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APPENDIX 12A. MANUFACTURER IMPACT ANALYSIS INTERVIEW 

GUIDES: LIQUID-IMMERSED, LV DRY-TYPE, MV DRY-TYPE 

TABLE OF CONTENTS 

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

12A.2 Low-Voltage Dry-Type MIA Interview Guide 12A-11 

12A.3 Medium-Voltage Dry-Type MIA Interview Guide 12A-20 

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Liquid-Immersed 

Distribution Transformer 

Energy Conservation Standards Rulemaking 

Manufacturer Impact Analysis Interview Guide 

Navigant Consulting, Inc. 

May 2005 

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1. KEY ISSUES 

The Department of Energy (DOE) is currently considering six Trial Standard Levels (TSLs). The TSLs are 

presented below as they apply to the representative units selected for detailed analysis. In responding to this 

questionnaire, please refer to the table of TSLs below. 

Product Class Product Class 1 

(1-phase) 

Product Class 2 

(3-phase) 

Design Lines DL1 

10-167 kVA 

(rectangular tank) 

DL2 

10-167 kVA 

(round tank) 

DL3 

250-883 kVA 

DL4 

15-500 kVA 

DL5 

750-2500 kVA 

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

Base Case None None 

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

TSL2 99.04% 98.73% 99.38% 99.08% 99.36% 

TSL3 99.19% 98.76% 99.46% 99.26% 99.42% 

TSL4 99.33% 98.79% 99.54% 99.45% 99.47% 

TSL5 99.49% 98.96% 99.74% 99.58% 99.71% 

TSL6 99.59% 99.46% 99.75% 99.61% 99.71% 

Note: Efficiencies are specified at the NEMA TP1 temperature and loading conditions. 

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

standard rulemaking? 

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

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

2. COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

The Department’s interest concerning manufacturer impact is focused at the plant or profit center level 

directly pertinent to transformer production. However, the context within which the plant operates and the 

details of plant production and costs are not readily available from the published literature, so the Department 

invites you to provide these details confidentially in your own words to the extent practical. The 

organizational setting around the transformer profit center is of interest to round out the Department’s 

understanding of the probable future of the transformer manufacturing activity with and without energy 

efficiency standards. 

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

2.2 Where are your production facilities located, and what is the product mix manufactured at each location? 

2.3 What are your employment levels at these facilities?

2.4 What are your product lines, niches and relative strengths in the liquid-immersed market? 

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3. FINANCIAL PARAMETERS 

Navigant Consulting has built a model of industry financial impacts called the Government Regulatory 

Impact Model (GRIM), using publicly available data on distribution transformer manufacturers. This 

questionnaire attempts to understand how your company’s financial situation differs from our industry 

aggregate picture. 

3.1 Please compare your financial parameters to the GRIM parameters tabulated below. 

GRIM Input Definition Our Industry 

Estimate 

Your Industry 

Estimate 

(if significantly 

different) 

Your Business 

Segment’s Actual 

(if significantly 

different) 

Income Tax Rate Corporate effective income tax rate 

(percentage of earnings before tax) 

30.0% 

Weighted 

Average Cost of 

Capital (WACC) 

Inflation-adjusted weighted 

average of corporate cost of debt 

and return on equity 

8.9% 

Working Capital, 

net 

Current assets less current 

liabilities (percentage of revenues) 

15.4% 

SG&A Selling, general, and 

administrative expenses 

(percentage of revenues) 

12.5% 

R&D Research and development 

expenses (percentage of revenues) 

1.4% 

Depreciation Amortization of fixed assets 

(percentage of revenues) 

1.7% 

Capital 

Expenditures 

Outlay of money to acquire or 

improve capital assets (percentage 

of revenues, not including 

acquisition or sale of business 

units) 

1.9% 

PPE, net Plant, Property, and Equipment 

less accumulated depreciation 

16.6% 

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

4. MORE EFFICIENT DESIGNS 

The Department’s engineering analysis models improvements in efficiency by considering alternative 

combinations of design factors such as core steels, winding conductors, and joint configurations. The 

Department would like to understand what changes may be necessary in your product designs for the 

production of higher efficiency liquid-immersed distribution transformers. 

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4.1 What are your current design features? For each design line, which materials are used to build your nonevaluated transformers? What joint types are used? 

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

4.3 Does your company build transformers that significantly exceed TP1 efficiency levels? Which designs 

are used to exceed TP1? Which designs would you likely use to meet the various TSLs? 

4.4 Are there any other manufacturing issues that DOE should be aware of in terms of producing more 

energy efficient transformers at your facility? 

4.5 Do you currently fabricate your own cores and coils? Would the standard level change your business 

practices with respect to such make vs. buy decisions? 

5. MATERIAL PRICES AND AVAILABILITY 

5.1.In its revised Engineering Analysis, the Department updated its price assumptions for material inputs. 

The Department considered two price scenarios: 1) 5-year average for the years 2000-2004 (2004 US$), 

and 2) typical first quarter 2005 prices. The prices assumed to be paid by transformer manufacturers are 

shown in the table below. In your experience are these prices representative of the industry as a whole? 

Are the prices that your company pays significantly different? If so, does this confer a disadvantage to 

your firm? 

Item and Description Material Price 

(2000-2004) 

Material Price 

(Q1 2005) 

M2 core steel $0.95 $1.71 

M3 core steel $0.80 $1.63 

M4 core steel $0.76 $1.56 

M6 core steel $0.70 $1.42 

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

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

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

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

Copper wire, enameled, rectangular sizes $1.76 $2.65 

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

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

Copper strip, thickness range 0.02-0.045 $2.32 $2.92 

Copper strip, thickness range 0.030-0.060 $2.24 $2.84 

Aluminum strip, thickness range 0.02-0.045 $1.54 $1.66 

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

Mineral Oil $1.71 $2.40 

* Five year average (2000 through 2004) for materials expressed in 2004$ per lb. Average compiled by Paul Goethe, 

Optimized Program Service, January 2005. 

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5.2.In the Department’s analysis, material costs are marked up to determine the manufacturer sales price. In 

light of the large increases of material costs, have you changed your material markup factors or practices? 

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

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

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

6. SHIPMENT PROJECTIONS 

6.1 An efficiency standard can affect shipments by changing product attributes, marketing approaches, 

product availability, and price. For the ANOPR and NOPR, a small sensitivity of liquid-immersed 

shipments to price is modeled. Do you consider this to be appropriate? 

6.2 What is your company’s approximate market share in each of the liquid-immersed design lines? Within 

each design line, is your proportion of shipments at each kVA rating the same as the industry average? 

6.3 Would you expect your market share to change once standards become effective? Does your outlook 

change with higher efficiency levels?

7. CONVERSION COSTS 

An increase in efficiency standards may cause your company to incur one-time costs. We call these 

conversion costs because they are the costs of changing your business to comply with new efficiency 

standards. The GRIM considers three types of conversion costs: 

• Conversion Capital Expenditures—One-time investments in plant, property, and equipment (PPE) 

necessitated by an efficiency standard. These may be completely incremental to existing PPE or they 

could involve replacement of existing PPE. 

• Product Conversion Expenses—One-time expenses in research, product development, testing, and 

marketing necessitated by an appliance efficiency standard. 

• Annual Compliance Costs (not technically a conversion cost) – On-going expenses incurred to comply 

with efficiency standards, typically to meet testing requirements. 

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7.1 What level of conversion costs do you anticipate incurring under the different Trial Standard Levels? 

Refer to the tables below to provide your company’s estimates. Please provide additional qualitative 

information to help us understand the nature of your investments. 

 

Liquid-Immersed – Conversion Capital Expenditures 

Trial Standard (thousands U.S.$) 

Level 

Building Equipment Tooling Other 

TSL1 (TP-1) 

TSL2 

TSL3 

TSL4 

TSL5 

TSL6 

Liquid-Immersed – Product Conversion Expenses 

(thousands U.S.$) Trial Standard 

Level Research & 

Product 

Development 

Testing Marketing Other 

TSL1 (TP-1) 

TSL2 

TSL3 

TSL4 

TSL5 

TSL6 

7.2 What portion of your conversion capital expenditures will go towards replacing existing assets that 

would become obsolete under an efficiency standard? Does your answer depend upon the TSL? 

7.3 What are the depreciation periods for the three types of capital expenditures (building, equipment, 

tooling)? 

7.4 What specific annual compliance costs (after the effective date) do you anticipate incurring to comply 

with standards? Will they vary with standard level? Would they vary over time (e.g., increase with 

sales)? 

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8. PRODUCT MIX 

Current differences in product mix (distribution of product sales by efficiency level) among manufacturers 

can lead to different reactions to and impacts from new efficiency standards. The GRIM calculates financial 

results at each efficiency level to capture some of these effects. 

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

8.2 What percentage of product in each design line is TP1-compliant (industry-wide)? Do significant 

fractions of product exceed TP1 efficiency levels (industry-wide)? Comment on any differences between 

the industry’s distribution of product efficiencies and your company’s. 

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

8.4 For each design line and corresponding TSL, please comment on the potential for marketing premium 

products (i.e., those with efficiencies significantly above of the TSL). What might be the percentage of 

premium efficiency products sold at each TSL? 

9. MARKUPS AND PROFITABILITY 

One of the primary objectives of the Manufacturer Impact Analysis is to assess the impact of Trial Standard 

Levels on industry and sub-group profitability. In this section, we would like your assistance understanding 

how the Trial Standard Levels would impact your company’s markups and profitability. 

9.1 The non-production cost markup is defined as the factor applied to the full production costs to arrive at 

the Manufacturer Selling Price. The Manufacturer Selling Price allows the company to recover all costs, 

both production and non-production, and to earn a profit. The Department used a non-production cost 

markup of 1.25 for SG&A, R&D, interest, and profit. This represents a 20% gross margin on sales 

price. 

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

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

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

9.2 What other factors might change the industry’s profitability? 

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

10. REFURBISHMENT 

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

transformer market? 

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11. CUMULATIVE REGULATORY BURDEN 

Cumulative regulatory burden refers to the burden that industry faces from overlapping effects of new or 

revised DOE standards and/or other regulatory actions affecting the same products or industry. 

11.1 Are there other recent or impending regulations that distribution transformers face (from DOE or 

otherwise)? How might an energy efficiency standard impact the cumulative regulatory burden faced by 

your company? 

11.2 Are there any other DOE standards that would pose a significant impact on your company (any division) 

within three years of the proposed effective date for efficiency standards (2010)? 

11.3 Under what circumstances would you be able to coordinate any expenditures related to metrification, 

other regulations, and distribution transformer efficiency standards, thereby lessening the cumulative 

burden? 

12. EXPORTS / FOREIGN COMPETITION / OUTSOURCING 

Disparity between domestic and foreign efficiency standards could impact exports or imports. Labor content 

and material changes - resulting from efficiency standards - may impact sourcing decisions. 

12.1 Does the bulk of your company’s transformer production occur domestically? Absent standards, are 

production facilities being relocated to foreign countries? Would standards impact your domestic vs. 

foreign manufacturing decision? How? 

12.2 Could a new standard affect your export sales? What would the resulting impact be, if any, on your 

manufacturing operations and profitability? 

12.3 What percentage of the U.S. market has been captured by foreign competition? Would standards have 

an impact on foreign competition? How? 

13. DIRECT EMPLOYMENT IMPACT ASSESSMENT 

The impact of new energy efficiency standards on employment is an important consideration in the 

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

production employment and solicit manufacturer views on how domestic employment patterns might be 

affected by new energy efficiency standards. 

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

13.2 Would the workforce skills necessary under new energy efficiency standards require extensive 

retraining or replacement of employees? 

14. CONSOLIDATION 

New efficiency standards can alter the competitive dynamics of the market. This can include prompting 

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companies to enter or exit the market, or to merge. The DOE and the Justice Department are both interested 

in any potential reduction in competition that would result from a new efficiency standard. 

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

14.2 In the absence of new standards, do you expect any industry consolidation? Please describe your 

expectations. 

14.3 How would new standards affect your ability to compete? 

14.4 Could new standards disproportionately advance or harm the competitive positions of some firms (e.g., 

small businesses)? 

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

consumer subgroups? 

14.6 Could new standards result in products that will be less desirable to consumers (not considering price 

effects)? Which attributes could be affected? 

15. NICHE PRODUCTS 

The definition of a distribution transformer excludes certain types of transformers from this rulemaking. For 

transformers that are covered, DOE is interested in whether new standard levels for some sub-groups of 

products might threaten their viability because of either technical or commercial considerations. 

15.1 Do you have any products whose viability could be threatened by a higher efficiency standard? If so, 

please identify the threatened products and the threshold Trial Standard Level that poses a threat. 

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

15.3 For the purposes of the GRIM, DOE has separated the distribution transformer industry into three main 

groups – liquid-immersed, low voltage dry, and medium voltage dry. Are there other industry groupings 

that might be meaningful? 

16. EFFECTIVE DATE OF STANDARDS

The effective date for new standards after the regulation is promulgated is currently expected to be 2010 

(final rule to be published in 2007). 

16.1 Is this 3-year lead time for retooling, redesign, and compliance demonstration feasible/adequate? If the 

answer depends on the new standard level, please explain. 

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

17. MISCELLANEOUS 

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

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efficient transformers? 

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LV Dry-Type 

Distribution Transformer 

Energy Conservation Standards Rulemaking 

Manufacturer Impact Analysis Interview Guide 

Navigant Consulting, Inc. 

May 2005 

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1. KEY ISSUES 

The Department of Energy (DOE) is currently considering six Trial Standard Levels (TSLs). The TSLs are 

presented below as they apply to the representative units selected for detailed analysis. In responding to this 

questionnaire, please refer to the table of TSLs below. 

Product Class Product Class 3 

(LV 1-phase) 

Product Class 4 

(LV 3-phase) 

Design Lines DL6 

15-333 kVA 

DL7 

15-150 kVA 

DL8 

225-1000 kVA 

Representative Unit 25 kVA 75 kVA 300 kVA 

Base Case None None 

TSL1 / TP-1 98.00% 98.00% 98.60% 

TSL2 98.22% 98.32% 98.82% 

TSL3 98.44% 98.64% 99.04% 

TSL4 98.66% 98.95% 99.26% 

TSL5 / TSL6 98.90% 99.13% 99.33% 

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

standard rulemaking? 

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

1.6 How can we most effectively incorporate these issues in the Manufacturer Impact Analysis? 

2. COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

The Department’s interest concerning manufacturer impact is focused at the plant or profit center level 

directly pertinent to transformer production. However, the context within which the plant operates and the 

details of plant production and costs are not readily available from the published literature, so the Department 

invites you to provide these details confidentially in your own words to the extent practical. The 

organizational setting around the transformer profit center is of interest to round out the Department’s 

understanding of the probable future of the transformer manufacturing activity with and without energy 

efficiency standards. 

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

2.6 Where are your production facilities located, and what is the product mix manufactured at each location? 

2.7 What are your employment levels at these facilities?

2.8 What are your product lines, niches and relative strengths in the low-voltage dry-type market? 

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4. FINANCIAL PARAMETERS 

Navigant Consulting has built a model of industry financial impacts called the Government Regulatory 

Impact Model (GRIM), using publicly available data on distribution transformer manufacturers. This 

questionnaire attempts to understand how your company’s financial situation differs from our industry 

aggregate picture. 

3.1 Please compare your financial parameters to the GRIM parameters tabulated below. 

GRIM Input Definition Our Industry 

Estimate 

Your Industry 

Estimate 

(if significantly 

different) 

Your Business 

Segment’s Actual 

(if significantly 

different) 

Income Tax Rate Corporate effective income tax rate 

(percentage of earnings before tax) 

35.9% 

Weighted 

Average Cost of 

Capital (WACC) 

Inflation-adjusted weighted 

average of corporate cost of debt 

and return on equity 

8.9% 

Working Capital, 

net 

Current assets less current 

liabilities (percentage of revenues) 

14.9% 

SG&A Selling, general, and 

administrative expenses 

(percentage of revenues) 

11.8% 

R&D Research and development 

expenses (percentage of revenues) 

2.0% 

Depreciation Amortization of fixed assets 

(percentage of revenues) 

1.6% 

Capital 

Expenditures 

Outlay of money to acquire or 

improve capital assets (percentage 

of revenues, not including 

acquisition or sale of business 

units) 

1.9% 

PPE, net Plant, Property, and Equipment 

less accumulated depreciation 

20.0% 

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

4. MORE EFFICIENT DESIGNS 

The Department’s engineering analysis models improvements in efficiency by considering alternative 

combinations of design factors such as core steels, winding conductors, and joint configurations. The 

Department would like to understand what changes may be necessary in your product designs for the 

production of higher efficiency low-voltage dry-type distribution transformers. 

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4.6 What are your current design features? For each design line, which materials are used to build your nonevaluated transformers? What joint types are used? 

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

4.8 Does your company build transformers that significantly exceed TP1 efficiency levels? Which designs 

are used to exceed TP1? Which designs would you likely use to meet the various TSLs? 

4.9 Are there any other manufacturing issues that DOE should be aware of in terms of producing more 

energy efficient transformers at your facility? 

4.10 Do you currently fabricate your own cores and coils? Would the standard level change your business 

practices with respect to such make vs. buy decisions? 

5. MATERIAL PRICES AND AVAILABILITY 

5.6.In its revised Engineering Analysis, the Department updated its price assumptions for material inputs. 

The Department considered two price scenarios: 1) 5-year average for the years 2000-2004 (2004 US$), 

and 2) typical first quarter 2005 prices. The prices assumed to be paid by transformer manufacturers are 

shown in the table below. In your experience are these prices representative of the industry as a whole? 

Are the prices that your company pays significantly different? If so, does this confer a disadvantage to 

your firm? 

Item and Description Material Price 

(2000-2004) 

Material Price 

(Q1 2005) 

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

M3 core steel $0.80 $1.63 

M4 core steel $0.76 $1.56 

M5 core steel $0.72 $1.47 

M6 core steel $0.70 $1.42 

M19 core steel (26 gauge) $0.56 $0.82 

M36 core steel (29 gauge) $0.50 $0.69 

M36 core steel (26 gauge) $0.45 $0.65 

M43 core steel (26 gauge) $0.43 $0.58 

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

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

Impregnation (per gallon) $17.80 $19.00 

* Five year average (2000 through 2004) for materials expressed in 2004$ per lb. Average compiled by Paul Goethe, 

Optimized Program Service, January 2005. 

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5.7.In the Department’s analysis, material costs are marked up to determine the manufacturer sales price. In 

light of the large increases of material costs, have you changed your material markup factors or practices? 

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

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

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

6. SHIPMENT PROJECTIONS 

6.4 An efficiency standard can affect shipments by changing product attributes, marketing approaches, 

product availability, and price. In the ANOPR, the Department assumed that industry-wide dry-type 

shipments do not vary by standard level (i.e., there is no consumer sensitivity to price). For the NOPR, a 

small sensitivity of dry-type shipments to price may be introduced. Do you consider this to be 

appropriate? 

6.5 What is your company’s approximate market share in each of the low-voltage design lines? Within each 

design line, is your proportion of shipments at each kVA rating the same as the industry average? 

6.6 Would you expect your market share to change once standards become effective? Does your outlook 

change with higher efficiency levels?

7. CONVERSION COSTS 

An increase in efficiency standards may cause your company to incur one-time costs. We call these 

conversion costs because they are the costs of changing your business to comply with new efficiency 

standards. The GRIM considers three types of conversion costs: 

• Conversion Capital Expenditures—One-time investments in plant, property, and equipment (PPE) 

necessitated by an efficiency standard. These may be completely incremental to existing PPE or they 

could involve replacement of existing PPE. 

• Product Conversion Expenses—One-time expenses in research, product development, testing, and 

marketing necessitated by an appliance efficiency standard. 

• Annual Compliance Costs (not technically a conversion cost) – On-going expenses incurred to comply 

with efficiency standards, typically to meet testing requirements. 

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7.5 What level of conversion costs do you anticipate incurring under the different Trial Standard Levels? 

Refer to the tables below to provide your company’s estimates. Please provide additional qualitative 

information to help us understand the nature of your investments. 

 

LV Dry-Type – Conversion Capital Expenditures 

Trial Standard (thousands U.S.$) 

Level 

Building Equipment Tooling Other 

TSL1 (TP-1) 

TSL2 

TSL3 

TSL4 

TSL5 / TSL6 

LV Dry-Type – Product Conversion Expenses 

(thousands U.S.$) Trial Standard 

Level Research & 

Product 

Development 

Testing Marketing Other 

TSL1 (TP-1) 

TSL2 

TSL3 

TSL4 

TSL5 / TSL6 

7.6 What portion of your conversion capital expenditures will go towards replacing existing assets that 

would become obsolete under an efficiency standard? Does your answer depend upon the TSL? 

7.7 What are the depreciation periods for the three types of capital expenditures (building, equipment, 

tooling)? 

7.8 What specific annual compliance costs (after the effective date) do you anticipate incurring to comply 

with standards? Will they vary with standard level? Would they vary over time (e.g., increase with 

sales)? 

8. PRODUCT MIX 

Current differences in product mix (distribution of product sales by efficiency level) among manufacturers 

can lead to different reactions to and impacts from new efficiency standards. The GRIM calculates financial 

results at each efficiency level to capture some of these effects. 

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

8.6 What percentage of product in each design line is TP1-compliant (industry-wide)? Do significant 

fractions of product exceed TP1 efficiency levels (industry-wide)? Comment on any differences between 

the industry’s distribution of product efficiencies and your company’s. 

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

8.8 For each design line and corresponding TSL, please comment on the potential for marketing premium 

products (i.e., those with efficiencies significantly above of the TSL). What might be the percentage of 

premium efficiency products sold at each TSL? 

9. MARKUPS AND PROFITABILITY 

One of the primary objectives of the Manufacturer Impact Analysis is to assess the impact of Trial Standard 

Levels on industry and sub-group profitability. In this section, we would like your assistance understanding 

how the Trial Standard Levels would impact your company’s markups and profitability. 

9.4 The non-production cost markup is defined as the factor applied to the full production costs to arrive at 

the Manufacturer Selling Price. The Manufacturer Selling Price allows the company to recover all costs, 

both production and non-production, and to earn a profit. The Department used a non-production cost 

markup of 1.25 for SG&A, R&D, interest, and profit. This represents a 20% gross margin on sales 

price. 

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

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

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

9.5 What other factors might change the industry’s profitability? 

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

10. REFURBISHMENT 

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

transformer market? 

11. CUMULATIVE REGULATORY BURDEN 

Cumulative regulatory burden refers to the burden that industry faces from overlapping effects of new or 

revised DOE standards and/or other regulatory actions affecting the same products or industry. 

11.1 Are there other recent or impending regulations that distribution transformers face (from DOE or 

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otherwise)? How might an energy efficiency standard impact the cumulative regulatory burden faced by 

your company? 

11.2 Are there any other DOE standards that would pose a significant impact on your company (any division) 

within three years of the proposed effective date for efficiency standards (2010)? 

11.3 Under what circumstances would you be able to coordinate any expenditures related to metrification, 

other regulations, and distribution transformer efficiency standards, thereby lessening the cumulative 

burden? 

12. EXPORTS / FOREIGN COMPETITION / OUTSOURCING 

Disparity between domestic and foreign efficiency standards could impact exports or imports. Labor content 

and material changes - resulting from efficiency standards - may impact sourcing decisions. 

12.1 Does the bulk of your company’s transformer production occur domestically? Absent standards, are 

production facilities being relocated to foreign countries? Would standards impact your domestic vs. 

foreign manufacturing decision? How? 

12.2 Could a new standard affect your export sales? What would the resulting impact be, if any, on your 

manufacturing operations and profitability? 

12.3 What percentage of the U.S. market has been captured by foreign competition? Would standards have 

an impact on foreign competition? How? 

13. DIRECT EMPLOYMENT IMPACT ASSESSMENT 

The impact of new energy efficiency standards on employment is an important consideration in the 

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

production employment and solicit manufacturer views on how domestic employment patterns might be 

affected by new energy efficiency standards. 

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

13.4 Would the workforce skills necessary under new energy efficiency standards require extensive 

retraining or replacement of employees? 

14. CONSOLIDATION 

New efficiency standards can alter the competitive dynamics of the market. This can include prompting 

companies to enter or exit the market, or to merge. The DOE and the Justice Department are both interested 

in any potential reduction in competition that would result from a new efficiency standard. 

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

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14.2 In the absence of new standards, do you expect any industry consolidation? Please describe your 

expectations. 

14.3 How would new standards affect your ability to compete? 

14.4 Could new standards disproportionately advance or harm the competitive positions of some firms (e.g., 

small businesses)? 

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

consumer subgroups? 

14.6 Could new standards result in products that will be less desirable to consumers (not considering price 

effects)? Which attributes could be affected? 

15. NICHE PRODUCTS 

The definition of a distribution transformer excludes certain types of transformers from this rulemaking. For 

transformers that are covered, DOE is interested in whether new standard levels for some sub-groups of 

products might threaten their viability because of either technical or commercial considerations. 

15.1 Do you have any products whose viability could be threatened by a higher efficiency standard? If so, 

please identify the threatened products and the threshold Trial Standard Level that poses a threat. 

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

15.3 For the purposes of the GRIM, DOE has separated the distribution transformer industry into three main 

groups – liquid-immersed, low voltage dry, and medium voltage dry. Are there other industry groupings 

that might be meaningful? 

16. EFFECTIVE DATE OF STANDARDS

The effective date for new standards after the regulation is promulgated is currently expected to be 2010 

(final rule to be published in 2007). 

16.1 Is this 3-year lead time for retooling, redesign, and compliance demonstration feasible/adequate? If the 

answer depends on the new standard level, please explain. 

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

17. MISCELLANEOUS 

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

efficient transformers? 

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MV Dry-Type 

Distribution Transformer 

Energy Conservation Standards Rulemaking 

Manufacturer Impact Analysis Interview Guide 

Navigant Consulting, Inc. 

May 2005 

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1. KEY ISSUES 

The Department of Energy (DOE) is currently considering six Trial Standard Levels (TSLs). The TSLs are 

presented below as they apply to the representative units selected for detailed analysis. In responding to this 

questionnaire, please refer to the table of TSLs below. 

Product Class Product Class 6 

(MV 3-phase, 20-45 kV BIL) 

Product Class 8 

(MV 3-phase, 60-95 kV BIL) 

Design Lines DL9 15-

500 kVA 

DL10 

750-2500 kVA 

DL11 

15-500 kVA 

DL12 

750-2500 kVA 

Representative Unit 300 kVA 1500 kVA 300 kVA 1500 kVA 

Base Case None None 

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

TSL2 98.82% 99.20% 98.67% 99.12% 

TSL3 99.04% 99.30% 98.84% 99.23% 

TSL4 99.26% 99.39% 99.01% 99.35% 

TSL5 / TSL6 99.41% 99.51% 99.09% 99.51% 

Product Class Product Class 10 

(MV 3-phase, 110-150 kV BIL) 

Design Lines DL13 

225-2500 kVA 

Representative Unit 2000 kVA 

Base Case None 

TSL1 / TP-1 99.00% 

TSL2 99.15% 

TSL3 99.30% 

TSL4 99.45% 

TSL5 / TSL6 99.55% 

Note: Efficiencies are specified at the NEMA TP1 temperature and loading conditions. Also, efficiency standards for 

the MV dry-type single-phase transformers will be based on the corresponding three-phase analog (e.g., the 100 kVA 

single-phase efficiency standard will be based upon the 300 kVA three-phase standard). 

1.7 What are the key issues for your company regarding the distribution transformer energy conservation 

standard rulemaking? 

1.8 How significant are the above key issues at each Trial Standard Level? 

1.9 How can we most effectively incorporate these issues in the Manufacturer Impact Analysis? 

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2. COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

The Department’s interest concerning manufacturer impact is focused at the plant or profit center level 

directly pertinent to transformer production. However, the context within which the plant operates and the 

details of plant production and costs are not readily available from the published literature, so the Department 

invites you to provide these details confidentially in your own words to the extent practical. The 

organizational setting around the transformer profit center is of interest to round out the Department’s 

understanding of the probable future of the transformer manufacturing activity with and without energy 

efficiency standards. 

2.9 Do you have a parent company, and/or any subsidiaries relevant to the transformer industry? 

2.10 Where are your production facilities located, and what is the product mix manufactured at each 

location? 

2.11What are your employment levels at these facilities?

2.12 What are your product lines, niches and relative strengths in the medium-voltage dry-type market? 

5. FINANCIAL PARAMETERS 

Navigant Consulting has built a model of industry financial impacts called the Government Regulatory 

Impact Model (GRIM), using publicly available data on distribution transformer manufacturers. This 

questionnaire attempts to understand how your company’s financial situation differs from our industry 

aggregate picture. 

3.1 Please compare your financial parameters to the GRIM parameters tabulated below.

GRIM Input Definition Our Industry 

Estimate 

Your Industry 

Estimate 

Your Business 

Segment’s Actual 

Income Tax Rate Corporate effective income tax rate 

(percentage of earnings before tax) 

33.9% 

Weighted 

Average Cost of 

Capital (WACC) 

Inflation-adjusted weighted average of 

corporate cost of debt and return on 

equity 

8.9% 

Working Capital, 

net 

Current assets less current liabilities 

(percentage of revenues) 

10.6% 

SG&A Selling, general, and administrative 

expenses (percentage of revenues) 

13.5% 

R&D Research and development expenses 

(percentage of revenues) 

1.1% 

Depreciation Amortization of fixed assets 

(percentage of revenues) 

1.8% 

Capital 

Expenditures 

Outlay of money to acquire or 

improve capital assets (percentage of 

revenues, not including acquisition or 

sale of business units) 

2.1% 

PPE, net Plant, Property, and Equipment less 

accumulated depreciation 

16.1% 

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

4. MORE EFFICIENT DESIGNS 

The Department’s engineering analysis models improvements in efficiency by considering alternative 

combinations of design factors such as core steels, winding conductors, and joint configurations. The 

Department would like to understand what changes may be necessary in your product designs for the 

production of higher efficiency medium-voltage dry-type distribution transformers. 

4.11 What are your current design features? For each design line, which materials are used to build your 

non-evaluated transformers? What joint types are used? 

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

4.13 Does your company build transformers that significantly exceed TP1 efficiency levels? Which 

designs are used to exceed TP1? Which designs would you likely use to meet the various TSLs? 

4.14 Are there any other manufacturing issues that DOE should be aware of in terms of producing more 

energy efficient transformers at your facility? 

4.15 Do you currently fabricate your own cores and coils? Would the standard level change your business 

practices with respect to such make vs. buy decisions? 

5. MATERIAL PRICES AND AVAILABILITY 

5.11. In its revised Engineering Analysis, the Department updated its price assumptions for material 

inputs. The Department considered two price scenarios: 1) 5-year average for the years 2000-2004 (2004 

US$), and 2) typical first quarter 2005 prices. The prices assumed to be paid by transformer 

manufacturers are shown in the table below. In your experience are these prices representative of the 

industry as a whole? Are the prices that your company pays significantly different? If so, does this confer 

a disadvantage to your firm? 

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Item and Description Material Price 

(2000-2004) 

Material Price 

(Q1 2005) 

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

M3 core steel $0.80 $1.63 

M4 core steel $0.76 $1.56 

M5 core steel $0.72 $1.47 

M6 core steel $0.70 $1.42 

M19 core steel (26 gauge) $0.56 $0.82 

M36 core steel (29 gauge) $0.50 $0.69 

M36 core steel (26 gauge) $0.45 $0.65 

M43 core steel (26 gauge) $0.43 $0.58 

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

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

Impregnation (per gallon) $17.80 $19.00 

* Five year average (2000 through 2004) for materials expressed in 2004$ per lb. Average compiled by Paul Goethe, 

Optimized Program Service, January 2005. 

5.12. In the Department’s analysis, material costs are marked up to determine the manufacturer sales price. 

In light of the large increases of material costs, have you changed your material markup factors or 

practices? 

5.13. Are the materials necessary to build more energy efficient transformers readily available? 

5.14. Have your company’s procurement practices changed in response to recent commodity price 

volatility? 

5.15. Have recent material price changes affected your company’s business? 

6. SHIPMENT PROJECTIONS 

6.7 An efficiency standard can affect shipments by changing product attributes, marketing approaches, 

product availability, and price. In the ANOPR, the Department assumed that industry-wide dry-type 

shipments do not vary by standard level (i.e., there is no consumer sensitivity to price). For the NOPR, a 

small sensitivity of dry-type shipments to price may be introduced. Do you consider this to be 

appropriate? 

6.8 What is your company’s approximate market share in each of the medium-voltage design lines? Within 

each design line, is your proportion of shipments at each kVA rating the same as the industry average? 

6.9 Would you expect your market share to change once standards become effective? Does your outlook 

change with higher efficiency levels?

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7. CONVERSION COSTS 

An increase in efficiency standards may cause your company to incur one-time costs. We call these 

conversion costs because they are the costs of changing your business to comply with new efficiency 

standards. The GRIM considers three types of conversion costs: 

• Conversion Capital Expenditures—One-time investments in plant, property, and equipment (PPE) 

necessitated by an efficiency standard. These may be completely incremental to existing PPE or they 

could involve replacement of existing PPE. 

• Product Conversion Expenses—One-time expenses in research, product development, testing, and 

marketing necessitated by an appliance efficiency standard. 

• Annual Compliance Costs (not technically a conversion cost) – On-going expenses incurred to comply 

with efficiency standards, typically to meet testing requirements. 

7.9 What level of conversion costs do you anticipate incurring under the different Trial Standard Levels? 

Refer to the tables below to provide your company’s estimates. Please provide additional qualitative 

information to help us understand the nature of your investments. 

 

MV Dry-Type – Conversion Capital Expenditures 

Trial Standard (thousands U.S.$) 

Level 

Building Equipment Tooling Other 

TSL1 (TP-1) 

TSL2 

TSL3 

TSL4 

TSL5 / TSL6 

MV Dry-Type – Product Conversion Expenses 

(thousands U.S.$) Trial Standard 

Level Research & 

Product 

Development 

Testing Marketing Other 

TSL1 (TP-1) 

TSL2 

TSL3 

TSL4 

TSL5 / TSL6 

7.10 What portion of your conversion capital expenditures will go towards replacing existing assets that 

would become obsolete under an efficiency standard? Does your answer depend upon the TSL? 

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7.11 What are the depreciation periods for the three types of capital expenditures (building, equipment, 

tooling)? 

7.12 What specific annual compliance costs (after the effective date) do you anticipate incurring to comply 

with standards? Will they vary with standard level? Would they vary over time (e.g., increase with 

sales)? 

8. PRODUCT MIX 

Current differences in product mix (distribution of product sales by efficiency level) among manufacturers 

can lead to different reactions to and impacts from new efficiency standards. The GRIM calculates financial 

results at each efficiency level to capture some of these effects. 

8.9 What is the typical efficiency of a non-evaluated transformer for each representative unit? 

8.10 What percentage of product in each design line is TP1-compliant (industry-wide)? Do 

significant fractions of product exceed TP1 efficiency levels (industry-wide)? Comment on any 

differences between the industry’s distribution of product efficiencies and your company’s. 

8.11 Do you expect the product efficiency mix to shift over time in the base case? Why or why 

not? 

8.12 For each design line and corresponding TSL, please comment on the potential for marketing 

premium products (i.e., those with efficiencies significantly above of the TSL). What might be the 

percentage of premium efficiency products sold at each TSL? 

9. MARKUPS AND PROFITABILITY 

One of the primary objectives of the Manufacturer Impact Analysis is to assess the impact of Trial Standard 

Levels on industry and sub-group profitability. In this section, we would like your assistance understanding 

how the Trial Standard Levels would impact your company’s markups and profitability. 

9.7 The non-production cost markup is defined as the factor applied to the full production costs to arrive at 

the Manufacturer Selling Price. The Manufacturer Selling Price allows the company to recover all costs, 

both production and non-production, and to earn a profit. The Department used a non-production cost 

markup of 1.25 for SG&A, R&D, interest, and profit. This represents a 20% gross margin on sales 

price. 

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

9.7.2 Has the average mark-up changed as a result of higher material costs? 

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

9.8 What other factors might change the industry’s profitability? 

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

10. REFURBISHMENT 

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

transformer market? 

11. CUMULATIVE REGULATORY BURDEN 

Cumulative regulatory burden refers to the burden that industry faces from overlapping effects of new or 

revised DOE standards and/or other regulatory actions affecting the same products or industry. 

11.1 Are there other recent or impending regulations that distribution transformers face (from DOE or 

otherwise)? How might an energy efficiency standard impact the cumulative regulatory burden faced by 

your company? 

11.2 Are there any other DOE standards that would pose a significant impact on your company (any division) 

within three years of the proposed effective date for efficiency standards (2010)? 

11.3 Under what circumstances would you be able to coordinate any expenditures related to metrification, 

other regulations, and distribution transformer efficiency standards, thereby lessening the cumulative 

burden? 

12. EXPORTS / FOREIGN COMPETITION / OUTSOURCING 

Disparity between domestic and foreign efficiency standards could impact exports or imports. Labor content 

and material changes - resulting from efficiency standards - may impact sourcing decisions. 

12.1 Does the bulk of your company’s transformer production occur domestically? Absent standards, are 

production facilities being relocated to foreign countries? Would standards impact your domestic vs. 

foreign manufacturing decision? How? 

12.2 Could a new standard affect your export sales? What would the resulting impact be, if any, on your 

manufacturing operations and profitability? 

12.3 What percentage of the U.S. market has been captured by foreign competition? Would standards have 

an impact on foreign competition? How? 

13. DIRECT EMPLOYMENT IMPACT ASSESSMENT 

The impact of new energy efficiency standards on employment is an important consideration in the 

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

production employment and solicit manufacturer views on how domestic employment patterns might be 

affected by new energy efficiency standards. 

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

13.6 Would the workforce skills necessary under new energy efficiency standards require 

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extensive retraining or replacement of employees? 

14. CONSOLIDATION 

New efficiency standards can alter the competitive dynamics of the market. This can include prompting 

companies to enter or exit the market, or to merge. The DOE and the Justice Department are both interested 

in any potential reduction in competition that would result from a new efficiency standard. 

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

14.2 In the absence of new standards, do you expect any industry consolidation? Please describe your 

expectations. 

14.3 How would new standards affect your ability to compete? 

14.4 Could new standards disproportionately advance or harm the competitive positions of some firms (e.g., 

small businesses)? 

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

consumer subgroups? 

14.6 Could new standards result in products that will be less desirable to consumers (not considering price 

effects)? Which attributes could be affected? 

15. NICHE PRODUCTS 

The definition of a distribution transformer excludes certain types of transformers from this rulemaking. For 

transformers that are covered, DOE is interested in whether new standard levels for some sub-groups of 

products might threaten their viability because of either technical or commercial considerations. 

15.1 Do you have any products whose viability could be threatened by a higher efficiency standard? If so, 

please identify the threatened products and the threshold Trial Standard Level that poses a threat. 

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

15.3 For the purposes of the GRIM, DOE has separated the distribution transformer industry into three main 

groups – liquid-immersed, low voltage dry, and medium voltage dry. Are there other industry groupings 

that might be meaningful? 

16. EFFECTIVE DATE OF STANDARDS

The effective date for new standards after the regulation is promulgated is currently expected to be 2010 

(final rule to be published in 2007). 

16.1 Is this 3-year lead time for retooling, redesign, and compliance demonstration feasible/adequate? If the 

answer depends on the new standard level, please explain. 

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

17. MISCELLANEOUS 

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

efficient transformers? 

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