in

r esearch, development, testing, and marketing focused on making product designs comply with new or amended energy conservation standards. The following sections describe in more detail DOE’s assumptions and inputs to the GSFL and IRL GRIMs related to amended energy conservation standards and conversion costs.

13.4.8.1 Capital Conversion Expenses
For the GSFL industry, DOE based its capital conversion expense estimates on discussions with manufacturers, weighted by market share of the companies responding. During interviews DOE learned that the majority of capital conversion expenses would be for converting T12 lines to T8 lines. As required efficacies increase at higher TSLs, T12 lamps that do not meet the standard are discontinued. To maintain capacity, manufacturers must convert existing T12 lines to T8 lines and in some cases build additional T8 lines (i.e., the T8 lamps DOE modeled achieve higher efficacies than the T12 lamps). At TSL 1 through TSL 3, manufacturers can maintain a mix of T12 and T8 lines. The capital conversion expenses at these three TSLs involve retooling T12 lines to meet the larger volume of T8 lamps after the effective date of the energy conservation standards. At efficacy levels prescribed by TSL 4 and above, all lines would need to be converted from T12 to T8. Table 13.4.17 summarizes the estimated breakdown of capital conversion expenses by TSL for the covered GSFL product classes.

Table 13.4.17 Capital Conversion Expenses for GSFL by Product Class

Total Industry Capital Conversion Expenses (2007$ million) by Product Class TSL 4-Foot

MBP 8-Foot SP

Slimline 8-Foot RDC

HO 4-Foot T5

MiniBP SO 4-Foot T5

MiniBP HO Industry Total

Baseline $0 $0 $0 $0 $0 $0
TSL 1 $33.0 $5.5 $0.0 $0.0 $0.0 $38.50
TSL 2 $55.0 $5.5 $0.0 $0.0 $0.0 $60.50
TSL 3 $88.0 $5.5 $11.0 $0.0 $0.0 $104.50
TSL 4 $132.0 $36.3 $13.2 $0.0 $0.0 $181.50
TSL 5 $132.0 $36.3 $13.2 $0.0 $0.0 $181.50



### Manufacturers indicated during interviews that the GSFL market was shifting from a mix of T12 and T8 lamps to a mainly T8 lamp market. DOE learned that standards would accelerate this natural progression from T12 to T8 by limiting the available T12 lamps at TSL 1 through TSL 3 and completely eliminating T12s at TSL 4 and TSL 5. As a result, DOE estimated the capital costs for the natural market shift from T12 to T8 in the base cases. DOE estimated that during the analysis period the major manufacturers would convert a total of four existing T12 lines to T8 absent standards. During interviews, each of these manufacturers gave DOE an estimate of its cost to convert a T12 line to T8 production. To avoid further speculation DOE used the market share weighted average capital conversion cost of $26 million as its cost of converting a T12 line to T8. For natural line conversions from T12 to T8, DOE estimated that the industry would convert one line every three years starting in 2009 up to 2018 in the base case. DOE assumed that each major manufacturer would continue to produce a full line of T12 lamps if customers demanded them. Estimating the plant changes that would occur absent standards lowers INPV of the GSFL industry by 58.5 million in both base cases.13-21



### For the IRL industry, DOE based its capital conversion expense estimates on discussions

w ith manufacturers, weighted by the market share of the companies responding. The capital conversion expenses manufacturers provided during interviews were based on converting manufacturing equipment to meet the current volume of shipments. Since the shipments projected in the NIA decrease in the base cases, DOE scaled the capital conversion expenses to account for the decline in shipments from 2008 to the year the standard becomes effective to be consistent with manufacturers’ expectations when they provided their capital conversion costs. DOE used the decline in shipments under the Existing Technologies base-case shipment scenario to make this adjustment. Under this case, total shipments decrease by 19.7 percent from 2008 to 2012. DOE lowered the capital conversion expenses given by manufacturers by this percentage.

The capital conversion expenses to meet most IRL TSLs are substantial. Approximately 90 percent of covered IRL shipments are at baseline levels (standard halogen lamps). All standards involve increasing the production of currently low volume products. TSL 1 involves only minor capital conversion expenses because manufacturers do not need to greatly alter production equipment to add xenon to existing lamps. The capital conversion expenses necessary at TSL 2 through TSL 5 increase substantially. AT TSL 2, manufacturers must either expand production of long-life HIR lamps or lamps with improved reflectors. Both of these lamps arecurrently manufactured in low volume and in a manner that varies greatly from the existing highvolume, standard halogen lamps. Substantial plant changes must be made to increase the production volume of these types of lamps by many multiples over existing production. TSL 3, TSL 4, and TSL 5 involve HIR technology. The manufacturing process must be completely revamped in order to meet demand with these products, resulting in high capital conversion expenses to retool the plant for exclusively infrared lamp production (including new coating decks, expanding or creating capsule production, and assembly layout). Because lamps at TSL 3 through TSL 5 are manufactured differently than standard halogen lamps, much of the existing manufacturing equipment is stranded at these TSLs.

DOE consulted an independent supplier of IRL coaters to identify additional costs above TSL 4 needed for manufacturers to meet TSL 5. TSL 5 involves similar plant changes as TSL 4. The most significant change is that the coating process at TSL 5 is more involved and takes more time. Therefore, more coating machines would be required because the annual throughput of each coating machine is lower. DOE separated the capital conversion expenses manufacturers gave for TSL 4 into changes to the plant and costs for new HIR coaters. DOE then calculated the cost of the additional coaters that would be necessary to meet industry demand. DOE kept costs for plant changes the same as at TSL 4.

Table 13.4.18 summarizes the breakdown of capital conversion expense by TSL for the covered IRL product class.13-22



### Table 13.4.18 Capital Conversion Expenses for the IRL Industry

TSL Capital Conversion Expenses

(2007$ million) Baseline $0 TSL 1 $31.4 TSL 2 $83.1 TSL 3 $133.9 TSL 4 $166.3 TSL 5 $184.7



### 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 analyzed TSL. 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 efficacy.

For the GSFL industry product conversion expenses, DOE combined figures provided by each manufacturer using a corresponding market share at each TSL. For product conversion expenses, DOE learned that manufacturers would not have to make significant additional R&D investments to achieve higher efficacy levels. To achieve higher efficacy levels, only the phosphor quality and content need to be changed. Because all manufacturers already offer products that achieve all efficacy levels prescribed by the TSLs, additional product conversion expenses would be incurred only for marketing, sales, and some additional testing and certification. Table 13.4.19 summarizes the breakdown of product conversion expenses by TSL and product class in the GSFL industry.

Table 13.4.19 GSFL Product Conversion Expenses by Product Class

Total Industry Product Conversion Expenses (2007$ million) by Product Class TSL 4-Foot

MBP 8-Foot SP

Slimline 8-Foot RDC

HO 4-Foot T5

MiniBP SO 4-Foot T5

MiniBP HO Industry

Total Baseline $0 $0 $0 $0 $0 $0
TSL 1 $1.1 $1.1 $1.1 $0.0 $0.0 $ 3.30
TSL 2 $5.5 $1.1 $2.2 $0.0 $0.0 $ 8.80
TSL 3 $5.5 $1.1 $2.2 $0.0 $0.0 $ 8.80
TSL 4 $7.2 $2.2 $2.2 $0.0 $0.0 $ 11.55
TSL 5 $7.2 $2.2 $2.2 $9.0 $9.0 $ 29.55



### For the IRL product conversion expenses, DOE combined figures provided by each manufacturer using a corresponding market share at each TSL. The product conversion expenses are relatively minor (compared to the capital conversion expenses) because most manufacturers have existing products that meet nearly all TSLs. However, at TSL 1 through TSL 4 there are some additional engineering costs. Some manufacturers indicated their existing lamps would require some design changes if they became large volume products due to standards. There13-23



### would also be additional testing and certification expenses at each TSL. In addition, one

m anufacturer indicated their competitive concerns at TSL 4 and TSL 5 because these TSLs would require a redesign of all existing lamps to use a more efficient burner. For TSL 5, DOE assumed that the product conversion costs would be equal to the combination of the costs of the improved reflectors (the conversion costs of TSL 2) and improved HIR lamps (the conversion costs of TSL 4). Table 13.4.20 summarizes the breakdown of product conversion expenses by TSL for the IRL industry.

Table 13.4.20 Product Conversion Expenses for the IRL Industry

TSL Product Conversion

Expenses (2007$ million)
Baseline $0 TSL 1 $3.5
TSL 2 $3.5 TSL 3 $2.3 TSL 4 $3.5
TSL 5 $6.9



### 13.4.9 Markups
DOE applies different markup scenarios to convert MPC to MSP. DOE considered different markup scenarios based on manufacturer input for GSFL and IRL products. For GSFL and IRL, DOE used the markup scenarios that best characterized the prevailing markup conditions and described the range of market responses as a result of amended energy conservation standards.

After discussions with manufacturers, DOE estimates there are two distinct markup scenarios for the GSFL industry including a flat markup and a four-tier markup. For the IRL industry, DOE only incorporated the flat markup in its analysis. The following sections describe each markup scenario and their respective calculations.

13.4.9.1 Flat Markup
Under the flat markup scenario, DOE applied a single uniform “flat markup” across all efficacy levels for all products. A flat markup assumes no differentiation in gross margin percentage across product efficacy levels. DOE calculated the markup from industry data using the formula:

Markup = 1 / (1 - Gross Margin)

where:

Gross Margin = (Revenues - Cost of Goods Sold) / (Revenues)

DOE calculated the manufacturer markup—which includes SG&A expenses; research and development expenses; interest; and profit—to be approximately 1.52. This markup is consistent with the one DOE assumed in the both base cases in the GSFL and IRL GRIMs. The flat markup scenario is the only markup scenario DOE modeled in the IRL GRIM because manufacturers’13-24



### concerns about the potential industry impacts are captured in the shipment scenarios and

m arkups do not increase as a function of efficacy in the IRL industry. Since the absolute gross margin increases with increased production costs to maintain the same gross margin percentage markup (flat markup), in the GSFL GRIM DOE assumes that this scenario represents a high bound to MSPs under an energy conservation standard.

13.4.9.2 Four-Tier Markup
For GSFL, DOE also modeled a “four-tier markup” in which it assumed that the markup on lamps varies by efficacy in both the base case and the standards case. The four-tier markup scenario was not modeled for IRL because markups do not increase as a function of efficacy as is the case for GSFL. For GSFL, DOE learned from manufacturers that pricing is determined on the basis of four product tiers, corresponding to different phosphor series (600, 700, 800, and 800 plus). During the MIA interviews, manufacturers provided information on the range of typical efficacy levels in these four tiers and the change in profitability for each level. DOE used this information, product pricing from its product price determination, and industry average gross margins to estimate markups for GSFL under the four-tier pricing strategy in the base case. In the standards case of the four-tier markup scenario, DOE modeled the situation in which portfolio reduction squeezes the margin of previously premium products. This scenario is in line with information submitted during manufacturing interviews confirming manufacturers concern that DOE standards have the potential to significantly disrupt profitability by commoditizing products.

To be able to compare the INPV of both flat and four-tier markup scenarios, DOE adjusted the markups in the four-tier scenario to yield the same base-case INPV as in the flat markup scenario. For both base cases (Existing and Emerging Technologies), DOE multiplied the four-tier markups at each efficacy level by multipliers that would result in equal base-case INPV for both markup scenarios. The difference in multipliers between Existing and Emerging Technologies scenarios exists because total shipments for each scenario vary.

Table 13.4.21 through Table 13.4.30 show the list of products analyzed with the corresponding phosphors series and markups at each TSL for both base cases.13-25



### Table 13.4.21 Four-Tier Markup for GSFL: 4-Foot Medium Bipin Product – Existing T echnologies Base Case Markup By Trial Standard Level Product Class TSL Lamp

Series Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 700 76.8 1.42 - - - - - 700 78.0 1.42 - - - - - Baseline 600 77.9 1.25 - - - - -

800 80.5 1.52 1.52 - - - - 700 82.4 1.42 1.42 - - - - TSL1 800+ 82.9 1.63 1.63 - - - -

800 85.3 1.52 1.52 1.42 - - - TSL2 800+ 87.8 1.63 1.63 1.52 - - - 4 – Foot T12 MBP

TSL3 800+ 91.2 1.63 1.63 1.52 1.42 - -

TSL2 700 86.2 1.42 1.42 1.42 - - - TSL3 800 90.8 1.52 1.52 1.52 1.42 - -

800 92.3 1.52 1.52 1.52 1.42 1.42 - 800+ 93.8 1.63 1.63 1.63 1.52 1.52 - TSL4 800+ 93.0 1.63 1.63 1.63 1.52 1.52 -

800+ 95.4 1.63 1.63 1.63 1.52 1.52 1.42 4 – Foot T8 MBP

TSL5 800+ 97.3 1.63 1.63 1.63 1.52 1.52 1.42



### Table 13.4.22 Four-Tier Markup for GSFL: 8-Foot Single Pin Slimline Product – Existing Technologies Base Case Markup By Trial Standard Level Product Class TSL Lamp

Series Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Baseline 700 85.6 1.42 - - - - -

800 87.3 1.52 1.52 - - - - TSL1 600 87.6 1.25 1.25 - - - -

800+ 92.0 1.63 1.63 1.63 - - - TSL2 700 92.6 1.42 1.42 1.42 - - - 8 – Foot T12 SP Slimline

TSL3 700 97.5 1.42 1.42 1.42 1.42 - -

TSL3 700 94.8 1.42 1.42 1.42 1.42 - - TSL4 800 98.2 1.52 1.52 1.52 1.52 1.42 -

800+ 101.5 1.63 1.63 1.63 1.63 1.52 1.42 800+ 101.8 1.63 1.63 1.63 1.63 1.52 1.42 8 – Foot T8 SP Slimline TSL5 800+ 103.6 1.63 1.63 1.63 1.63 1.52 1.42



### Table 13.4.23 Four-Tier Markup for GSFL: 8-Foot Recessed Double Contact – Existing Technologies Base Case Markup By Trial Standard Level Product Class TSL Lamp Series Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 700 80.1 1.42 - - - - - Baseline 600 82.5 1.25 - - - - - TSL1 800 83.2 1.52 1.52 - - - - TSL2 700 86.1 1.42 1.42 1.42 - - -

800 87.6 1.52 1.52 1.52 1.42 - - 8 – Foot T 12 RDC HO

TSL3 800+ 88.9 1.63 1.63 1.63 1.52 - - 700 91.9 1.42 1.42 1.42 1.42 1.42 - TSL4 700 93.0 1.42 1.42 1.42 1.42 1.42 - 8 – Foot T8 RDC HO TSL5 800 95.3 1.52 1.52 1.52 1.52 1.52 1.4213-26



### Table 13.4.24 Four-Tier Markup for GSFL: 4-Foot T5 Product Class – Existing T echnologies Base Case Markup By Trial Standard Level Product Class TSL Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Baseline 86.0 1.63 - - - - - TSL1, 2, 3, 4 104.3 1.63 1.63 1.63 1.63 1.63 -

109.7 1.63 1.63 1.63 1.63 1.63 1.63 4 – Foot T5 MiniBP SO TSL5 111.5 1.63 1.63 1.63 1.63 1.63 1.63



### Table 13.4.25 Four-Tier Markup for GSFL: 4-Foot T5 High Output Product – Existing Technologies Base Case Markup By Trial Standard Level Product Class TSL Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Baseline 76.0 1.63 - - - - -

92.9 1.63 1.63 1.63 1.63 1.63 1.63 4 – Foot T5 MiniBP HO TSL1, 2,

3, 4, 5 98.0 1.63 1.63 1.63 1.63 1.63 1.6313-27



### Table 13.4.26 Four-Tier Markup for GSFL: 4-Foot Medium Bipin Product – Emerging T echnologies Base Case Markup By Trial Standard Level Product Class TSL Lamp

Series Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 700 76.8 1.42 - - - - - 700 78.0 1.42 - - - - - Baseline 600 77.9 1.25 - - - - -

800 80.5 1.53 1.53 - - - - 700 82.4 1.42 1.42 - - - - TSL1 800+ 82.9 1.64 1.64 - - - -

800 85.3 1.53 1.53 1.42 - - - TSL2 800+ 87.8 1.64 1.64 1.53 - - - 4 – Foot T12 MBP

TSL3 800+ 91.2 1.64 1.64 1.53 1.42 - -

TSL2 700 86.2 1.42 1.42 1.42 - - - TSL3 800 90.8 1.53 1.53 1.53 1.42 - -

800 92.3 1.53 1.53 1.53 1.42 1.42 - 800+ 93.8 1.64 1.64 1.64 1.53 1.53 - TSL4 800+ 93.0 1.64 1.64 1.64 1.53 1.53 -

800+ 95.4 1.64 1.64 1.64 1.53 1.53 1.42 4 – Foot T8 MBP

TSL5 800+ 97.3 1.64 1.64 1.64 1.53 1.53 1.42



### Table 13.4.27 Four-Tier Markup for GSFL: 8-Foot Single Pin Slimline Product – Emerging Technologies Base Case Markup By Trial Standard Level Product Class TSL Lamp

Series Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Baseline 700 85.6 1.42 - - - - -

800 87.3 1.53 1.53 - - - - TSL1 600 87.6 1.25 1.25 - - - -

800+ 92.0 1.64 1.64 1.64 - - - TSL2 700 92.6 1.42 1.42 1.42 - - - 8 – Foot T12 SP Slimline

TSL3 700 97.5 1.42 1.42 1.42 1.42 - -

TSL3 700 94.8 1.42 1.42 1.42 1.42 - - TSL4 800 98.2 1.53 1.53 1.53 1.53 1.42 -

800+ 101.5 1.64 1.64 1.64 1.64 1.53 1.42 800+ 101.8 1.64 1.64 1.64 1.64 1.53 1.42 8 – Foot T8 SP Slimline TSL5 800+ 103.6 1.64 1.64 1.64 1.64 1.53 1.42



### Table 13.4.28 Four-Tier Markup for GSFL: 8-Foot Recessed Double Contact – Emerging Technologies Base Case Markup By Trial Standard Level Product Class TSL Lamp Series Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 700 80.1 1.42 - - - - - Baseline 600 82.5 1.25 - - - - - TSL1 800 83.2 1.53 1.53 - - - - TSL2 700 86.1 1.42 1.42 1.42 - - -

800 87.6 1.53 1.53 1.53 1.42 - - 8 – Foot T 12 RDC HO

TSL3 800+ 88.9 1.64 1.64 1.64 1.53 - - 700 91.9 1.42 1.42 1.42 1.42 1.42 - TSL4 700 93.0 1.42 1.42 1.42 1.42 1.42 - 8 – Foot T8 RDC HO TSL5 800 95.3 1.53 1.53 1.53 1.53 1.53 1.4213-28



### Table 13.4.29 Four-Tier Markup for GSFL: 4-Foot T5 Product Class – Emerging T echnologies Base Case Markup By Trial Standard Level Product Class TSL Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Baseline 86.0 1.64 - - - - - TSL1, 2, 3, 4 104.3 1.64 1.64 1.64 1.64 1.64 -

109.7 1.64 1.64 1.64 1.64 1.64 1.64 4 – Foot T5 MiniBP SO TSL5 111.5 1.64 1.64 1.64 1.64 1.64 1.64



### Table 13.4.30 Four-Tier Markup for GSFL: 4-Foot T5 High Output Product – Emerging Technologies Base Case Markup By Trial Standard Level Product Class TSL Lamp

Efficacy Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Baseline 76.0 1.64 - - - - -

92.9 1.64 1.64 1.64 1.64 1.64 1.64 4 – Foot T5 MiniBP HO TSL1, 2,

3, 4, 5 98.0 1.64 1.64 1.64 1.64 1.64 1.64



### 13.5 GSFL INDUSTRY FINANCIAL IMPACTS
Using the inputs and scenarios described in the previous sections, the GRIM estimated the financial impacts on the GSFL industry due to amended energy conservation standards. The following sections detail additional inputs and assumptions related to the GSFL industry. The main results of the MIA are 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 the 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 NIA (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 in INPV is an estimate of the economic impacts that implementing that particular TSL would have on the entire industry. For the GSFL industry, DOE examined two markup scenarios as described in the mark-up section above. DOE incorporated the two base-case shipment scenarios and all the standards-case shipment scenarios from the GSFL NIA.

For the following sections that review the financial impacts on the GSFL industry due to amended energy conservation standards, the impacts in the standards cases are relative to one of the specific bases cases. In this analysis, DOE used both the Emerging Technologies and Existing Technologies base-case shipment scenarios to represent the GSFL industry. The Existing Technologies base case has a higher base-case INPV than the Emerging Technologies base case. The Emerging Technologies base case models shipments of covered products13-29



### decreasing due to technologies such as light emitting diodes (LEDs) and ceramic metal-halide ( CMH) lights taking GSFL market share. The base case in which GSFL shipments decrease over time has a lower INPV because the decreasing market share reduces cash flow from operations. When comparing these two base cases, the GSFL industry has a 4.5 percent lower value if emerging technologies take market share compared to the GSFL industry in which emerging technologies are not present. When comparing the impacts between base cases, the percentage change in INPV is a better indicator of how standards impact the GSFL industry because of the base-case industry value depends on how base-case shipments change over the analysis period. Table 13.5.1 shows both base-case INPV values under the Emerging and Existing Technologies base-case shipment scenarios.

Table 13.5.1 Changes in Base-Case Industry Net Present Values for the GSFL Industry

Base Case Existing

Technologies Emerging

Technologies INPV (2007$ millions) 602 575 Difference in base-case INPV (2007$ millions) (27) Percentage difference in INPV -4.5 %

Table 13.5.2 through Table 13.5.17 provide the INPV estimates for the GSFL industry under the different scenarios.

Table 13.5.2 Changes in Industry Net Present Value for the GSFL Industry with a Flat M arkup Scenario, Existing Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 602 666 650 663 560 592
2007$ Millions - 64 48 61 -43 -11 Change in INPV (%) - 10.60% 7.94% 10.05% -7.10% -1.80%



### Table 13.5.3 Changes in Industry Net Present Value for the GSFL Industry with a FourTier Markup Scenario, Existing Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 602 703 679 472 426 319
2007$ Millions - 100 76 -131 -176 -284 Change in INPV (%) - 16.68% 12.67% -21.72% -29.21% -47.12%13-30



### Table 13.5.4 Changes in Industry Net Present Value for the GSFL Industry with a Flat M arkup Scenario, Existing Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 602 663 645 657 545 588
2007$ Millions - 61 43 54 -57 -15 Change in INPV (%) - 10.05% 7.06% 9.04% -9.54% -2.41%



### Table 13.5.5 Changes in Industry Net Present Value for the GSFL Industry with a FourTier Markup Scenario, Existing Technologies Base Case – Market Segment Based – Rollup in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 602 695 666 447 391 312
2007$ Millions - 92 63 -155 -211 -290 Change in INPV (%) - 15.35% 10.51% -25.80% -35.07% -48.22%



### Table 13.5.6 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 602 652 653 673 594 616
2007$ Millions - 49 50 71 -9 13 Change in INPV (%) - 8.18% 8.31% 11.78% -1.48% 2.21%



### Table 13.5.7 Changes in Industry Net Present Value for the GSFL Industry with a FourTier Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 602 665 649 517 542 320
2007$ Millions - 63 47 -86 -60 -283 Change in INPV (%) - 10.44% 7.78% -14.22% -9.95% -46.96%13-31



### Table 13.5.8 Changes in Industry Net Present Value for the GSFL Industry with a Flat M arkup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 602 644 643 656 558 608
2007$ Millions - 42 40 54 -44 6 Change in INPV (%) - 6.94% 6.72% 8.96% -7.35% 0.98%



### Table 13.5.9 Changes in Industry Net Present Value for the GSFL Industry with a FourTier Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 602 651 619 446 444 306
2007$ Millions - 48 17 -157 -159 -296 Change in INPV (%) - 8.00% 2.78% -26.03% -26.37% -49.18%



### Table 13.5.10 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 575 638 622 631 529 557
2007$ Millions - 63 47 56 -47 -18 Change in INPV (%) - 11.00% 8.21% 9.77% -8.09% -3.08%



### Table 13.5.11 Changes in Industry Net Present Value for the GSFL Industry with a FourTier Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 575 675 651 459 411 318
2007$ Millions - 100 76 -116 -164 -257 Change in INPV (%) - 17.41% 13.22% -20.13% -28.47% -44.72%13-32



### Table 13.5.12 Changes in Industry Net Present Value for the GSFL Industry with a Flat M arkup Scenario, Emerging Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 575 635 617 626 516 554
2007$ Millions - 60 42 51 -59 -21 Change in INPV (%) - 10.47% 7.33% 8.82% -10.31% -3.68%



### Table 13.5.13 Changes in Industry Net Present Value for the GSFL Industry with a FourTier Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Rollup in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 575 668 638 436 380 312
2007$ Millions - 93 63 -139 -195 -263 Change in INPV (%) - 16.09% 11.02% -24.15% -33.96% -45.80%



### Table 13.5.14 Changes in Industry Net Present Value for the GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 575 624 624 641 561 581
2007$ Millions - 48 49 66 -14 5 Change in INPV (%) - 8.43% 8.57% 11.48% -2.43% 0.95%



### Table 13.5.15 Changes in Industry Net Present Value for the GSFL Industry with a FourTier Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 575 637 621 503 525 320
2007$ Millions - 62 46 -72 -50 -256 Change in INPV (%) - 10.75% 8.03% -12.46% -8.71% -44.43%13-33



### Table 13.5.16 Changes in Industry Net Present Value for the GSFL Industry with a Flat M arkup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 575 617 615 625 529 574
2007$ Millions - 42 40 50 -46 -1 Change in INPV (%) - 7.22% 6.98% 8.73% -8.01% -0.25%



### Table 13.5.17 Changes in Industry Net Present Value for the GSFL Industry with a FourTier Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV 2007$ Millions 575 623 592 435 433 307
2007$ Millions - 48 17 -140 -142 -268 Change in INPV (%) - 8.32% 2.91% -24.37% -24.77% -46.61%



### 13.5.2 Impacts on GSFL Annual Cash Flow
While INPV 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 cannot 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 13.5.16 present the annual net cash flows for the base case and each of the five TSLs for the GSFL industry for 2007 through 2020 assuming the different markups and shipment scenarios.13-34 $(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology No Product Shipment Scenario Market Segment Based Shipments Shift
Markup Scenario Flat Markup



### Figure 13.5.1 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, E xisting Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution

$(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology No Product Shipment Scenario Market Segment Based Shipments Shift
Markup Scenario 4-Tier Markup



### Figure 13.5.2 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup S cenario, Existing Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution13-35 $(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology No Product Shipment Scenario Market Segment Based Shipments Rollup
Markup Scenario Flat Markup



### Figure 13.5.3 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, E xisting Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution

$(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology No Product Shipment Scenario Market Segment Based Shipments Rollup
Markup Scenario 4-Tier Markup



### Figure 13.5.4 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Existing Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution13-36 $(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology No Product Shipment Scenario High Consumer Sophistication Shipments Shift
Markup Scenario Flat Markup



### Figure 13.5.5 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution

$(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology No Product Shipment Scenario High Consumer Sophistication Shipments Shift
Markup Scenario 4-Tier Markup



### Figure 13.5.6 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution13-37 $(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology No Product Shipment Scenario High Consumer Sophistication Shipments Rollup
Markup Scenario Flat Markup



### Figure 13.5.7 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Existing Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution

$(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology No Product Shipment Scenario High Consumer Sophistication Shipments Rollup
Markup Scenario 4-Tier Markup



### Figure 13.5.8 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup S cenario, Existing Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution13-38 $(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology Yes Product Shipment Scenario Market Segment Based Shipments Shift
Markup Scenario Flat Markup



### Figure 13.5.9 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, E merging Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution

$(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology Yes Product Shipment Scenario Market Segment Based Shipments Shift
Markup Scenario 4-Tier Markup



### Figure 13.5.10 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Shift in Efficacy Distribution13-39 $(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology Yes Product Shipment Scenario Market Segment Based Shipments Rollup
Markup Scenario Flat Markup



### Figure 13.5.11 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, E merging Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution

$(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology Yes Product Shipment Scenario Market Segment Based Shipments Rollup
Markup Scenario 4-Tier Markup



### Figure 13.5.12 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – Market Segment Based – Roll-up in Efficacy Distribution13-40 $(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology Yes Product Shipment Scenario High Consumer Sophistication Shipments Shift
Markup Scenario Flat Markup



### Figure 13.5.13 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution

$(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology Yes Product Shipment Scenario High Consumer Sophistication Shipments Shift
Markup Scenario 4-Tier Markup



### Figure 13.5.14 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup S cenario, Emerging Technologies Base Case – High Consumer Sophistication – Shift in Efficacy Distribution13-41 $(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology Yes Product Shipment Scenario High Consumer Sophistication Shipments Rollup
Markup Scenario Flat Markup



### Figure 13.5.15 Annual Net Cash Flow for GSFL Industry with a Flat Markup Scenario, E merging Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution

$(60) $(40) $(20) $- $20 $40 $60 $80 $100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Emerging Technology Yes Product Shipment Scenario High Consumer Sophistication Shipments Rollup
Markup Scenario 4-Tier Markup



### Figure 13.5.16 Annual Net Cash Flow for GSFL Industry with a Four-Tier Markup Scenario, Emerging Technologies Base Case – High Consumer Sophistication – Roll-up in Efficacy Distribution13-42



### Prior to the effective date of the amended energy conservation standards, cash flows are d riven by the level of capital conversion expenses and product conversion expenses and the proportion of these investments spent every year. With the natural transition from T12 to T8 in the base cases, the cash flows show sharp declines at three year intervals as companies use their financial resources to convert their T12 lines to T8. With the accelerated conversion from T12 to T8 in the standard cases, after the amended standards announcement date, industry cash flows begin to decline as companies use their financial resources to redesign products and convert manufacturing equipment for more T8 production. The more stringent the energy conservation standards, the greater the impact on net industry cash flows in the years running up to the effective date, as conversion capital expenditures and product development costs use up cash flows from operations.

After standards bring higher priced products into the market in 2012, the industry free cash flows begin to increase. The magnitude of the increase depends on the ability of the industry to maintain margins on what are now premium products. In the years following the effective date of the amended standards, the impact on cash flow depends on the operating revenue. If manufacturers are able to fully pass along costs to consumers, higher TSLs have a positive impact on cash flows relative to the base case. If manufacturers’ margins on premium products are squeezed (the four-tier markup scenario), amended standards have a negative impact on cash flows relative to the base case. In general, as margins are increasingly squeezed, cash flows decrease relative to the base case. The impacts on cash flows for TSL 1 and TSL 2 in the four-tier markup scenario are positive because manufacturers are left with a wide variety of lamps after standards, mitigating margin pressure even in the four-tier markup scenario. For TSL 3, TSL 4, and TSL 5, margin squeezes are significant and negatively impact cash flows. At these TSLs under the four-tier markup scenario, manufacturers are left with fewer and fewer premium products which leads to lower margins as more lamps are commoditized. The magnitude of the positive cash flow impact under the flat markup scenarios and the negative cash flow impact under the four-tier markup scenario depends on the incremental cost of standards compliant products. The higher the incremental cost, the larger the impact on operating revenue and cash flow in the years following the effective date of the standards.

The base-case scenario chosen does not have a significant impact on net cash flow in the early years of the analysis. The impacts between the Existing Technologies and Emerging Technologies base cases are more prominent in the later years of the analysis (around years 2030 and above). However, in both base cases the margin pressure due to the commoditization of premium products has the impact on free cash flow.

13.6 IRL INDUSTRY FINANCIAL IMPACTS
Using the inputs and scenarios described in the previous sections, the GRIM estimated financial impacts on the IRL industry due to amended energy conservation standards. The following sections detail additional inputs and assumptions related to the IRL industry. The main results of the MIA are also reported in this section and consist of two key financial metrics: INPV and annual cash flows.13-43



### 13.6.1 I mpacts 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 the 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 NIA (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 in INPV is an estimate of the economic impacts implementing that particular TSL would have on the entire industry. For the IRL industry, DOE examined eight total shipment scenarios as described in the shipments section above. DOE incorporated the two base-case shipment scenarios and all four standards-case shipment scenarios used in the IRL NIA.

For the following sections that review the financial impacts on the IRL industry due to amended energy conservation standards, the impacts in the standards cases are relative to one of the specific base cases. In this analysis, DOE used INPV results from the GRIM for both the Emerging Technologies and Existing Technologies base cases to represent the IRL industry. The Existing Technologies base case has a higher base-case INPV than the Emerging Technologies base case. In the Emerging Technologies base case, shipments of covered products decrease over the analysis and cash flow from operations follow this decline in IRL shipments. When comparing these two base cases, the IRL industry has a 22.5 percent lower value if emerging technologies take additional market share compared to the IRL industry in the Existing Technologies base case. When comparing the impacts between base cases, the percentage change in INPV is a better indicator of how standards impact the IRL industry because the base-case industry value depends on how base-case shipments change over the analysis period. Table 13.6.1 shows both base-case INPV values under the Emerging and Existing Technologies shipment scenarios.

Table 13.6.1 Changes in Base-Case Industry Net Present Values for the GSFL Industry

Base Case Existing

Technologies Emerging

Technologies INPV (2007$ millions) 267 207 Difference in base-case INPV (2007$ millions) 60 Change in INPV (%) -22.5%

In the IRL GRIM, the product substitution shipment scenario models a case in which standards induce some customers that currently purchase IRL lamps to purchase BR lamps exempted by EISA 2007 and reflector CFL lamps. The GRIM allows the user to select whether to include the revenue of these products as part of the standards-case INPV. For the results presented below, DOE included the revenue for exempted BR lamps but excluded the revenue for reflector CFL lamps.

Table 13.6.2 through Table 13.6.9 provide the INPV estimates for the IRL industry under the different scenarios.13-44



### Table 13.6.2 Changes in Industry Net Present Value for IRL Industry Under the Existing T echnologies Base Case - Product Substitution Scenario - Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV (2007$ millions) 267 256 208 196 175 167 (2007$ millions) - (11) (59) (71) (92) (100) Change in INPV (%) - -3.94% -21.94% -26.58% -34.30% -37.29%



### Table 13.6.3 Changes in Industry Net Present Value for IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario – Roll-Up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV (2007$ millions) 267 256 208 197 175 167 (2007$ millions) - (11) (59) (69) (92) (100) Change in INPV (%) - -3.94% -22.20% -26.04% -34.54% -37.29%



### Table 13.6.4 Changes in Industry Net Present Value for IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV (2007$ millions) 267 263 215 205 190 185 (2007$ millions) - (4) (52) (62) (77) (82) Change in INPV (%) - -1.55% -19.36% -23.06% -28.85% -30.85%



### Table 13.6.5 Changes in Industry Net Present Value for IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV (2007$ millions) 267 263 215 207 189 185 (2007$ millions) - (4) (52) (60) (78) (82) Change in INPV (%) - -1.55% -19.58% -22.52% -29.09% -30.85%13-45



### Table 13.6.6 Changes in Industry Net Present Value for IRL Industry Under the Emerging T echnologies Base Case – Product Substitution Scenario - Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV (2007$ millions) 207 191 149 130 113 104 (2007$ millions) - (16) (57) (76) (94) (103) Change in INPV (%) - -7.69% -27.81% -36.97% -45.55% -49.60%



### Table 13.6.7 Changes in Industry Net Present Value for IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario – Roll-Up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV (2007$ millions) 207 191 149 131 112 104 (2007$ millions) - (16) (58) (76) (94) (103) Change in INPV (%) - -7.69% -27.87% -36.85% -45.60% -49.60%



### Table 13.6.8 Changes in Industry Net Present Value for IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV (2007$ millions) 207 195 155 138 126 120 (2007$ millions) - (11) (52) (68) (80) (87) Change in INPV (%) - -5.48% -25.02% -33.05% -38.85% -42.01%



### Table 13.6.9 Changes in Industry Net Present Value for IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution
Trial Standard Level Units Base

Case 1 2 3 4 5

INPV (2007$ millions) 207 195 155 139 126 120 (2007$ millions) - (11) (52) (68) (80) (87) Change in INPV (%) - -5.48% -25.07% -32.93% -38.90% -42.01%



### 13.6.2 Impacts on Annual Cash Flow
While INPV 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. 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 13.6.8 present the annual net cash flows for the base case and each13-46



### of the five TSLs for the IRL industry for 2007 through 2020 assuming the different shipment

s cenarios.

$(80.0)

$(60.0) $(40.0) $(20.0) $- $20.0 $40.0 $60.0 $80.0 $100.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Base Case Existing Technolog Product Shipment Scenario Substitution Scenario Shipments Shift



### Figure 13.6.1 Annual Net Cash Flow for IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario - Shift in Efficacy Distribution13-47 $(80.0) $(60.0) $(40.0) $(20.0) $- $20.0 $40.0 $60.0 $80.0 $100.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Base Case Existing Technolog Product Shipment Scenario Substitution Scenario Shipments Rollup



### Figure 13.6.2 Annual Net Cash Flow for IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario – Roll-Up in Efficacy Distribution

$(80.0) $(60.0) $(40.0) $(20.0) $- $20.0 $40.0 $60.0 $80.0 $100.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Base Case Existing Technolog Product Shipment Scenario No Substitution Shipments Shift



### Figure 13.6.3 Annual Net Cash Flow for IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution13-48 $(80.0) $(60.0) $(40.0) $(20.0) $- $20.0 $40.0 $60.0 $80.0 $100.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Base Case Existing Technolog Product Shipment Scenario No Substitution Shipments Rollup



### Figure 13.6.4 Annual Net Cash Flow for IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution

$(80.0) $(60.0) $(40.0) $(20.0) $- $20.0 $40.0 $60.0 $80.0 $100.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Base Case Emerging Technolog Product Shipment Scenario Substitution Scenario Shipments Shift



### Figure 13.6.5 Annual Net Cash Flow for IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario - Shift in Efficacy Distribution13-49 $(80.0) $(60.0) $(40.0) $(20.0) $- $20.0 $40.0 $60.0 $80.0 $100.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Base Case Emerging Technolog Product Shipment Scenario Substitution Scenario Shipments Rollup



### Figure 13.6.6 Annual Net Cash Flow for IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario – Roll-Up in Efficacy Distribution

$(80.0) $(60.0) $(40.0) $(20.0) $- $20.0 $40.0 $60.0 $80.0 $100.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Base Case Emerging Technolog Product Shipment Scenario No Substitution Shipments Shift



### Figure 13.6.7 Annual Net Cash Flow for IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution13-50 $(80.0) $(60.0) $(40.0) $(20.0) $- $20.0 $40.0 $60.0 $80.0 $100.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year2007$ Millions

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date - June 2012 Base Case Emerging Technolog Product Shipment Scenario No Substitution Shipments Rollup



### Figure 13.6.8 Annual Net Cash Flow for IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution

Prior to the effective date of the amended energy conservation standard, the cash flows are driven by the level of capital conversion expenses and product conversion expenses and the proportion of these investments spent every year. During these years, the biggest driver of impacts on net cash flow is the TSL selected. Higher TSLs require greater outlays to redesign products and more costly plant changes to accommodate a higher volume of more efficacious products. The large expenditures on capital conversion and product conversion lower net cash flow for all TSLs and drive cash flow negative for TSLs 2 through TSL 5. During this time, the impacts on net cash flow are slightly worse under the Emerging Technologies base case than under the Existing Technologies base case, regardless of the shipment scenario chosen. However, the differences between the two base cases do not become significant until after the effective date of the standard.

Cash flow increases for all TSLs in the year standards become effective due to stranded assets and higher cash flows from operations. In this year, manufacturers receive a one time injection of cash from stranded assets for TSL 2 through TSL 5. TSL 1 does not strand existing assets because the manufacturing process is effectively unchanged from baseline products. However, all higher TSLs have more substantial stranded assets because standards obsolesce a greater portion of existing manufacturing equipment. The large stranded assets swing free cash flows positive for TSL 2 through TSL 5 in 2012 for all shipment scenarios.

In the years following the effective date of the standard, standards can have a positive or negative impact on free cash flow depending on the year and the shipment scenario selected. Manufacturers begin to receive the higher prices of standards-compliant lamps in the year the13-51



### standards become effective, which positively impacts cash flow from operations. However,

s hipments are highly variable past the effective date of the standard because of the longer lamp lifetimes and potentially lower overall shipments (e.g., in the product substitution scenario). Shipments are also affected by the base-case scenario. These factors can have a positive or negative impact on free cash flow relative to the base case, depending on the year.

13.7 OTHER IMPACTS

13.7.1 Employment

13.7.1.1 GSFL Employment
To quantitatively assess the impacts of energy conservation standards on GSFL manufacturing employment, DOE used the GSFL GRIM to estimate the domestic labor expenditures and number of employees. Since standards only require changes to the phosphor mixes and will not alter lamp assembly, higher TSLs should not alter employment at the plantlevel. During interviews with manufacturers, DOE learned that GSFL are produced on highspeed, fully automated lines. Production workers are not involved in the physical assembly of the final product (e.g., in inserting components, transferring partly assembled lamps, soldering lamp bases, etc.). The production workers counted in DOE’s figure include plant workers involved in clearing glass, overseeing a portion of the assembly line, monitoring quality control, mixing phosphors, and moving finished products to loading. The employment levels required for these tasks are a function of the total volume of the facility, not the labor content of the product mix produced by the plant. Since higher TSLs involve using more efficient phosphors, employment will not be impacted because standards will not change the overall scale of the facility.

DOE used statistical data from the U.S. Census Bureau’s 2006 Annual Survey of Manufacturers (2006 ASM), the results of the product price determination, and interviews with manufacturers to estimate the inputs necessary to calculate industry-wide labor expenditures and employment levels. DOE multiplied the labor percentage of COGS by the total annual COGS for the industry to calculate the total labor expenditure. DOE estimates that approximately 81 percent of GSFL are manufactured and sold in the U.S. DOE multiplied the total annual labor expenditures in the GSFL GRIM by the percentage of U.S. production for domestic consumption to calculate domestic labor expenditures for GSFL production labor. The domestic annual labor expenditures in the GSFL GRIM were converted to a domestic production employment level by dividing domestic production labor expenditures by the annual payment per production worker(production worker hours times the labor rate found in the 2006 ASM). The number of nonproduction 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 GSFL GRIM calculates that the GSFL industry’s domestic labor expenditure for production labor in 2012 is approximately $75 million. Domestic labor expenditures on production labor is calculated by multiplying total COGS in 2012 times the production labor percentage of COGS times the percentage of U.S production. Using the $24.90 wage rate and 2,040 production hours per year per employee found in the 2006 ASM, the GSFL GRIM estimates that there is approximately 1,471 U.S. production workers in the GSFL industry. In addition, DOE estimates that there are approximately 335 non-production employees in the U.S.13-52



### support GSFL production. c 

### As previously stated, employment levels are not expected to change b ecause the overall scale of the facility and labor requirement does not change with higher efficacy levels.

The employment impacts calculated by DOE are independent of the employment impacts from the broader U.S. economy, which are documented in chapter 15 of the TSD. Theemployment impacts also do not account for the possible relocation of domestic jobs to lowerlabor-cost countries because the potential relocation of U.S. jobs is uncertain and highly speculative. .

13.7.1.2 IRL Employment
To quantitatively assess the impacts of energy conservation standards on 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 IRL industry. DOE used statistical data from the 2006 ASM, the results of the product price determination, and interviews with manufacturers to estimate the inputs necessary to calculate industry-wide labor expenditures and domestic employment levels. The total labor expenditures in each year are calculated by multiplying the COGS or MPCs by the labor percentage of COGS. From interviews, DOE estimated that 65 percent of covered IRL are manufactured and sold in the U.S. DOE multiplied the total annual labor expenditures in the GRIM by the percentage of U.S. production for domestic sales to calculate domestic labor expenditures for IRL production labor. 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). The number of nonproduction 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 total direct employment impacts calculated in the GRM are the sum of the production and non-production workers.

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 the GRIM, the employment results represent direct U.S. production workers that are impacted by

c As defined in the 2006 ASM, production workers number include “workers (up through the line-supervisor level)

e ngaged 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 above the working-supervisor level are excluded from this item.” Non-production workers are defined as “employees of the manufacturing establishmentincluding those engaged in factory supervision above the line-supervisor level. It includes sales (including driversalespersons), 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.”13-53



### this rulemaking. U.S. workers involved in manufacturing or supporting products for exports

w ould not be impacted and are not included as part of the labor impacts.

The GRIM calculates that the IRL industry’s domestic labor expenditure for production labor in 2012 is approximately $42 million under the Existing Technologies base case and $39 million under the Emerging Technologies base case. Using the $24.90 wage rate and 2,040 production hours per year per employee found in the 2006 ASM, the GRIM estimates there are approximately 831 and 768 U.S. production employees manufacturing covered IRL in the Existing Technologies and Emerging Technologies base cases, respectively. In addition, DOE estimates that 190 and 175 non-production employees in the U.S. support IRL production under the Existing Technologies and Emerging Technologies base cases, respectively. The employment spreadsheet of the IRL GRIM shows the annual domestic employment impacts in further detail.

Because the employment impacts change from year to year, DOE reports the average employment impacts from the year the standard become effective to the end of the analysis period. The average employment for the analysis period gives a better representation of how domestic employment changes in response to standards. The total employment figures include both domestic production and non-production workers. Table 13.7.1 through Table 13.7.8 illustrate the average impact of new energy conservation standards on domestic employment levels at each TSL for the IRL industry calculated by the GRIM.

Table 13.7.1 Change in the Average Number of Domestic Employees in the IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario - Shift in Efficacy Distribution

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Average Number of Domestic IRL Employees from 2012 – 2042 1,319 1,455 1,235 1,398 1,260 1,265

Change in the Average Number of Domestic IRL Employees from 2012 – 2042 - 136 -84 79 -59 -5413-54



### T able 13.7.2 Change in the Average Number of Domestic Employees in the IRL Industry Under the Existing Technologies Base Case - Product Substitution Scenario – Roll-Up in Efficacy Distribution

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Average Number of Domestic IRL Employees from 2012 – 2042 1,319 1,455 1,228 1,415 1,253 1,265

Change in the Average Number of Domestic IRL Employees from 2012 – 2042 - 136 -91 96 -66 -54

Table 13.7.3 Change in the Average Number of Domestic Employees in the IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Average Number of Domestic IRL Employees from 2012 – 2042 1,319 1,518 1,303 1,492 1,396 1,426

Change in the Average Number of Domestic IRL Employees from 2012 – 2042 - 199 -16 173 77 107

Table 13.7.4 Change in the Average Number of Domestic Employees in the IRL Industry Under the Existing Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Average Number of Domestic IRL Employees from 2012 – 2042 1,319 1,518 1,297 1,510 1,389 1,426

Change in the Average Number of Domestic IRL Employees from 2012 – 2042 - 199 -22 190 70 10713-55



### Table 13.7.5 Change in the Average Number of Domestic Employees in the IRL Industry U nder the Emerging Technologies Base Case – Product Substitution Scenario - Shift in Efficacy Distribution

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Average Number of Domestic IRL Employees from 2012 – 2042 699 783 623 722 618 621

Change in the Average Number of Domestic IRL Employees from 2012 – 2042 - 84 -76 23 -82 -78

Table 13.7.6 Change in the Average Number of Domestic Employees in the IRL Industry Under the Emerging Technologies Base Case – Product Substitution Scenario – Roll-Up in Efficacy Distribution

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Average Number of Domestic IRL Employees from 2012 – 2042 699 783 623 724 617 621

Change in the Average Number of Domestic IRL Employees from 2012 – 2042 - 84 -77 24 -82 -78

Table 13.7.7 Change in the Average Number of Domestic Employees in the IRL Industry Under the Emerging Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Average Number of Domestic IRL Employees from 2012 – 2042 699 826 679 801 745 765

Change in the Average Number of Domestic IRL Employees from 2012 – 2042 - 127 -20 102 45 6613-56



### Table 13.7.8 Change in the Average Number of Domestic Employees in the IRL Industry U nder the Emerging Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Average Number of Domestic IRL Employees from 2012 – 2042 699 826 679 803 744 765

Change in the Average Number of Domestic IRL Employees from 2012 – 2042 - 127 -21 104 45 66

Figure 13.7.1 through Figure 13.7.8 show total annual domestic employment levels for each TSL calculated by the GRIM under the two base-case scenarios and the four standards-case shipment scenarios.

Total Employment

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000

2006 2 008 2 0 1 0 2 0 1 2 2 0 1 4 201 6 2018 2

020 2 0 2 2 2 0 2 4 2 0 2 6 202 8 2030 2

032 2 0 3 4 2 0 3 6 2 0 3 8 204 0 2042

YearTotal Domestic Employment (# of Workers)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date June 2012



### Figure 13.7.1 Total IRL Industry Employment by Year Under the Existing Technologies Base Case - Product Substitution Scenario - Shift in Efficacy Distribution13-57 Total Employment

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000

2006 2 008 2 0 1 0 2 0 1 2 2 0 1 4 201 6 2018 2

020 2 0 2 2 2 0 2 4 2 0 2 6 202 8 2030 2

032 2 0 3 4 2 0 3 6 2 0 3 8 204 0 2042

YearTotal Domestic Employment (# of Workers)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date June 2012



### Figure 13.7.2 Total IRL Industry Employment by Year Under the Existing Technologies Base Case - Product Substitution Scenario – Roll-Up in Efficacy Distribution

Total Employment

0 500 1,000 1,500 2,000 2,500

2006 2 008 2 0 1 0 2 0 1 2 2 0 1 4 201 6 2018 2

020 2 0 2 2 2 0 2 4 2 0 2 6 202 8 2030 2

032 2 0 3 4 2 0 3 6 2 0 3 8 204 0 2042

YearTotal Domestic Employment (# of Workers)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date June 2012



### Figure 13.7.3 Total IRL Industry Employment by Year Under the Existing Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution13-58 Total Employment

0 500 1,000 1,500 2,000 2,500

2006 2 008 2 0 1 0 2 0 1 2 2 0 1 4 201 6 2018 2

020 2 0 2 2 2 0 2 4 2 0 2 6 202 8 2030 2

032 2 0 3 4 2 0 3 6 2 0 3 8 204 0 2042

YearTotal Domestic Employment (# of Workers)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date June 2012



### Figure 13.7.4 Total IRL Industry Employment by Year Under the Existing Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution

Total Employment

0 200 400 600 800 1,000 1,200 1,400

2006 2 008 2 0 1 0 2 0 1 2 2 0 1 4 201 6 2018 2

020 2 0 2 2 2 0 2 4 2 0 2 6 202 8 2030 2

032 2 0 3 4 2 0 3 6 2 0 3 8 204 0 2042

YearTotal Domestic Employment (# of Workers)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date June 2012



### Figure 13.7.5 Total IRL Industry Employment by Year Under the Emerging Technologies Base Case – Product Substitution Scenario - Shift in Efficacy Distribution13-59 Total Employment

0 200 400 600 800 1,000 1,200 1,400

2006 2 008 2 0 1 0 2 0 1 2 2 0 1 4 201 6 2018 2

020 2 0 2 2 2 0 2 4 2 0 2 6 202 8 2030 2

032 2 0 3 4 2 0 3 6 2 0 3 8 204 0 2042

YearTotal Domestic Employment (# of Workers)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date June 2012



### Figure 13.7.6 Total IRL Industry Employment by Year Under the Emerging Technologies Base Case – Product Substitution Scenario – Roll-Up in Efficacy Distribution

Total Employment

0 200 400 600 800 1,000 1,200 1,400 1,600

2006 2 008 2 0 1 0 2 0 1 2 2 0 1 4 201 6 2018 2

020 2 0 2 2 2 0 2 4 2 0 2 6 202 8 2030 2

032 2 0 3 4 2 0 3 6 2 0 3 8 204 0 2042

YearTotal Domestic Employment (# of Workers)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date June 2012



### Figure 13.7.7 Total IRL Industry Employment by Year Under the Emerging Technologies Base Case – No Product Substitution Scenario - Shift in Efficacy Distribution13-60 Total Employment

0 200 400 600 800 1,000 1,200 1,400 1,600

2006 2 008 2 0 1 0 2 0 1 2 2 0 1 4 201 6 2018 2

020 2 0 2 2 2 0 2 4 2 0 2 6 202 8 2030 2

032 2 0 3 4 2 0 3 6 2 0 3 8 204 0 2042

YearTotal Domestic Employment (# of Workers)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date June 2012



### Figure 13.7.8 Total IRL Industry Employment by Year Under the Emerging Technologies Base Case – No Product Substitution Scenario – Roll-Up in Efficacy Distribution

The employment results show that energy conservation standards will not significantly impact IRL direct employment. The impact that amended energy conservation standards will have on employment is far less significant than the potential impact from emerging technologies. The difference in employment between the Emerging Technologies and the Existing Technologies base cases is greater than the employment impacts due to amended efficacy standards, regardless of the shipment scenario. For example, the Existing Technologies base case has an average of 620 more total U.S. employees than the Emerging Technologies base case. The difference in employment in these two base cases far exceeds the employment impacts due to proposed standards.

In the standards cases, the employment impacts in the IRL industry vary depending on how shipments change over time. Because labor expenditures are assumed to be a fixed percentage of COGS and the MPCs increase with more efficacious products, labor expenditures track the increased prices in the GRIM. Employment generally increases for the no product substitution shipment scenarios, regardless of the base case and the efficacy shipment distribution scenario chosen. Under these scenarios, shipments remain more stable in the standards cases throughout the analysis period and labor expenditures increase with the higher prices of standards-compliant lamps. Employment generally decreases for the product substitution shipment scenarios, regardless of the base case and the efficacy distribution scenario chose. Under these scenarios, the decrease in shipments in the standards cases overcome the higher labor expenditures needed to manufacture higher cost lamps, lowering the overall labor expenditure. However, regardless of the scenario selected, using the average employment over the analysis period shows relatively minor employment impacts.13-61



### The employment impacts calculated by DOE are independent of the employment impacts f rom the broader U.S. economy, which are documented in chapter 15 of the TSD accompanying this notice. The employment conclusions also do not account for the possible relocation of domestic jobs to lower-labor-cost countries because the potential relocation of U.S. jobs is uncertain and highly speculative. During interviews, manufacturers did not emphasize the risk of shifting production facilities. However, some manufacturers did indicate that the IRL standards could lower employment in their existing facilities. Because manufactures assume shipments will decrease over the analysis period, manufactures indicated that it would be difficult to justify the investments necessary to expand the production of more efficacious IRL. If manufacturers do not invest to meet existing demand after the effective date of the standard, employment levels would be adjusted based on the overall shipment volume of IRL.

13.7.2 Manufacturing Capacity
Amended energy conservation standards will not significantly affect the production capacity of GSFL manufacturers. For GSFL manufacturers, any necessary redesign of GSFL will not change the fundamental assembly of the products because higher TSLs require the use of more efficient phosphor coatings. Therefore, in the long-term there should be no capacity constraints. However, higher standards also expedite a natural conversion of T12 shipments to T8 shipments. Because most production lines are specific to lamp diameter, shifting production from T12 to T8 requires shutting down the line and retooling. Based on the duration of line changes described by manufactures, DOE estimates that the conversion of machinery to T8 is possible between the announcement date and the effective date of the standards. In addition, manufactures indicated it is possible to ramp up production before shutting down a line to maintain a constant supply of shipments during retooling.

Manufacturers are concerned that IRL standards could cause capacity constraints if standards alter the assembly of standard halogen burners. In particular, IRL manufacturers are concerned about the ability to convert their equipment in time to meet an exclusively HIR standard (TSL 3, TSL 4, and TSL 5). Although all manufacturers DOE interviewed produce lamps with infrared burners, the current volume of these lamps is many times lower than the volume of standard halogen lamps. In addition, the production of infrared capsules is much more time consuming, requiring additional time for the coating process and quality control due to the precision necessary for the technology to increase efficacy. In general, the large manufacturers are concerned about their ability to increase the production volume of HIR capsules in time to meet the standard. Interviews with suppliers of HIR capsules and coating decks suggest that the capacity could be met at an HIR standard. Based on discussions with suppliers of infrared coaters, DOE also estimates that lamp manufactures will have enough time in between the announcement date and the effective date of the standards to purchase and install the necessary coaters to meet an infrared standard and produce all burners in their own facilities. Independent of manufacturers’ ability to install coaters to produce all infrared burners in-house, independent suppliers of infrared capsules suggested that they have the ability to supply a significant portion of the market. Because manufacturers could install additional coaters, purchase infrared burners from a supplier, and use existing excess capacity, IRL manufacturers will be able to maintain production capacity levels and continue to meet market demand for all IRL standard levels.13-62



### 13.7.3 C umulative 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 product-specific regulations that could affect GSFL and IRL manufacturers or their parent company that will take effect three years before or three years after the effective date of the amended energy conservation standards for GSFL and IRL. d 

### DOE

a lso describes additional state regulations and reporting requirements with which manufactures of GSFL and IRL must comply.

Companies that produce a wider range of regulated products may be faced with more capital and product conversion expenses than their competitors. This can prompt those companies to exit the market or reduce their product offerings, potentially reducing competition. Smaller companies can be especially impacted since they have lower sales volumes over which to 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.

13.7.3.1 Federal DOE Regulations on Other Products Produced by the GSFL and IRL Manufacturers
In addition to the energy conservation regulations on GSFL and IRL products, several other Federal regulations and pending regulations apply to other products 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 13.7.9 lists the Federal regulations that could also affect manufacturers of GSFL and IRL in the three years leading up to and the three years after 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.

d The effective date for GSFL and IRL is 3 years from the date of publication of the final rule (approximately June 2 012)13-63



### Table 13.7.9 Other DOE and Federal Actions Affecting the GSFL and IRL Industries Regulation A pproximate Effective Date* Number of Impacted Companies from the MTA Estimated

Industry Total Conversion Expenses** (millions) Residential Refrigerators and Freezers 2010* 2 N/A †

Commercial Distribution Transformers 2010 1 $13.5 (2006$) e

Dishwashers 2012 2 N/A †
Dehumidifiers 2012 1 N/A †

Cooking Products 2012* 2 N/A †

Commercial Clothes Washers 2012* 1 N/A † Packaged Terminal Air Conditioners and Heat Pumps 2012* 1 $17.3 (2007$) f

Residential Fluorescent and Incandescent Lamps 2012* 3 N/A †

Residential Clothes Washers 2014* 2 N/A †

Room Air Conditioners 2014* 1 N/A †

Battery Chargers 2014* 2 N/A †

Residential Water Heaters 2015* 1 N/A † *The dates listed are an approximation. The exact dates are pending final DOE action. ** Total conversion expenses include both capital and product 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 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 2007), DOE did not estimate total industry conversion expenses because a MIA was not completed as part of a rulemaking. Pub. L. 110-140.



### A dditional investments necessary to meet these potential standards could have significant impacts on manufacturers of GSFL and IRL. However, DOE has limited data on the importance of these other regulated products for manufacturers of GSFL and IRL. Differences in market shares and manufacturing processes of other regulated products for each manufacturer could cause varying degrees of burdens on these manufacturers. Therefore, DOE did not estimate the costs of compliance for other regulations.

e Estimated industry conversion expenses were published in the TSD for the October 2007 distribution transformers f inal 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
f Estimated industry conversion expenses were published in the TSD for the September 2008 packaged terminal air

c onditioners and heat pumps final rule. 73 FR 58772. The TSD for the 2008 packaged terminal air conditioners and heat pumps final rule can be found at: http://www1.eere.energy.gov/buildings/appliance_standards/commercial/refrig_equip_nopr.html13-64



### 13.7.3.2 E ISA 2007 Requirements
EISA 2007 contained minimum energy conservation standards for general service incandescent lamps (GSIL), extended coverage of IRL standards, and contained reporting requirements for certain types of lamps (Pub. L. 110-140). The EISA 2007 requirements prescribe separate energy conservation standards and minimum rated lifetimes for GSIL and modified spectrum GSIL, with effective dates ranging from January 1, 2012 to January 1, 2014. The phased-in standards for these two types of lamps are shown in Table 13.7.10 and Table 13.7.11 below.

Table 13.7.10 EISA 2007 GSIL Standards Rated Lumen Ranges Maximum Rate

Wattage Minimum Rate

Lifetime Effective Date

1490 – 2600 72 1,000 hours 1/1/2012 1050 – 1489 53 1,000 hours 1/1/2013 750 – 1049 43 1,000 hours 1/1/2014 310 – 749 29 1,000 hours 1/1/2014

Table 13.7.11 EISA 2007 Modified Spectrum GSIL Standards Rated Lumen Ranges Maximum Rate

Wattage Minimum Rate

Lifetime Effective Date

1118 – 1950 72 1,000 hours 1/1/2012 788 – 1117 53 1,000 hours 1/1/2013 563 – 787 43 1,000 hours 1/1/2014 232 – 562 29 1,000 hours 1/1/2014

All three major manufacturers of GSFL and IRL also manufacture large volumes of GSIL. Consequently, these companies will also incur capital and product conversion investments to comply with the GSIL minimum energy conservation standards. The GSIL investments could also compete with IRL and GSFL for company resources. For example, GSFL, IRL, and GSIL share many of the same limited engineering resources. In addition, the capital costs to comply with EISA 2007 could potentially limit the funding available for GSFL and IRL conversions because these investments will compete for the same sources of capital.

EISA 2007 also amended EPCA’s definition for incandescent reflector lamp and amended the standard in 42 U.S.C. 6295(i)(1). Prior to EISA 2007, the statutory definition for IRL excluded ellipsoidal reflector (ER) shaped and BR shaped lamps and lamps with a diameter less than 2.75 inches. However, EISA 2007 amended this definition to include ER and BR shaped lamps and lamps with diameter greater than 2.25 inches. EISA 2007 also amended 42 U.S.C. 6295(i)(1) to exempt the following lamps from the minimum efficacy requirements: (1) lamps rated at 50 watts of less that are ER30, BR30, BR40, and ER40; (2) lamps rated at 65 watts that are BR30, BR40, or ER40 lamps; and (3) R20 incandescent reflector lamps rated 45 watts or less.13-65



### DOE does not have an estimate for the total conversion costs that manufacturers of GSFL

a nd IRL would incur to comply with the EISA 2007 requirements for GSIL and IRL because an MIA was not completed for the legislatively determined energy conservation standards.

Finally, EISA 2007 requires NEMA to report yearly sales volumes for rough service, vibration service, 2601 – 3300 lumen general service, 3-way, and shatter-resistant lamps from 2010 to 2025. NEMA is also required to submit historical shipments for these five types of lamps for DOE to construct a shipment model. These five types of lamps could be regulated by DOE if the actual sales volume of that type of lamp exceeds the volume predicted in DOE’s model by 100 percent or more in any given year (42 U.S.C. 6295(l)(4)).

13.7.3.3 Restriction of Hazardous Substances Directive
According to manufacturers, the Restriction of Hazardous Substance Directive g 

### (RoHS) h as had some impact in the lighting industry, specifically the GSFL industry. Under the directive, all manufacturers are banned from placing on the European Union market new electrical and electronic equipment containing more than agreed 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. Manufacturers of GSFL have said that RoHS impacts in the way GSFL are manufactured because some amount of mercury is used in lamp manufacturing. However, manufacturers do not anticipate RoHS will significantly impact the GSFL or IRL industries as a whole. According to manufacturers, the industry has already lowered mercury and lead levels to below RoHS specifications.

13.7.3.4 Reporting Requirements
In November 2006, NRCan published a bulletin proposing to amend Canada's Energy Efficiency Regulations. NRCan proposed testing and labeling requirements for light output, input wattage, and rated lifetime for GSFL, medium base, integrally ballasted CFLs, and reflector and non-reflector GSIL. 3



### I n addition to the EPCA mandated product performance reporting (42 U.S.C. 6295(i)(7)), California mandates that manufacturers report lamp type, rated lumens, nominal lamp wattage, rated color rendering index (for GSFL) and average lamp efficacy for all Federally-regulated general service fluorescent lamps, federally regulated incandescent reflector lamps, and state regulated incandescent reflector lamps. California also requires manufactures to report rated lumens, rated lamp wattage, bulb finish, average lamp efficacy, and ANSI-designated bulb shape for state-regulated GSIL. 4



### Th e Interstate Mercury Education and Reduction Clearinghouse (IMERC) was launched in 2001 as single point of contact between industry and member states and to provide assistance regarding state regulations on mercury legislation. Currently Connecticut, Louisiana, Maine, Massachusetts, Minnesota, New York, Rhode Island Vermont, and Washington State require

g Further information about RoHS can be found at h ttp://eur-lex.europa.eu/LexUriServ/site/en/oj/2003/l_037/l_03720030213en00190023.pdf13-66



### labeling in order to sell of mercury-added products. In addition, Connecticut, Louisiana, Maine, M assachusetts, New Hampshire, New York , North Carolina, Rhode Island, and Vermont require a notification to be filed through IMERC or with each individual state. 5



### 1 3.7.4 Impacts on Small-Business Subgroup

DOE found the small business manufacturer of covered GSFL shared some of the same concerns as large manufacturers regarding energy conservation standards. However, the small manufacturer was less concerned about the potential of standards to severely harm its business. Because the small manufacturer is more focused on specialty products not covered by this rulemaking, covered GSFL represents a smaller portion of its revenue and product portfolio. In addition, this manufacturer stated that it is possible to pass along cost increases to consumers, limiting margin impacts due to amended energy conservation standards.

DOE could not use the GRIM to model the impacts of energy conservation standards on the small business manufacturer. The GSFL GRIM models the impacts on GSFL manufacturers if concerns about margin pressure and significant capital conversion investments necessitated by standards are realized. The small manufacturer did not share these concerns. While the small business manufacturer also stated that more efficacious products earn a premium, unlike larger manufacturers, the small business manufacturer stated it can pass costs along to its customers. Because of its focus on specialized products, the small business manufacturer is more concerned about being able to offer the products to their customers than the impact on its bottom line.

13.8 CONCLUSIONS
The following sections summarize the different impacts for the two scenarios that are most likely to capture the range of impacts on GSFL and IRL manufacturers as a result of amended energy conservation standards. DOE also notes that while these two 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 and more closely inline with the other scenarios analyzed.

13.8.1 GSFL
To assess the lower end of the range of potential impacts for the GSFL industry, DOE considered the flat markup scenario under the Existing Technologies base-case shipments with high lighting expertise and a shift in efficacy distributions. Besides the impact of shipments on the INPV, this case assumed that manufacturers will be able to maintain gross margins as a percentage of revenues as production cost increases with efficacy. To assess the higher end of the range of potential impacts for the GSFL industry, DOE considered the scenario reflecting the four-tier markup scenario under the Emerging Technologies base-case shipments with market based lighting expertise and a rollup in efficacy distributions. Besides the impact of shipments on the INPV, this case pessimistically assumed standards would reduce manufacturers’ portfolio, therefore squeezing the margin of higher efficacy products as they are “demoted” to lower relative efficacy tier products.

For the GSFL MIA, margin impacts are the most significant driver of INPV. The potential margin impacts on manufacturers are based on their ability to maintain higher margins13-67



### as standards remove efficacy as a differentiator of premium products. The potential for standards
t o disrupt the premium margins for efficacy is captured in the high and low bound scenarios DOE presents. The lower bound scenario represents the situation where manufacturers maintain their current “good, better, best” marketing strategy by basing higher margins on features other than efficacy or coming up with more efficacious products. The large impacts on industry value in the upper bound scenario are caused by higher standards disrupting manufacturers’ current marketing strategy. In this scenario, manufactures cannot maintain higher margins when efficacy is lost as a differentiator and higher standards lower profitability. Other drivers of INPV are less significant because: (1) the capital costs required at each TSL are relatively small compared to the industry revenue; and (2) shipments do not substantially change regardless of the scenario.
DOE estimated the impacts on INPV at TSL 1 to range from $49 million to $93 million, equal to a 8.18 percent to 16.09 percent increase. At this level, the highest impact on cash flow in the year leading up to the standards occurs under the Emerging Technologies base case. Under this scenario, industry cash flow decreases by approximately 37 percent, to $32 million, compared to the base case value of $50 million in the year leading up to the standards. Product conversion costs are low at TSL 1 because manufacturers have existing products that meet the efficacy levels. Capital conversion costs are also low at this TSL because a minimal amount of T12 machinery needs to be converted to meet the growing volume of T8 production induced by standards. The necessary conversion costs to meet TSL 1 are low relative to the conversion costs for the natural market migration from T12 to T8 lamps in the base case, which helps to mitigate the impact of the standards-induced conversion costs. The positive INPV predicted in the flat markup scenario is indicative that product conversion and capital conversion outlays are also low relative to the increase in variable production costs. Whereas GSFL production is capital intensive, the conversion capital requirements are a function primarily of the tube diameter. Energy conservation standards which do not require a change in diameter will typically require a change in phosphors which is not capital intensive. Under the tiered markup scenario manufacturers are left with a range of products after standards, so they still earn higher markups on a wide variety of premium products. In fact the products eliminated at TSL 1 are commodity products which have a lower than average profit margin. Thus, industry revenues and cash flows are not negatively affected and manufacturers actually benefit from the higher prices of remaining products.
At TSL 2, DOE estimated the impacts in INPV at TSL 2 to range from $50 million to $63 million, equal to a 8.31 percent to 11.02 percent increase. At this level, the highest impact on cash flow in the year leading up to the standards occurs under the Emerging Technologies base case. Under this scenario, industry cash flow decreases by approximately 60 percent, to $20 million, compared to the base-case value of $50 million in the year leading up to the standards. Product conversion costs are still relatively low at TSL 2 because few manufacturers will have to have to modify exiting products to meet this standard level. Capital conversion costs are also low at this TSL, but the investments required to meet TSL 2 are larger than TSL 1 because more T12 machinery needs to be converted to meet the growing volume of T8 production induced by standards. INPV is less positive at TSL 2 than at TSL 1 because the higher conversion costs necessary to meet TSL 2 lower the mitigating impact of the conversion costs for the natural market migration from T12 to T8 lamps included in the base case. At TSL 2 more of the mostefficacious, higher-priced T12 lamps are shifting to less expensive T8 lamps. INPV in the fourtier markup scenario is also not as positive because manufacturers have fewer premium products13-68



### and the profit margins on some more efficacious T12 products begin to shrink. While TSL 2

e liminates some of the premium T12 lamps, the T8 lamps to which consumers must migrate still earn a higher markup.

At TSL 3, the impact on INPV and cash flow depends heavily on the ability of manufacturers to differentiate products and maintain higher margins as standards move consumers to previously premium products. DOE estimated that the impacts on INPV at TSL 3 range from approximately $71 million to -$139 million, equal to a 11.78 percent to -24.15 percent change. At this level, the highest impact on cash flow in the year leading up to the standards occurs under the Emerging Technologies base case. Under this scenario, industry cash flow decreases by approximately 100 percent, to $0 million, compared to the base-case value of $50 million in the year leading up to the standards. At TSL 3, most manufacturers expressed concerns about the ability to maintain production volumes of T12 and T8 lamps because all but the most efficacious T12 lamps are eliminated. Because a large portion of existing T12 shipments migrate to T8, manufacturers have to convert or replace a significant portion of their T12 production lines to T8, making capital conversion costs higher at TSL 3 than at TSL 1 or TSL 2. Conversion costs are also higher at TSL 3 because manufacturers have to make more R&D expenditures to offer a full line of T12 and T8 products that meet the standard. Because TSL 3 greatly accelerates the migration of T12 to T8 products, the conversion costs in the base case have a minimal effect on offsetting INPV impacts from high standards-induced conversion costs at TSL 3 and all higher TSLs. If manufacturers can pass along the increased production costs of more efficacious products by differentiating the products with features such as low mercury content and longer life, they can recoup margins, mitigating some of the impacts. If manufacturers can fully differentiate their products and earn the same profit margins as in the base case (the lower range of impacts), they will benefit from higher prices and INPV will be positive at this TSL. However, if manufacturers cannot differentiate their products and the margins on previously premium products begin to erode with commoditization, the higher end of the range of negative INPV will be reached.
At TSL 4, DOE estimated the impacts on INPV range from approximately -$9 million to -$195 million, equal to a -1.48 percent to -33.96 percent change. At this level, the highest impact on cash flow in the year leading up to the standards occurs under the Emerging Technologies base case. Under this scenario, industry cash flow decreases by approximately 171 percent, to - $36 million, compared to the base-case value of $50 million in the year leading up to the standards. At TSL 4, there are significant capital conversion expenses because all T12 production lines need to be converted to T8 lines; the capital requirement for this conversion is nearly double the amount needed at TSL 3. The large conversion capital costs make INPV negative even if manufacturers maintain the margin on all lamps, as in the base case. Also, manufacturers expressed concern that the highest grade phosphor mixtures would be necessary on most lamps to meet efficacies prescribed by TSL 4. The more efficient phosphor blends substantially increase lamp costs, decreasing profitability if the cost increases cannot be passed on to consumers. That is, at TSL 4, more T8 lamps that previously earned a premium are commoditized because the standard eliminates all T12 lamps from the market, squeezing margins on all lamps and causing more negative impacts in the four-tier markup scenario.
At TSL 5, DOE estimated that the impacts on INPV range from approximately $13 million to -$263 million, equal to a 2.21 percent to -45.80 percent change. At this level, the13-69



### highest impact on cash flow in the year leading up to the standards occurs under the Emerging Te chnologies base case. Under this scenario, industry cash flow decreases by approximately 183 percent, to -$42 million, compared to the base-case value of $50 million in the year leading up to the standards. At TSL 5, the necessary capital conversion expense is identical to TSL 4 because this TSL also requires manufacturers to convert all existing T12 production to T8 production. These large costs make INPV negative even if manufacturers pass along all production cost increases to the consumer. At TSL 5, all products are commoditized because all lamps must use the most efficient phosphor coatings. There are few options available for manufacturers to differentiate lamps at TSL 5, making it more likely that manufacturers will be negatively affected.

13.8.2 IRL
To assess the lower end of the range of potential impacts for the IRL industry, DOE considered the Existing Technologies base case reflecting the no product substitution scenario with a shift in efficacy distributions. In this scenario: (1) manufacturers benefit from higher prices from consumers switching to more efficacious products on their own (the shift scenario); (2) IRL base-case shipments are not eroded due to emerging technologies; and (3) standards case shipments do not decrease due to substitutions of R-CFL and exempted BR lamps for IRL. To assess the higher end of the range of potential impacts for the IRL industry, DOE considered the Emerging Technologies base case reflecting the product substitution scenario with a rollup in efficacy distributions. In this scenario, (1) IRL base-case shipments are eroded due to emerging technologies, and (2) standards-case shipments decrease due to substitutions of R-CFL and exempted BR lamps for IRL.

To meet TSL 1 (improved halogen (xenon)) manufacturers must replace less efficient fill gases in the capsule with xenon. At TSL 1, DOE estimated the impacts on INPV to be between - $4 million and -$16 million, or a change in INPV of -1.55 percent and -7.69 percent. At this level, the highest impact on cash flow in the year leading up to the standards occurs under the Emerging Technologies base case. Under this scenario, the industry cash flow decreases by approximately 68 percent, to $7.1 million, compared to the base-case value of $22.5 million in the year leading up to the standards. All manufacturers have a full range of products that meet this TSL. Conversion expenses are relatively low at this level because using xenon does not require substantial changes to the manufacturing process. The lifetimes of standards-compliant lamps does not change at TSL 1, thus shipments in the standards cases are not further impacted by lower shipments due to higher lamp lifetimes. In fact, at this TSL, manufacturers benefit from the increased prices of standards-compliant lamps. However, this positive impact on revenues is not enough to overcome the product and capital conversion expenses, making overall INPV negative. The greater impact on shipments in the Emerging Technologies base case with product substitution drives INPV more negative.

TSL 2 is based on a 6,000 hour HIR lamp (long life HIR), but this level may also be achieved using an improved reflector (improved halogen (silver)). At TSL 2, the impact on INPV and cash flow depends on manufacturers’ ability to recoup the conversion capital and product conversion expenses and the extent to which shipments are reduced in the base case due to emerging technologies and in the standards shipment case due to changes in the product mix (including lamp lifetime). DOE estimated the impacts in INPV at TSL 2 to be between -$5213-70



### million and -$58 million or a change in INPV of -19.36 percent and -27.87 percent. At this level,
t he highest impact on cash flow in the year leading up to the standards occurs under the Emerging Technologies base case. Under this scenario, the industry cash flow decreases by approximately 172 percent, to -$16.2 million, compared to the base-case value of $22.5 million in the year leading up to the standards. At TSL 2, there are negative impacts on manufacturers due to decreased shipments and significant product conversion expenses. At this TSL, conversion expenses vary greatly among manufacturers but are significant in the aggregate due to the need to increase production of HIR lamps or invest in improved reflector technology. Two manufacturers have a complete line of standards-compliant lamps but must spend a considerable amount of resources to expand production of a low-volume, premium product for mass production. Another manufacturer must spend a significant amount of capital to purchase the machinery to meet demand with exclusively higher technology (infrared) lamps in addition to replacing krypton with xenon as fill gas in the capsule. The shipment scenarios chosen account for the range in INPV. Shipments have a significant impact on INPV at this TSL in all cases because the products that meet this standard have the longest lifetimes in the standards cases, further decreasing shipments relative to the base cases. Some manufacturers have expressed concerns about competitive impacts at this TSL. One manufacturer has a patent on silverized reflectors. Another manufacturer is believed to have a cross license on the technology. Despite the large capital conversion expense to expand this reflector technology for all baseline lamps to meet this TSL, both these manufacturers could capture market share by selling less expensive lamps based on improved reflector coating instead of HIR technology. The other manufacturer without access to the enhanced reflectors would have to make large capital and product conversion expenditures to produce lamps with a comparable efficacy, but at higher costs.

TSL 3 is based on 3,000 hour HIR technology. DOE estimated the impacts on INPV at TSL 3 to be between -$62 million and -$76 million or a change in INPV of -23.06 percent and - 36.85 percent. At this level, the highest impact on cash flow in the year leading up to the standards occurs under the Emerging Technologies base case. Under this scenario, the industry cash flow decreases by approximately 272 percent, to -$38.6 million, compared to the base-case value of $22.5 million in the year leading up to the standards. There are significant capital conversion expenses at this TSL that make INPV negative. Manufacturers must purchase additional infrared coaters to increase the production of these low-volume lamps. Since current HIR production is very small relative to standard halogen IRL, all manufacturers voiced their concerns about meeting demand at this level. Also, since all existing HIR capsules use xenon as the fill gas, manufactures are concerned about the high material costs for this gas and the potential for the price to increase over time. The high costs to convert all lamps to HIR technology drive INPV negative and strand existing equipment for standard halogen capsules. The range of INPV arises from the shipment scenarios that account for different market erosiondue to emerging technologies and standards inducing a switch to non-covered BR lamps and RCFL. If manufacturer concerns about consumers switching to exempted BR and R-CFL are realized in addition to emerging technologies eroding the IRL market, then the higher end of the range of negative INPV will be reached.

TSL 4 requires the production of an improved HIR lamp. At TSL 4, DOE estimated the impacts in INPV to be between -$77 million and -$94 million, or a change in INPV of -28.85 percent and -45.60 percent. At this level, the highest impact on cash flow in the year leading up to the standards occurs under the Emerging Technologies base case. Under this scenario, the13-71



### industry cash flow decreases by approximately 338 percent, to -$53.6 million, compared to the b ase-case value of $22.5 million in the year leading up to the standards. The significant capital and product conversion expenses at this TSL make INPV negative. At this TSL, all manufacturers must expand production of the more efficacious HIR technology to meet demand of the entire market. Since current HIR production is relatively low, these substantial costs make INPV negative. The capital conversion expenses are large because, in addition to HIR technology, manufacturers must also use enhanced reflectors or the most efficient burners and add xenon. Also, since all existing HIR capsules use xenon as the fill gas, manufactures are concerned about the high material costs for this gas and the potential for the price to increase over time. The lifetimes of products that meet this TSL are longer than the baseline, creating a negative impact on INPV from shipments regardless of the shipment scenario selected. Manufacturers also voiced concerns about competition at TSL 4. Because lamps can use an enhanced reflector with HIR to meet TSL 4, manufacturers have the same competitive concerns as at TSL 2. Finally, two manufacturers currently have a full line of lamps that meet TSL 4. A third manufacturer has some products, but would have to undertake a costly redesign of its burners in order to sell a full line of those lamps.

TSL 5 requires the production of lamps with an improved HIR coating and an additional improvement (improved HIR plus). At TSL 5, DOE estimated the impacts in INPV to be between -$82 million and -$103 million, or a change in INPV of -30.85 percent and – 49.60 percent. At this level, the highest impact on cash flow in the year leading up to the standards occurs under the Emerging Technologies base case. Under this scenario, the industry cash flow decreases by approximately 381 percent, to -$63.1 million, compared to the base-case value of $22.5 million in the year leading up to the standards. The impacts at TSL 5 are the most severe for manufactures because the capital and product conversion expenses are greatest at this TSL. At this TSL, all manufacturers must expand production of a lamp with multiple improvements over standard HIR lamps. Manufacturers must use HIR technology with an improved coating and with either enhanced reflectors or more efficient burners. Since even standard HIR production is currently low compared to standard halogen, expanding the production of the most efficacious HIR technology to meet demand of the entire market is very costly. Due to the large conversion costs, INPV is greatly negative even if the market is not eroded by emerging technologies and customers do not substitute R-CFL and exempted BR lamps for IRL. If manufacturers concerns about emerging technologies and substitutions for IRL are realized, the higher range of negative impacts to be reached (a 49.60 percent decrease in INPV).13-72



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