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### APPENDIX 12

- A : RESIDENTIAL DISHWASHER RULEMAKING

DIRECT FINAL RULE TECHNICAL SUPPORT DOCUMENT

Manufacturer Impact Analysis Interview Guide12

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- 2 The Department of Energy (DOE) conducts the manufacturer impact analysis (MIA) as part of the rulemaking process for amended energy conservation standards for dishwashers. In this analysis, DOE uses publicly available information and information provided b y manufacturers during interviews to assess possible impacts on manufacturers due to amended energy

conservation standards.

The Association of Home Appliance Manufacturers (AHAM) and the American Council for an Energy Efficient Economy (ACEEE) released a multi

- product standards agreement (Consensus Agreement) that addressed negotiated standards for refrigerators/freezers, clothes washers, clothes dryers, room air conditioners, and dishwashers. For dishwashers, the Consensus Agreement proposes updated stan dards for standard and compact product classes (Table 1.1). DOE’s rulemaking process allows for a direct publication of a final rule if DOE concludes that standards proposed in the Consensus Agreement meet certain statutory criteria. In order to

evaluate t he product classes and standards proposed in the Consensus Agreement for dishwashers, DOE is requesting information on the topics in this questionnaire.

DOE is requesting information on the product classes in the table below

Table 1

. 1 AHAM

- ACEEE Multi

- Product Standards Agreement

- Dishwashers

Product Class Product Class Description Annual Energy

Use (kWh/year) Water Use (gallons/cycle)

1. Standard Standard ( ≥ 8 place settings plus 6 serving pieces) 307 5.0

2. Compact Compact (< 8 place settings plus 6 serving pieces) 222 3.5

1 KEY ISSUES

1.1 In general, what are the key issues for your c ompany regarding amended energy conservation standards for dishwashers and this rulemaking?

1.2 Are any of the issues more or less significant for the compact versus standard

- size product classes?

1.3 Do any of the issues become more significant at higher efficiency levels?

1.4 Do you have any suggestions for incorporating any of these issues into the in to DOE’s manufacturing impact model?12

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- 3 2 COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

DOE is interested in understanding manufacturer impacts at the plant or profit center level directly pertinent to dishwasher production. However, the context with in which this profit center operates and the details of plant production are not always readily available from public sources. Understanding the organizational setting around the dishwasher industry profit center will help DOE understand the probable futur e of the manufacturing activity with and without amended energy conservation standards.

2.1 What percentage of your dishwasher manufacturing corresponds to each product class, both in terms of revenue and shipments? Please indicate if you do not manufact ure products in any given product class. Please also indicate whether you purchase your dishwashers from other manufacturers (i.e. private label), and whether the factory that supplies the product is located in

the United States.

Table 2

. 2 Dishwasher Revenue and Shipment Volumes by Product Class

Product

Class

Number Product Type 2010 Revenue 2010 Shipments % Private

Label % Made in

U.S.

1 Standard

2 Compact

2.2 What is your company’s approximate market share in the dishwasher market?

3 ENGINEERING AND LIFE

- CYCLE COST ANALYSIS

The following series of exhibits and questions address technical characteristics of key residential dishwasher components for both baseline and improved

- efficiency products.

3.1 Baseline Dishwashers

Based on preliminary observation, DOE expects a “baseline” dishwasher (i.e. one that just meets existing AEU and water consumption standards) to include the following design features impacting energy use: electromechanical contro ls, no soil sensor, a non

- insulated plastic tub, a

tubular in

- tub heater (with a normal power dry feature), a temperature switch, a tub float for fill control, a plastic filter for large particles plus a macerator, one lower spray arm with a spray

tower, a nd a single

- speed pump motor.

**•** Are these features consistent with what you would expect for a baseline standard

- size

dishwasher?

**•** Would you expect the same design features to be incorporated in a baseline compact

dishwasher?

**•** How do the design features fou nd in baseline dishwashers address customer utility?12

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- 4 3.2 Incremental Efficiency Levels

DOE proposes to evaluate efficiency levels based on the AEU and water use specifications prescribed by ENERGY STAR and the Consortium for Energy Efficiency (CEE), along with certain gap

- fill and maximum levels that are currently available on the market as listed in the ENERGY STAR and California Energy Commission (CEC) product databases.

Table 3

. 1 and Table 3 .2 show the proposed efficiency levels for both product classes.

Table 3

. 3 Dishwasher Efficiency Levels

– Standard

- Size Product Class

Level Efficiency Level Description Annual Energy

Use (kWh/year) Water Consumption (gallons/cycle)

Baseline DOE Standard 355 6.5

1 ENERGY STAR (current) 324 5.8

2 ENERGY STAR (July 1, 2011)/CEE Tier 1/Consensus Agreement 307 5.0

3 CEE Tier 2 295 4.25

4 Gap Fill* 234 3.8

5 Maximum Available* 180 1.6

*Source: ENERGY STAR

- qualified dishwashers as of January 30, 2011.

Table 3

. 4 Dishwasher Efficiency levels

-- Compact Product Class

Level Efficiency Level Description Annual Energy

Use (kWh/year) Water Consumption (gallons/cycle)

Baseline DOE Standard 260 4.5

1 ENERGY STAR (current) 234 4.0

2 ENERGY STAR (July 1, 2011)/CEE Tier 1/Consensus Agreement 222 3.5

3 Gap Fill* 200 2.8

4 Gap Fill* 174 2.7

5 Maximum Available* 154 2.1

*Source: ENERGY STAR

- qualified dishwashers as of January 30, 2011.

**•** Are the proposed efficiency levels appropriate?

**•** Can you suggest more appropriate “max

- tech” efficiency levels?

3.3 Are the design options listed in Table 3.3 below for each efficiency level representative of the features your company incorporates at each of these levels? Also, please indicate the incremental costs associated with the design option s your company uses at each efficiency level.

The design options listed at each efficiency level reflect the incremental changes made to the unit at the previous level. These are based on DOE’s preliminary observations, and do not necessarily represent t he final list of design options DOE will analyze for this rulemaking. These incremental changes assume a baseline unit as described in section 3.1.12

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- 5 Table 3

. 5 Standard

- Size Dishwasher Design Options and Incre mental Costs

Level Design Options Description Design Options (if different) Incremental

Costs

1 Electronic controls with a linear power supply, stainless steel large and fine particle filters with no macerator, and multiple

spray arms.

2 A turbidity sensor for soil sensing, insulation around the plastic tub, a switch mode power supply, and a 3

- speed pump motor.

3 An in

- line flow

- through water heater, no power dry feature, a circulation fan to aid condensation drying, a stainless steel tub

with complete bitumen insulation plus cotton insulation for the door, a temperature sensor, a flow meter, a small heat exchanger for inlet water pre

- heating, a diverter valve for the multiple spray arms, and a variable speed pump motor.

4 Similar to EL3, wit h a humidity sensor controlling the circulation fan, and lower wash and rinse temperatures.

5 No circulation fan to aid condensation drying, a flow

- through heater integrated in the pump, cotton insulation around the entire tub, and a larger heat exchanger for inlet water pre

- heating.

**•** What tradeoffs can be made between the wash and dry cycles to achieve higher efficiencies?

**•** Do you find the reliability/life of electronic controls to differ from mechanical ones?

**•** What are the impacts on customer utility of the design changes used to increase efficiency?

**•** Are these design options and associated costs different for compact dishwashers?

3.4 Are installation costs a function of efficiency? Maintenance costs? Repair costs?

**•** If yes, would you please ch aracterize this relationship by providing incremental installation, maintenance, and/or repair cost data?

**•** How are these costs different for standard vs. compact dishwashers?

4 MARKUPS AND PROFITABILITY

One of the primary objectives of the MIA is to assess the impact of amended energy conservation standards on industry profitability. In this section, DOE would like to understand the current markup structure of the industry and how amended energy conservat ion standards would impact your company’s markup structure and profitability.

DOE estimated the manufacturer production costs for the two product classes of dishwashers. DOE defines manufacturer production cost as all direct costs associated with manufac turing a product: direct labor, direct materials, and overhead (which includes depreciation). The manufacturer markup is a multiplier applied to manufacturer production cost to cover non

production costs, such as SG&A and R&D, as well as profit. It does n ot reflect a “profit margin.”

The manufacturer production cost times the manufacturer markup equals the manufacturer selling price. Manufacturer selling price is the price manufacturers charge their first customers,

but does not include additional costs along the distribution channels.12

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- 6 DOE estimated a baseline markup of 1.24 for dishwashers.

4.1 Is the 1.24 baseline markup representative of an average industry markup?

4.2 Please comment on the baseline markups DOE calculated as compared to your company’s baseline markups for the dishwasher product classes.

Table 4

. 6 Residential Dishwasher Baseline Manufacturer Markups by Product Class

Product

Class Product Type Estimated

Baseline Markup Manufacturer Comments or Revised Estimates

1 Standard 1.24

2 Compact 1.24

4.3 How are markups and margins determined in this industry? How would standards potentially impact this pricing/margin structure? Please indicate if profit levels vary between product classes or product line. If yes, please explain why.

4.4 One of the possible scenarios DOE uses to model impacts on industry profitability is the impact of commoditization of premium products. Because the market disruption caused by

standa rds can alter the pricing of premium products, DOE is interested in understanding if efficiency is a feature that earns a premium. Within each product class, do markups vary by efficiency level? If yes, please provide estimates for your markups by product class and efficiency level in Table 4.2 and Table 4.3

.

Table 4.2 Estimated Markups for Standard Size Dishwashers

Efficiency

Level Annual Energy

Use (kWh/year) Estimated Markup Manufacturer Comments

1 324

2 307

3 295

4 234

5 180

Table 4.3 Estimated Markups for Compact Dishwashers

Efficiency

Level Annual Energy

Use (kWh/year) Estimated Markup Manufacturer Comments

1 234

2 222

3 200

4 174

5 15412

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- 7 4.5 What factors or product attributes besides efficiency affect the profitability of dishwashers within a product class?

4.6 Does your markup change with selected design options? Is the markup on incremental costs for more efficient designs different than the markup on the baseline models (as is assumed for retailer markups used in the analyses)?

4.7 Would you expect changes in your estimated profitability following an amended energy

conservation standard? If so, please explain why. Can you suggest any scenarios that would model these expected changes?

4.8 What is the structure of your distribution channel and how does that influence your markup? Does that change between product classes or across the industry?

5 FINANCIAL PARAMETERS

DOE’s contractor has developed a “strawman” model of the dishwasher industry financial performance called the Government Regulatory Impact Model (GRIM), using publicly available data. However, this public information m ight not be reflective of manufacturing at the dishwasher profit center. This section attempts to understand the financial parameters for dishwasher manufacturing and how your company’s financial situation could differ from the industry aggregate picture.

5.1 In order to accurately collect information about dishwasher manufacturing, please compare your financial parameters to the GRIM parameters tabulated below.12

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- 8 Table 5. 7 Financial Parameters for Residential Dishwasher Manufacturing

GRIM Input Definition Industry

Estimated

Value (%) Your Actual (If

Different from

DOE’s Estimate)

Income Tax

Rate Corporate effective income tax paid (percentage of earnings before taxes, EBT) 33.3%

Discount Rate Weighted average cost of capital (inflation

adjusted weighted average of corporate cost of debt and return on equity) 8

. 1 %

Working Capital Current assets less current liabilities (percentage of revenues) 7.0%

Net PPE Net plant property and equipment (percentage of revenues) 16.7%

SG&A Selling, general, and administrative expenses (percentage of revenues) 13.3%

R&D Research and development expenses (percentage of revenues) 2.3%

Depreciation Amortization of fixed assets (percentage of revenues) 7.4%

Capital Expenditures Outlay of cash to acquire or improve capital assets (percentage of revenues, not including acquisition or sale of business units) 3.2%

Cost of Goods

Sold Includes material, labor, overhead, and depreci ation (percentage of revenues) 80.6%

5.2 Do any of the financial parameters in Table 5.1 change based on product class ? Please describe any differences.

5.3 Do any of the financial parameters in Table 5.1 change for a particular subgroup of manufacturers ? Please describe any differences.

5.4 DOE accounts for one time product and capital conversion costs including research and development, as well as capital expenditures for facility changes and the depreciation of these fixed assets. Beyond these short term changes in cost structure, how would you expect an amended energy conservation standard to impact any of the financial parameters for th e industry

over time?

6 CONVERSION COSTS

Amended energy conservation standards may cause your company to incur capital and product conversion costs to redesign existing products and make changes to existing production lines to be compliant with the amended energy conservation standard. Depending on their magnitude, the conversion costs can have a substantial impact on the outputs used by DOE to evaluate the industry impacts. Understanding the nature and magnitude of the conversion costs is critical

p ortion of the MIA. The MIA considers two types of conversion costs:

**•** Capital conversion costs are one

- time investments in plant, property, and equipment12

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- 9 (PPE) necessitated by an amended energy conservation standard. These may be incremental changes to exis ting PPE or the replacement of existing PPE. Included are expenditures on buildings, equipment, and tooling.

**•** Product conversion costs are costs related research, product development, testing, marketing and other costs for redesigning products necessitated by an amended energy

conservation standard.

DOE asks a number of questions to understand the nature and magnitude of your expected capital and product conversion costs.

6.1 Table 6

. 1 through Table 6

. 4 show the efficiency levels analyzed in the Engineering Analysis for the product categories covered by this rulemaking. Because DOE is using an efficiency level approach for the Engineering Analysis, the design options described in section 3

represent one possible path to reach these efficiency levels. If you would apply d ifferent design options to reach each efficiency level, please describe those changes in detail.

Please provide estimates for your capital conversion costs by product class and efficiency level

in Table 6

. 1 and Table 6

. 2 . In the description column, DOE is interested in understanding the kinds of changes that would need to be implemented to production lines and production facilities at each efficiency level. Where applicable, please quantify the number and cost of new production equipment, molds, etc. that would be required to implement the specified design changes.

Table 6. 8 Expected Capital Conversion Costs for Standard Size Dishwashers

Efficiency

Level Annual Ene rgy
Use (kWh/year) Total Capital

Conversion

Costs Description

1 324

2 307

3 295

4 234

5 180

Table 6. 9 Expected Capital Conversion Costs for Compact Dishwashers

Efficiency

Level Annual Energy

Use (kWh/year) Total Capital

Conversion

Costs Description

1 234

2 222

3 200

4 174

5 15412

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- 10 6.2 Would the changes in question 6.1 be similar across all of your production lines and factories for each product class?

6.3 Are there certain efficiency levels that would require relatively minor changes to existing products? Are there certain efficiency levels where the capital or product conversion costs significantly increase over the previous efficiency levels? Would your a nswer change for different product classes? Please describe these changes qualitatively.

6.4 For each of the product categories shown in Table 6.1 and Table 6.2 , which efficiency level changes c ould be made within existing platform designs and which would result in major product redesigns?

6.5 For the efficiency levels put forth, which design options would require only minor changes to production lines, major changes to production lines, substantial modifications to existing facilities, or the development of entirely new manufacturing facilities ?

6.6 What level of product conversion costs would you expect to incur at each of these efficiency levels for each product class? Please provide your estimates in Table 6.3 and Table 6.4 considering such expenses as product development expenses, prototyping, testing, certification, and marketing. In the description column, please describe the assumptions behind the estimates provided.

Table 6.3 Expected Product Conversion Costs for Standard Size Dishwashers

Efficiency

Level Annual Energy

Use (kWh/year) Total Product

Conversion

Costs Description

1 324

2 307

3 295

4 234

5 180

Table 6.4 Expected Product Conversion Costs for Compact Dishwashers

Efficiency

Level Annual Energy

Use (kWh/year) Total Product

Conversion

Costs Description

1 234

2 222

3 200

4 174

5 154

6.7 Please provide additional qualitative information to help DOE understand the types and nature of your investments, including the plant and tooling changes and the product development effort required at different efficiency levels.12

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- 11 7 CUMULATIVE REGULATOR Y B URDEN

In assessing the impact to industry, DOE seeks to understand the cumulative regulatory burden facing manufacturers. Cumulative regulatory burden refers to the financial burden that stems from overlapping effects of new or revised DOE standards and/ or other regulatory actions affecting the same product or industry. In this regard, DOE will consider other regulations (beyond efficiency) such as materials regulations and building codes that will adversely impact

the cost to either the manufacturer or consumer.

7.1 Have you had any r&d expenditures related to complying with the dishwasher energy conservation standards enacted by the Energy Independence and Security Act of 2007, which became effective in January 2010? What r&d, product development, and testing expenses were required to make your dishwasher compliant? Did you incur any capital expenses to make your products comply? Will any of these changes be coordinated with the changes required by this rulemaking?

7.2 In assessing cumulative regulato ry burden, DOE considers the impacts of other regulations for which the starting effective date falls within a six year timeframe extending from three years before to three years after the proposed dishwasher standards become effective.

Below is a list of other relevant regulations that could affect manufacturers of dishwashers. Please provide any comments on the listed regulations and provide an estimate for your expected compliance cost.

Table 7. 10 Other Regulations Identifie d by DOE

Regulation Estimated or Actual Effective Date(s) Comments Expected Expense for Compliance
Residential clothes dryer energy

conservation standards 2014

Residential clothes washer energy

conservation standards 2015

Phosphate regulations in detergent

in 16 states 2009

- 2010

ENERGY STAR draft qualifying criteria, potentially including wash performance TBD

7.3 Are there any other recent or impending regulations that dishwasher manufacturers face (from DOE or otherwise)? If so, please identify the regulation, the corresponding effective dates, and your expected compliance cost.

7.4 Under what circumstances woul d you be able to coordinate any expenditure related to these other regulations with an amended energy conservation standard?

8 DIRECT EMPLOYMENT IMPACT ASSESSMENT

The impact of amended energy conservation standards on employment is an important consideration in the rulemaking process. This section of the interview guide seeks to explore12

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- 12 current trends in dishwasher manufacturer employment and solicit manufacturer vi ews on how domestic employment patterns might be affected by amended energy conservation standards.

8.1 Where are your dishwasher manufacturing facilities that produce products for the United States located? What types of products are manufactured at each location? Please provide annual shipment figures for your company’s dishwasher manufacturing at each location by product class. Please also provide employment levels at each of these facilities.

Table 8. 11 Dishwasher Revenue and Shipment Volumes by Product Class

Facility Location Product Types Manufactured Employees Annual Shipments

Example Sheboygan, WI Standard Size Dishwashers 200 100,000

1

2

3

4

5

8.2 Would your domestic employment levels be expected to change significantly under amended energy conservation standards? If so, please explain how they would change if higher efficiency levels are required.

8.3 Would the workforce skills necessary under amended energy conservation standards require extensive retraining or replacement of employees at your manufacturing facilities?

8.4 Would amended energy conservation standards require extensive retraining of your service/field technicians? If so, could you expand on how your service infrastr ucture would be impacted in general as a result of amended energy conservation standards?

9 MANUFACTURING CAPACITY AND NON

- US SALES

9.1 How would amended energy conservation standards impact your company’s manufacturing capacity?

9.2 For any design changes that would require new production equipment, please describe how much downtime would be required. What impact would downtime have on your business? Are there any design changes that could not be implemented before the compliance date of the

final r ule for certain product classes?

9.3 What percentage of your company’s dishwasher sales is made within the United States?

9.4 What percentage of your dishwashers is produced in the United States?

9.5 What percentage of your U.S. production of dishwas hers is exported?12

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- 13 9.6 Are there any foreign companies with North American production facilities?

9.7 Would amended energy conservation standards impact your domestic vs. foreign manufacturing or sourcing decisions? Is there an efficiency level that wou ld cause you to move exiting domestic production facilities outside the U.S.?

10 IMPACT ON COMPETITIO N

Amended energy conservation standards can alter the competitive dynamics of the market. This can include prompting companies to enter or exit the market, or to merge. DOE and the Department of Justice are both interested in any potential reduction in competition that would result from an amended energy conservation standard.

10.1 How would amended energy conservation standards affect your ability to compete in the marketplace? Would the effects on your company be different than others in the industry?

10.2 Would you expect your market share to change if amended energy conservation standards

become effective?

10.3 Do any firms hold intellectual prope rty that gives them a competitive advantage following amended energy conservation standards?

10.4 How would industry competition change as a result of amended energy conservation

standards?

11 IMPACTS ON SMALL BUS INESS

11.1 The Small Business Administrat ion (SBA) denotes a small business in the dishwasher manufacturing industry as having less than 500 total employees, including the parent company

and all subsidiaries. 1 By this definition, is your company considered a small business?

11.2 Are there any reasons that a small business manufacturer might be at a disadvantage relative to a larger business under amended energy conservation standards? Please consider such factors as technical expertise, access to capital, bulk purchasing power for materials/com ponents, engineering resources, and any other relevant issues.

1 DOE uses the small business size standards published on August 22, 2008, as amended, by the SBA to determine whether a company is a small business. To be categorized as a small business, a manufacturer of “other major household appliances” (NAICS #335228, which includes residential dishwasher manufacturers ) and its affiliates may employ a maximum of 500 employees. The 500 employee threshold includes all employees in a business’s parent company and any other subsidiaries.12 -A- 14 11.3 To your knowledge, are there any small businesses for which the adoption of amended energy conservation standards would have a particularly severe impact? If so, why?

11.4 To your knowle dge, are there any niche manufacturers or component manufacturers for which the adoption of amended energy conservation standards would have a particularly severe impact? If so, why?