CHAPTER 13. MANUFACTURER IMPACT ANALYSIS 

TABLE OF CONTENTS 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES.......................................... 13-6 

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

13.3.1.1 Lack of Cost-Effective Design Options for Energy Conservation Standards.. 13-7 

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

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

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

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

13.3.2.2 Profitability ...................................................................................................... 13-8 

13.4 GRIM INPUTS AND ASSUMPTIONS........................................................................ 13-8 

13.4.1 Overview of the GRIM .................................................................................................. 13-9 

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 Dun and Bradstreet Reports...........................................................................13-10 

13.4.2.4 Shipment Model............................................................................................. 13-10 

13.4.2.5 Engineering Analysis..................................................................................... 13-10 

13.4.2.6 Manufacturer Interviews................................................................................ 13-11 

13.4.3 Financial Parameters....................................................................................................13-11 

13.4.4 Corporate Discount Rate.............................................................................................. 13-12 

13.4.5 Trial Standard Levels...................................................................................................13-14 

13.4.6 NES-Shipments Forecast ............................................................................................. 13-14

13.4.6.1 Base Case Shipments Forecast.......................................................................13-15 

13.4.6.2 Standards Case Shipments Forecast...............................................................13-15 

13.4.6.3 Price Elasticity of Demand Shipments Scenario ........................................... 13-18 

13.4.6.4 Economic Growth Shipments Scenario ......................................................... 13-18 

13.4.7 Production Costs .......................................................................................................... 13-18 

13.4.8 Conversion Costs.........................................................................................................13-20 

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EERE-2006-STD-0127 COMMENT 64.2
13.4.8.1 Capital Conversion Costs............................................................................... 13-20 

13.4.8.2 Product Conversion Expenses........................................................................ 13-21 

13.4.9 Markups ....................................................................................................................... 13-22 

13.4.9.1 Preservation of Gross Margin Percentage...................................................... 13-23 

13.4.9.2 Preservation of Gross Margin (Absolute Dollars) ......................................... 13-23 

13.5 CONVENTIONAL COOKING PRODUCTS INDUSTRY FINANCIAL IMPACTS .... 13-23 

13.5.1 Impacts on Industry Net Present Value ....................................................................... 13-24 

13.5.2 Impacts on Annual Cash Flow..................................................................................... 13-25 

13.6 MICROWAVE OVEN INDUSTRY FINANCIAL IMPACTS .................................. 13-31 

13.6.1 Impacts on Industry Net Present Value ....................................................................... 13-31 

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

13.7 IMPACTS ON COOKING PRODUCTS SMALL BUSINESSES............................. 13-34 

13.8 OTHER IMPACTS......................................................................................................13-35 

13.8.1 Employment.................................................................................................................13-35 

13.8.1.1 Methodology.................................................................................................. 13-35 

13.8.1.2 Conventional Cooking Products.................................................................... 13-37 

13.8.1.3 Microwave Ovens.......................................................................................... 13-39 

13.8.2 Production Capacity.....................................................................................................13-41 

13.8.2.1 Conventional Cooking Products Production Capacity Impacts..................... 13-41 

13.8.2.2 Microwave Oven Production Capacity Impacts............................................13-41 

13.8.3 Cumulative Regulatory Burden ................................................................................... 13-42 

13.8.3.1 Standby Power Requirements........................................................................ 13-42 

13.8.3.2 Additional Federal Energy Conservation Standards...................................... 13-43 

13.8.3.3 Refrigerant Phase-out.....................................................................................13-45 

13.8.3.4 Restriction of Hazardous Substance Directive .............................................. 13-45 

13.8.3.5 International Energy Conservation Standards ............................................... 13-46 

13.8.3.6 International Test Procedures ........................................................................ 13-47 

13.9 CONCLUSIONS.......................................................................................................... 13-47

13.9.1 Conventional Cooking Products Industry.................................................................... 13-47 

13.9.2 Microwave Ovens Industry.......................................................................................... 13-51 

LIST OF TABLES 

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

Data .................................................................................................................. 13-11 

Table 13.4.2 Cost of Equity Calculation

Table 13.4.8 Base Case Energy Factor Distribution of Efficiencies for Microwave Ovens in 

............................................................................... 13-13 

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

Table 13.4.4 Cooktops and Ovens Baseline Efficiency Levels and TSLs............................ 13-14 

Table 13.4.5 Microwave Ovens Baseline Energy Factor Efficiency Levels and TSLs........ 13-14 

Table 13.4.6 Total NES-Shipments Forecast in 2012........................................................... 13-15 

Table 13.4.7 Base Case Distribution of Efficiencies for Cooktops and Ovens Estimated in 2012 

in the NES........................................................................................................ 13-15 

2012 Estimated in the NES.............................................................................. 13-15 

13-ii 

EERE-2006-STD-0127 COMMENT 64.2
Table 13.4.9 Distribution of Electric Coil Cooktop Shipments in the Standards Case – Rollup 

Scenario............................................................................................................13-16 

Table 13.4.10 Distribution of Electric Smooth Cooktop Shipments in the Standards Case in 2012 

– Rollup Scenario............................................................................................. 13-16 

Table 13.4.11 Distribution of Gas Cooktop Shipments in the Standards Case in 2012 – Rollup 

Table 13.4.12 Distribution of Electric Standard Oven Shipments in the Standards Case in 2012 – 

Scenario............................................................................................................13-16 

Rollup Scenario................................................................................................ 13-16 

Table 13.4.13 Distribution of Electric Self-Clean Oven Shipments in the Standards Case in 2012 

– Rollup Scenario............................................................................................. 13-17 

Table 13.4.14 Distribution of Gas Standard Oven Shipments in the Standards Case in 2012 – 

Table 13.4.15 Distribution of Gas Self-Clean Oven Shipments in the Standards Case in 2012 – 

Table 13.4.16 Distribution of Energy Factor Microwave Oven Shipments in the Standards Case 

Table 13.4.17 Base Case Production Costs (2006$) used in the GRIM for Electric Coil Cooktops

Table 13.4.18 Base Case Production Costs (2006$) used in the GRIM for Electric Smooth 

Rollup Scenario................................................................................................ 13-17 

Rollup Scenario................................................................................................ 13-17 

in 2012 – Rollup Scenario................................................................................13-17 

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

Cooktops..........................................................................................................13-19 

Table 13.4.19 Base Case Production Costs (2006$) used in the GRIM for Gas Cooktops.... 13-19 

Table 13.4.20 Base Case Production Costs (2006$) used in the GRIM for Electric Standard 

Ovens ............................................................................................................... 13-19 

Table 13.4.21 Base Case Production Costs (2006$) used in the GRIM for Electric Self-Clean 

Table 13.4.22 Base Case Production Costs (2006$) used in the GRIM for Gas Standard Ovens

Table 13.4.23 Base Case Production Costs (2006$) used in the GRIM for Gas Self-Clean Ovens

Table 13.4.24 Base Case Energy Factor Production Costs (2006$) used in the GRIM for 

Table 13.4.25 Capital Conversion Costs for the Conventional Cooking Products Industry by 

Table 13.4.26 Energy Factor Conversion Capital Conversion Costs for the Microwave Oven 

Table 13.4.27 Product Conversion Costs for the Conventional Cooking Products Industry by 

Table 13.4.28 Energy Factor Product Conversion Costs for the Microwave Oven Industry by 

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

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

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

Ovens ............................................................................................................... 13-19 

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

..........................................................................................................................13-20

Microwave Ovens............................................................................................ 13-20 

TSL .................................................................................................................. 13-21 

Industry by TSL............................................................................................... 13-21 

TSL .................................................................................................................. 13-22 

TSL .................................................................................................................. 13-22 

Gross Margin Percentage Markup)..................................................................13-24 

Gross Margin (Absolute Dollars) Markup)...................................................... 13-24 

Margin Percentage Markup) ............................................................................ 13-24 

13-iii 

EERE-2006-STD-0127 COMMENT 64.2
Table 13.5.4 Changes in Industry Net Present Value for Gas Cooktops (Preservation of Gross 

Margin (Absolute Dollars) Markup)................................................................ 13-25 

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

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

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

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

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

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

Table 13.8.2 Microwave Ovens Industry Estimated Employment Impacts in 2012 for Energy 

Table 13.8.3 Other DOE and Federal Actions Affecting the Cooking Products Industry 

Margin Percentage Markup) ............................................................................ 13-25 

Margin (Absolute Dollars) Markup)................................................................ 13-25 

Margin Percentage Markup) ............................................................................ 13-25 

Margin (Absolute Dollars) Markup)................................................................ 13-25 

(Preservation of Gross Margin Percentage Markup) .......................................13-31 

(Preservation of Gross Margin (Absolute Dollars) Markup)........................... 13-32 

Table 13.8.1 Conventional Cooking Products Industry Estimated Employment Impacts in 2012

..........................................................................................................................13-38

Factor Standards...............................................................................................13-40 

(Conventional Cooking Products and Microwave Ovens) .............................. 13-44 

LIST OF FIGURES 

Figure 13.4.1 Using the GRIM to Calculate Cash Flow........................................................... 13-9 

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

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

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

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

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

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

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

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

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

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

Percentage)....................................................................................................... 13-26 

(Absolute Dollars)) .......................................................................................... 13-27 

Percentage)....................................................................................................... 13-27 

(Absolute Dollars)) .......................................................................................... 13-28 

Percentage)....................................................................................................... 13-28 

(Absolute Dollars)) .......................................................................................... 13-29 

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

Dollars))........................................................................................................... 13-30 

(Preservation of Gross Margin Percentage Markup) .......................................13-32 

(Preservation of Gross Margin (Absolute Dollars) Markup)........................... 13-33 

Figure 13.8.1 Cooking Products Industry Cost Structure ...................................................... 13-36 

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EERE-2006-STD-0127 COMMENT 64.2
Figure 13.8.2 Total Conventional Cooking Products Industry Domestic Employment by Year

..........................................................................................................................13-38

Figure 13.8.3 Total Microwave Oven Industry Domestic Employment by Year for Energy 

Factor Standards............................................................................................... 13-40 

13-v 

EERE-2006-STD-0127 COMMENT 64.2
EERE-2006-STD-0127 COMMENT 64.2
CHAPTER 13. MANUFACTURER IMPACT ANALYSIS 

13.1 INTRODUCTION 

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

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

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

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

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

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

cooking products and to assess the impact of such standards on employment and manufacturing 

capacity. The MIA has both quantitative and qualitative aspects. 

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

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

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

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

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

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

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

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

subgroups of manufacturers. 

For the notice of proposed rulemaking (NOPR), DOE considered new energy 

conservation standards for conventional cooking products (cooktops, ovens, and ranges) and 

microwave ovens. DOE also considered amended energy conservation standards for commercial 

clothes washers and new standby power standards for microwave ovens. As discussed in the 

final rule notice accompanying this technical support document (TSD), only new energy 

conservation standards for conventional cooking products and microwave ovens are addressed in 

this chapter. 

13.2 METHODOLOGY 

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

preparing an industry characterization for the cooking product industries, including data on 

market share, sales volumes and trends, pricing, employment, and financial structure. Phase II, 

“Industry Cash Flow,” focused on the cooking product industries individually. Two major 

product categories are addressed in this TSD: 

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

ovens, and ranges fueled by either gas or electricity 

• Microwave ovens 

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

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

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EERE-2006-STD-0127 COMMENT 64.2
DOE adapted each GRIM’s generic structure to facilitate analysis of new standards for each 

category of cooking products. 

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

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

category. This group included both large and small manufacturers, providing a representative 

cross-section of the industries. During these interviews, DOE discussed financial topics specific 

to each manufacturer and obtained each manufacturer’s view of the industry as a whole. The 

interviews provided valuable information that DOE used to evaluate the impacts of new 

standards on manufacturers’ cash flows, investment requirements, and employment levels. The 

following subsections describe more specifically the steps DOE took in developing the 

information on which it based the MIA. 

13.2.1 Phase I: Industry Profile 

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

microwave oven industries that built upon the market and technology assessment prepared for 

this rulemaking (see chapter 3 of this TSD). Before initiating the detailed impact studies, DOE 

collected qualitative and quantitative financial information and past and present market data. 

This included estimated market shares, corporate operating ratios, wages, employment, and 

production cost ratios for several home appliance manufacturers. The industry profile included a 

top-down cost analysis of cooking product manufacturers that DOE used to derive cost and 

preliminary financial inputs for the GRIMs (e.g., revenues; material; labor; overhead; 

depreciation; selling, general and administrative expenses (SG&A); and research and 

development (R&D) expenses). 

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

conventional cooking products and microwave oven industries, including Securities and 

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

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

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

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

prices to characterize these industries. 

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

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

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

the conventional cooking product and microwave oven industries. New standards can affect 

manufacturers in these industries in three distinct ways: (1) require additional investment, (2) 

raise production costs, and (3) impact revenues through higher prices and possibly lower 

shipments. The analytical tool DOE uses for calculating the financial impacts of new energy 

conservation standards on manufacturers is the GRIM. DOE performed a cash flow analysis 

using a separate GRIM for the conventional cooking products and microwave oven industries to 

quantify these impacts. 

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EERE-2006-STD-0127 COMMENT 64.2
13.2.2.1 Industry Cash-Flow Analysis 

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

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

expected revenues; costs of sales; SG&A expenses; taxes; and capital expenditures related to 

new standards. Inputs to the GRIM include manufacturing costs, shipments forecasts, and prices 

developed in other analyses. DOE derived the manufacturing costs from the engineering 

analysis and information provided by the industry, and estimated typical manufacturer markups 

from public financial reports and interviews with manufacturers. Where applicable, DOE used 

figures from its 1996 Technical Support Document for Residential Cooking Products (1996 

TSD) revised by current production volumes and the Producer Price Index (PPI). DOE 

developed alternative markup scenarios for each GRIM based on discussions with manufacturers 

during the rulemaking. DOE’s shipments analysis, presented in chapter 10 of this TSD, provided 

the basis for the shipments projection under each TSL in each GRIM. The financial parameters 

were developed using publicly available data of manufacturers of products covered by this 

rulemaking. These parameters were revised with information submitted confidentially during 

manufacturer interviews. The results of the GRIM are compared against base-case projections 

equivalent to baseline efficiency levels defined in the 1996 TSD for all cooking product 

categories. The financial impact of new energy conservation standards is the difference between 

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

13.2.2.2 Interview Guide 

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

all or some cooking product categories to gather information on the effects of new energy 

conservation standards on revenues and finances, direct employment, capital assets, and on 

industry competitiveness. Prior to the interviews, DOE distributed a standard interview guide for 

each major product category that provided a starting point to identify relevant issues and help 

identify the impacts of new energy conservation standards on individual manufacturers or subgroups of manufacturers. The interview guide covered current organizational characteristics, 

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

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

interview guides used to conduct the manufacturer interviews are found in appendix 13-A of this 

TSD. 

13.2.3 Phase III: Sub-Group Analysis 

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

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

category. Many of these same companies also participated in interviews for the engineering 

analysis. However, the MIA interviews broadened the discussion from primarily technologyrelated issues to include business-related topics. One objective was to obtain feedback from 

industry on the approaches used in the GRIM and to isolate key issues and concerns. During 

interviews, DOE defined one appliance manufacturer sub-group that could be impacted by the 

energy conservation standards. DOE identified two small businesses that manufacture only 

residential cooking products. The following sections summarize the methodology and findings 

of this assessment. 

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EERE-2006-STD-0127 COMMENT 64.2
13.2.3.1 Manufacturer Interviews 

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

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

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

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

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

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

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

DOE used these interviews to tailor each GRIM to incorporate unique financial characteristics 

for each group of products. Within each of these manufacturer groups, DOE contacted 

companies from its database of manufacturers, which provided a representation of each industry. 

Small and large companies, subsidiaries and independent firms, and public and private 

corporations were interviewed. Interviews were scheduled well in advance in order to provide 

every opportunity for key individuals to be available for comment. Although a written response 

to the questionnaire was acceptable, DOE preferred an interactive interview process because it 

helped clarify responses and provide the opportunity to identify additional issues. 

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

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

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

developed for each of the product categories. 

13.2.3.2 Revised Industry Cash-Flow Analysis 

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

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

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

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

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

found in section 13.4.3 of this chapter. 

13.2.3.3 Manufacturer Sub-Group Analysis 

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

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

manufacturers 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 interested parties to 

suggest sub-groups or characteristics that are the most appropriate for the analysis. 

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EERE-2006-STD-0127 COMMENT 64.2
13.2.3.4 Small-Business Manufacturer Subgroup 

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

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

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

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

industry description. DOE used the SBA limits and NAICS classifications to determine if any 

small businesses would be affected by this rulemaking. For the product categories under review, 

the SBA bases its small business definition on the total number of employees for a business, its 

subsidiaries, and its parent companies. Whenever an aggregated business entity has less than the 

listed number of employees, it is considered a small business. Household cooking appliance 

manufacturing, which covers both conventional cooking products and microwave oven 

manufacturing, is classified under NAICS code 335221. An entity classified under NAICS 

335221 is considered a small business if the total employment is less than 750. 

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

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

AHAM representatives within the cooking product industries if they were aware of any other 

small business manufacturers. DOE then consulted publicly available data, purchased company 

reports from vendors such as Dun and Bradstreet, and contacted manufacturers, where needed, to 

determine if they meet the SBA’s definition of a small business manufacturing facility and have 

their manufacturing facilities located within the United States. 

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

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

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

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

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

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

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

companies that may result from a standard. 

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

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

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

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

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

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

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

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

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

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

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

manufacturers. Impacts on these small businesses are found in section 13.7. 

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EERE-2006-STD-0127 COMMENT 64.2
13.2.3.5 Manufacturing Capacity Impact 

One of the significant outcomes of new 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 a standard; the ability of manufacturers to 

upgrade or remodel existing facilities to accommodate the new requirements due to new energy 

conservation standards; the nature and value of stranded assets, if any; and estimates for any onetime restructuring and other charges, where applicable. 

13.2.3.6 Employment Impact 

The impact of new energy conservation standards on employment is an important 

consideration in the rulemaking process. To assess how domestic employment patterns might be 

affected, the interviews explored current employment trends in the conventional cooking 

products and microwave oven industries. In addition, the interviews solicited manufacturer 

views on changes in employment patterns that may result from more stringent standard levels. 

The employment impacts section of the interview guide focused on current employment levels 

associated with manufacturers at each of their production facilities, expected future employment 

levels with and without new energy conservation standards, and differences in workforce skills 

and issues related to the retraining of employees. 

13.2.3.7 Cumulative Regulatory Burden 

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

new 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 cooking product manufacturers including: Federal 

energy conservation standards for other products manufactured by cooking product 

manufacturers, and other environmental regulations. 

13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES 

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

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

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

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

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

associated with these issues increase with more stringent TSLs. 

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EERE-2006-STD-0127 COMMENT 64.2
13.3.1 Conventional Cooking Products 

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

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

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

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

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

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

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

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

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

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

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

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

DOE. 

13.3.1.2 Standing Pilot Ignition Systems 

Manufacturers of conventional cooking products with standing pilot lights believe there 

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

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

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

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

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

performance characteristic and meet unique consumer needs since they can operate 

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

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

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

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

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

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

alternatives for such consumers. 

• Refurbishment of existing equipment with standing pilot ignitions – One manufacturer 

stated that if standing pilot ignition systems are eliminated on new equipment, that the 

refurbishment of used units would increase. Without alternatives, customers would be 

forced to extend the lifetime of these products, which would correspond to decreased 

revenues for manufacturers. Multiple manufacturers also stated that aftermarket 

alternatives not intended for indoor cooking appliances could potentially be installed and 

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

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

fire hazards because of incorrect installation and operation. 

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

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

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EERE-2006-STD-0127 COMMENT 64.2
used with outlets specifically intended for these appliances. These manufacturers 

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

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

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

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

13.3.1.3 Profitability 

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

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

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

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

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

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

complete redesign eliminates the competitive advantage of domestic firms. 

13.3.2 Microwave Ovens 

13.3.2.1 Standby Power 

While microwave oven standby power was not considered for this final rule, 

manufacturers of microwave ovens are concerned that possible standby power additions to the 

microwave oven test procedure could reduce consumer utility. For example, one manufacturer 

stated that it is not aware of cooking sensors that do not require standby power and thus a low 

standby power standard could lead to the elimination of cooking sensors from its products. 

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

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

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

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

tight margins. 

13.3.2.2 Profitability 

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

high energy factor standards have the potential to hurt profitability. Manufacturers typically earn 

a premium on higher-end models while low-end models are extremely commoditized. The 

premium on high-end equipment would be squeezed if standards eliminated product 

differentiators or energy factor standards forced high-end features to lower end models. 

13.4 GRIM INPUTS AND ASSUMPTIONS 

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

conservation standards. DOE relies on several sources to obtain inputs for the GRIM. Data and 

assumptions from these sources are then feed into an accounting model that details the cash flow 

on a baseline basis, as well as calculates the impacts on manufacturers due to new energy 

conservation standards. Two GRIM models were developed, one for conventional cooking 

products and one for microwave ovens. 

13-8

EERE-2006-STD-0127 COMMENT 64.2
13.4.1 Overview of the GRIM 

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

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

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

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

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

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

discounted cash flows during this period.1 

Figure 13.4.1 Using the GRIM to Calculate Cash Flow 

The GRIM projects cash flows using standard accounting principles and compares 

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

changes induced by the new energy conservation standards. The difference in INPV between the 

base case and the standard case(s) represents the estimated financial impact of the new energy 

conservation standard on manufacturers. Appendix 13-B provides more technical details and 

user information for the GRIM. 

13.4.2 Sources GRIM Inputs 

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

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

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

13.4.2.1 Corporate Annual Reports 

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

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

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

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

manufacturers primarily engaged in appliance manufacturing and whose combined product range 

includes cooktops, ovens, ranges, and microwaves. Because these companies are typically 

diversified, producing a range of different appliances, an industry average was assumed by DOE 

to be representative for the manufacture of each type of appliance. Since these companies do 

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EERE-2006-STD-0127 COMMENT 64.2
not provide detailed information about their individual product lines, DOE used the financial 

information for the entire companies to represent the financial parameters in both GRIMs. In 

determining financial parameters for the industries, DOE weighted corporate financial 

information contained in the SEC 10-Ks by each company’s estimated market share to arrive at 

industry-weighted averages. DOE used corporate annual reports to derive the following GRIM 

inputs: 

• Tax rate, 

• Working capital, 

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

• Research and development (R&D) expenses, 

• Depreciation, 

• Capital expenditures, and 

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

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

operating profit margin against the industry weighted average. 

13.4.2.2 Standard and Poor Credit Ratings 

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

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

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

13.4.2.3 Dun and Bradstreet Reports 

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

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

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

businesses. 

13.4.2.4 Shipment Model 

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

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

Chapter 10 of the TSD describes the methodology and analytical model DOE used to forecast 

shipments. 

13.4.2.5 Engineering Analysis 

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

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

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

and overhead production costs which are representative of the conventional cooking products 

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EERE-2006-STD-0127 COMMENT 64.2
and microwave oven industries. For cooking products, the costs determined in the 1996 TSD 

were adjusted to 2006 prices based on the PPI.a 

13.4.2.6 Manufacturer Interviews 

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

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

percent of microwave manufacturers. During these discussions, DOE obtained information, 

which it used to determine and verify GRIM input assumptions for each industry. Key topics 

discussed during the interviews and reflected in the GRIM include: 

• Capital conversion costs (one-time investments in property, plant, and 

equipment); 

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

testing, and marketing); 

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

assets; 

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

materials, labor, overhead, and depreciation costs; 

• Projected total shipment and shipment distribution mix; and 

• Production costs estimated in the engineering analysis. 

13.4.3 Financial Parameters 

Table 13.4.1 provides financial parameters for three public companies engaged in 

manufacturing and selling cooking products. The values listed are averages over an eight-year 

period (1999-2006). 

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

Financial Data 

Parameter 

IndustryWeighted 

Average 

Manufacturer 

A B C 

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

Working Capital (% of Revenue) 2.9 9.6 5.6 2.0 

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

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

Depreciation (% of Revenues) 3.4 3.9 3.4 3.3 

Capital Expenditures (% of Revenues) 3.5 1.9 3.4 3.6 

Net Property, Plant, and Equipment 

(% of Revenues) 19.9 17.3 21.6 19.4 

These companies constitute a significant portion of the cooking product industries. For 

other companies in the industry, public data is not available and was not used to calculate the 

a

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

13-11 

EERE-2006-STD-0127 COMMENT 64.2
parameters. The values used in the GRIMs, therefore, represent the industry’s weighted-average 

estimates using financial data from three publicly traded manufacturers. During manufacturer 

interviews, manufacturers of cooking products were asked to review the parameters listed in 

Table 13.4.1 and comment on how the parameters related to their specific industry. Where 

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

13.4.4 Corporate Discount Rate 

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

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

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

in the capital structure of the industry.1

 DOE estimated the WACC for the cooking product 

industries based on several representative companies, using the following formula: 

WACC = After-Tax Cost of Debt × (Debt Ratio) + Cost of Equity × (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 × Risk Premium 

where: 

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

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

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

riskless rate. 

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

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

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

stock is less volatile than the market index. 

DOE determined that the industry average cost of equity for the cooking product 

industries is 17.9 percent as calculated in Table 13.4.2. 

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EERE-2006-STD-0127 COMMENT 64.2
Table 13.4.2 Cost of Equity Calculation 

Industry- Manufacturer 

Parameter Weighted 

Average (%) A B C 

(1) Average Beta 

(2002 – 2006 year) 1.31 1.0* 1.77 1.17 

(2) Yield on 10 Year T-Bill 

(1990-2006) 5.9 - - -

(3) Market Risk Premium 

(1926-1999) 9.2 - - -

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

Equity/Total Capital 37.2 23.7 -49.8 64.6 

* Estimated Beta 

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

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

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

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

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

adding the relevant spread to the risk-free rate. 

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

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

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

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

return over the period of 1990 to 2006. 

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

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

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

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

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

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

ratio (debt/total capital). 

Table 13.4.3 Cost of Debt Calculation 

Parameter 

IndustryWeighted 

Average (%) 

Manufacturer 

A B C 

S&P Bond Rating -- B- BBB BBB 

(1) Yield on 10 year T-Bill 

(1990-2002) 5.9 - - -

(2) Gross Cost of Debt 8.2 13.9 8.1 8.1 

(3) Tax Rate 34 6.6 34.1 34.5 

Net Cost of Debt (2)x((1)-

(3)) 5.4 - - -

Debt/Total Capital 62.8 76.3 149.8 35.4 

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EERE-2006-STD-0127 COMMENT 64.2
DOE estimated the conventional cooking products and microwave oven industries’ 

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

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

is 7.2 percent. 

13.4.5 Trial Standard Levels 

DOE developed TSLs for conventional cooking products and microwave ovens. As 

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

GRIM and the affects of TSLs for microwave ovens are examined in another. Chapter 9 of the 

TSD describes the methodology DOE used to determine each TSL for each of the separate 

GRIMs. The efficiency levels used in the GRIMs are presented in Table 13.4.4 through Table 

13.4.5 

Table 13.4.4 Cooktops and Ovens Baseline Efficiency Levels and TSLs 

Product Class Efficiency 

Metric Baseline TSL 1 TSL 2 TSL 3 TSL 4 

Electric Coil Cooktops EF 0.7370 0.7370 0.7690 0.7690 0.7690 

Electric Smooth 

Cooktops EF 0.7420 0.7420 0.7420 0.7420 0.7530 

Gas Cooktops EF 0.1560 0.3990 0.3990 0.3990 0.4200 

Electric Standard Ovens EF 0.1066 0.1066 0.1163 0.1163 0.1209 

Electric Self-Clean Oven EF 0.1099 0.1099 0.1099 0.1099 0.1123 

Gas Standard Oven EF 0.0298 0.0583 0.0583 0.0583 0.0600 

Gas Self-Clean Oven EF 0.0540 0.0540 0.0540 0.0625 0.0632 

Table 13.4.5 Microwave Ovens Baseline Energy Factor Efficiency Levels and TSLs 

Product Class Efficiency 

Metric 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 

Microwave 

Ovens 

EF 0.557 0.586 .0588 0.597 0.602 

13.4.6 NES-Shipments Forecast 

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

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

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

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

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

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

forecasted in the shipment analysis for all efficiency levels in 2012 are shown in Table 13.4.6 

and are further detailed below. 

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EERE-2006-STD-0127 COMMENT 64.2
Table 13.4.6 Total NES-Shipments Forecast in 2012 

Product Class Total Shipments* 

Electric Coil Cooktops 2,335,076 

Electric Smooth Cooktops 2,756,443 

Gas Cooktops 3,660,950 

Electric Standard Ovens 1,346,197 

Electric Self-Clean Ovens 4,167,780 

Gas Standard Ovens 1,420,675 

Gas Self-Clean Ovens 1,749,377 

Microwave Ovens 15,999,339 

* Estimates rounded to the nearest hundred 

13.4.6.1 Base Case Shipments Forecast 

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

level for cooktops and ovens and microwave ovens. Table 13.4.7 through Table 13.4.8 show the 

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

2012. 

Table 13.4.7 Base Case Distribution of Efficiencies for Cooktops and Ovens Estimated in 

2012 in the NES 

Product Class Efficiency Metric 

Base Case Distribution of Shipments by Efficiencies 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 

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

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

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

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

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

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

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

Table 13.4.8 Base Case Energy Factor Distribution of Efficiencies for Microwave Ovens in 

2012 Estimated in the NES 

Shipments 

Efficiency Level 

(EF) 

Baseline 

0.557 

TSL 1 

0.586 

TSL 2 

0.588 

TSL 3 

0.597 

TSL 4 

0.602 

Baseline 

0.557 100% 0% 0% 0% 0% 

13.4.6.2 Standards Case Shipments Forecast 

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

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

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

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

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

13-15 

EERE-2006-STD-0127 COMMENT 64.2
without regards for the standard level. Table 13.4.9 through Table 13.4.16 show the distributions 

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

Table 13.4.9 Distribution of Electric Coil Cooktop Shipments in the Standards Case – 

Rollup Scenario 

TSL Baseline TSL 1, 2, 3, 4 

(EF) 0.7370 0.7690 

Baseline 

0.7370 100% 0% 

TSL 1, 2, 3, 4 

0.7690 100% 

Table 13.4.10 Distribution of Electric Smooth Cooktop Shipments in the Standards Case in 

2012 – Rollup Scenario 

TSL 

(EF) 

Baseline, 

TSL 1, 2, 3 

0.7420 

TSL 4 

0.7530 

Baseline, 

TSL 1, 2, 3 100% 0% 

0.7420 

TSL 4 

0.7530 100% 

Table 13.4.11 Distribution of Gas Cooktop Shipments in the Standards Case in 2012 – 

Rollup Scenario 

TSL 

(EF) 

Baseline 

0.1560 

TSL 1, 2, 3 

0.3990 

TSL 4 

0.4200 

Baseline 

0.1560 6.8% 93.2% 0% 

TSL 1, 2, 3 

0.3990 100% 0% 

TSL 4 

0.4200 100% 

Table 13.4.12 Distribution of Electric Standard Oven Shipments in the Standards Case in 

2012 – Rollup Scenario 

TSL 

(EF) 

Baseline, 

TSL 1 

0.1066 

TSL 2, 3 

0.1163 

TSL 4 

0.1209 

Baseline, 

TSL 1 

0.1066 

100% 0% 0% 

TSL 2, 3 

0.1163 100% 0% 

TSL 4 

0.1209 100% 

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EERE-2006-STD-0127 COMMENT 64.2
Table 13.4.13 Distribution of Electric Self-Clean Oven Shipments in the Standards Case in 

2012 – Rollup Scenario 

TSL 

(EF) 

Baseline, 

TSL 1, 2, 3 

0.1099 

TSL 4 

0.1123 

Baseline, 

TSL 1, 2, 3 100% 0% 

0.1099 

TSL 4 

0.1123 100% 

Table 13.4.14 Distribution of Gas Standard Oven Shipments in the Standards Case in 2012 

– Rollup Scenario 

TSL 

(EF) 

Baseline 

0.0298 

TSL 1, 2, 3 

0.0583 

TSL 4 

0.0600 

Baseline 

0.0298 17.6% 82.4% 0% 

TSL 1, 2, 3 

0.0583 100% 0% 

TSL 4 

0.0600 100% 

Table 13.4.15 Distribution of Gas Self-Clean Oven Shipments in the Standards Case in 

2012 – Rollup Scenario 

TSL 

(EF) 

Baseline, 

TSL 1, 2 

0.0540 

TSL 3 

0.0625 

TSL 4 

0.0632 

Baseline, 

TSL 1, 2 

0.0540 

100% 0% 0% 

TSL 3 

0.0625 100% 0% 

TSL 4 

0.0632 100% 

Table 13.4.16 Distribution of Energy Factor Microwave Oven Shipments in the Standards 

Case in 2012 – Rollup Scenario 

TSL 

(EF) 

Baseline 

0.557 

TSL 1 

0.586 

TSL 2 

0.588 

TSL 3 

0.597 

TSL 4 

0.602 

Baseline 

0.557 100% 0% 0% 0% 0% 

TSL 1 

0.586 100% 0% 0% 0% 

TSL 2 

0.588 100% 0% 0% 

TSL 3 

0.597 100% 0% 

TSL 4 

0.602 100% 

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EERE-2006-STD-0127 COMMENT 64.2
13.4.6.3 Price Elasticity of Demand Shipments Scenario 

In the microwave oven GRIM, DOE modeled a shipment scenario that considers the 

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

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

chapter 10, this shipment scenario estimates how the combined effects of increases in purchase 

price and decreases in operating costs due to new energy conservation standards affect 

shipments. DOE calculated the relative price elasticity of demand over time to determine how 

shipments would likely change after a standard sets a higher initial purchase price and lower 

operating costs. For the microwave oven GRIM shipments under the “price elasticity scenario,” 

the effects from the increase in product purchase prices offset the effects from decreased 

operating costs, resulting in a net decrease in shipments. See chapter 10 for more details on the 

shipment scenarios. 

13.4.6.4 Economic Growth Shipments Scenario 

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

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

Information Administration’s (EIA) 2008 Annual Energy Outlook Report (AEO2008) for the 

period 1990–2030.3

 AEO2008 provides three scenarios: the Reference case, the High Economic 

Growth case, and the Low Economic Growth case. DOE only presents results using the 

Reference case shipments, not the economic growth shipment scenarios. However, this option is 

left as an option for the user to select in both GRIMs. It is also possible for the user to combine 

the price elasticity scenario with an economic scenario in the microwave oven GRIM. See 

chapter 10 for more details on the economic growth shipment scenarios. 

13.4.7 Production Costs 

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

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

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

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

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

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

conservation standards will increase production volumes of more efficient units. 

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

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

producer price index. The GRIM included the proportion of costs devoted to labor, materials, 

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

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

AHAM4

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

13.8.1.1 for derivation of the industry cost structures). Table 13.4.17 through Table 13.4.24 

provide the MPC results used in the GRIM for cooktops and ovens, and microwave ovens. 

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EERE-2006-STD-0127 COMMENT 64.2
Table 13.4.17 Base Case Production Costs (2006$) used in the GRIM for Electric Coil 

Cooktops 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, 

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

TSL 2, 3, 4 

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

Table 13.4.18 Base Case Production Costs (2006$) used in the GRIM for Electric Smooth 

Cooktops 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, 

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

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

Table 13.4.19 Base Case Production Costs (2006$) used in the GRIM for Gas Cooktops 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

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

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

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

Table 13.4.20 Base Case Production Costs (2006$) used in the GRIM for Electric Standard 

Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, TSL 1 

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

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

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

Table 13.4.21 Base Case Production Costs (2006$) used in the GRIM for Electric SelfClean Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, 

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

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

Table 13.4.22 Base Case Production Costs (2006$) used in the GRIM for Gas Standard 

Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

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

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

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

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EERE-2006-STD-0127 COMMENT 64.2
Table 13.4.23 Base Case Production Costs (2006$) used in the GRIM for Gas Self-Clean 

Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

Baseline, TSL 1, 2 

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

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

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

Table 13.4.24 Base Case Energy Factor Production Costs (2006$) used in the GRIM for 

Microwave Ovens 

TSL 

(EF) 

Labor Material Overhead Depreciation MPC 

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

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

TSL 2 (0.588) $12.20 $116.29 $3.77 $5.92 $138.18 

TSL 3 (0.597) $13.49 $128.56 $4.17 $6.54 $152.76 

TSL 4 (0.602) $15.13 $144.20 $4.67 $7.34 $171.34 

13.4.8 Conversion Costs 

New energy conservation standards typically cause manufacturers to incur one-time 

conversion costs to bring their production facilities and product designs into compliance with 

new regulations. For the purpose of the MIA, DOE classified these one-time conversion costs 

into two major groups: capital conversion costs and product conversion costs. Capital 

conversion costs are one-time investments in property, plant, and equipment to adapt or change 

existing production facilities so that new product designs can be fabricated and assembled under 

the new regulation. Product conversion costs are one-time investments in research, 

development, testing, and marketing focused on making product designs comply with new 

energy conservation standards. The following sections describe in greater detail the inputs DOE 

used in the GRIM. 

13.4.8.1 Capital Conversion Costs 

DOE evaluated the level of capital investment needed to comply with the new energy 

conservation standards at each TSL. For each TSL, DOE estimated the proportion of the 

products on the market will have to be redesigned to meet that TSL efficiency level. The higher 

the TSL, the greater the proportion of the products on the market that will require a redesign. 

For conventional cooking products, DOE updated the capital conversion costs in the 1996 

TSD with current manufacturing volumes and 2006 PPI figures. During interviews, 

manufacturers were asked to comment on the figures. When manufacturers responded with 

information about the necessary tooling costs at each TSL, the 1996 figures were revised based 

on the weighted market share of the companies responding. Where manufacturers did not 

comment, the updated figures from the 1996 TSD were used. Conversion capital at TSL1 

through TSL3 is relatively small because the component switches for all product classes do not 

involve substantial changes to existing production equipment. However, at TSL 4 some product 

classes have changes that involve significant alterations to the cavity, which would require costly 

13-20 

EERE-2006-STD-0127 COMMENT 64.2
tooling changes. Table 13.4.25 summarizes the breakdown of conversion capital expenditure by 

TSL for the conventional cooking products industry. 

Table 13.4.25 Capital Conversion Costs for the Conventional Cooking Products Industry 

by TSL 

TSL 

Total Industry Conversion Capital Expenditure (2006$ million) by Product Class 

Electric 

Coil 

Cooktops 

Electric 

Smooth 

Cooktops 

Gas 

Cooktops 

Electric 

Standard 

Oven 

Electric 

Self-Clean 

Oven 

Gas 

Standard 

Oven 

Gas 

SelfClean 

Oven 

Industry 

Total 

Baseline $0 $0 $0 $0 $0 $0 $0 $0 

TSL 1 $0 $0 $2.2 $0 $0 $1.8 $0 $4.0 

TSL 2 $0 $0 $2.2 $0.8 $0 $1.8 $0 $4.7 

TSL 3 $0 $0 $2.2 $0.8 $0 $1.8 $5.8 $10.6 

TSL 4 $0 $73.1 $3.3 $125.9 $53.9 $55.1 $16.9 $328.2 

For microwave ovens, DOE used a platform approach to estimate the capital conversion 

costs. DOE assumed that there were no capital conversion costs for TSL 1 through TSL 3. 

Component switches for these TSLs do not require changes to the microwave enclosure or cavity 

because these design options all have standard hole locations that will not be altered if more 

efficient components are used. However, TSL 4 would involve substantial product conversion 

capital because reflective surfaces would require stamping die changes. DOE estimated the 

tooling cost per platform for reflective surfaces and weighted the cost to account for the number 

of platforms offered by the industry. Table 13.4.26 summarizes the breakdown of conversion 

capital expenditure by TSL for the microwave oven industry. 

Table 13.4.26 Energy Factor Conversion Capital Conversion Costs for the Microwave 

Oven Industry by TSL 

TSL Total Industry Conversion Capital 

Expenditure (2006$ million) 

Baseline $0 

TSL 1 $0 

TSL 2 $0 

TSL 3 $0 

TSL 4 $75.0 

13.4.8.2 Product Conversion Expenses 

DOE conducted interviews with manufacturers to better understand the many steps that 

manufacturers have to take before they can release new or improved products. The magnitude of 

the required investments varies by manufacturer and the TSL analyzed. 

Multiple manufacturers estimate that the time and resources spent on research and 

development, testing, and certification of products would be significant depending on the design 

path chosen to achieve higher efficiency. 

13-21 

EERE-2006-STD-0127 COMMENT 64.2
For conventional cooking products, DOE used the product conversion costs in the 1996 

TSD updated by the 2006 PPI figures. DOE also used manufacturer responses, weighted market 

share, when manufacturers provided their own product conversion costs during interviews. At 

higher TSLs, manufacturers must perform reliability testing and certify a greater portion of their 

existing platforms, increasing the product conversion costs. Design costs also increase at higher 

TSLs because there is a greater chance that the component interacts with other parts of the 

platform, lengthening the redesign time and cost. Table 13.4.27 summarizes the breakdown of 

product conversion expenses by TSL for the conventional cooking products industry. 

Table 13.4.27 Product Conversion Costs for the Conventional Cooking Products Industry 

by TSL 

TSL 

Total Industry Product Conversion Expenses (2006$ million) by Product Class 

Electric 

Coil 

Cooktops 

Electric 

Smooth 

Cooktops 

Gas 

Cooktops 

Electric 

Standard 

Oven 

Electric 

Self-Clean 

Oven 

Gas 

Standard 

Oven 

Gas 

SelfClean 

Oven 

Industry 

Total 

Baseline $0 $0 $0 $0 $0 $0 $0 $0 

TSL 1 $0 $0 $9.4 $0 $0 $9.4 $0 $18.7 

TSL 2 $9.6 $0 $9.4 $20.8 $0 $9.4 $0 $49.2 

TSL 3 $9.6 $0 $9.4 $20.8 $0 $9.4 $9.4 $58.5 

TSL 4 $9.6 $12.2 $20.8 $48.9 $18.7 $58.3 $42.1 $210.6 

For microwave ovens, DOE estimated the engineering, reliability testing, and product 

development expenses per platform necessary at each TSL. DOE multiplied the estimate of 

these development costs per platform by its approximation of the number of platforms available 

in the United States. For the first three TSLs, the product conversion costs increases are fairly 

stable. Engineering, testing, and product development costs do not double with each additional 

switch out because there are efficiencies with doing the redesigns simultaneously (i.e., the testing 

only has to be completed once). However, there is a large jump in conversion expenses at TSL 4 

because there are stamping, material, and other substantial changes to the basic function of each 

platform. Table 13.4.28 summarizes the breakdown of product conversion costs by TSL for the 

microwave oven industry. 

Table 13.4.28 Energy Factor Product Conversion Costs for the Microwave Oven Industry 

by TSL 

TSL Total Industry Product Conversion Expenses 

(2006$ million) 

Baseline $0 

TSL 1 $60.0 

TSL 2 $75.0 

TSL 3 $90.0 

TSL 4 $225.0 

13.4.9 Markups 

To understand how baseline and more efficient products are differentiated, DOE 

reviewed manufacturer catalogs and utilized information gathered from manufacturers. To 

13-22 

EERE-2006-STD-0127 COMMENT 64.2
estimate the prices at which manufacturers sell their products, DOE applied markups to the 

production costs it had developed earlier. DOE considered different markup scenarios for both 

major product categories (conventional cooking products and microwave ovens. DOE then used 

markup scenarios to bound the range of expected product prices following new energy 

conservation standards. For each product class, DOE used the markup scenarios that best 

characterized the prevailing markups and described the range of market responses manufacturers 

expect as a result of new energy conservation standards. 

After discussions with manufacturers, DOE believes there are two distinct markup 

scenarios: preservation-of-gross-margin-percentage and preservation of gross margin (in absolute 

dollars). 

13.4.9.1 Preservation of Gross Margin Percentage 

The gross margin is defined as revenues less costs of goods sold. Under the preservationof-gross-margin-percentage scenario, DOE applied a single uniform “gross margin percentage” 

markup to manufacturing production costs across all efficiency levels. As production costs 

increase by efficiency level, this scenario implies that the absolute dollar markup will increase 

also. DOE used a non-production cost markup of 1.26, which includes SG&A expenses; 

research and development expenses; interest; and profit. This markup is consistent with the one 

DOE assumed in the base case for the GRIMs. Most manufacturers stated it is optimistic to 

assume that they could maintain their gross margin percentages despite production cost increases 

due to energy conservation standards. Therefore, DOE assumes that this scenario represents a 

high bound to industry profitability under an energy conservation standard. 

13.4.9.2 Preservation of Gross Margin (Absolute Dollars) 

The implicit assumption behind the “preservation of gross margin (absolute dollars)” 

markup scenario is that the industry will lower its markups in response to the standards to 

maintain only its gross margin (in absolute dollars). This means the percentage difference 

between MPC and selling price will decrease in the standards case compared to the base case and 

the gross margin percentage will be lower. The industry would do so by passing through its 

increased production costs to customers, while increased R&D and selling, general, and 

administrative expenses directly lower profit. DOE implemented this scenario in the microwave 

oven and conventional cooking products GRIMs by lowering the production cost markups for 

each TSL to yield approximately the same gross margin in dollars in the standards cases in the 

year standard are effective (2012) as is yielded in the base case. This scenario represents a low 

bound to industry profitability under an energy conservation standard. 

13.5 CONVENTIONAL COOKING PRODUCTS INDUSTRY FINANCIAL IMPACTS 

Using the inputs and scenarios described in the previous sections, the GRIM estimated 

indicators of financial impacts on the conventional cooking products industry. The following 

sections detail additional inputs and assumptions related only to cooktops, ovens, and ranges. 

13-23 

EERE-2006-STD-0127 COMMENT 64.2
The main results of the MIA also reported in this section and consist of two key financial 

metrics: INPV and annual cash flows. 

13.5.1 Impacts on Industry Net Present Value 

The INPV measures the industry value and is used in the MIA to compare the economic 

impacts of different TSLs. The INPV is different from DOE’s NPV applied to the whole U.S. 

economy. The INPV is the sum of all net cash flows discounted at the industry’s cost of capital 

or discount rate. The GRIM estimated cash flows between 2007 and 2042, consistent with the 

forecast period used in the national impact analysis (chapter 11). 

In the MIA, DOE compares the INPV of the base case (no new energy conservation 

standards) to that of each TSL. The difference between the base case INPV and a standards case 

INPV is an estimate of the economic impacts that implementing that particular TSL would have 

on the entire industry. For the conventional cooking products industry, DOE examined the two 

markup scenarios described in the mark-up section above. Table 13.5.1 through Table 13.5.8 

provide the INPV estimates for the conventional cooking products industry under the different 

scenarios. 

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

Gross Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 359 359 357 357 437 

Change in INPV (2006 $ millions) - 0 (2) (2) 78 

(%) - 0.00% -0.55% -0.55% 21.76% 

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

Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 359 359 348 348 (26) 

Change in INPV (2006 $ millions) - 0 (11) (11) (385) 

(%) - 0.00% -3.17% -3.17% -107.13% 

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

Gross Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 288 283 283 283 316 

Change in INPV (2006 $ millions) - (5) (5) (5) 28 

(%) - -1.73% -1.73% -1.73% 9.88% 

13-24 

EERE-2006-STD-0127 COMMENT 64.2
Table 13.5.4 Changes in Industry Net Present Value for Gas Cooktops (Preservation of 

Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 288 276 276 276 189 

Change in INPV (2006 $ millions) - (12) (12) (12) (99) 

(%) - -4.11% -4.11% -4.11% -34.45% 

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

Gross Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 797 797 789 789 788 

Change in INPV (2006 $ millions) - 0 (8) (8) (9) 

(%) - 0.00% -0.98% -0.98% -1.17% 

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

Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 797 797 778 778 326 

Change in INPV (2006 $ millions) - 0 (19) (19) (471) 

(%) - 0.00% -2.43% -2.43% -59.07% 

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

Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 469 461 461 462 422 

Change in INPV (2006 $ millions) - (7) (7) (6) (46) 

(%) - -1.56% -1.56% -1.36% -9.91% 

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

Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 469 459 459 428 287 

Change in INPV (2006 $ millions) - (10) (10) (41) (182) 

(%) - -2.10% -2.10% -8.68% -38.74% 

13.5.2 Impacts on Annual Cash Flow 

While NPV is useful for evaluating the long-term effects of new energy conservation 

standards, short-term changes in cash flow are also important indicators of the industry’s 

13-25 

EERE-2006-STD-0127 COMMENT 64.2
financial situation. For example, a large investment over a period of one or two years could 

strain the industry’s access to capital. Consequently, the sharp drop in financial performance 

could cause investors to flee, even though recovery may be near. Thus, a short-term disturbance 

can have long-term effects that the INPV calculation does not capture. To get an idea of the 

behavior of annual net cash flows, DOE reports the annual net or free cash flows from 2007 

through 2042 for the different TSL levels. Figure 13.5.1 through Figure 13.5.8 present the 

annual net cash flows for the base case and each of the four TSLs for the conventional cooking 

products industry assuming the different markup scenarios. 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

Percentage) 

$(20) 

$(10) 

$-

$10 

$20 

$30 

$40 

$50 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

13-26 

EERE-2006-STD-0127 COMMENT 64.2
Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario 

$(20) 

$(10) 

$-

$10 

$20 

$30 

$40 

$50 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

(Absolute Dollars)) 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$-

$5 

$10 

$15 

$20 

$25 

$30 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

Percentage) 

13-27 

EERE-2006-STD-0127 COMMENT 64.2
Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario 

$-

$5 

$10 

$15 

$20 

$25 

$30 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

(Absolute Dollars)) 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$(60) 

$(40) 

$(20) 

$-

$20 

$40 

$60 

$80 

$100 

$120 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

Percentage) 

13-28 

EERE-2006-STD-0127 COMMENT 64.2
Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario 

$(60) 

$(40) 

$(20) 

$-

$20 

$40 

$60 

$80 

$100 

$120 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

(Absolute Dollars)) 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

$(50) 

$(30) 

$(10) 

$10 

$30 

$50 

$70 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

Percentage) 

13-29 

EERE-2006-STD-0127 COMMENT 64.2
$(50) 

$(30) 

$(10) 

$10 

$30 

$50 

$70 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

(Absolute Dollars)) 

Prior to the effective date of the new energy conservation standard, cash flows are driven 

by the level of capital and product conversion costs and the proportion of these investments spent 

every year. After the standard announcement date, industry cash flows begin to decline as 

companies use their financial resources to prepare for the new standard. The more stringent the 

energy conservation standard, the greater the impact on industry cash flows in the years running 

up to the effective date, as product conversion and capital conversion costs depress cash flows 

from operations. In addition to capital conversion and product conversion costs, manufacturers 

may also have to write down the value of existing tooling, equipment, and intellectual property 

whose value is impacted by an efficiency standard. 

Efficiency standards have the potential of creating stranded assets, i.e. tools, equipment, 

and even intellectual property that would have enjoyed longer use, if the efficiency standard had 

not made them obsolete. For example, if a manufacturer has a stamping die for a gas cooktops 

which can only be used with standing pilot ignition systems, then a ban on standing pilot ignition 

systems could make the die functionally obsolete well before it used up from actual use. 

Similarly, a patent on a particular type of standing pilot ignition system potentially loses any 

residual value once its target market disappears. 

For all conventional cooking products, TSL 1 through TSL 3 have similar impacts in the 

years prior to the effective date because these TSLs all have relatively low capital and product 

conversion costs compared to industry revenues. These expenses are large for many products at 

TSL 4, creating a large, negative cash flow for many conventional cooking products at this TSL. 

13-30 

EERE-2006-STD-0127 COMMENT 64.2
In the preservation of gross margin percentage markup scenario, a one time write-down on 

stranded assets yields a tax shield that increases cash flows from operations for electric and gas 

ovens. 

In the years following the standard, the impact on cash flow depends on the operating 

revenue. Higher TSLs have a positive impact on cash flows relative to the base case if 

manufacturers are able to fully pass along costs to consumers (the preservation of gross margin 

percentage markup scenario) and lower cash flow relative to the base case if manufacturers can 

only recover a portion of their increased costs (the preservation of gross margin in absolute 

dollars markup scenario). The magnitude of the positive cash flow impact under the preservation 

of gross margin percentage scenario and the negative cash flow impact under the preservation of 

gross margin (absolute dollars) scenario depends on the incremental cost of standards compliant 

products. The higher the relative cost, the larger the impact on operating revenue and cash flow 

in the years following the effective date of the standard. 

13.6 MICROWAVE OVEN INDUSTRY FINANCIAL IMPACTS 

Using the inputs and assumptions described in the previous sections, the GRIM produced 

indicators of financial impacts on the microwave oven industry. The following sections detail 

additional inputs relating only to microwave ovens, including the main MIA results for such 

ovens: INPV, and annual cash flows. 

13.6.1 Impacts on Industry Net Present Value 

As previously stated, the INPV measures the industry value and is used in the MIA to 

compare the economic impacts of different TSLs. For the microwave ovens industry, the GRIM 

estimated cash flows between 2007 and 2042, consistent with the forecast period used in the 

national impact analysis (chapter 11). 

In the MIA, DOE compares the INPV of the base case (no new energy conservation 

standards) to that of each TSL. The difference between the base case INPV and a standards case 

INPV is an estimate of the economic impacts that implementing that particular TSL would have 

on the entire industry. For the microwave oven industry, DOE examined the two markup 

scenarios described in the mark-up section above. Table 13.6.1 through Table 13.6.2 provide the 

NPV estimates for the microwave oven industry under the different scenarios. 

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

(Preservation of Gross Margin Percentage Markup) 

Preservation of Gross Margin Percentage Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 1,456 1,501 1,575 1,695 1,726 

Change in INPV (2006 $ millions) - 45 118 238 270 

(%) - 3.06% 8.11% 16.37% 18.53% 

13-31 

EERE-2006-STD-0127 COMMENT 64.2
Table 13.6.2 Energy Factor Changes in Industry Net Present Value for Microwave Ovens 

(Preservation of Gross Margin (Absolute Dollars) Markup) 

Preservation of Gross Margin (Absolute Dollars) Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 

INPV (2006 $ millions) 1,456 1,256 1,068 778 285 

Change in INPV (2006 $ millions) - (200) (388) (679) (1,171) 

(%) - -13.75% -26.64% -46.60% -80.42% 

13.6.2 Impacts on Annual Cash Flow 

To review 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 and Figure 13.6.2 

present the annual net cash flows for the base case and each TSL for the microwave oven 

industry assuming the different markup scenarios. 

Preservation of Gross Margin Percentage Markup - Base Case Shipments Scenario 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

(Preservation of Gross Margin Percentage Markup) 

$(20) 

$-

$20 

$40 

$60 

$80 

$100 

$120 

$140 

$160 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

13-32 

EERE-2006-STD-0127 COMMENT 64.2
Preservation of Gross Margin (Absolute Dollars) Markup - Base Case Shipments Scenario 

$(40) 

$(20) 

$-

$20 

$40 

$60 

$80 

$100 

$120 

2006$ Millions 

Energy Conservation Standards 

Effective Date 

March 2012 

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

Year 

Baseline TSL1 TSL2 TSL3 TSL4 

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

(Preservation of Gross Margin (Absolute Dollars) Markup) 

Prior to the effective date of the new energy conservation standard, cash flows are driven 

by the level of capital and product conversion costs and the proportion of these investments spent 

every year. After the standard announcement date, industry cash flows begin to decline as 

companies use their financial resources to prepare for the new standard. As expected, the more 

stringent the energy conservation standard, the greater the impact on industry cash flows in the 

years prior to the effective date. In the years before a standard becomes effective, capital and 

product conversion costs depress cash flows from operations. Since the capital and conversion 

costs are the same regardless of the markup scenario, the impacts in the years prior to the 

effective date of the standards are similar for both scenarios. Since DOE assumed that standards 

compliant microwave ovens would be based on existing products, no capital assets are stranded 

due to standards. Consequently, there is not a one time injection of cash in the year of the 

standards from a write-down. 

The markup scenario has a large impact on cash flows in the year the standard takes 

effect. The preservation of gross margin percentage scenario immediately restores the cash flow 

to levels similar to the base case in the year the standard takes effect. Higher selling prices 

increase operating profit and increase cash flow due to a higher depreciation expense. Since 

depreciation is a non-cash expense, it does not require an outflow of cash but does lower 

operating profit. Therefore, this expense gets added back to cash flow. For the preservation of 

gross margin (absolute dollar) scenario, cash flow decreases in 2012 because operating profit 

decreases as manufacturers cannot fully pass on all increased expenses. In addition, since 

revenue increases greatly that year, there is a one-time need to boost working capital, lowering 

cash flow for 2012 only. 

13-33 

EERE-2006-STD-0127 COMMENT 64.2
After 2012, higher TSLs have a positive impact on cash flows relative to the base case if 

manufacturers are able to fully pass along costs to consumers (the preservation of gross margin 

percentage markup scenario) and lower cash flow relative to the base case if manufacturers can 

only recover a portion of their increased costs (the preservation of gross margin in absolute 

dollars markup scenario). 

The magnitude of the positive cash flow impact under the preservation of gross margin 

percentage scenario and the negative cash flow impact under the preservation of gross margin 

(absolute dollars) scenario depends on the incremental cost of standards compliant products. The 

higher the relative cost, the larger the impact on operating revenue and cash flow in the years 

following the effective date of the standard. Since the incremental costs are fairly large, the 

positive impacts on cash flow under the preservation of gross margin percentage markup 

scenario and the negative impacts on cash flow under the preservation of gross margin (absolute 

dollars scenario are significant. 

13.7 IMPACTS ON COOKING PRODUCTS SMALL BUSINESSES 

DOE identified three manufacturers of gas-fired ovens, stoves, and cooktops with 

standing pilot lights. Two of the three manufacturers are classified as small businesses by the 

SBA, while the third is a large, diversified appliance manufacturer. DOE found some 

differences in the R&D emphasis and marketing strategies between small business manufacturers 

and large manufacturers. These two smaller businesses tend to focus on appliance sizes not 

offered by larger manufacturers. 

During the MIA, DOE contacted both small businesses and one of them agreed to be 

interviewed. DOE characterized the businesses based on this interview and D&B reports for 

both companies. The two small cooking businesses are privately held and each employs less 

than 300 employees.b

 Both businesses manufacture only residential cooking appliances. One of 

these appliance manufacturers produces just ranges, while the other produces cooktops, ranges, 

hoods, wall ovens, and cooking ventilation equipment. Both companies have annual revenues of 

less than $60 million. 

DOE found that, as it pertains to the elimination of standing pilots, small manufacturers 

shared many of the same concerns as the large manufacturer. The large and small companies are 

concerned that eliminating standing pilots could leave some customers without access to 

electricity without alternatives. For example, certain religious groups and remote areas (hunting 

cabins) would be forced to prolong the life of existing products. In addition, customers that 

currently use standing pilots could be forced to install an electrical outlet near a standardscompliant stove. These manufacturers expected a decrease in revenues as existing customers 

prolong the lifetime of existing products when forced with a costly installation or no viable 

alternative. 

b

 The SBA classifies a residential cooking appliance manufacturer as a small business if it has less than 750 

employees. Refer to: http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf 

13-34 

EERE-2006-STD-0127 COMMENT 64.2
Though the small manufacturers shared many of the concerns as the large manufacturer, 

the small businesses will be much more impacted by a standard that eliminates standing pilots. 

The two small businesses indicated that 25 percent or more of their entire production consists of 

such niche products, now that most manufacturers have switched to electronic ignition in their 

gas-fired cooking appliances. In addition to the elimination of standing pilots, any rule affecting 

products manufactured by these small businesses will impact them disproportionately because of 

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

that agreed to be interviewed, DOE could not characterize this industry segment with a separate 

cash-flow analysis due to concerns about maintaining confidentiality. 

At TSL 1 for gas-ovens and gas cooktops, the elimination of standing pilot lights would 

eliminate one of the niches that these two small businesses serve in the cooking appliance 

industry. Both businesses also manufacture ovens and cooktops with electronic ignition systems, 

but the ignition source would no longer be a differentiator within the industry as it is today. The 

result would be a potential loss of market share since consumers would be able to choose from a 

wider variety of competitors, all of which operate at much higher production scales. 

For all other TSLs concerning conventional cooking appliances, the impact on small, 

focused business entities will be proportionately greater than for their competitors since these 

businesses lack the scale to afford significant R&D expenses, capital expansion budgets, etc. 

DOE could not gauge the extent of the difference since manufacturers did not respond to all 

proposed investment requirements by TSL during interviews. However, research associated with 

other small entities in prior rulemakings suggests that many costs associated with complying 

with rulemakings are fixed, regardless of production volume. 

Since all domestic manufacturers already manufacture all of their conventional cooking 

appliances with electronic ignition modules as a standard feature or as an option for consumers, 

the cost of converting the remaining three domestic manufacturers exclusively to electronic 

ignition modules would be modest. However, given their focus and scale, any conventional 

cooking appliance rule will affect these two domestic small businesses disproportionately 

compared to their larger and more diversified competitor. 

13.8 OTHER IMPACTS 

13.8.1 Employment 

13.8.1.1 Methodology 

To quantitatively assess the impacts of energy conservation standards on cooking product 

manufacturing employment, DOE used the GRIM to estimate the domestic labor expenditures 

and number of employees in the base case and at each TSL from 2007 through 2042 for the 

conventional cooking products and microwave oven industries. DOE used statistical data from 

the U.S. Census Bureau’s 2006 ASM and 2006 CIR, the results of the engineering analysis, and 

interviews with manufacturers to estimate the inputs necessary to calculate industry-wide labor 

expenditures and domestic employment levels. 

13-35 

EERE-2006-STD-0127 COMMENT 64.2
DOE constructed the industry cost structure using publicly available information from the 

2006 ASM and SEC 10-K reports filed by publicly owned manufacturers. The labor percentage 

of the industry cost structure is calculated by dividing total production worker wages by the total 

value of shipments. For cooking products, which covers both conventional cooking products and 

microwave ovens, DOE used the same industry cost structure constructed from 2006 ASM data 

classified under NAICS 335221 (household cooking appliance manufacturing). The labor 

percentage and other components of the industry cost structure for cooking products are shown 

in Figure 13.8.1 below. 

Income from 

Operations, 5.9% 

Labor (production 

workers), 7.0%

R&D, 2.2% 

SG&A, 12.5% 

Materials, 66.8% 

Overhead, 2.2% 

Depreciation, 3.4% 

Figure 13.8.1 Cooking Products Industry Cost Structure 

To determine the total annual labor expenditure on production labor, the value of 

production labor in the industry cost structure was converted to a percentage of the cost of goods 

sold (COGS). In the GRIMs, the labor expenditures in each year are calculated by multiplying 

the COGS or MPCs by the labor percentage of COGS. As a result, higher TSLs have greater 

direct labor costs because more efficient products have higher MPCs. 

To calculate the annual domestic labor expenditures, DOE used the 2006 CIR to estimate 

the percentage of domestic production in each industry. DOE estimated that approximately 27 

percent of conventional cooking products and 4 percent of microwave ovens are manufactured 

and sold in the United States. 

DOE multiplied the total annual labor expenditures in the GRIM by the percentage of 

U.S. production for domestic consumption to calculate domestic labor expenditures for 

production labor in each industry. The domestic annual labor expenditures in the GRIMs were 

converted to domestic production employment levels by dividing production labor expenditures 

by the annual payment per production worker (production worker hours times the labor rate 

13-36 

EERE-2006-STD-0127 COMMENT 64.2
found in the 2006 ASM).c

 The number of non-production employees was calculated by 

multiplying the number of production workers by the ratio of non-production workers to 

production workers calculated using the employment data in the 2006 ASM. 

The domestic annual labor expenditures and employment levels were calculated for the 

base case and at each TSL. The impacts on domestic employment due to standards can be 

assessed by comparing the employment results in the base case to the results at each TSL. In all 

GRIMs, the employment results represent U.S. production workers that are impacted by this 

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

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

13.8.1.2 Conventional Cooking Products 

The GRIM calculates that the conventional cooking products industry’s domestic labor 

expenditure for production labor in 2012 is approximately $57 million (total COGS in 2012 

times the production labor percentage of COGS times the percentage of U.S production). Using 

the $13.84 wage rate and 1,940 production hours per year per employee found in the 2006 ASM, 

the GRIM estimates there are approximately 2,120 U.S. production employees involved in 

manufacturing conventional cooking products covered by this rulemaking. In addition, DOE 

estimates that 278 non-production employees in the United States support conventional cooking 

product productiond

. The employment spreadsheet of the conventional cooking products GRIM 

shows the annual domestic employment impacts in further detail. 

Table 13.8.1 illustrates the impact of new energy conservation standards on domestic 

employment levels at each TSL for the conventional cooking products industry calculated by the 

GRIM. 

c

 2006 ASM labor rates and production hours per year per employee are very similar to figures reported in the 

engineering analysis. DOE used 2006 ASM figures to ensure a consistent set of publicly available data is used for 

the manufacturing employment analysis. 

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

level) engaged in fabricating, processing, assembling, inspecting, receiving, storing, handling, packing, 

warehousing, shipping (but not delivering), maintenance, repair, janitorial and guard services, product 

development, auxiliary production for plant's own use (e.g., power plant), recordkeeping, and other services 

closely associated with these production operations at the establishment covered by the report. Employees 

above the working-supervisor level are excluded from this item.” Non-production workers are defined as 

“employees of the manufacturing establishment including those engaged in factory supervision above the linesupervisor level. It includes sales (including driver-salespersons), sales delivery (highway truck drivers and 

their helpers), advertising, credit, collection, installation and servicing of own products, clerical and routine 

office functions, executive, purchasing, financing, legal, personnel (including cafeteria, medical, etc.), 

professional, and technical employees. Also included are employees on the payroll of the manufacturing 

establishment engaged in the construction of major additions or alterations utilized as a separate work force.” 

13-37 

EERE-2006-STD-0127 COMMENT 64.2
2012 

Table 13.8.1 Conventional Cooking Products Industry Estimated Employment Impacts in 

Trial Standard Level Base 

Case TSL 1 TSL 2 TSL 3 TSL 4 

Total Number of Domestic 

Conventional Cooking Products 

Production Employees in 2012 

2,120 2,127 2,137 2,154 2,698 

Change in Total Number of Domestic 

Conventional Cooking Products 

Production Employees in 2012 Due to 

Standards 

- 7 17 34 577 

Total Number of Domestic 

Conventional Cooking Products NonProduction Employees in 2012 278 279 280 283 354 

Total Number of Domestic 

Conventional Cooking Products 

Employees in 2012 

2,398 2,406 2,418 2,437 3,051 

Figure 13.8.2 shows total annual domestic employment levels for each TSL calculated by 

the GRIM. 

Total Domestic Employment 

0 

500 

1,000 

1,500 

2,000 

2,500 

3,000 

3,500 

4,000 

4,500 

2006 

2008 

2010 

2012 

2014 

2016 

2018 

2020 

2022 

2024 

2026 

2028 

2030 

2032 

2034 

2036 

2038 

2040 

2042 

Year 

Total Domestic Employment (# of 

workers) 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 

Energy Conservation 

Standards Effective Date 

January 2012 

Figure 13.8.2 Total Conventional Cooking Products Industry Domestic Employment by 

Year 

Currently, approximately 27 percent of conventional cooking products sold in the United 

States are manufactured in the United States. DOE expects that there would be positive 

employment impacts among domestic conventional cooking products manufacturers for TSL 1 

through TSL 4. Because production employment expenditures are assumed to be a fixed 

percentage of COGS and the MPCs increase with more efficient products, labor tracks the 

increased prices in the GRIM. The GRIM predicts a gradual increase in domestic employment 

after standards. 

13-38 

EERE-2006-STD-0127 COMMENT 64.2
The results predicted in the GRIM potentially overstate the domestic employment 

impacts. From the engineering analysis, higher TSLs correspond to switches to more efficient 

components. Because many components are sourced for both large and small manufacturers, 

labor is more a function of units shipped, not production costs as calculated in the GRIM. For 

these manufacturers, the greater labor expenditures for more efficient components are born by 

their suppliers. However, since shipments are expected to increase gradually over time in the 

shipments model, employment levels for manufacturers of cooking products would still increase 

at all TSLs. 

For TSL 1 through TSL 3, the GRIM employment results do not overstate the impacts 

and agree with the bottoms-up analysis in the engineering analysis. The incremental costs for 

more efficient components at these TSLs are relatively small. In response to standards, 

manufacturers would most likely not alter employment levels significantly because inserting a 

more efficient component does not necessarily require more labor. 

At TSL 4 the GRIM may overstate the employment impacts. The incremental costs for 

components are large at TSL 4, making the employment impacts more substantial. It is likely 

that the large, positive impacts in employment due to the incremental cost increase overstate the 

impacts that would result from increased shipments over time. This overstatement is caused by 

the assumption of constant labor content as a percentage of revenue. For TSL 4 in particular, the 

design options involve component substitution which substantially increase the cost of purchase 

parts but should not result in a proportionate increase in labor costs. 

The employment conclusions ignore the possible relocation of domestic jobs to lowerlabor-cost countries, which may occur independently of new standards or may be influenced by 

the level of investments required by new standards. Because the labor impacts in the GRIM do 

not take relocation into account, the labor impacts would be different if manufacturers chose to 

relocate to lower cost countries. The relatively small capital costs at TSL 1 through TSL 3 make 

relocation less likely. However, at all TSLs manufacturers face significant product conversion 

costs that correspond to redesigning products and testing components on all platforms. These 

significant conversion costs put pressure on manufacturers at all TSLs to cut costs. At TSL 4, 

manufacturers face both significant capital and product conversion costs, which put even greater 

pressure on cost reduction and for plant relocation to lower-cost countries. 

13.8.1.3 Microwave Ovens 

The GRIM calculates that the domestic industry labor expenditure for microwave oven 

production workers in 2012 is approximately $6 million. Using the $13.84 wage rate and 1,940 

production hours per year per employee found in the 2006 ASM, the GRIM estimates there are 

approximately 228 U.S. production employees involved in manufacturing microwave ovens 

covered by this rulemaking (total COGS in 2012 times the production labor percentage of COGS 

times the percentage of U.S production). In addition, DOE estimates that 30 indirect employees 

in the United States support microwave oven production. The employment spreadsheet of the 

microwave oven GRIM shows the annual domestic employment impacts due to new energy 

conservation standards in further detail. 

13-39 

EERE-2006-STD-0127 COMMENT 64.2
Table 13.8.2 illustrates the impact of new cooking efficiency standards on employment 

levels at each TSL for the microwave oven industry calculated by the GRIM. 

Table 13.8.2 Microwave Ovens Industry Estimated Employment Impacts in 2012 for 

Energy Factor Standards 

Trial Standard Level Base 

Case TSL 1 TSL 2 TSL 3 TSL 4 

Total Number of Domestic Microwave 

Oven Production Employees in 2012 228 244 262 289 325 

Change in Total Number of Domestic 

Microwave Oven Production 

Employees in 2012 Due to Standards 

- 16 34 62 97 

Total Number of Domestic Microwave 

Oven Non-Production Employees in 

2012 

30 32 34 38 43 

Total Number of Domestic Microwave 

Oven Employees in 2012 258 276 296 327 367 

Figure 13.8.3 shows annual domestic employment levels for each TSL calculated by the 

GRIM for energy factor standards. 

Total Domestic Employment 

0 

100 

200 

300 

400 

500 

600 

2006 

2008 

2010 

2012 

2014 

2016 

2018 

2020 

2022 

2024 

2026 

2028 

2030 

2032 

2034 

2036 

2038 

2040 

2042 

Year 

Total Domestic

Employement (# of Workers) 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 

Energy Conservation 

Standards Effective Date 

January 2012 

Figure 13.8.3 Total Microwave Oven Industry Domestic Employment by Year for Energy 

Factor Standards. 

Approximately 96 percent of microwave ovens sold in the United States are imported. 

Because most microwave ovens are produced abroad, any new energy conservation standard has 

a larger impact on labor in other countries. U.S. companies are all still impacted by the product 

conversion costs, capital conversion costs, and higher MPCs. However, the impacts of standards 

on domestic employment would be small. 

13-40 

EERE-2006-STD-0127 COMMENT 64.2
From the engineering analysis, higher TSLs correspond to switches to more efficient 

components. Because many components are sourced for both large and small manufacturers, 

labor is more a function of units shipped, not production costs as calculated in the GRIM. 

However, since shipments are expected to increase gradually over time in the shipments model, 

employment levels for manufacturers of microwave ovens would still increase at all TSLs. 

For all TSLs, the GRIM calculates an increase in domestic employment due to new 

energy conservation standards because production labor expenditures are assumed to be a fixed 

percentage of COGS and MPCs increase with more efficient products. For all TSLs, the GRIM 

employment results agree with the bottoms-up analysis in the engineering. However, the 

incremental costs for more efficient components at all TSLs are relatively small. Consequently, 

in response to standards, domestic manufacturers would most likely not alter employment levels 

much because inserting a more efficient component does not necessarily require more labor. 

The employment conclusions ignore the possible relocation of domestic jobs to lowerlabor-cost countries, which may occur independently of new standards or may be influenced by 

the level of investments required by new standards. Since most microwave ovens are already 

imported and the employment impacts in the GRIM are small, the actual impacts on domestic 

employment would be mostly impacted if any U.S. manufacturer decided to shift remaining U.S. 

production to lower-cost-countries. 

13.8.2 Production Capacity 

13.8.2.1 Conventional Cooking Products Production Capacity Impacts 

According to the manufacturers of gas cooking products, new energy conservation 

standards should not significantly affect production capacity, except at the max-tech levels. For 

example, in interviews, all manufacturers of cooking products with standing pilot lights stated 

they also manufacture products that do not use this type of ignition. Since manufacturers of gas 

cooking appliances with standing pilot ignitions typically also sell otherwise-identical appliances 

with electronic ignition systems, manufacturers stated that they expected impacts on 

manufacturing capacity due to changes in the ignition systems to be minimal. Thus, DOE 

believes manufacturers will be able to maintain manufacturing capacity levels and continue to 

meet market demand under new energy conservation standards. For most other products and 

efficiencies, manufacturers can modify existing equipment to accommodate redesigned products 

with more efficient components without significantly impacting production volumes. 

However, max-tech levels for standard electric ovens and standard gas ovens strand some 

existing manufacturing equipment and tooling, and would require substantial product 

development and retooling. DOE believes setting a standard at this level could lead to short term 

capacity problems for these products if manufacturers cannot make the tooling changes in time to 

meet the standard. For the other efficiencies, manufacturers will be able to retool without 

causing capacity constraints. 

13.8.2.2 Microwave Oven Production Capacity Impacts 

According to the majority of microwave oven manufacturers, new energy conservation 

13-41 

EERE-2006-STD-0127 COMMENT 64.2
standards will not significantly affect production capacity. As with conventional cooking 

products, any necessary microwave oven redesigns involve component switches that will not 

change the fundamental assembly of the equipment. However, manufacturers anticipate 

significant changes to tooling for TSL 4. For all efficiency levels, the most significant 

conversion costs are the research and development (R&D), testing, and certification of products 

with more-efficient components, which does not affect production line capacity. Thus, DOE 

believes manufacturers will be able to maintain manufacturing capacity levels and continue to 

meet market demand under new energy conservation standards. 

13.8.3 Cumulative Regulatory Burden 

While any one regulation may not impose a significant burden on manufacturers, the 

combined effects of several impending regulations may have serious consequences for some 

manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single 

regulation may overlook this cumulative regulatory burden. For the cumulative regulatory 

burden analysis, DOE describes other significant product-specific regulations that could affect 

conventional cooking products and microwave oven manufacturers that will take effect three 

years before or three years after the effective date of the new energy conservation standards for 

these productse

. 

Companies which produce a wide range of regulated products may be faced with more 

capital and product development expenditures than competitors with a narrower scope of 

products. Regulatory burdens can prompt companies to exit the market or reduce their product 

offerings, potentially reducing competition. Especially smaller companies can be impacted by 

regulatory costs since such companies have lower sales volumes over which they can amortize 

the costs of meeting new regulations. DOE considers that a proposed standard is not 

economically justified if it contributes to an unacceptable level of cumulative regulatory burden. 

In addition to the energy conservation regulations on conventional cooking products and 

microwave ovens, several other Federal regulations and pending regulations apply to these 

products and other equipment produced by the same manufacturers. DOE recognizes that each 

regulation can significantly impact manufacturers’ financial operations. The following sections 

provide a qualitative discussion of some of these regulations and standards. 

13.8.3.1 Standby Power Requirements 

Section 310 of the Energy Independence and Security Act of 2007 (EISA 2007) (Pub. L. 

No. 110-140) amends Section 325 of the Energy Policy and Conservation Act (EPCA) of 1975 

(42 U.S.C. 6291–6309) to require DOE to regulate standby mode and off mode energy 

consumption as part of an energy conservation standard for all covered products, including 

residential ranges and ovens and microwave ovens, for which a final rule is adopted after July 

10, 2010. (42 U.S.C. 6295(gg)(1)(A)) For this rulemaking, EISA 2007 specifies that the test 

procedure for residential ranges and ovens and microwave ovens be amended to include 

e

 The effective date for conventional cooking products and microwave ovens is three years from the date of 

publication of the final rule. 

13-42 

EERE-2006-STD-0127 COMMENT 64.2
measurement of standby mode and off mode energy consumption, taking into consideration the 

most current version of International Electrotechnical Commission’s (IEC) Standard 62301 

Household electrical appliances – Measurement of standby power (IEC Standard 62301). (42 

U.S.C. 6295(gg)(2)(A)) According to EISA 2007, an energy conservation standard for cooking 

products that would be put forth from this rulemaking is not required to incorporate standby 

mode and off mode energy consumption. 

Besides the test procedure change for products in this rulemaking, manufacturers stated a 

concerned with the EISA 2007 requirement that all covered products measure standby power and 

off mode. As discussed in the final rule, DOE is not considering standby power requirements for 

this rulemaking. However, manufacturers stated that this requirement will impose a heavy 

burden on their testing facilities going forward. In addition, because the test procedure change 

will affect all covered products, manufacturers expressed a concern that this had the potential to 

create many overlapping regulatory compliance costs in the future. 

13.8.3.2 Additional Federal Energy Conservation Standards 

Besides the energy conservation regulations on conventional cooking products and 

microwave ovens, several other Federal regulations and pending regulations apply to other 

products and equipment produced by the same manufacturers. DOE recognizes that each 

regulation can significantly impact manufacturers’ financial operations. Multiple regulations 

affecting the same manufacturer can quickly strain manufacturers’ profits and possibly cause an 

exit from the market. Table 13.8.3 list the Federal regulations that could also affect 

manufacturers of the conventional cooking products and microwave oven industries in the three 

years leading up to and the three years preceding the effective date of the new 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. 

13-43 

EERE-2006-STD-0127 COMMENT 64.2
Table 13.8.3 Other DOE and Federal Actions Affecting the Cooking Products Industry 

(Conventional Cooking Products and Microwave Ovens) 

Regulation Approximate 

Effective Date* 

Number of 

Impacted 

Companies 

from the 

MTA 

Estimated 

Industry Total 

Conversion 

Expenses** 

(millions) 

Residential Refrigerators and 

Freezers 2010* 18 N/A† 

Residential Clothes Washers 2014* 14 N/A† 

Dishwashers 2012 14 N/A† 

Room Air Conditioners 2014* 9 N/A† 

Battery Chargers 2014* 5 N/A† 

Dehumidifiers 2012 4 N/A† 

Residential Furnaces 

2015* 3 $97 (2006$)f 

Commercial Clothes Washers 2012* 3 N/A† 

Packaged Terminal Air Conditioners 

and Heat Pumps 2012* 3 N/A† 

External Power Supplies 2014* 3 N/A† 

Residential Fluorescent and 

Incandescent Lamps 2012* 2 N/A† 

Residential Water Heaters 2015* 2 N/A† 

Commercial Beverage Vending 

Machine 2012* 2 

N/A† 

Commercial Refrigeration 

Equipment 2012* 2 $112 (2007$)g 

Commercial Unitary Air 

Conditioners and Heat Pumps 2010 2 N/A† 

Ceiling Fans and Ceiling Fan Light 

Kits 2010 1 N/A† 

Commercial Distribution 

Transformers 2010 1 $13.5 (2006$)h 

*The dates listed are an approximation. The exact dates are pending final DOE action. 

** Total conversion costs include both capital and product conversion costs 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 an 

f

 Estimated industry conversion expenses were published in the TSD for the November 2007 residential furnace 

final rule. 72 FR 65136 (Nov. 19, 2007). The TSD for the 2007 residential furnace final rule can be found at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnace_boiler_fr.html g

 Estimated industry conversion expenses were published in the TSD for the August 2008 commercial refrigeration 

equipment NOPR. 73 FR 50072, 50119 (Aug. 25, 2008). The TSD for the 2008 commercial refrigeration equipment 

NOPR can be found at: 

http://www1.eere.energy.gov/buildings/appliance_standards/commercial/refrig_equip_nopr.html h

 Estimated industry conversion expenses were published in the TSD for the October 2007 distribution transformers 

final rule. 72 FR 58190 (Oct. 12, 2007). 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 

13-44 

EERE-2006-STD-0127 COMMENT 64.2
MIA was not completed as part of a rulemaking. 42 U.S.C. 6291-6317. For minimum performance requirements 

prescribed by EISA 2007, DOE did not estimate total industry conversion expenses because a MIA was not 

completed as part of a rulemaking. Pub. L. 110-140. 

Additional investments necessary to meet these potential standards could have significant 

impacts on manufacturers of the covered products. However, DOE has limited data on the 

importance of these other regulated products for manufacturers of conventional cooking products 

and microwave ovens. 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 only estimated the cost of compliance to meet other energy 

conservation standards for regulated products if DOE had published a final rule. 

13.8.3.3 Refrigerant Phase-out 

In 1987, the United Nations Environment Programme (UNEP) adopted the Montreal 

Protocol on Substances that Deplete the Ozone Layer (“Montreal Protocol”), which regulates the 

phase-out of ozone-depleting substances through a collaborative and international effort. In 

1988, the United States ratified the Montreal Protocol and thus committed to the phase-out. 

In 1990, the Clean Air Act was amended to include Title VI, “Stratospheric Ozone 

Protection,” to implement the Montreal Protocol. (42 U.S.C 7671, et seq.) Title VI mandated 

the phase-out by 2020 of HCFC refrigerants for use in new air-conditioning systems. (42 U.S.C. 

7671d) Title VI, however, also authorized the United States Environmental Protection Agency 

(EPA) to accelerate this date if certain criteria were met, (42 U.S.C. 7671e) and EPA 

subsequently adopted a rule on December 10, 1993 to require the phase-out of HCFC 

refrigerants for use in new equipment by 2010. 58 FR 65018. R-22, a refrigerant currently used 

by manufacturers of heating, ventilation, and air-conditioning (HVAC) systems, is an HCFC 

refrigerant. Phase-out of this refrigerant could have a significant impact on manufacturing, 

performance, and cost of HVAC equipment. Many of the same manufacturers that produce 

conventional cooking products and microwave ovens also manufacture equipment that utilizes 

R-22 refrigerant. These manufacturers will need to convert their manufacturing process and 

designs to meet the refrigerant requirements in addition to energy conservation standards. 

13.8.3.4 Restriction of Hazardous Substance Directive 

According to manufacturers, the Restriction of Hazardous Substance Directivei

 (RoHS) 

will have some global impact on manufacturing of electrical and electronic equipment. Under 

the directive, all manufacturers are banned from placing on the European Union market new 

electrical and electronic equipment containing more than agreed-upon levels of lead, cadmium, 

mercury, hexavalent chromium, polybrominated biphenyl and polybrominated diphenyl ether 

flame retardants. Although there is no Federal regulation on RoHS, California has passed SB 20: 

Electronic Waste Recycling Act of 2003. Under this law, California limits the amount of 

hazards substances included in the RoHS directive that can be sold in California. 

i

 Further information about RoHS can be found at 

http://eur-lex.europa.eu/LexUriServ/site/en/oj/2003/l_037/l_03720030213en00190023.pdf 

13-45 

EERE-2006-STD-0127 COMMENT 64.2
In addition, several northeastern states have placed a ban on any product that contains 

more than 1 ounce of mercury (a substance listed in RoHS). This primarily affects mercurybased gas valves found in commercial and residential conventional cooking products. 

Manufacturers of conventional cooking products have said that these bans and RoHS will have 

some impacts in the way the electronic components in the cooktops and ovens are incorporated 

into the design. Currently, these manufacturers have electronic components in the cooktop and 

oven designs that contain substances banned by the RoHS and mercury limit passed by 

northeastern states. However, manufacturers do not anticipate these restrictions will 

significantly impact the cooking products industry as a whole. 

A significant worry to manufacturers is the uncertainty about the future of RoHS. One 

manufacturer stated that California’s resumption of the RoHS initiative demonstrates the ease 

with which any state could selectively choose to ban its products. One manufacturer stated that 

there are number of exemptions found in RoHS which must be periodically renewed by the EU. 

Manufacturers use a number of these exempted substances in their products and are not sure if 

the exemptions will be renewed. Lastly, confirming RoHS-compliance will place additional 

testing burdens on manufacturers. 

Most manufacturers interviewed for this rulemaking are already compliant with the 

RoHS directive. The most significant cumulative regulatory burden for gas cooking appliance 

manufacturers is a state-by-state restriction on mercuryj

, which affects the gas valves used in 

their appliances. Most gas cooking appliance manufacturers have already eliminated mercury 

switches or already have plans in place to do so. However, all appliance manufacturers are 

concerned about potential restrictions of other hazardous substances in the future, such as fire 

protection materials, which could be costly to remove from existing products. 

13.8.3.5 International Energy Conservation Standards 

Canada does set energy conservation standards for cooking products. However, these 

standards are less stringent than those of the United States. Manufacturers stated their concern 

that Canada will begin to regulate products at the provincial level. Canada doesn’t have Federal 

pre-emption clauses for efficiency standards like the United States, so province-by-province 

standards could create a patchwork of standards and result in even greater testing costs. 

DOE surveyed foreign regulatory and non-regulatory programs, identifying Korea’s estandby program, Australia’s standby program, and Japan’s Top Runner Program. All of them 

aim to meet or exceed the goals of the International Energy Agency (IEA)’s One-Watt program 

to lower standby power consumption below 1 W for microwave ovens.k Korea’s e-standby 

program currently has a voluntary labeling program for microwave ovens with less than 1 W of 

standby power. The program is currently transitioning to a mandatory 1 W maximum standby 

limit by the year 2010. Australia has plans to implement a mandatory 1 W standard by the year 

j

 For example, the Interstate Mercury Education & Reduction Clearinghouse (IMERC) is a coalition of Northeast 

states coordinating the banning of products containing mercury, see 

http://www.newmoa.org/prevention/mercury/imerc.cfm k

 IEA Energy Information Centre, Standby Power Use and the IEA “1-Watt Plan” 

http://www.iea.org/textbase/subjectqueries/standby.asp 

13-46 

EERE-2006-STD-0127 COMMENT 64.2
2012. In accordance with Japan’s Top Runner Program, Japanese appliance manufacturers made 

a voluntary declaration to reduce standby power consumption of microwave ovens without a 

timer as close to 0 W as possible and that of microwave ovens with a timer to 1 W or lower. 

13.8.3.6 International Test Procedures 

Currently, manufacturers of conventional cooking products are principally impacted by 

foreign regulation due to the need to use a separate test procedure for foreign markets. 

Depending on the country where the regulation is from, manufacturers must use a separate test 

procedure for exported products. Manufacturers often have to contract foreign laboratories to 

conduct tests at the foreign locations. 

13.9 CONCLUSIONS 

The following sections summarize the different impacts for the scenarios DOE believes 

are most likely to capture the range of impacts on conventional cooking products and microwave 

oven manufacturers as a result of new energy conservation standards. DOE also notes that while 

these scenarios bound the range of most plausible impacts on manufacturers, there potentially 

could be circumstances which cause manufacturers to experience impacts outside of this range. 

13.9.1 Conventional Cooking Products Industry 

To assess the lower end of the range of potential impacts for the conventional cooking 

products industry, DOE considered a scenario in which the industry gross margin percentage in 

the base case is preserved in the standards case (i.e., the markup is held constant for all products 

at all TSLs). Thus, a manufacturer is able to fully pass on any additional costs due to standards 

and maintain the percentage margin between COGS and manufacturing selling price. Thus, if 

unit sales remain constant, the gross margin in absolute dollars will increase after a standard 

comes into effect. 

To assess the higher end of the range of potential impacts for the conventional cooking 

products industry, DOE considered the scenario reflecting the preservation of industry gross 

margin in absolute dollars. Under this scenario, DOE assumed that the industry cannot pass on 

all additional costs due to efficiency-related changes (i.e., the markup decreases for all TSLs in 

the standards case.) Thus, the absolute gross margin is held constant. This means the percentage 

difference between manufacturer production cost and selling price will decrease in the standards 

case compared to the base case and the gross margin percentage will be lower. As a result, the 

industry will make the same gross margin in absolute dollars post-standard in a scenario with 

constant shipments but the industry will also have a lower INPV since the gross margin 

percentage is eroding. 

Electric Cooktops 

At TSL 1, the impact on INPV and cash flow for electric cooktops is zero. At this level, 

DOE assumed both electric coil and smooth cooktops would have the same efficiency level as 

the baseline. Therefore, no impacts are reported at TSL 1. 

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At TSL 2 and TSL 3, the impact on INPV and cash flow varies depending on 

manufacturers’ ability to maintain gross margins as a percentage of revenues constant as the 

manufacturing product cost (MPC) increases as a result of standards. DOE estimated the 

impacts in INPV at TSL 2 and TSL 3 to range from -$2 million to -$11 million, or a change in 

INPV of -0.55 percent to -3.17 percent. At this level, the industry cash flow would decrease by 

approximately 13 percent, to $17.1 million, compared to the base-case value of $19.6 million in 

the year leading up to the standards. DOE does not expect significant impacts at TSL 2 and TSL 

3 because the investments needed to conform to the standards are relatively small compared to 

overall SG&A and R&D annual costs. In addition, product price increases would benefit 

manufacturers if they can fully pass along MPC increases to customers. However, overall INPV 

would decline in all scenarios at these standard levels because, according to manufacturers, the 

research and engineering costs needed to achieve these levels would exceed the relatively small 

capital expenditures and incremental costs at this standard level. 

At TSL 4, the impact on INPV and cash flow will vary significantly depending on the 

manufacturers’ ability to maintain a constant gross margin percentage as MPCs increase due to 

standards. DOE estimated the impacts in INPV to range from approximately positive $78 

million to -$385 million, or a change in INPV of 21.76 percent to -107.13 percent. At this level, 

the industry cash flow decreases by approximately 178 percent, to -$15.3 million, compared to 

the base-case value of $19.6 million in the year leading up to the standards. At this TSL, if 

manufacturers are able to maintain their gross margin as a percentage of revenues, the impacts of 

higher manufacturing costs would be negated by the increases in total revenues. However, if 

manufacturers can only maintain their absolute dollar gross margin, then the impacts at TSL 4 

would completely erode manufacturers’ profits. According to manufacturers, the energy savings 

at this level are not economically justified because both consumers and manufacturers will 

experience negative impacts. Consumers would experience significantly higher prices, while 

manufacturers will experience decreased profits, lower revenues, and much higher R&D costs. 

Gas Cooktops 

At TSL 1, TSL 2, and TSL 3, the impact on INPV and cash flow varies depending on 

manufacturers’ ability to fully maintain their gross margins as the MPCs increase as a result of 

the standards. These TSLs are equivalent to the elimination of standing pilot lights. DOE 

estimated the impacts in INPV at TSL 1, TSL 2, and TSL 3 to range from -$5 million up to -$12 

million, or a change in INPV of -1.73 percent up to -4.11 percent. At this level, the industry cash 

flow decreases by approximately 19 percent, to $13.7 million, compared to the base case value of 

$17.0 million in the year leading up to the standards. Since more than 90 percent of the 

equipment being sold is already at or above this level (i.e., most products do not have standing 

pilot lights), those manufacturers that do not fall below the efficiency levels specified by TSL 1, 

TSL 2, and TSL 3 will not have to make additional modifications to their product lines to 

conform to the new energy conservation standards. DOE expects the lower end of the impacts to 

be reached, which indicates that industry revenues and costs will not be significantly negatively 

impacted as long as manufacturers can maintain their gross margin as a percentage of revenues. 

Analysis shows that although the elimination of standing pilot lights may not 

significantly impact large manufacturers, small manufacturers that rely on revenues from these 

products will be significantly impacted. In MIA interviews, all manufacturers of standing pilot13-48 

EERE-2006-STD-0127 COMMENT 64.2
equipped gas appliances expressed concern about the potential elimination of standing pilots. 

Two small businesses, which both focus solely on cooking appliances, produce standing pilotequipped products which comprise nearly half of their total annual gas product shipments and 

which they consider to be a differentiator from their larger, more-diversified competitors. While 

all these manufacturers also make comparable cooking appliances with electronic ignition 

systems, these two small businesses are likely to be disproportionately impacted by a ban on 

standing pilot ignition systems. DOE contacted both manufacturers multiple times to better 

understand the potential business impact of a standing pilot ban. While standing pilot ignition 

systems are a differentiator, gas cooking products made by these manufacturers are also 

differentiated by non-standard unit widths and other features. Thus, while the potential 

elimination of standing pilot lights would decrease, other differentiators, notably non-standard 

unit sizes, would remain. 

At TSL 4, the analysis shows that the impact on INPV and cash flow continues to vary 

significantly depending on the manufacturers’ ability to pass on increases in MPCs to the 

customer. DOE estimated the impacts in INPV at TSL 4 to range from approximately positive 

$28 million to -$99 million, or a change in INPV of positive 9.88 percent to -34.45 percent. At 

this level, the industry cash flow decreases by approximately 39 percent, to $10.3 million, 

compared to the base case value of $17.0 million in the year leading up to the standards. At this 

level, the component switch also carries substantial redesign costs. Sealed burners affect the 

design of the entire cooktop, making product conversion and capital conversion costs much 

larger than a simpler component switch. At this TSL, if manufacturers can maintain their gross 

margin as a percentage of revenues, the impacts of higher manufacturing costs would be negated 

by the increases in total revenues. However, if manufacturers can only maintain their absolute 

dollar gross margin, then the impacts of TSL 4 would significantly erode manufacturers’ profits. 

Electric Ovens 

At TSL 1, the projected impact on INPV and cash flow for electric ovens is zero. At this 

level, DOE assumed both electric standard and self-cleaning ovens would have the same 

efficiency level as the baseline. Therefore, DOE reported no impacts at TSL 1. 

At TSL 2 and TSL 3, the impact on INPV and cash flow varies depending on 

manufacturers’ ability to maintain gross margin as a percentage of revenues as the MPCs 

increase as a result of standards. DOE estimated the impacts in INPV at TSL 2 and TSL 3 to 

range from -$8 million to -$19 million, or a change in INPV of approximately -.98 percent to -

2.43 percent. At these levels, the industry cash flow would decrease by approximately 13 

percent, to $37.8 million, compared to the base-case value of $43.5 million in the year leading up 

to the standards. DOE does not expect significant impacts at TSL 2 and TSL 3 because the 

investments needed to conform to the standards are relatively small in comparison to overall 

SG&A and R&D annual costs. In addition, product cost increases would benefit manufacturers 

if they can fully pass along MPC increases to customers. 

At TSL 4, the analysis shows that impacts on INPV and cash flow would vary 

significantly depending on the manufacturers’ ability to maintain gross margin as MPCs increase 

due to standards. DOE estimated the impacts in INPV to range from approximately -$9 million 

to -$471 million, or a change in INPV of -1.17 percent to -59.07 percent. At this level, the 

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industry cash flow would decrease by approximately 205 percent, to -$45.9 million, compared to 

the base-case value of $43.5 million in the year leading up to the standards. At this level, the 

increase in efficiency also carries substantial redesign costs. Forced convection and reducing 

conduction losses affect the design of the entire cavity, making product conversion and capital 

conversion costs much larger than a simpler component switch. In addition, if manufacturers can 

maintain their gross margin as a percentage of revenues, the impacts of higher manufacturing 

costs would be relatively small. However, if manufacturers can only maintain their absolute 

dollar gross margin, then the impacts of TSL 4 would decrease the INPV of the industry by close 

to half. 

Gas Ovens 

At TSL 1 and TSL 2, the impact on INPV and cash flow varies depending on 

manufacturers’ ability to fully maintain their gross margins as the MPC increases as a result of 

standards. These TSLs are equivalent to the elimination of standing pilot lights from gas 

cooking products. DOE estimated the impacts in INPV at TSL 1 and TSL 2 to range from a -$7 

million up to -$10 million, or a change in INPV of -1.56 percent up to -2.10 percent. At this 

level, the industry cash flow decreases by approximately 11 percent, to $24.7 million, compared 

to the base case value of $27.7 million in the year leading up to the standards. Since more than 

80 percent of the equipment being sold is already at or above this level (i.e., most products do 

not have standing pilot lights), those manufacturers that do not fall below the efficiency levels 

specified by TSL 1 and TSL 2 would not have to make additional modifications to their product 

lines to conform to the new energy conservation standards. DOE expects the lower end of the 

impacts to be reached, which indicates that industry revenues and costs are not significantly 

negatively impacted as long as manufacturers can maintain their gross margin as a percentage of 

revenues. The analysis shows that although the elimination of standing pilot lights may not 

significantly impact large manufacturers, small manufacturers that rely on revenues from these 

products would be impacted significantly. 

At TSL 3, the impact on INPV and cash flow continues to vary depending on the 

manufacturers’ ability to pass on increases in MPCs to the customer. DOE estimated the impacts 

in INPV at TSL 3 to range from approximately -$6 million to -$41 million, or a change in INPV 

of -1.36 percent to -8.68 percent. At this level, the analysis shows that the industry cash flow 

decreases by approximately 29 percent, to $19.8 million, compared to the base case value of 

$27.7 million in the year leading up to the standards. 

At TSL 4, the impact on INPV and cash flow varies significantly depending on the 

manufacturers’ ability to pass on increases in MPCs to the customer. DOE estimated the impacts 

in INPV at TSL 4 to range from approximately -$46 million to -$182 million, or a change in 

INPV of -9.91 percent to -38.74 percent. At this level, the analysis shows that the industry cash 

flow decreases by approximately 198 percent, to -$27.1 million, compared to the base case value 

of $27.7 million in the year leading up to the standards. At this TSL, if manufacturers can 

maintain their gross margin as a percentage of revenues, the projected increase in total revenues 

negates the impacts of higher manufacturing costs. However, if manufacturers can only maintain 

their absolute dollar gross margin, then the impacts of TSL 4 would significantly erode 

manufacturers’ profits. 

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13.9.2 Microwave Ovens Industry 

To assess the lower end of the range of potential impacts for the microwave oven 

industry, DOE considered the scenario reflecting the preservation of gross margin percentage. 

As production cost increases with efficiency, this scenario implies manufacturers will be able to 

maintain gross margins as a percentage of revenues. To assess the higher end of the range of 

potential impacts for the microwave oven industry, DOE considered the scenario reflecting 

preservation of gross margin in absolute dollars. Under this scenario, DOE assumed that the 

industry can maintain its gross margins in absolute dollars after the standard effective date. The 

industry would do so by passing through its increased costs to customers without increasing its 

gross margin in absolute dollars. 

TSL 1 represents an improvement in cooking efficiency from the baseline level of 0.557 

EF to 0.586 EF. At TSL 1, the impact on INPV and cash flow varies greatly depending on the 

manufacturers and their ability to pass on increases in MPCs to the customer. DOE estimated 

the impacts in INPV at TSL 1 to range from less than $45 million to -$200 million, or a change 

in INPV of 3.06 percent to -13.75 percent. At this level, the industry cash flow decreases by 

approximately 18 percent, to $69.3 million, compared to the base-case value of $84.9 million in 

the year leading up to the standards. 

TSL 2 represents an improvement in cooking efficiency from the baseline level of 0.557 

EF to 0.588 EF. At TSL 2, the impact on INPV and cash flow would be similar to TSL 1 and 

depend on whether manufacturers can fully recover the increases in MPCs from the customer. 

DOE estimated the impacts in INPV at TSL 2 to range from $118 million to -$388 million, or a 

change in INPV of 8.11 percent to -26.64 percent. At this level, the industry cash flow decreases 

by approximately 23 percent, to $65.4 million, compared to the base-case value of $84.9 million 

in the year leading up to the standards. 

TSL 3 represents an improvement in cooking efficiency from the baseline level of 0.557 

EF to 0.597 EF. At TSL 3, the impact on INPV and cash flow continues to vary depending on 

the manufacturers and their ability to pass on increases in MPCs to the customer. DOE 

estimated the impacts in INPV at TSL 3 to range from approximately $238 million to -$679 

million, or a change in INPV of 16.37 percent to -46.60 percent. At this level, the industry cash 

flow decreases by approximately 27 percent, to $61.5 million, compared to the base-case value 

of $84.9 million in the year leading up to the standards. 

 TSL 4 represents an improvement in cooking efficiency from the baseline level of 0.557 

EF to 0.602 EF. At TSL 4, DOE estimated the impacts in INPV to range from approximately 

$270 million to -$1,171 million, or a change in INPV of 18.53 percent to -80.42 percent. At this 

level, the industry cash flow decreases by approximately 104 percent, to -$3.4 million, compared 

to the base-case value of $84.9 million in the year leading up to the standards. At higher TSLs, 

manufacturers have a harder time fully passing on larger increases in MPCs to the customer. 

Due to the similarities in design requirements to meet each TSL, the results for each TSL 

are dependent on the ability of manufacturers to pass along increases in costs and the additional 

conversion costs. The engineering analysis assumes that each TSL adds an additional 

component switch-out. For example, to reach TSL 2, manufacturers must switch the fan in 

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EERE-2006-STD-0127 COMMENT 64.2
addition to switching the power supply required to meet TSL 1. The high conversion costs 

associated with these switches drive INPV negative if incremental costs are only partially passed 

along to consumers. If the incremental costs are fully passed along to consumers, which 

manufacturers stated was unlikely due to fierce competition in the industry, the higher purchase 

prices are enough to overcome the high product conversion and capital conversion costs, thereby 

making INPV positive. The magnitude of the positive cash flow impact under the preservation 

of gross margin percentage scenario and the negative cash flow impact under the preservation of 

gross margin (absolute dollars) scenario depends on the incremental cost of standards-compliant 

products. The higher the relative cost, the larger the impact on operating revenue and cash flow 

in the years following the effective date of the standard. Since higher TSLs correspond to higher 

relative costs, the impacts of the markup scenarios are greater at higher TSLs. 

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REFERENCES 

1 McKinsey & Company, Inc. Valuation: Measuring and Managing the Value of 

Companies, 3rd Edition, Copeland, Koller, Murrin. New York: John Wiley & Sons, 2000. 

2 Securities and Exchange Commission, Annual 10-K Reports, Various Years, 

Washington D.C. Available at: www.sec.gov. 

3 U.S. Department of Energy-Energy Information Administration. Annual Energy Outlook 

2007 with Projections to 2030, February, 2007. Washington, DC. DOE/EIA-0383(2007). 

4 Association of Home Appliance Manufacturers. AHAM 2005 Fact Book, 2005. Washington, 

DC. 

5 “Table 2 – Quantity and Value of Shipments of Refrigeration, Air-Conditioning, and 

Warm Air Heating Equipment: 2005 and 2004.” 2000 - 2005 Current Industrial Reports 

(CIR). U.S. Census Bureau, July 2006. 

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