APPENDIX 12A MANUFACTURER IMPACT ANALYSIS INTERVIEW GUIDES

AND GOVERNMENT REGULATORY IMPACT MODEL OVERVIEW

TABLE OF CONTENTS

**12A.1 STORAGE­TYPE**  **RESIDENTIAL WATER**  **HEATERS MANUFACTURER**  **IMPACT**

**ANALYSIS INTERVIEW**  **GUIDE**

**................................................................................................ 1** 

**12A.2 INSTANTANEOUS**  **GAS­FIRED WATER**  **HEATERS MANUFACTURER**  **IMPACT**

**ANALYSIS INTERVIEW**  **GUIDE**

**.............................................................................................. 31** 

**12A.3 DIRECT**  **HEATING EQUIPMENT**  **MANUFACTURER IMPACT**  **ANALYSIS**

**GUIDE**

**........................................................................................................................................ 46** 

**12A.4 RESIDENTIAL**  **HEARTH PRODUCTS**  **MANUFACTURER IMPACT**  **ANALYSIS**

**GUIDE**

**........................................................................................................................................ 66** 

**12A.5 GAS­FIRED**  **POOL HEATERS**  **MANUFACTURER IMPACT**  **ANALYSIS**

**INTERVIEW GUIDE** 

**................................................................................................................... 80** 

**12A.6 GOVERNMENT**  **REGULATORY IMPACT**  **MODEL (GRIM)**  **OVERVIEW**

**............ 94** 

**12A­i**12A.1 STORAGE­TYPE RESIDENTIAL WATER HEATERS MANUFACTURER

IMPACT ANALYSIS INTERVIEW GUIDE

**April 6,**  **2009**

**12A­1 As**  **part of**  **the rulemaking**  **process for**  **amended energy**  **conservation standards**  **for storage­type** 

**residential water**  **heaters, the**  **Department of**  **Energy (DOE)**  **conducts the**  **manufacturer impact** 

**analysis (MIA).**  **In this**  **analysis, DOE**  **uses publicly**  **available information**  **and information** 

**provided by**  **manufacturers during**  **interviews to**  **assess possible**  **impacts on**  **manufacturers due**  **to**

**amended energy**  **conservation standards.**  **DOE is**  **currently considering**  **7 efficiency**  **levels (EL)** 

**for both**  **electric and**  **oil­fired storage­type**  **water heaters**  **and 6**  **ELs for**  **gas­fired storage­type** 

**water heaters.**  **In responding**  **to this**  **questionnaire, please**  **refer to**  **the efficiency**  **levels in**  **the table** 

**below. DOE**  **analyzed one**  **representative rated**  **storage volume**  **for each**  **product class,**  **including**

**50 gallons**  **for electric,**  **40 gallons**  **for gas­fired,**  **and 30**  **gallons for**  **oil­fired storage­type**  **water**

**heaters. DOE**  **extrapolated the**  **results to**  **other rated**  **storage volumes**  **using energy­efficiency** 

**equations (see**  **section 16**  **for additional**  **information).**

Efficiency Levels Under Consideration for Storage­Type Residential Water Heaters

Product Class

(Representative

Rated Volume) Efficiency

Metric Baseline

Efficiency

Level EL 1 EL 2 EL 3 EL 4 EL 5 EL 6 EL 7

**Electric**

**Storage­Type**

**(50 Gallons** 

**Rated Storage** 

**Volume) Energy** 

**Factor**

**(EF) 0.90**  **0.91 0.92**  **0.93 0.94**  **0.95 2.0**  **2.2**

**Gas­Fired**

**Storage­Type**

**(40 Gallons** 

**Rates Storage** 

**Volume) Energy** 

**Factor**

**(EF) 0.59**  **0.62 0.63**  **0.64 0.65**  **0.67 0.80** 

**Oil­Fired**

**Storage­Type**

**(30 Gallons** 

**Rated Storage** 

**Volume) Energy** 

**Factor**

**(EF) 0.53**  **0.54 0.56**  **0.58 0.60**  **0.62 0.66**  **0.68**

1 KEY ISSUES

**1.1 In**  **general, what**  **are the**  **key issues**  **for your**  **company regarding**  **amended energy** 

**conservation standards**  **for storage­type**  **residential water**  **heaters and**  **this rulemaking?** 

**1.2 For**  **the issues**  **identified, how**  **significant are**  **they at**  **each listed**  **efficiency level?** 

**1.3 How**  **can we**  **most effectively**  **incorporate these**  **issues in**  **the MIA?** 

**12A­2**2 COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

**DOE is**  **interested in**  **understanding manufacturer**  **impacts at**  **the plant**  **or profit**  **center level** 

**directly pertinent**  **to storage­type**  **residential water**  **heaters 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. Therefore,**  **DOE invites**  **you to**  **provide these**  **details**

**confidentially in**  **your own**  **words to**  **the extent**  **possible and**  **practical. Understanding**  **the**

**organizational setting**  **around the**  **residential water**  **heater industry**  **profit center**  **will help**  **DOE**

**understand the**  **probable future**  **of the**  **manufacturing activity**  **with and**  **without amended**  **energy**

**conservation standards.** 

**2.1 Do**  **you have**  **a parent**  **company, and/or**  **any subsidiaries**  **relevant to**  **the storage­type** 

**residential water**  **heater industry?** 

**2.2 Do**  **you manufacture**  **any products**  **other than**  **storage­type residential**  **water heaters?**  **If so,** 

**what other**  **products do**  **you manufacture?** 

**2.3 What**  **percentage of**  **your total**  **manufacturing corresponds**  **to electric,**  **gas­fired, and**  **oil**

**fired storage­type**  **residential water**  **heaters?**

**2.4 Where**  **are your**  **production facilities**  **located, and**  **what type**  **of product**  **is manufactured**  **at**

**each location?**  **Could you**  **provide figures**  **for your**  **company’s manufacturing**  **at each**  **location by** 

**product type**  **(i.e., electric,**  **gas­fired, and**  **oil­fired storage­type**  **residential water**  **heaters), size,** 

**and efficiency?** 

**2.5 At**  **your manufacturing**  **facilities, would**  **potential storage­type**  **residential water**  **heater**

**redesigns be**  **difficult to**  **implement? If**  **so, would**  **your company**  **modify the**  **existing facility**  **or**

**develop a**  **new facility?** 

**2.6 What**  **are your**  **employment levels**  **at each**  **of these**  **facilities?**

**12A­3 2.7**  **What are**  **your product**  **lines, niches,**  **and relative**  **strengths in**  **the residential**  **storage­type**

**water heater**  **market?**

**2.8 What**  **is your**  **company’s approximate**  **market share**  **in the**  **electric, gas­fired,**  **and oil­fired** 

**storage­type residential**  **storage­type water**  **heater industry?** 

**2.9 Would**  **you expect**  **your market**  **share to**  **change once**  **amended energy**  **conservation**

**standards become**  **effective?**

3 MANUFACTURER PRODUCTION COSTS AND SELLING PRICES

**DOE estimated**  **the manufacturer**  **production costs**  **of three­types**  **of residential**  **water heaters**  **at**

**various rated**  **storage volumes.**  **DOE defines**  **manufacturer production**  **cost as**  **all direct**  **costs**

**associated with**  **manufacturing a**  **product. It**  **includes direct**  **labor, direct**  **materials, and**  **overhead**

**(which includes**  **depreciation costs).**  **The breakdown**  **of manufacturer**  **production cost**  **has**

**implications for**  **the quantitative**  **impacts on**  **electric, gas­fired,**  **and oil­fired**  **storage­type**

**residential water**  **heater manufacturers.**  **The per**  **unit production**  **costs are**  **necessary for**  **DOE to** 

**estimate labor**  **expenditures and**  **other cash**  **flow calculations.** 

**Manufacturer selling**  **price is**  **the average**  **cost manufacturers**  **charge their**  **first consumers,**  **but**

**does not**  **include all**  **of the**  **costs along**  **the distribution**  **channels. The**  **manufacturer selling**  **price**

**includes a**  **per unit**  **research and**  **development cost;**  **selling, general,**  **and administrative**  **expense;**

**shipping cost;**  **and profit.**  **The manufacturer**  **markup is**  **a multiplier**  **applied to**  **manufacturer**

**production cost**  **to cover**  **the per**  **unit research**  **and development,**  **selling, general,**  **and**

**administrative expense,**  **and profit.**  **For residential,**  **storage­type water**  **heaters, the**  **manufacturer**

**markup does**  **not cover**  **shipping costs.**  **Shipping costs**  **are calculated**  **separately and**  **are shown** 

**for each**  **efficiency level**  **in Table**  **3­1 through**  **Table 3­3.**  **Section 15**  **contains additional**  **questions**

**about the**  **shipping assumptions**  **and costs.** 

**DOE estimated**  **an industry­wide**  **markup of**  **1.27 for**  **electric storage­type**  **water heaters,**  **1.30 for** 

**gas­fired storage­type**  **water heaters,**  **and 1.35**  **for oil­fired**  **storage­type water**  **heaters at**  **baseline**

**efficiency levels.**  **DOE asks**  **a series**  **of questions**  **about the**  **manufacturer markup**  **associated with** 

**premium products**  **at higher**  **efficiencies in**  **section 4.**  **As shown**  **in Equation**  **3­1 below,**  **the**

**manufacturer production**  **cost multiplied**  **by the**  **manufacturer markup**  **would cover**  **all costs**  **in the** 

**manufacturer selling**  **price of**  **baseline products**  **except for**  **shipping costs.** 

**12A­4**Equation 3­1. Calculation of Manufacturer Selling Price

**3.1 Is**  **there a**  **significant difference**  **between baseline**  **markups DOE**  **calculated and**  **your**

**company’s baseline**  **markups for**  **electric storage­type**  **water heaters,**  **gas­fired storage­type**  **water**

**heaters, and**  **oil­fired storage­type**  **water heaters?** 

**3.2 Table**  **3­1 through**  **Table 3­3**  **provide DOE’s**  **estimates of**  **the manufacturer**  **production**

**costs and**  **manufacturer selling**  **prices for**  **storage­type residential**  **water heaters**  **at the** 

**representative rated**  **storage volume**  **and each**  **efficiency level**  **being considered.**  **Could you**  **please**

**provide any**  **comments on**  **the estimated**  **values?**

Table 3­1 Estimated Manufacturer Production Costs, Shipping Costs, and Manufacturer

Selling Prices for Electric Storage­Type Residential Water Heaters (50 Gallons Rated

Storage Volume)

**Efficiency**

**Level**

**(Energy**

**Factor) DOE’s** 

**Manufacturer**

**Production Cost** 

**Estimates***

**(2008$) DOE’s**  **per Unit** 

**Shipping Cost** 

**Estimates**

**(2008$) DOE’s** 

**Manufacturer**

**Selling Price** 

**Estimates**

**(2008$) Manufacturer** 

**Comments or** 

**Revised Estimates** 

**Baseline Level** 

**(EF**

**= 0.90)**  **$156 $17**  **$198**

**EL 1** 

**(EF**

**= 0.91)**  **$162 $17**  **$208**

**EL 2** 

**(EF**

**= 0.92)**  **$166 $17**  **$213**

**EL 3** 

**(EF**

**= 0.93)**  **$170 $17**  **$219**

**EL 4** 

**(EF =0.94)**  **$177 $25**  **$221**

**EL 5** 

**(EF**

**= 0.95)**  **$195 $25**  **$246**

**EL 6** 

**(EF**

**= 2.0)**  **TBD TBD**  **TBD**

**EL 7** 

**(EF**

**= 2.2)**  **$490 $33**  **$523**

***** **DOE’s manufacturer**  **production cost**  **estimates were**  **developed using**  **a five­year**  **average of**  **raw material** 

**prices spanning**  **2004 to**  **2008.**

**12A­5**Table 3­2 Estimated Manufacturer Production Costs, Shipping Costs, and Manufacturer

Selling Prices for Gas­Fired Storage­Type Residential Water Heaters (40 Gallons Rated

Storage Volume)

**Efficiency**

**Level**

**(Energy Factor)**  **DOE’s**

**Manufacturer**

**Production Cost** 

**Estimates***

**(2008$) DOE’s**  **per Unit** 

**Shipping Cost** 

**Estimates**

**(2008$) DOE’s** 

**Manufacturer**

**Selling Price** 

**Estimates**

**(2008$) Manufacturer** 

**Comments or** 

**Revised Estimates** 

**Baseline Level** 

**(EF**

**= 0.59)**  **$179 $17**  **$233**

**EL 1** 

**(EF**

**= 0.62)**  **$186 $25**  **$234**

**EL 2** 

**(EF**

**= 0.63)**  **$193 $25**  **$245**

**EL 3** 

**(EF**

**= 0.64)**  **$304 $50**  **$377**

**EL 4** 

**(EF**

**= 0.65)**  **$312 $50**  **$388**

**EL 5** 

**(EF**

**= 0.67)**  **$326 $50**  **$407**

**EL 6** 

**(EF**

**= 0.80)**  **$433 $50**  **$558**

***** **DOE’s manufacturer**  **production cost**  **estimates were**  **developed using**  **a five­year**  **average of**  **raw material**  **prices**

**spanning 2004**  **to 2008.** 

**12A­6**Table 3­3 Estimated Manufacturer Production Costs, Shipping Costs, and Manufacturer

Selling Prices for Oil­Fired Storage­Type Residential Water Heaters (30 Gallons Rated

Storage Volume)

**Efficiency**

**Level**

**(Energy Factor)**  **DOE’s**

**Manufacturer**

**Production Cost** 

**Estimates***

**(2008$) DOE’s**  **Shipping**

**Cost Estimates** 

**(2008$) DOE’s** 

**Manufacturer**

**Selling Price** 

**Estimates**

**(2008$) Manufacturer** 

**Comments or** 

**Revised Estimates** 

**Baseline Level** 

**(EF**

**= 0.53)**  **$524 $17**  **$707**

**EL 1** 

**(EF**

**= 0.54)**  **$532 $17**  **$718**

**EL 2** 

**(EF**

**= 0.56)**  **$544 $17**  **$734**

**EL 3** 

**(EF**

**= 0.58)**  **$554 $25**  **$740**

**EL 4** 

**(EF**

**= 0.60)**  **$549 $17**  **$741**

**EL 5** 

**(EF**

**= 0.62)**  **$562 $25**  **$751**

**EL 6** 

**(EF**

**= 0.66)**  **$555 $17**  **$749**

**EL 7** 

**(EF**

**= 0.68)**  **$567 $17**  **$765**

***** **DOE’s manufacturer**  **production cost**  **estimates for**  **oil­fired storage**  **water heaters**  **were developed**  **using a** 

**five­year average**  **of raw**  **material prices**  **spanning 2003**  **to 2007**  **and shown**  **in 2008$.** 

**3.3 Please**  **compare your**  **manufacturer production**  **cost percentages**  **1 to**  **the estimates** 

**tabulated below.**  **The manufacturer**  **production cost**  **breakdown is**  **used to**  **calculate the**  **total cost** 

**of goods**  **sold (COGS)**  **for the**  **industry. Having**  **an accurate**  **estimate of**  **the production**  **costs for** 

**the industry**  **allows DOE**  **to better**  **examine impacts**  **on profitability**  **and employment**  **due to** 

**amended energy**  **conservation standards.**  **Are the**  **different percentages**  **of each**  **cost representative** 

**of your**  **company or**  **the electric,**  **gas­fired, and**  **oil­fired storage­type**  **residential water**  **heater**

**industry? Please**  **explain any**  **differences.**

**1 The**  **manufacturer production**  **cost percentages**  **shown in**  **Table 3­4**  **through Table**  **16­7 are**  **the values**  **that make**  **up**

**COGS. These**  **are percentages**  **of total**  **COGS.**

**12A­7**Table 3­4 Breakdown of Manufacturer Production Costs for Baseline Electric StorageType Residential Water Heaters (50 Gallons Rated Storage Volume)

**Components of** 

**Manufacturer Production** 

**Costs DOE’s**  **Estimated Percentage**  **of**

**Manufacturer Production**  **Cost Manufacturer**  **Feedback**

**Materials 79.5%** 

**Labor 11.5%** 

**Overhead 5.9%** 

**Depreciation 3.1%** 

Table 3­5 Breakdown of Manufacturer Production Costs for Baseline Gas­Fired StorageType Residential Water Heaters (40 Gallons Rated Storage Volume)

**Components of** 

**Manufacturer Production** 

**Costs DOE’s**  **Estimated Percentage**  **of**

**Manufacturer Production**  **Cost Manufacturer**  **Feedback**

**Materials 82.8%** 

**Labor 9.8%** 

**Overhead 5.4%** 

**Depreciation 2.1%** 

Table 3­6 Breakdown of Manufacturer Production Costs for Baseline Oil­Fired StorageType Residential Water Heaters (30 Gallons Rated Storage Volume)

**Components of** 

**Manufacturer Production** 

**Costs DOE’s**  **Estimated Percentage**  **of**

**Manufacturer Production**  **Cost Manufacturer**  **Feedback**

**Materials 66.2%** 

**Labor 6.1%** 

**Overhead 13.4%** 

**Depreciation 14.1%** 

4 MARKUPS AND PROFITABILITY

**One of**  **the primary**  **objectives of**  **the MIA**  **is to**  **assess the**  **impact of**  **amended energy** 

**conservation standards**  **on industry**  **profitability. In**  **this section,**  **DOE would**  **like to**  **understand**

**the current**  **markup structure**  **of the**  **industry and**  **how setting**  **an amended**  **energy conservation** 

**standard would**  **impact your**  **company’s markup**  **structure and**  **profitability. As**  **discussed in** 

**Section 3,**  **the manufacturer**  **markup is**  **a multiplier**  **applied to**  **manufacturer production**  **cost to** 

**cover per**  **unit research**  **and development,**  **selling, general,**  **and administrative**  **expenses, and** 

**profit. For**  **the residential,**  **storage­type water**  **heaters analysis,**  **the manufacturer**  **markup does**  **not**

**cover shipping**  **costs. The**  **manufacturer production**  **cost multiplied**  **by the**  **manufacturer markup** 

**along with**  **shipping costs**  **would cover**  **all costs**  **involved in**  **manufacturing the**  **product.**

**4.1 Do**  **profit levels**  **currently vary**  **by product**  **class? Do**  **profit levels**  **vary by**  **efficiency**

**12A­8 level?**  **Please explain**  **why or**  **why not.** 

**4.2 Within**  **each product**  **class, do**  **profit levels**  **vary by**  **storage capacities?** 

**4.3 Do**  **profit levels**  **change with**  **longer warranties?** 

**4.4 DOE**  **would like**  **to understand**  **how the**  **baseline manufacturer**  **markup changes**  **at higher** 

**efficiency levels.**  **Could you**  **provide your**  **company’s markup**  **for any**  **products that**  **meet the** 

**efficiency levels**  **shown below?** 

Table 4­1 Electric Storage­Type Water Heater Manufacturer Markups

**Electric Storage­Type**  **Residential Water**  **Heaters**

**(50 Gallons**  **Rated Storage**  **Volume)**

**Efficiency Level** 

**(Energy Factor)**  **Estimated Manufacturer**  **Markup**

**Baseline (EF** 

**= 0.90)** 

**EL 1**  **(EF**

**= 0.91)** 

**EL 2**  **(EF**

**= 0.92)** 

**EL 3**  **(EF**

**= 0.93)** 

**EL 4**  **(EF**

**= 0.94)** 

**EL 5**  **(EF**

**= 0.95)** 

**EL 6**  **(EF**

**= 2.0)** 

**EL 7**  **(EF**

**= 2.2)** 

Table 4­2 Gas­Fired Storage­Type Water Heater Manufacturer Markups

**Gas­Fired Storage­Type**  **Residential Water**  **Heaters**

**(40 Gallons**  **Rated Storage**  **Volume)**

**Efficiency Level** 

**(Energy Factor)**  **Estimated Manufacturer**  **Markup**

**Baseline (EF** 

**= 0.59)** 

**EL 1**  **(EF**

**= 0.62)** 

**EL 2**  **(EF**

**= 0.63)** 

**EL 3**  **(EF**

**= 0.64)** 

**EL 4**  **(EF**

**= 0.65)** 

**EL 5**  **(EF**

**= 0.67)** 

**EL 6**  **(EF**

**= 0.80)** 

**12A­9**Table 4­3 Oil­Fired Storage­Type Water Heater Manufacturer Markups

**Oil­Fired Storage­Type**  **Residential Water**  **Heaters**

**(30 Gallons**  **Rated Storage**  **Volume)**

**Efficiency Level** 

**(Energy Factor)**  **Estimated Manufacturer**  **Markup**

**Baseline (EF**  **=0.53)**

**EL 1**  **(EF**

**= 0.54)** 

**EL 2**  **(EF**

**= 0.56)** 

**EL 3**  **(EF**

**= 0.58)** 

**EL 4**  **(EF**

**= 0.60)** 

**EL 5**  **(EF**

**= 0.62)** 

**EL 6**  **(EF**

**= 0.66)** 

**EL 7**  **(EF**

**= 0.68)** 

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

**conservation standard?**  **If so,**  **please explain**  **why.**

5 SHIPMENT PROJECTIONS AND MARKET SHARES

**An amended**  **energy conservation**  **standard can**  **change overall**  **shipments by**  **altering product** 

**attributes, marketing**  **approaches, product**  **availability, and**  **price. The**  **industry revenue** 

**calculations are**  **based on**  **the shipment**  **projections developed**  **by DOE’s**  **shipments model.**  **The**

**shipments model**  **includes forecasts**  **for the**  **base case**  **shipments (i.e.,**  **total industry**  **shipments**

**absent amended**  **energy conservation**  **standards) and**  **the standards**  **case shipments**  **(i.e., total** 

**industry shipments**  **with amended**  **energy conservation**  **standards).**

**12A­10 5.1**  **Please compare**  **DOE’s projections**  **of annual**  **industry­wide shipments**  **for electric,**  **gas**

**fired, and**  **oil­fired storage­type**  **residential water**  **heaters with**  **your company’s**  **projections of** 

**industry­wide shipments.** 

Table 5­1 Annual Industry­Wide Shipment Projections for Electric Storage­Type

Residential Water Heaters Absent Amended Energy Conservation Standards

**2007**

**Total**

**Industry**

**Wide**

**Shipments 2008** 

**Total**

**Industry**

**Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2015*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2025 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2035**

**DOE’s Estimate**  **for**

**Total Industry** 

**Shipments**

**(Millions)  ** 4.470** **4.189 5.224**  **5.459 6.176** 

**Manufacturer**

**Feedback**

***** **2015 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for water**  **heaters.**

****** **For gas­fired**  **and electric**  **water heaters**  **2007 data**  **was provided**  **by AHRI**  **(March 3,**  **2008) and**  **2008 data**  **was**

**provided by**  **AHRI (March**  **17, 2009).**  **Projections were**  **updated using:**  **(1) AEO2009**  **New Housing**  **Forecast; (2)** 

**AHRI 2008**  **Data; and**  **(3) AHS**  **2007 Historical**  **Market Shares.** 

Table 5­2 Annual Industry­Wide Shipment Projections for Gas­Fired Storage­Type

Residential Water Heaters Absent Amended Energy Conservation Standards

**2007**

**Total**

**Industry­Wide**

**Shipments 2008** 

**Total**

**Industry­Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2015*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2025 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2035**

**DOE’s Estimate** 

**for Total**  **Industry**

**Shipments**

**(Millions)  ** 4.384** **4.001 4.391**  **3.966 4.474** 

**Manufacturer**

**Feedback**

***** **2015 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for water**  **heaters.**

****** **For gas­fired**  **and electric**  **water heaters**  **2007 data**  **was provided**  **by AHRI**  **(March 3,**  **2008) and**  **2008 data**  **was**

**provided by**  **AHRI (March**  **17, 2009).**  **Projections were**  **updated using:**  **(1) AEO2009**  **New Housing**  **Forecast; (2)** 

**AHRI 2008**  **Data; and**  **(3) AHS**  **2007 Historical**  **Market Shares.** 

**12A­11**Table 5­3 Annual Industry­Wide Shipment Projections for Oil­Fired Storage­Type

Residential Water Heaters Absent Amended Energy Conservation Standards

**2007**

**Total**

**Industry­Wide**

**Shipments 2008** 

**Total**

**Industry­Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2015*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2025 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2035**

**DOE’s Estimate** 

**for Total**  **Industry**

**Shipments**

**(Millions)  ** 0.036** **0.038 0.042**  **0.047 0.053** 

**Manufacturer**

**Feedback**

***** **2015 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for water**  **heaters.**

****** **For oil­fired**  **water heaters**  **2007 value**  **is from**  **Oil Heating**  **Journal and**  **2008 value**  **is modeled.** 

**5.2 Are**  **the 2007**  **and 2008**  **industry wide­shipments**  **shown in**  **Table 5­1**  **through Table**  **18­3**

**consistent with**  **historic trends?**  **Do you**  **expect total**  **shipment levels**  **to return**  **to their**  **previous**

**levels (i.e.,**  **those levels**  **prior to**  **2007)?**

**5.3 DOE’s**  **shipments analysis**  **estimates industry­wide**  **shipments in**  **2015 would**  **continue to** 

**increase even**  **as amended**  **energy conservation**  **standards become**  **effective due**  **to new**  **housing**

**starts and**  **increases in**  **replacements, and**  **voluntary programs**  **such as**  **ENERGY STAR.**  **Could**

**you provide**  **any qualitative**  **information on**  **expected changes**  **in total**  **industry shipments**  **shown**

**in Table**  **5­1 through**  **Table 18­3?** 

6 PRODUCT MIX

**Product mix**  **describes the**  **distribution of**  **current shipments**  **by efficiency**  **level. Changes**  **in the** 

**product mix**  **due to**  **amended energy**  **conservation standards**  **can have**  **a large**  **impact on**  **industry**

**revenues. Having**  **an accurate**  **estimate of**  **the current**  **product mix**  **allows DOE**  **to better**  **estimate**

**how revenues**  **might change**  **due to**  **amended energy**  **conservation standards.** 

**6.1 Does**  **your company**  **offer multiple**  **product lines**  **at different**  **efficiency levels?**  **Could you** 

**provide a**  **description of**  **your company’s**  **product lines**  **and their**  **respective efficiency**  **levels?**

**12A­12 6.2**  **Table 6­1**  **through Table**  **19­3 show**  **DOE’s estimate**  **for the**  **current mix**  **of shipments**  **by**

**efficiency today**  **and in**  **2015, the**  **anticipated effective**  **date of**  **amended energy**  **conservation**

**standards. Could**  **you provide**  **feedback on**  **DOE’s estimates**  **based on**  **your knowledge**  **of the** 

**industry?**

Table 6­1 Percentage of Industry­Wide Shipments by Efficiency Level for Electric StorageType Residential Water Heaters Today and in 2015

**Percentage of** 

**Total**

**Shipments at** 

**Each**

**Efficiency Baseline** 

**Level**

**(EF**

**= 0.90)**  **EL 1** 

**(EF**

**= 0.91)**  **EL 2** 

**(EF**

**= 0.92)**  **EL 3** 

**(EF**

**= 0.93)**  **EL 4** 

**(EF**

**= 0.94)**  **EL 5** 

**(EF**

**= 0.95)**  **EL 6** 

**(EF**

**= 2.0)**  **EL 7** 

**(EF**

**= 2.2)** 

**DOE’s**

**Estimate**

**(2008) 38.2%**  **24.4% 7.1%**  **19.6% 4.8%**  **6.0% 0.0%**  **0.0%**

**Manufacturer**

**Feedback**

**DOE’s**

**Estimate**

**(2015) 36.3%**  **23.2% 6.7%**  **18.6% 4.6%**  **5.7% 5.0%**  **0.0%**

**Manufacturer**

**Feedback**

Table 6­2 Percentage of Industry­Wide Shipments by Efficiency Level for Gas­Fired

Storage­Type Residential Water Heaters Today and in 2015

**Percentage of**  **Total**

**Shipments at**  **Each**

**Efficiency Baseline** 

**Level**

**(EF**

**= 0.59)**  **EL 1** 

**(EF**

**= 0.62)**  **EL 2** 

**(EF**

**= 0.63)**  **EL 3** 

**(EF**

**= 0.64)**  **EL 4** 

**(EF**

**= 0.65)**  **EL 5** 

**(EF**

**= 0.67)**  **EL 6** 

**(EF**

**= 0.80)** 

**DOE’s Estimate** 

**(2008) 86.9%**  **7.8% 2.4%**  **1.3% 1.5%**  **0.2% 0.0%** 

**Manufacturer**

**Feedback**

**DOE’s Estimate** 

**(2015) 81.6%**  **7.3% 2.2%**  **1.2% 1.4%**  **5.3% 1.0%** 

**Manufacturer**

**Feedback**

**12A­13**Table 6­3 Percentage of Industry­Wide Shipments by Efficiency Level for Oil­Fired

Storage­Type Residential Water Heaters Today and in 2015

**Percentage of** 

**Total**

**Shipments at** 

**each**

**Efficiency Baseline** 

**Level**

**(EF**

**= 0.53)**  **EL 1** 

**(EF**

**= 0.54)**  **EL 2** 

**(EF**

**= 0.56)**  **EL 3** 

**(EF**

**= 0.58)**  **EL 4** 

**(EF**

**= 0.60)**  **EL 5** 

**(EF**

**= 0.62)**  **EL 6** 

**(EF**

**= 0.66)**  **EL 7** 

**(EF**

**= 0.68)** 

**DOE’s**

**Estimate**

**(2008) 22.2%**  **0.0% 0.0%**  **0.0% 11.1%**  **16.7% 25.0%**  **25.0%**

**Manufacturer**

**Feedback**

**DOE’s**

**Estimate**

**(2015) 22.2%**  **0.0% 0.0%**  **0.0% 11.1%**  **16.7% 25.0%**  **25.0%**

**Manufacturer**

**Feedback**

**6.3 Do**  **you expect**  **the product**  **mix to**  **change over**  **time? If**  **so, please**  **explain why.** 

**6.4 An**  **amended energy**  **conservation standard**  **affects the**  **product mix**  **by eliminating**  **the sale** 

**of products**  **below the**  **minimum efficiency**  **level. DOE**  **assumes that**  **all products**  **that fall**  **below**

**the standard**  **would roll­up**  **to the**  **efficiency level**  **set by**  **an amended**  **energy conservation** 

**standard. DOE**  **assumes the**  **distribution of**  **efficiencies above**  **the efficiency**  **level set**  **by the** 

**energy conservation**  **standard will**  **not change.**  **In other**  **words, those**  **customers already** 

**purchasing more­efficient**  **products will**  **continue to**  **do so**  **irrespective of**  **amended energy** 

**conservation standards.**  **How do**  **you think**  **amended energy**  **conservation standards**  **will impact** 

**the sales**  **of more**  **efficient products?**  **For example,**  **would customers**  **continue to**  **buy products** 

**that exceed**  **the energy**  **conservation standard**  **level? Would**  **your response**  **change at**  **higher**

**efficiency levels?** 

7 FINANCIAL PARAMETERS

**Navigant Consulting,**  **Inc. (NCI)**  **has developed**  **a “strawman”**  **model of**  **the electric,**  **gas­fired,**

**and oil­fired**  **storage­type residential**  **water heater**  **industry financial**  **performance called**  **the**

**Government Regulatory**  **Impact Model**  **(GRIM) using**  **publicly available**  **data. This**  **section**

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

**aggregate picture.** 

**12A­14 7.1**  **Please compare**  **your financial**  **parameters to**  **the GRIM**  **parameters tabulated**  **below.**

Table 7­1 Financial Parameters for Storage­Type Residential Water Heater Manufacturers

**GRIM Input**  **Definition Industry** 

**Estimated**

**Value Your**  **Actual (If** 

**Significantly**

**Different from** 

**DOE’s Estimate)** 

**Income Tax**  **Rate Corporate**  **effective income**  **tax**

**paid (percentage**  **of earnings** 

**before taxes,**  **EBT) 27.5%** 

**Discount Rate**  **Weighted average**  **cost of**  **capital**

**(inflation­adjusted weighted** 

**average of**  **corporate cost**  **of debt** 

**and return**  **on equity)**  **8.5%**

**Working Capital**  **Current assets**  **less current** 

**liabilities (percentage**  **of**

**revenues) 11.4%** 

**SG&A Selling,**  **general, and** 

**administrative expenses** 

**(percentage of**  **revenues) 20.9%** 

**R&D Research**  **and development** 

**expenses (percentage**  **of**

**revenues) 1.5%** 

**Depreciation Amortization**  **of fixed**  **assets**

**(percentage of**  **revenues) 2.2%** 

**Capital Expenditures**  **Outlay of**  **cash to**  **acquire or** 

**improve capital**  **assets**

**(percentage of**  **revenues, not** 

**including acquisition**  **or sale**  **of**

**business units)**  **2.2%**

**Cost of**  **Goods Sold**  **Includes material,**  **labor,**

**overhead, and**  **depreciation**

**(percentage of**  **revenues) 71.3%** 

**7.2 If**  **your company**  **manufacturers multiple**  **product classes**  **of storage­type**  **residential water** 

**heaters, do**  **any of**  **the financial**  **parameters in**  **Table 7­1**  **change based**  **on fuel­type?**  **Please**

**describe any**  **differences.**

**7.3 How**  **would you**  **expect an**  **amended energy**  **conservation standard**  **to impact**  **any of**  **the**

**financial parameters**  **for the**  **industry?**

**12A­15**8 CONVERSION COSTS

**Amended energy**  **conservation standards**  **may cause**  **your company**  **to incur**  **capital and**  **product**

**conversion costs**  **to redesign**  **existing products**  **and make**  **changes to**  **existing production**  **lines to** 

**be compliant**  **with the**  **amended energy**  **conservation standard.**  **Capital conversion**  **costs are**  **one**

**time investments**  **in plant,**  **property, and**  **equipment (PPE)**  **necessitated by**  **an amended**  **energy**

**conservation standard.**  **These may**  **be incremental**  **changes to**  **existing PPE**  **or the**  **replacement of** 

**existing PPE.**  **Replacing existing**  **PPE could**  **strand existing**  **assets before**  **the end**  **of their**  **useful**

**lives. In**  **addition to**  **capital conversion**  **costs, product**  **conversion costs**  **are costs**  **related research,** 

**product development,**  **testing, marketing**  **and other**  **costs for**  **redesigning products**  **necessitated by** 

**an amended**  **energy conservation**  **standard.**

**8.1 What**  **level of**  **conversion costs**  **do you**  **anticipate incurring**  **under the**  **different efficiency** 

**levels DOE**  **is considering?**  **Refer to**  **the tables**  **below to**  **provide your**  **company’s estimates.** 

**Please provide**  **additional qualitative**  **information to**  **help DOE**  **understand the**  **types and**  **nature of** 

**your investments.** 

Table 8­1 Electric Storage­Type Residential Water Heater Conversion Costs

**Efficiency Electric**  **Storage­Type Residential**  **Water Heaters** 

**Level**

**(Energy**

**Factor) Capital** 

**Conversion**

**Costs (2009$)**  **Product**

**Conversion**

**Costs (2009$)**  **Stranded Assets** 

**(2009$)**

**Baseline**

**(EF**

**= 0.90)** 

**EL 1** 

**(EF**

**= 0.91)** 

**EL 2** 

**(EF**

**= 0.92)** 

**EL 3** 

**(EF**

**= 0.93)** 

**EL 4** 

**(EF**

**= 0.94)** 

**EL 5** 

**(EF**

**= 0.95)** 

**EL 6** 

**(EF**

**= 2.0)** 

**EL 7** 

**(EF**

**= 2.2)** 

**12A­16**Table 8­2 Gas­Fired Storage­Type Residential Water Heater Conversion Costs

**Efficiency Gas­Fired**  **Storage­Type Residential**  **Water Heaters** 

**Level**

**(Energy**

**Factor) Capital** 

**Conversion**

**Costs (2009$)**  **Product**

**Conversion**

**Costs (2009$)**  **Stranded Assets** 

**(2009$)**

**Baseline**

**(EF**

**= 0.59)** 

**EL 1** 

**(EF**

**= 0.62)** 

**EL 2** 

**(EF**

**= 0.63)** 

**EL 3** 

**(EF**

**= 0.64)** 

**EL 4** 

**(EF**

**= 0.65)** 

**EL 5** 

**(EF**

**= 0.67)** 

**EL 6** 

**(EF**

**= 0.80)** 

Table 8­3 Oil­Fired Storage­Type Residential Water Heater Conversion Costs

**Efficiency Gas­Fired**  **Storage­Type Residential**  **Water Heater** 

**Level**

**(Energy**

**Factor) Capital** 

**Conversion**

**Costs (2009$)**  **Product**

**Conversion**

**Costs (2009$)**  **Stranded Assets** 

**(2009$)**

**Baseline**

**(EF**

**= 0.53)** 

**EL 1** 

**(EF**

**= 0.54)** 

**EL 2** 

**(EF**

**= 0.56)** 

**EL 3** 

**(EF**

**= 0.58)** 

**EL 4** 

**(EF**

**= 0.60)** 

**EL 5** 

**(EF**

**= 0.62)** 

**EL 6** 

**(EF**

**= 0.66)** 

**EL 7** 

**(EF**

**= 0.68)** 

**12A­17**9 CUMULATIVE REGULATORY BURDEN

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

**new or**  **revised DOE**  **standards, voluntary**  **standards, and/or**  **other regulatory**  **actions affecting**  **the**

**same product**  **or industry.** 

**9.1 Are**  **there other**  **recent or**  **impending regulations**  **that electric,**  **gas­fired, and**  **oil­fired**

**storage­type residential**  **water heater**  **manufacturers face**  **(from DOE**  **or otherwise)?**  **If so,**  **could**

**you identify**  **the regulation**  **and the**  **corresponding possible**  **effective dates**  **for those**  **regulations?**

**Below is**  **a list**  **of regulations**  **that could**  **possibly affect**  **manufacturers of**  **electric, gas­fired,**  **and**

**oil­fired storage­type**  **residential water**  **heaters. Please**  **provide any**  **comments on**  **the listed** 

**regulations in**  **addition to**  **other regulations.** 

Table 9­1 Other Regulations Identified by DOE

**Regulation Estimated**  **or Actual**  **Effective**

**Date(s) Comments** 

**DOE’s Amended**  **Energy Conservation** 

**Standards for**  **Other Products** 

**International Energy­Efficiency**  **Standards**

**State Emission**  **Requirements and**  **Other**

**State Regulations** 

**South Coast**  **Air Quality**  **Management**

**District (SCAQMD)**  **Ultra­Low NOx** 

**Requirements**

**Uniform Plumbing,**  **Building, and**  **Safety**

**Codes**

**9.2 What**  **level of**  **expense are**  **you expecting**  **to incur**  **as a**  **result of**  **these regulations?** 

**9.3 Under**  **what circumstances**  **would you**  **be able**  **to coordinate**  **any expenditures**  **related to** 

**these other**  **regulations with**  **an amended**  **energy conservation**  **standard, thereby**  **lessening the** 

**cumulative burden?** 

10 DIRECT EMPLOYMENT IMPACT ASSESSMENT

**The impact**  **of amended**  **energy conservation**  **standards on**  **employment is**  **an important** 

**consideration in**  **the rulemaking**  **process. This**  **section of**  **the interview**  **guide seeks**  **to explore** 

**current trends**  **in electric,**  **gas­fired, and**  **oil­fired storage­type**  **residential water**  **heater production** 

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

**affected by**  **amended energy**  **conservation standards.** 

**12A­18 10.1**  **Would your**  **domestic employment**  **levels be**  **expected to**  **change significantly**  **under**

**amended energy**  **conservation standards?**  **If so,**  **please explain**  **how they**  **would change**  **if higher** 

**efficiency levels**  **are required.** 

**10.2 Would**  **the workforce**  **skills necessary**  **under amended**  **energy conservation**  **standards**

**require extensive**  **retraining or**  **replacement of**  **employees at**  **your manufacturing**  **facilities?**

**10.3 Would**  **amended energy**  **conservation standards**  **require extensive**  **retraining of**  **your**

**service/field technicians?**  **If so,**  **could you**  **expand on**  **how your**  **service infrastructure**  **would be** 

**impacted in**  **general as**  **a result**  **of amended**  **energy conservation**  **standards?**

11 EXPORTS / FOREIGN COMPETITION / OUTSOURCING

**Disparity between**  **domestic and**  **foreign energy**  **conservation standards**  **could impact**  **exports or** 

**imports. Labor**  **content and**  **material changes,**  **resulting from**  **amended energy**  **conservation**

**standards, may**  **impact sourcing**  **decisions.**

**11.1 What**  **percentage of**  **your company’s**  **electric, gas­fired,**  **and oil­fired**  **storage­type**

**residential water**  **heater sales**  **is domestic?**  **Absent amended**  **energy conservation**  **standards, are** 

**production facilities**  **being relocated**  **to foreign**  **countries? Would**  **amended energy**  **conservation**

**standards impact**  **your domestic**  **vs. foreign**  **manufacturing decision?** 

**11.2 If**  **applicable, to**  **what foreign**  **countries or**  **regions do**  **you export**  **your products?**  **What**

**percentage of**  **sales can**  **be attributed**  **to each?** 

**11.3 Would**  **an amended**  **energy conservation**  **standard be**  **expected to**  **affect your**  **export sales?** 

**What would**  **the resulting**  **impact be,**  **if any,**  **on your**  **manufacturing operations**  **and profitability?** 

**11.4 Are**  **your foreign**  **exports affected**  **by amended**  **energy conservation**  **standards in**  **other**

**countries?**

**12A­19 11.5**  **What percentage**  **of the**  **U.S. market**  **for electric,**  **gas­fired, and**  **oil­fired storage­type** 

**residential water**  **heaters is**  **imported? Would**  **amended energy**  **conservation standards**  **have an** 

**impact on**  **foreign competition?** 

**11.6 What**  **is your**  **outlook for**  **electric, gas­fired,**  **and oil­fired**  **storage­type residential**  **water**

**heater exports?** 

12 CONSOLIDATION

**Amended energy**  **conservation standards**  **can alter**  **the competitive**  **dynamics of**  **the market.**  **This**

**can include**  **prompting companies**  **to enter**  **or exit**  **the market,**  **or to**  **merge. DOE**  **and the** 

**Department of**  **Justice are**  **both interested**  **in any**  **potential reduction**  **in competition**  **that would** 

**result from**  **an amended**  **energy conservation**  **standard.**

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

**12.2 In**  **the absence**  **of amended**  **energy conservation**  **standards, do**  **you expect**  **any further** 

**industry consolidation?**  **Please describe**  **your expectations.** 

**12.3 How**  **would amended**  **energy conservation**  **standards affect**  **your ability**  **to compete?** 

**12A­20**13 IMPACTS ON SMALL BUSINESS

**13.1 The**  **Small Business**  **Association (SBA)**  **denotes a**  **small business**  **in the**  **electric, gas­fired,** 

**and oil­fired**  **storage­type residential**  **water heater**  **industry as**  **having less**  **than 500**  **employees. 2** 

**By this**  **definition, is**  **your company**  **considered a**  **small business?** 

**13.2 Are**  **there any**  **reasons that**  **a small**  **business might**  **be at**  **a disadvantage**  **relative to**  **a larger** 

**business under**  **amended energy**  **conservation standards?**  **Please consider**  **such factors**  **as**

**technical expertise,**  **access to**  **capital, bulk**  **purchasing power**  **for materials/components,** 

**engineering resources,**  **and any**  **other relevant**  **issues.**

**13.3 Are**  **there any**  **niche manufacturers,**  **small businesses,**  **and/or component**  **manufacturers**

**for which**  **the adoption**  **of amended**  **energy conservation**  **standards would**  **have a**  **severe impact?** 

**If so,**  **would manufacturers**  **of these**  **products have**  **different incremental**  **impacts from** 

**implemented amended**  **energy conservation**  **standards than**  **from the**  **rest of**  **the industry?** 

14 ULTRA­LOW NOX WATER HEATERS

**As part**  **of the**  **rulemaking analyses,**  **DOE is**  **reviewing gas­fired,**  **storage­type water**  **heaters that** 

**are manufactured**  **and shipped**  **to locations**  **where ultra­low**  **nitrogen oxide**  **(NOx) emissions** 

**requirements are**  **in place,**  **such as**  **the South**  **Coast Air**  **Quality Management**  **District (SCAQMD)** 

**of California.**  **DOE has**  **identified markets**  **in California**  **and Texas**  **where ultra­low**  **NOx**

**emissions requirements**  **exists. For**  **example, Rule**  **1121 (Control**  **of Nitrogen**  **Oxides from** 

**Residential Type,**  **Natural Gas­fired**  **Water Heaters)**  **limits NOx**  **emissions to**  **10 nanograms**  **per**

**Joule (ng/J)**  **within the**  **SCAQMD. Because**  **DOE is**  **aware that**  **manufacturers typically**  **employ**

**different burner**  **technologies in**  **order comply**  **with these**  **emissions requirements,**  **DOE would** 

**like to**  **better understand**  **how NOx**  **requirements change**  **gas­fired residential**  **water heater** 

**manufacturing.**

**14.1 What**  **States or**  **regions currently**  **have ultra­low**  **NOx emissions**  **requirements? What**  **are**

**those requirements?** 

**2 DOE**  **uses the**  **small business**  **size standards**  **published on**  **August 22,**  **2008, as**  **amended, by**  **the SBA**  **to determine** 

**whether a**  **company is**  **a small**  **business. To**  **be categorized**  **as a**  **small business,**  **a water**  **heater manufacturer**  **and its** 

**affiliates may**  **employ a**  **maximum of**  **500 employees.**  **The 500**  **employee threshold**  **includes all**  **employees in**  **a**

**business’s parent**  **company and**  **any other**  **subsidiaries.**

**12A­21 14.2**  **What percentage**  **of your**  **products are**  **shipped to**  **regions with**  **ultra­low NOx** 

**requirements? Do**  **you expect**  **those percentages**  **to change**  **over time?** 

**14.3 Are**  **you aware**  **of any**  **new emissions**  **requirements being**  **considered by**  **State or**  **regionial**

**governments?**

**14.4 What**  **States or**  **regions do**  **you anticipate**  **having emissions**  **requirements in**  **the future**  **and**

**what is**  **the timing**  **of any**  **future requirements?** 

**DOE identified**  **ultra­low NOx**  **gas­fired storage**  **water heaters**  **on the**  **market with**  **rated storage** 

**volumes between**  **28 and**  **65 gallons.**  **These products**  **range in**  **energy efficiency**  **from DOE’s** 

**baseline efficiency**  **levels (0.59**  **EF for**  **40 gallon**  **models) to**  **0.62 EF**  **(for models**  **with rated** 

**storage volumes**  **between 28**  **and 50**  **gallons). DOE**  **noted that**  **these products**  **typically include** 

**both pilot**  **and electronic**  **ignition, ultra­low**  **NOx burner**  **manifolds, and**  **atmospheric venting** 

**configurations. DOE**  **also noted**  **that manufacturers**  **typically improve**  **energy efficiency**  **by**

**increasing the**  **amount of**  **insulation around**  **the storage**  **tank at**  **the baseline**  **efficiency level.** 

**14.5 Does**  **your company**  **plan on**  **expanding current**  **ultra­low NOx**  **offerings? If**  **so, what** 

**efficiency levels**  **and rated**  **storage volumes**  **will you**  **offer?**

**14.6 How**  **would the**  **strategies used**  **by manufacturers**  **to increase**  **the efficiency**  **of a** 

**conventional gas­fired**  **water heater**  **differ from**  **the strategies**  **used to**  **increase an**  **ultra­low NOx** 

**water heater?**  **Could you**  **please explain**  **any differences?** 

**14.7 If**  **manufacturers use**  **different strategies**  **to increase**  **the efficiency**  **of an**  **ultra­low NOx** 

**water heater,**  **how would**  **the incremental**  **cost between**  **efficiency levels**  **change?**

**14.8 Do**  **you currently**  **have an**  **ultra­low NOx**  **prototype that**  **uses power**  **vent technology**  **to**

**improve energy**  **efficiency? At**  **what efficiency**  **level would**  **you incorporate**  **power vent** 

**12A­22 technologies**  **to increase**  **the efficiency**  **of an**  **ultra­low NOx**  **water heater?**  **For comparison,**  **a**

**conventional gas­fired**  **water heater**  **with a**  **40 gallon**  **rated storage**  **volume includes**  **a power**  **vent**

**at 0.64**  **EF. Can**  **a power**  **vent be**  **paired with**  **a standard**  **burner manifold**  **instead of**  **the ultra­low** 

**NOx burner**  **to achieve**  **ultra­low NOx**  **emission levels?** 

**14.9 Would**  **designs to**  **meet flammable**  **vapor ignition**  **requirements impact**  **the design**  **of**

**models that**  **meet ultra­low**  **NOx requirements,**  **both with**  **and without**  **power venting?** 

**14.10 Please**  **explain any**  **barriers to**  **improving energy**  **efficiency for**  **ultra­low NOx**  **gas­fired**

**storage water**  **heaters.**

15 UNIT SHIPPING METHODS AND ASSOCIATED COSTS

**An amended**  **energy conservation**  **standard can**  **change overall**  **shipments by**  **altering product** 

**attributes, product**  **size, amount**  **of shipments,**  **and price.**  **Having an**  **accurate estimate**  **of the** 

**shipping costs**  **for the**  **industry allows**  **DOE to**  **better examine**  **impacts on**  **profitability and** 

**employment due**  **to amended**  **energy conservation**  **standards. DOE**  **has based**  **their shipment**  **costs**

**off of**  **average industry**  **cost per**  **trailer and**  **the number**  **of units**  **per trailer.**  **In the**  **analysis, DOE** 

**assumed standard**  **pallets were**  **used, the**  **trailer size**  **had dimensions**  **of 10’**  **by 8’**  **by 53’,**  **and total** 

**shipping cost**  **per trailer**  **was $3,000.** 

**15.1 What**  **is the**  **average size**  **and cost**  **of the**  **trailer used**  **to ship**  **residential storage­type**  **water**

**heaters?**

**15.2 When**  **packing and**  **loading water**  **heaters onto**  **trailers, what**  **methods are**  **applied? For** 

**example, are**  **pallets, crates,**  **and forklifts**  **used? Please**  **specify the**  **type of**  **crate used,**  **dimensions,**

**and number**  **of water**  **heaters per**  **crate, if**  **applicable.**

**15.3 Table**  **15­1 through**  **Table 15­3**  **provide DOE’s**  **estimates of**  **the shipping**  **costs for** 

**storage­type residential**  **water heaters**  **at each**  **efficiency level**  **being considered.**  **Could you**  **please**

**provide any**  **comments on**  **the estimated**  **values?**

**12A­23**Table 15­1. Estimated Shipping Costs for Electric Storage­Type Residential Water Heaters

(50 Gallons Rated Storage Volume)

Efficiency Levels

(Energy Factor) Outer Packaging Dimensions per

Water Heater ­ h x w x l (in.) Number of Water

Heaters per Trailer Unit Shipping Cost

DOE’s Estimate Manufacturer

Feedback DOE’s

Estimate Manufacturer

Feedback DOE’s

Estimate

(2008$) Manufacturer

Feedback

**Baseline (EF** 

**= 0.90)**  **52 x**  **25 x22**  **180 $17** 

**EL 1**  **(EF**

**= 0.91)**  **52 x**  **26 x**  **23 180**  **$17**

**EL 2**  **(EF**

**= 0.92)**  **53 x**  **27 x**  **24 180**  **$17**

**EL 3**  **(EF**

**= 0.93)**  **53 x**  **27 x**  **24 180**  **$17**

**EL 4**  **(EF**

**= 0.94)**  **53 x**  **28 x**  **25 120**  **$25**

**EL 5**  **(EF**

**= 0.95)**  **54 x**  **30 x**  **27 120**  **$25**

**EL 6**  **(EF**

**= 2.0)**  **67 x**  **26 x**  **23 90**  **$33**

**EL 7**  **(EF**

**= 2.2)**  **67 x**  **26 x**  **23 90**  **$33**

Table 15­2. Estimated Shipping Costs for Gas­Fired Storage­Type Residential Water

Heaters (40 Gallons Rated Storage Volume)

Efficiency Levels

(Energy Factor) Outer Packaging Dimensions per

Water Heater ­ h x w x l (in.) Number of Water

Heaters per Trailer Unit Shipping Cost

DOE’s Estimate Manufacturer

Feedback DOE’s

Estimate Manufacturer

Feedback DOE’s

Estimate

(2008$) Manufacturer

Feedback

**Baseline (EF** 

**= 0.59)**  **54 x**  **23 x**  **24 180**  **$17**

**EL 1**  **(EF**

**= 0.62)**  **54.5 x**  **24 x**  **25 120**  **$25**

**EL 2**  **(EF**

**= 0.63)**  **55 x**  **25 x**  **26 120**  **$25**

**EL 3**  **(EF**

**= 0.64)**  **69.5 x**  **23.5 x**  **24.5 60**  **$50**

**EL 4**  **(EF**

**= 0.65)**  **70 x**  **24 x**  **25 60**  **$50**

**EL 5**  **(EF**

**= 0.67)**  **70.6 x**  **25 x**  **26 60**  **$50**

**EL 6**  **(EF**

**= 0.80)**  **73.3 x**  **27.5 x**  **32 60**  **$50**

**12A­24**Table 15­3. Estimated Shipping Costs for Oil­Fired Storage­Type Residential Water

Heaters (30 Gallons Rated Storage Volume)

Efficiency Levels

(Energy Factor) Outer Packaging Dimensions per

Water Heater ­ h x w x l (in.) Number of Water

Heaters per Trailer Unit Shipping Cost

DOE Estimate Manufacturer

Feedback DOE

Estimate Manufacturer

Feedback DOE

Estimate

(2008$) Manufacturer

Feedback

**Baseline (EF** 

**= 0.53)**  **53.5 x**  **20.5 x**  **21.5 180**  **$17**

**EL 1**  **(EF**

**= 054)**  **54 x**  **21.5 x**  **22.5 180**  **$17**

**EL 2**  **(EF**

**= 0.56)**  **55.5 x**  **22.5 x**  **23.5 180**  **$17**

**EL 3**  **(EF**

**= 0.58)**  **56 x**  **23.5 x**  **24.5 120**  **$25**

**EL 4**  **(EF**

**= 0.60)**  **54.5 x**  **22.5 x**  **23.5 180**  **$17**

**EL 5**  **(EF**

**= 0.62)**  **55 x**  **23.5 x**  **24.5 120**  **$25**

**EL 6**  **(EF**

**= 0.66)**  **53.5x20.5 x**  **21.5 180**  **$17**

**EL 7**  **(EF**

**= 0.68)**  **53.5x20.5 x**  **21.5 180**  **$17**

16 ALTERNATIVE ENERGY­EFFICIENCY EQUATIONS FOR STORAGE­TYPE

WATER HEATERS

**In response**  **to a**  **request from**  **the Air**  **Conditioning, Heating,**  **and Refrigeration**  **Institute (AHRI)** 

**and several**  **manufacturers, DOE**  **is considering**  **revisions to**  **the energy­efficiency**  **equations that** 

**define the**  **existing Federal**  **energy conservation**  **standards for**  **gas­fired and**  **electric storage**  **water**

**heaters. The**  **energy­efficiency equations**  **allow DOE**  **to expand**  **the analysis**  **on the**  **representative**

**rated storage**  **volume to**  **the full**  **range of**  **storage volumes**  **covered under**  **the existing**  **Federal**

**energy conservation**  **standard. In**  **the preliminary**  **analysis, DOE**  **determined that**  **the current** 

**Federal energy­efficiency**  **equations may**  **not represent**  **the current**  **gas­fired and**  **electric storage** 

**water heater**  **markets. Additionally,**  **amended energy**  **conservation standards**  **may eliminate** 

**certain rated**  **storage volume**  **ranges from**  **the market**  **or require**  **manufacturers to**  **use different** 

**technologies for**  **different rated**  **storage volume**  **ranges (e.g.,**  **with the**  **current slopes,**  **low volume** 

**models may**  **require heat**  **pump or**  **condensing technologies**  **to meet**  **an amended**  **standard).**

**For the**  **existing Federal**  **energy conservation**  **standards, the**  **slope and**  **the intercept**  **of each** 

**energy­efficiency equation**  **are constant**  **for each**  **product class.**  **Table 16­1**  **shows the**  **energy**

**efficiency equations**  **of the**  **existing Federal**  **energy conservation**  **standards for**  **gas­fired and** 

**electric storage**  **water heaters.** 

Table 16­1. Existing Federal Energy Conservation Standards for Residential Gas­Fired

and Electric Storage Water Heaters

Residential Water Heater Class Minimum Energy Factor (EF)

**Gas­Fired Storage­Type**  **0.67**

**– (0.0019**  **× Rated**  **Storage Volume**  **in Gallons)** 

**Electric Storage­Type**  **0.97**

**– (0.00132**  **× Rated**  **Storage Volume**  **in Gallons)** 

**DOE developed**  **alternative energy­efficiency**  **equations by**  **both analyzing**  **market data**  **and**

**12A­25 through testing of water heaters selected from a variety of manufacturers covering a range of** 

**efficiency levels and rated storage volumes. The alternative energy­efficiency equations DOE**

**developed for gas­fired storage water heaters and the gas­fired storage water heaters currently**

**available to the market are presented in Figure 16­1. The horizontal axis represents the rated**

**storage volume and the vertical axis represents the energy factor. The points correspond to the**

**models that DOE identified that are currently available to the market, and the efficiency levels**

**are shown as lines spanning the rated volume range, which is 20 to 100 gallons for gas­fired**

**storage water heaters. Please note that the max­tech efficiency level (i.e., condensing technology)**

**is not shown in this figure. The max­tech efficiency level corresponds to 0.80 EF at 40 gallons.**

**DOE proposes a flat line to represent the max­tech efficiency level, where the energy factor**

**would be 0.80 EF for the entire 20 to 100 gallon rated volume range.**

Federal 0.70

EL1

EL2

EL3

EL 4

0.65 EL5

0.60

0.55

0.50

0.45

0.40

15 35 55 75 95 115

Rated Volume (Gallons)

Figure 16­1. Alternative Energy­Efficiency Equations for Gas­Fired Storage Water Heaters

(max­tech not shown)Energy Factor

**12A­26**Table 16­2. Alternative Energy­Efficiency Equations for Gas­Fired Storage Water Heaters

Efficiency Level 20 to 100 Gallons

**Baseline Energy­Efficiency**  **Equation EF** 

**= ­0.00190(V**  **R )+0.670** 

**EL 1**  **Energy­Efficiency Equation**  **EF**

**= ­0.00150(V**  **R )+0.675** 

**EL 2**  **Energy­Efficiency Equation**  **EF**

**= ­0.00120(V**  **R )+0.675** 

**EL 3**  **Energy­Efficiency Equation**  **EF**

**= ­0.00100(V**  **R )+0.680** 

**EL 4**  **Energy­Efficiency Equation**  **EF**

**= ­0.00090(V**  **R )+0.690** 

**EL 5**  **Energy­Efficiency Equation**  **EF**

**= ­0.00078(V**  **R )+0.700** 

**EL 6**  **Energy­Efficiency Equation**  **EF**

**= 0.80** 

**16.1 Please**  **provide any**  **qualitative and**  **quantitative feedback**  **on the**  **alternative energy** 

**efficiency equations**  **for gas­fired**  **storage­type water**  **heaters.**

**Similarly, DOE**  **developed alternative**  **energy­efficiency equations**  **for electric**  **storage water** 

**heaters. The**  **alternative energy­efficiency**  **equations for**  **electric storage**  **water heaters**  **and the** 

**electric storage**  **water heaters**  **currently available**  **to the**  **market are**  **shown in**  **Figure 16­2.**  **The**

**efficiency levels**  **that DOE**  **is considering**  **span the**  **rated volume**  **range, which**  **is 20**  **to 120** 

**gallons for**  **electric storage**  **water heaters.**  **Please note**  **that efficiency**  **level 6**  **and the**  **max­tech**

**efficiency level**  **(i.e., those**  **efficiency levels**  **utilizing heat**  **pump technology)**  **are not**  **shown in** 

**this figure.**  **Efficiency level**  **6 corresponds**  **to a**  **2.0 EF**  **at 50**  **gallons, and**  **the max­tech**  **efficiency**

**level corresponds**  **to a**  **2.2 EF**  **at 50**  **gallons. Similarly,**  **to the**  **gas­fired storage**  **water heater**  **max**

**tech efficiency**  **level, DOE**  **proposes a**  **flat line**  **to represent**  **efficiency level**  **6 and**  **the max­tech** 

**for electric**  **storage water**  **heaters, where**  **the energy**  **factor would**  **be 2.0**  **and 2.2,**  **respectively, for** 

**the entire**  **20 to**  **120 gallon**  **rated volume**  **range.**

**DOE proposes**  **a two­slope**  **approach for**  **electric storage**  **water heaters.**  **After reviewing**  **market**

**data and**  **conducting testing**  **of various**  **models, DOE**  **determined that**  **the relationship**  **between**

**energy factor**  **and rated**  **volume is**  **different for**  **electric storage**  **water heaters**  **with small**  **and large** 

**rated volumes.**  **Based on**  **available data,**  **DOE determined**  **that the**  **relationship changes**  **at 80** 

**gallons, as**  **shown in**  **Figure 16­2.** 

**12A­27**EnergyFactor Federal

EL1 0.98

EL2

EL3

0.96 EL 4

EL5

0.94

0.92

0.90

0.88

0.86

0.84

0.82

0.80

15 35 55 75 95 115

Rated Volume (Gallons)

Figure 16­2. Alternative Energy­Efficiency Equations for Electric Storage Water Heaters

Table 16­3. Alternative Energy­Efficiency Equations for Gas­Fired Storage Water Heaters

Efficiency Level 20 to 80 Gallons Over 80 and up to 120

Gallons

**Baseline Energy­Efficiency**  **Equation EF** 

**= ­0.00190(V**  **R )+0.670** 

**EL 1**  **Energy­Efficiency Equation**  **EF**

**= ­0.00150(V**  **R )+0.675**  **EF**

**= ­0.00149(V**  **R )+0.999** 

**EL 2**  **Energy­Efficiency Equation**  **EF**

**= ­0.00120(V**  **R )+0.675**  **EF**

**= ­0.00153(V**  **R )+1.013** 

**EL 3**  **Energy­Efficiency Equation**  **EF**

**= ­0.00100(V**  **R )+0.680**  **EF**

**= ­0.00155(V**  **R )+1.026** 

**EL 4**  **Energy­Efficiency Equation**  **EF**

**= ­0.00090(V**  **R )+0.690**  **EF**

**= ­0.00168(V**  **R )+1.051** 

**EL 5**  **Energy­Efficiency Equation**  **EF**

**= ­0.00078(V**  **R )+0.700**  **EF**

**= ­0.00190(V**  **R )+1.088** 

**EL 6**  **Energy­Efficiency Equation**  **EF**

**= 2.0** 

**EL 7**  **Energy­Efficiency Equation**  **EF**

**= 2.2** 

**16.2 Please**  **provide any**  **qualitative and**  **quantitative feedback**  **on the**  **alternative energy** 

**efficiency equations**  **for electric**  **storage­type water**  **heaters.**

**16.3 DOE**  **reviewed the**  **2009 AHRI**  **directory and**  **manufacturers’ literature**  **to determine**  **the**

**12A­28 maximum**  **efficiency levels**  **for various**  **rated storage**  **volumes currently**  **available to**  **the market.** 

**Do the**  **maximum efficiency**  **levels offered**  **on the**  **market identified**  **correspond to**  **the maximum** 

**achievement in**  **energy efficiency**  **that is**  **possible for**  **electric storage**  **water heaters**  **at these**  **rated**

**volume sizes,**  **using conventional**  **technologies (i.e.,**  **insulation improvements)?** 

Table 16­4. Energy­Efficiency Levels at various Rated Storage Volumes for Electric

Storage Water Heaters

Rated Storage

Volume Maximum Energy Factor Available

to the Market Maximum Achievable Energy

Factor (Manufacturer Feedback)

**30 Gallons**  **0.95 EF** 

**40 Gallons**  **0.95 EF** 

**50 Gallons**  **0.95 EF** 

**66 Gallons**  **0.95 EF** 

**80 Gallons**  **0.95 EF** 

**100 Gallons**  **0.91 EF** 

**120 Gallons**  **0.86 EF** 

**16.4 Are**  **the slopes**  **appropriate for**  **each efficiency**  **level?**

**16.5 Do**  **you agree**  **with a**  **two­slope approach**  **for electric**  **storage water**  **heaters? Should**  **this**

**change of**  **slope occur**  **at 80**  **gallons?**

**DOE did**  **not develop**  **alternative energy­efficiency**  **equations for**  **oil­fired storage**  **water heaters.** 

**Figure 16­3**  **shows the**  **oil­fired storage**  **water heaters**  **currently available**  **to the**  **market and**  **the**

**energy­efficiency equations**  **DOE is**  **considering for**  **the rulemaking**  **analysis.**

**12A­29**EnergyFactor Federal 0.75

0.70

0.65

0.60

0.55

0.50

0.45

0 10 20 30 40 50 EL 1

EL 2

EL 3

EL 4

EL 5

EL 6

EL 7

Rated Volume (Gallons)

Figure 16­3 Energy­Efficiency Equations for Oil­Fired Storage Water Heaters

**16.6 Is**  **the slope**  **of the**  **current Federal**  **energy­efficiency equation**  **for oil­fired**  **storage water** 

**heaters representative**  **of the**  **current market?** 

**16.7 Should**  **DOE consider**  **an alternative**  **energy­efficiency equation**  **for oil­fired**  **storage water** 

**heaters?**

**16.8 Currently,**  **the slope**  **for the**  **oil­fired storage**  **water heaters**  **is the**  **same as**  **the slope**  **for the** 

**gas­fired storage**  **water heaters.**  **If DOE**  **is revising**  **the slope**  **for gas­fired**  **storage water**  **heaters as** 

**described above,**  **should DOE**  **consider similarly**  **revising the**  **oil­fired storage**  **water heater**  **slope?**

**Please provide**  **any quantitative**  **data or**  **qualitative reasons**  **behind your**  **preference.**

**12A­30**12A.2 INSTANTANEOUS GAS­FIRED WATER HEATERS MANUFACTURER

IMPACT ANALYSIS INTERVIEW GUIDE

**April 6,**  **2009**

**12A­31 As**  **part of**  **the rulemaking**  **process for**  **amended energy**  **conservation standards**  **for instantaneous** 

**gas­fired water**  **heaters, the**  **Department of**  **Energy (DOE)**  **conducts the**  **manufacturer impact** 

**analysis (MIA).**  **In this**  **analysis, DOE**  **uses publicly**  **available information**  **and information** 

**provided by**  **manufacturers during**  **interviews to**  **assess possible**  **impacts due**  **to amended**  **energy**

**conservation standards**  **on manufacturers.**  **DOE is**  **currently considering**  **8 efficiency**  **levels (EL)** 

**for instantaneous**  **gas­fired water**  **heaters. DOE**  **analyzed one**  **representative input**  **capacity for** 

**instantaneous gas­fired**  **water heaters**  **of 199,000**  **Btu/h.**

Efficiency Levels Under Consideration for Instantaneous Gas­Fired Water Heaters

**Product Class** 

**(representative input** 

**capacity) Efficiency** 

**Metric Baseline** 

**Efficiency**

**Level EL** 

**1 EL** 

**2 EL** 

**3 EL** 

**4 EL** 

**5 EL** 

**6 EL** 

**7 EL** 

**8**

**Instantaneous Gas­Fired** 

**Water Heaters** 

**(199 kBtu/h)**  **Energy**

**Factor (EF)**  **0.62 0.69**  **0.78 0.80**  **0.82 0.84**  **0.85 0.92**  **0.95**

1 KEY ISSUES

**1.4 In**  **general, what**  **are the**  **key issues**  **for your**  **company regarding**  **amended energy** 

**conservation standards**  **for instantaneous**  **gas­fired water**  **heaters and**  **this rulemaking?** 

**1.5 For**  **the issues**  **identified, how**  **significant are**  **they at**  **each listed**  **efficiency level?** 

**1.6 How**  **can we**  **most effectively**  **incorporate these**  **issues in**  **the MIA?** 

2 COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

**DOE is**  **interested in**  **understanding manufacturer**  **impacts at**  **the plant**  **or profit**  **center level** 

**directly pertinent**  **to instantaneous**  **gas­fired water**  **heater 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. Therefore,**  **DOE invites**  **you to**  **provide these**  **details**

**confidentially in**  **your own**  **words to**  **the extent**  **possible and**  **practical. Understanding**  **the**

**organizational setting**  **around the**  **instantaneous gas­fired**  **water heater**  **industry profit**  **center will** 

**help DOE**  **understand the**  **probable future**  **of the**  **instantaneous gas­fired**  **water heater** 

**manufacturing activity**  **with and**  **without amended**  **energy conservation**  **standards.**

**2.1 Do**  **you have**  **a parent**  **company, and/or**  **any subsidiaries**  **relevant to**  **the instantaneous**  **gas**

**12A­32 fired**  **water heater**  **industry?**

**2.2 Do**  **you manufacture**  **any products**  **other than**  **instantaneous gas­fired**  **water heaters?**  **If so,** 

**what other**  **products do**  **you manufacture?** 

**2.3 What**  **percentage of**  **your total**  **manufacturing corresponds**  **to instantaneous**  **gas­fired**

**water heaters?** 

**2.4 Where**  **are your**  **production facilities**  **located, and**  **what type**  **of product**  **is manufactured**  **at**

**each location?**  **Could you**  **provide figures**  **for your**  **company’s manufacturing**  **at each**  **location by** 

**efficiency?**

**2.5 At**  **your manufacturing**  **facilities, would**  **potential instantaneous**  **gas­fired water**  **heater**

**redesigns be**  **difficult to**  **implement? If**  **so, would**  **your company**  **modify the**  **existing facility**  **or**

**develop a**  **new facility?** 

**2.6 What**  **are your**  **employment levels**  **at each**  **of these**  **facilities?**

**2.7 What**  **are your**  **product lines,**  **niches, and**  **relative strengths**  **in the**  **instantaneous gas­fired** 

**water heater**  **market?**

**2.8 What**  **is your**  **company’s approximate**  **market share**  **of the**  **instantaneous gas­fired**  **water**

**heater industry?** 

**2.9 Would**  **you expect**  **your market**  **share to**  **change once**  **amended energy**  **conservation**

**standards become**  **effective?**

**12A­33**3 MANUFACTURER PRODUCTION COSTS AND SELLING PRICES

**DOE estimated**  **the manufacturer**  **production costs**  **of instantaneous**  **gas­fired water**  **heaters. DOE** 

**defines manufacturer**  **production cost**  **as all**  **direct costs**  **associated with**  **manufacturing a**  **product.**

**It includes**  **direct labor,**  **direct materials,**  **and overhead**  **(which includes**  **depreciation costs).**  **The**

**breakdown of**  **manufacturer production**  **cost has**  **implications for**  **the quantitative**  **impacts on** 

**instantaneous gas­fired**  **water heater**  **manufacturers. The**  **per unit**  **production costs**  **are necessary** 

**for DOE**  **to estimate**  **labor expenditures**  **and other**  **cash flow**  **calculations.**

**Manufacturer selling**  **price is**  **the average**  **cost manufacturers**  **charge their**  **first consumers,**  **but**

**does not**  **include costs**  **along distribution**  **channels. The**  **manufacturer selling**  **price includes**  **a per** 

**unit research**  **and development**  **cost; selling,**  **general, and**  **administrative expense;**  **shipping cost;** 

**and profit.**  **For the**  **instantaneous gas­fired**  **MIA, the**  **manufacturer markup**  **is a**  **multiplier applied** 

**to manufacturer**  **production cost**  **to cover**  **the per**  **unit research**  **and development,**  **selling, general,** 

**and administrative**  **expense, shipping**  **costs, and**  **profit.**

**DOE estimated**  **an industry­wide**  **baseline markup**  **of 1.45**  **for instantaneous**  **gas­fired water** 

**heaters. DOE**  **asks a**  **series of**  **questions about**  **the manufacturer**  **markup associated**  **with**

**premium products**  **at higher**  **efficiencies in**  **Section 4.**  **As shown**  **in Equation**  **3­1 below,**  **the**

**manufacturer production**  **cost multiplied**  **by the**  **manufacturer markup**  **would cover**  **all costs**  **in the** 

**manufacturer selling**  **price of**  **baseline products.** 

Equation 3­1. Calculation of Manufacturer Selling Price

**3.1 Is**  **there a**  **significant difference**  **between the**  **baseline markups**  **DOE calculated**  **and your** 

**company’s baseline**  **markups for**  **instantaneous gas­fired**  **water heaters?** 

**3.2 Table**  **3­1 provides**  **DOE’s estimates**  **of the**  **manufacturer production**  **costs and** 

**manufacturer selling**  **prices for**  **instantaneous gas­fired**  **water heaters**  **at each**  **efficiency level** 

**being considered.**  **Could you**  **please provide**  **any comments**  **on the**  **estimated values?** 

**12A­34**Table 3­1 Estimated Manufacturer Production Costs and Manufacturer Selling Prices for

Instantaneous Gas­Fired Water Heaters

**Efficiency**

**Level**

**(Energy**

**Factor) DOE’s** 

**Manufacturer**

**Production Cost** 

**Estimates***

**(2008$) DOE’s** 

**Manufacturer**

**Selling Price** 

**Estimates**

**(2008$) Manufacturer** 

**Comments or** 

**Revised Estimates** 

**Baseline Level** 

**(EF**

**= 0.62)**  **$231 $335** 

**EL 1** 

**(EF**

**= 0.69)**  **$242 $350** 

**EL 2** 

**(EF**

**= 0.78)**  **$278 $403** 

**EL 3** 

**(EF**

**= 0.80)**  **$353 $511** 

**EL 4** 

**(EF**

**= 0.82)**  **$371 $538** 

**EL 5** 

**(EF**

**= 0.84)**  **$390  ** $565****

**EL 6** 

**(EF**

**= 0.85)**  **$399  ** $578****

**EL 7** 

**(EF**

**= 0.92)**  **$661 $959** 

**EL 8** 

**(EF**

**= 0.95)**  **TBD TBD** 

***** **DOE’s manufacturer**  **production cost**  **estimates were**  **developed using**  **a five­year**  **average of**  **raw material** 

**prices (i.e.,**  **spanning 2003**  **to 2007,**  **shown in**  **2008$).**

****** **DOE plans**  **to revise**  **the MPC**  **of EL**  **5 and**  **EL 6**  **to reflect**  **a design**  **associated with**  **near­condensing**

**operation.**

**3.3 Please**  **compare your**  **manufacturer production**  **cost percentages**  **3 to**  **the estimates** 

**tabulated below.**  **The manufacturer**  **production cost**  **breakdown is**  **used to**  **calculate the**  **total cost** 

**of goods**  **sold (COGS)**  **for the**  **industry. Having**  **an accurate**  **estimate of**  **the production**  **costs for** 

**the industry**  **allows DOE**  **to better**  **examine impacts**  **on profitability**  **and employment**  **due to** 

**amended energy**  **conservation standards.**  **Are the**  **different percentages**  **of each**  **cost**

**representative of**  **your company**  **or the**  **instantaneous gas­fired**  **residential water**  **heater industry?** 

**Please explain**  **any differences.** 

**3 The**  **manufacturer production**  **cost percentages**  **shown in**  **Table 3­2**  **are the**  **values that**  **make up**  **COGS. These**  **are**

**percentages of**  **total COGS.** 

**12A­35**Table 3­2 Breakdown of Manufacturer Production Costs for Baseline Instantaneous GasFired Water Heater Residential Water Heaters

**Components of** 

**Manufacturer Production** 

**Costs Estimated**  **Percentage of** 

**Manufacturer Production**  **Cost Your**  **Actual**

**(if different**  **from our**  **estimate)**

**Materials 64.2%** 

**Labor 23.4%** 

**Overhead 9.2%** 

**Depreciation 3.2%** 

4 MARKUPS AND PROFITABILITY

**One of**  **the primary**  **objectives of**  **the MIA**  **is to**  **assess the**  **impact of**  **efficiency levels**  **on industry** 

**profitability. In**  **this section,**  **DOE would**  **like to**  **understand the**  **current markup**  **structure of**  **the**

**industry and**  **how setting**  **an energy**  **conservation standard**  **would impact**  **your company’s**  **markup**

**structure and**  **profitability. As**  **discussed in**  **Section 3,**  **the manufacturer**  **markup is**  **a multiplier** 

**applied to**  **manufacturer production**  **cost to**  **cover per**  **unit research**  **and development,**  **selling,**

**general, and**  **administrative expenses,**  **shipping costs,**  **and profit.**  **The manufacturer**  **production**

**cost multiplied**  **by the**  **manufacturer markup**  **along with**  **shipping costs**  **would cover**  **all costs** 

**involved in**  **manufacturing the**  **product.**

**4.1 Do**  **profit levels**  **currently vary**  **by efficiency**  **level? Please**  **explain why**  **or why**  **not.**

**4.2 Do**  **profit levels**  **vary by**  **input capacity?** 

**4.3 DOE**  **would like**  **to understand**  **how the**  **baseline manufacturer**  **markup changes**  **at higher** 

**efficiency levels.**  **Could you**  **provide your**  **company’s markup**  **for any**  **products that**  **meet the** 

**efficiency levels**  **shown below?** 

**12A­36**Table 4­1 Manufacturer Markups for Instantaneous Gas­fired Water Heaters

**Instantaneous Gas­Fired**  **Water Heaters** 

**(199 kBtu/h**  **Input Capacity)** 

**Efficiency Level** 

**(Energy Factor)**  **Estimated Manufacturer**  **Markup**

**Baseline Level**  **(EF**

**= 0.62)** 

**EL 1**  **(EF**

**= 0.69)** 

**EL 2**  **(EF**

**= 0.78)** 

**EL 3**  **(EF**

**= 0.80)** 

**EL 4**  **(EF**

**= 0.82)** 

**EL 5**  **(EF**

**= 0.84)** 

**EL 6**  **(EF**

**= 0.85)** 

**EL 7**  **(EF**

**= 0.92)** 

**EL 8**  **(EF**

**= 0.95)** 

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

**conservation standard?**  **If so,**  **please explain**  **why.**

5 SHIPMENT PROJECTIONS AND MARKET SHARES

**An amended**  **energy conservation**  **standard can**  **change overall**  **shipments by**  **altering product** 

**attributes, marketing**  **approaches, product**  **availability, and**  **price. The**  **industry revenue** 

**calculations are**  **based on**  **the shipment**  **projections developed**  **by DOE’s**  **shipments model.**  **The**

**shipments model**  **includes forecasts**  **for the**  **base case**  **shipments (i.e.,**  **total industry**  **shipments**

**absent amended**  **energy conservation**  **standards) and**  **the standards**  **case shipments**  **(i.e., total** 

**industry shipments**  **with amended**  **energy conservation**  **standards).**

**5.1 Please**  **compare DOE’s**  **projections of**  **annual industry­wide**  **shipments for**  **instantaneous**

**gas­fired water**  **heaters with**  **your company’s**  **projections of**  **industry­wide shipments.** 

**12A­37**Table 5­1 Annual Industry­Wide Shipment Projections for Instantaneous Gas­fired Water

Heaters Absent Amended Energy Conservation Standards

**2007**

**Total Industry** 

**Wide**

**Shipments 2008** 

**Total Industry** 

**Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2015*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2025 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2035**

**DOE’s Estimate** 

**for Total**  **Industry**

**Shipments**

**(Millions)  ** 0.322** **0.533 1.657**  **1.504 1.697** 

**Manufacturer**

**Feedback**

***** **2015 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for water**  **heaters**

 2007**  **Data was**  **provided by**  **AHRI (March**  **3, 2008)**  **and 2008**  **value is**  **modeled (AHRI**  **plans to**  **submit 2008** 

**shipment data)** 

**5.2 Are**  **the 2007**  **and 2008**  **industry wide­shipments**  **shown in**  **Table 5­1**  **consistent with** 

**historic trends?**  **Do you**  **expect total**  **shipment levels**  **to return**  **to their**  **previous levels**  **(i.e., those** 

**levels prior**  **to 2007)?** 

**5.3 DOE’s**  **shipments analysis**  **estimated industry­wide**  **shipments in**  **2015 would**  **continue to** 

**increase even**  **as amended**  **energy conservation**  **standards become**  **effective due**  **to increased** 

**demand for**  **instantaneous water**  **heaters and**  **voluntary programs.**  **Could you**  **provide any** 

**qualitative information**  **on expected**  **changes in**  **total industry**  **shipments shown**  **in Table**  **5­1?**

6 PRODUCT MIX

**Product mix**  **describes the**  **distribution of**  **current shipments**  **by efficiency**  **level. Changes**  **in the** 

**product mix**  **due to**  **amended energy**  **conservation standards**  **can have**  **a large**  **impact on**  **industry**

**revenues. Having**  **an accurate**  **estimate of**  **the current**  **product mix**  **allows DOE**  **to better**  **estimate**

**how revenues**  **might change**  **due to**  **amended energy**  **conservation standards.** 

**6.1 Does**  **your company**  **offer multiple**  **product lines**  **at different**  **efficiency levels?**  **Could you** 

**provide a**  **description of**  **your company’s**  **product lines**  **and their**  **respective efficiency**  **levels?**

**6.2 Table**  **6­1 shows**  **DOE’s estimate**  **for the**  **current mix**  **of shipments**  **by efficiency**  **today**

**and in**  **2015, the**  **anticipated effective**  **date of**  **amended energy**  **conservation standards.**  **Could you** 

**provide feedback**  **on DOE’s**  **estimates based**  **on your**  **knowledge of**  **the industry?** 

**12A­38**Table 6­1 Percentage of Industry­Wide Shipments by Efficiency Level for Instantaneous

Gas­fired Water Heaters Today and in 2015

**Percentage of**  **Total**

**Shipments at**  **each**

**Efficiency Baseline** 

**Level**

**(EF**

**= 0.62)**  **EL 1** 

**(EF**

**= 0.69)**  **EL 2** 

**( EF** 

**= 0.78)**  **EL 3** 

**(EF**

**= 0.80)**  **EL 4** 

**(EF**

**= 0.82)**  **EL 5** 

**(EF**

**= 0.84)**  **EL 6** 

**(EF**

**= 0.85)**  **EL 7** 

**(EF**

**= 0.92)**  **EL 8** 

**(EF**

**= 0.95)** 

**DOE’s Estimate** 

**(2008) 0.0%**  **0.0% 0.6%**  **13.1% 57.0%**  **14.6% 11.7%**  **2.9% 0.0%** 

**Manufacturer**

**Feedback**

**DOE’s Estimate** 

**(2015) 0.0%**  **0.0% 0.6%**  **12.8% 55.8%**  **14.3% 11.4%**  **4.0% 1.0%** 

**Manufacturer**

**Feedback**

**6.3 Is**  **the projected**  **distribution of**  **efficiencies representative**  **of the**  **instantaneous gas­fired** 

**water heater**  **shipments? Do**  **you expect**  **the product**  **mix to**  **change over**  **time? If**  **so, please** 

**explain why.** 

**6.4 An**  **amended energy**  **conservation standard**  **affects the**  **product mix**  **by eliminating**  **the sale** 

**of products**  **below the**  **minimum efficiency**  **level. DOE**  **assumes that**  **all products**  **that fall**  **below**

**the standard**  **would roll­up**  **to the**  **efficiency level**  **set by**  **an amended**  **energy conservation** 

**standard. DOE**  **assumes the**  **distribution of**  **efficiencies above**  **the efficiency**  **level set**  **by the** 

**energy conservation**  **standard will**  **not change.**  **In other**  **words, those**  **customers already** 

**purchasing more­efficient**  **products will**  **continue to**  **do so**  **irrespective of**  **amended energy** 

**conservation standards.**  **How do**  **you think**  **amended energy**  **conservation standards**  **will impact** 

**the sales**  **of more**  **efficient products?**  **For example,**  **would customers**  **continue to**  **buy products** 

**that exceed**  **the energy**  **conservation standard**  **level? Would**  **your response**  **change at**  **higher**

**efficiency levels?** 

7 FINANCIAL PARAMETERS

**Navigant Consulting,**  **Inc. (NCI)**  **has developed**  **a “strawman”**  **model of**  **the instantaneous**  **gas**

**fired water**  **heaters industry**  **financial performance**  **called the**  **Government Regulatory**  **Impact**

**Model (GRIM)**  **using publicly**  **available data.**  **This section**  **attempts to**  **understand how**  **your**

**company’s financial**  **situation differs**  **from our**  **industry aggregate**  **picture.**

**12A­39 7.1**  **Please compare**  **your financial**  **parameters to**  **the GRIM**  **parameters tabulated**  **below.**

Table 7­1 Financial Parameters for Instantaneous Gas­Fired Water Heaters

Manufacturers

**GRIM Input**  **Definition Industry** 

**Estimated**

**Value Your**  **Actual (if** 

**significantly**

**different from**  **our**

**estimate)**

**Income Tax**  **Rate Corporate**  **effective income**  **tax**

**paid (percentage**  **of earnings** 

**before taxes,**  **EBT) 27.5%** 

**Discount Rate**  **Weighted average**  **cost of**  **capital**

**(inflation­adjusted weighted** 

**average of**  **corporate cost**  **of debt** 

**and return**  **on equity)**  **8.5%**

**Working Capital**  **Current assets**  **less current** 

**liabilities (percentage**  **of**

**revenues) 11.4%** 

**SG&A Selling,**  **general, and** 

**administrative expenses** 

**(percentage of**  **revenues) 20.9%** 

**R&D Research**  **and development** 

**expenses (percentage**  **of**

**revenues) 1.5%** 

**Depreciation Amortization**  **of fixed**  **assets**

**(percentage of**  **revenues) 2.2%** 

**Capital Expenditures**  **Outlay of**  **cash to**  **acquire or** 

**improve capital**  **assets**

**(percentage of**  **revenues, not** 

**including acquisition**  **or sale**  **of**

**business units)**  **2.2%**

**Cost of**  **Goods Sold**  **Includes material,**  **labor,**

**overhead, and**  **depreciation**

**(percentage of**  **revenues) 71.3%** 

**7.2 How**  **would you**  **expect an**  **amended energy**  **conservation standard**  **to impact**  **any of**  **the**

**financial parameters**  **for the**  **industry?**

**12A­40**8 CONVERSION COSTS

**Amended energy**  **conservation standards**  **may cause**  **your company**  **to incur**  **capital and**  **product**

**conversion costs**  **to redesign**  **existing products**  **and make**  **changes to**  **existing production**  **lines to** 

**be compliant**  **with the**  **amended energy**  **conservation standard.**  **Capital conversion**  **costs are**  **one**

**time investments**  **in plant,**  **property, and**  **equipment (PPE)**  **necessitated by**  **an amended**  **energy**

**conservation standard.**  **These may**  **be incremental**  **changes to**  **existing PPE**  **or the**  **replacement of** 

**existing PPE.**  **Replacing existing**  **PPE could**  **strand existing**  **assets before**  **the end**  **of their**  **useful**

**lives. In**  **addition to**  **capital conversion**  **costs, product**  **conversion costs**  **are costs**  **related to** 

**research, product**  **development, testing,**  **marketing and**  **other costs**  **for redesigning**  **products**

**necessitated by**  **an amended**  **energy conservation**  **standard.**

**8.1 What**  **level of**  **conversion costs**  **do you**  **anticipate incurring**  **under the**  **different efficiency** 

**levels DOE**  **is considering?**  **Refer to**  **the tables**  **below to**  **provide your**  **company’s estimates.** 

**Please provide**  **additional qualitative**  **information to**  **help DOE**  **understand the**  **types and**  **nature of** 

**your investments.** 

Table 8­1 Instantaneous Gas­Fired Water Heaters Conversion Costs

**Efficiency**

**Level Instantaneous**  **Gas­Fired Water**  **Heaters**

**(Energy Factor)**  **Capital Conversion**  **Costs**

**(2009$) Product**  **Conversion Costs** 

**(2009$) Stranded**  **Assets**

**(2009$)**

**Baseline Level**  **(EF**

**= 0.62)** 

**EL 1**  **(EF**

**= 0.69)** 

**EL 2**  **(EF**

**= 0.78)** 

**EL 3**  **(EF**

**= 0.80)** 

**EL 4**  **(EF**

**= 0.82)** 

**EL 5**  **(EF**

**= 0.84)** 

**EL 6**  **(EF**

**= 0.85)** 

**EL 7**  **(EF**

**= 0.92)** 

**EL 8**  **(EF**

**= 0.95)** 

9 CUMULATIVE REGULATORY BURDEN

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

**new or**  **revised DOE**  **standards, voluntary**  **standards, and/or**  **other regulatory**  **actions affecting**  **the**

**same product**  **or industry.** 

**9.1 Are**  **there other**  **recent or**  **impending regulations**  **that instantaneous**  **gas­fired water**  **heater**

**manufacturers face**  **(from DOE**  **or otherwise)?**  **If so,**  **could you**  **identify the**  **regulation and**  **the**

**corresponding possible**  **effective dates**  **for those**  **regulations? Below**  **is a**  **list of**  **regulations and** 

**estimated effective**  **dates that**  **could possibly**  **affect manufacturers**  **of instantaneous**  **gas­fired**

**12A­41 water**  **heater. Please**  **provide any**  **comments on**  **the listed**  **regulations in**  **addition to**  **other**

**regulations.**

Table 9­1 Other Regulations Identified by DOE

**Regulation Estimated**  **or Actual**  **Effective**

**Date(s) Comments** 

**DOE’s Amended**  **Energy Conservation** 

**Standards for**  **Other Products** 

**International Energy­Efficiency**  **Standards**

**State Emission**  **Requirements and**  **Other**

**State Regulations** 

**South Coast**  **Air Quality**  **Management**

**District (SCAQMD)**  **Ultra­Low NOx** 

**Requirements**

**Uniform Plumbing,**  **Building, and**  **Safety**

**Codes**

**9.2 What**  **level of**  **expense are**  **you expecting**  **to incur**  **as a**  **result of**  **these regulations?** 

**9.3 Under**  **what circumstances**  **would you**  **be able**  **to coordinate**  **any expenditures**  **related to** 

**these other**  **regulations with**  **an amended**  **energy conservation**  **standard, thereby**  **lessening the** 

**cumulative burden?** 

10 DIRECT EMPLOYMENT IMPACT ASSESSMENT

**The impact**  **of amended**  **energy conservation**  **standards on**  **employment is**  **an important** 

**consideration in**  **the rulemaking**  **process. This**  **section of**  **the interview**  **guide seeks**  **to explore** 

**current trends**  **in instantaneous**  **gas­fired water**  **heater production**  **employment and**  **solicit**

**manufacturer views**  **on how**  **domestic employment**  **patterns might**  **be affected**  **by amended**  **energy**

**conservation standards.** 

**10.1 Would**  **your domestic**  **employment levels**  **be expected**  **to change**  **significantly under** 

**amended energy**  **conservation standards?**  **If so,**  **please explain**  **how they**  **would change**  **if higher** 

**efficiency levels**  **are required.** 

**10.2 Would**  **the workforce**  **skills necessary**  **under amended**  **energy conservation**  **standards**

**require extensive**  **retraining or**  **replacement of**  **employees at**  **your manufacturing**  **facilities?**

**12A­42 10.3**  **Would amended**  **energy conservation**  **standards require**  **extensive retraining**  **of your** 

**service/field technicians?**  **If so,**  **could you**  **expand on**  **how your**  **service infrastructure**  **would be** 

**impacted in**  **general as**  **a result**  **of amended**  **energy conservation**  **standards?**

11 EXPORTS / FOREIGN COMPETITION / OUTSOURCING

**Disparity between**  **domestic and**  **foreign energy**  **conservation standards**  **could impact**  **exports or** 

**imports. Labor**  **content and**  **material changes,**  **resulting from**  **amended energy**  **conservation**

**standards, may**  **impact sourcing**  **decisions.**

**11.1 What**  **percentage of**  **your company’s**  **instantaneous gas­fired**  **water heater**  **sales is** 

**domestic? Absent**  **amended energy**  **conservation standards,**  **are production**  **facilities being** 

**relocated to**  **foreign countries?**  **Would amended**  **energy conservation**  **standards impact**  **your**

**domestic vs.**  **foreign manufacturing**  **decision?**

**11.2 If**  **applicable, to**  **what foreign**  **countries or**  **regions do**  **you export**  **your products?**  **What**

**percentage of**  **sales can**  **be attributed**  **to each?** 

**11.3 Would**  **an amended**  **energy conservation**  **standard be**  **expected to**  **affect your**  **export sales?** 

**What would**  **the resulting**  **impact be,**  **if any,**  **on your**  **manufacturing operations**  **and profitability?** 

**11.4 Are**  **your foreign**  **exports affected**  **by amended**  **energy conservation**  **standards in**  **other**

**countries?**

**11.5 What**  **percentage of**  **the U.S.**  **market for**  **instantaneous gas­fired**  **water heater**  **has been** 

**captured by**  **foreign competition?**  **Would amended**  **energy conservation**  **standards have**  **an**

**impact on**  **foreign competition?** 

**11.6 What**  **is your**  **outlook for**  **the future**  **operation of**  **your company**  **and the**  **instantaneous gas** 

**fired water**  **heater industry**  **with regard**  **to exports?** 

**12A­43**12 CONSOLIDATION

**Amended energy**  **conservation standards**  **can alter**  **the competitive**  **dynamics of**  **the market.**  **This**

**can include**  **prompting companies**  **to enter**  **or exit**  **the market,**  **or to**  **merge. DOE**  **and the** 

**Department of**  **Justice are**  **both interested**  **in any**  **potential reduction**  **in competition**  **that would** 

**result from**  **an amended**  **energy conservation**  **standard.**

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

**12.2 In**  **the absence**  **of amended**  **energy conservation**  **standards, do**  **you expect**  **any further** 

**industry consolidation?**  **Please describe**  **your expectations.** 

**12.3 How**  **would amended**  **energy conservation**  **standards affect**  **your ability**  **to compete?** 

13 IMPACTS ON SMALL BUSINESS

**13.1 The**  **Small Business**  **Association (SBA)**  **denotes a**  **small business**  **in the**  **instantaneous gas** 

**fired water**  **heater water**  **heater industry**  **as having**  **less than**  **500 employees**  **2**

**. By**  **this definition,** 

**is your**  **company considered**  **a small**  **business?**

**13.2 Are**  **there any**  **reasons that**  **a small**  **business might**  **be at**  **a disadvantage**  **relative to**  **a larger** 

**business under**  **amended energy**  **conservation standards?**  **Please consider**  **such factors**  **as**

**technical expertise,**  **access to**  **capital, bulk**  **purchasing power**  **for materials/components,** 

**engineering resources,**  **and any**  **other relevant**  **issues.**

**13.3 Are**  **there any**  **niche manufacturers,**  **small businesses,**  **and/or component**  **manufacturers**

**for which**  **the adoption**  **of amended**  **energy conservation**  **standards would**  **have a**  **severe impact?** 

**2 DOE**  **uses the**  **small business**  **size standards**  **published on**  **August 22,**  **2008, as**  **amended, by**  **the Small**  **Business**

**Administration (SBA)**  **to determine**  **whether a**  **company is**  **a small**  **business. To**  **be categorized**  **as a**  **small business,**  **a**

**water heater**  **manufacturer and**  **its affiliates**  **may employ**  **a maximum**  **of 500**  **employees. The**  **500 employee** 

**threshold includes**  **all employees**  **in a**  **business’s parent**  **company and**  **any other**  **subsidiaries.**

**12A­44 If**  **so, would**  **manufacturers of**  **these products**  **have different**  **incremental impacts**  **from**

**implemented amended**  **energy conservation**  **standards than**  **from the**  **rest of**  **the industry?** 

**12A­45**12A.3 DIRECT HEATING EQUIPMENT MANUFACTURER IMPACT ANALYSIS

GUIDE

**April 6,**  **2009**

**12A­46 As**  **part of**  **the rulemaking**  **process for**  **amended energy**  **conservation standards**  **for direct**  **heating**

**equipment, the**  **Department of**  **Energy (DOE)**  **conducts the**  **manufacturer impact**  **analysis (MIA).** 

**In this**  **analysis, DOE**  **uses publicly**  **available information**  **and information**  **provided by** 

**manufacturers during**  **interviews to**  **assess possible**  **impacts on**  **manufacturers due**  **to amended** 

**energy conservation**  **standards. DOE**  **is currently**  **considering 4**  **efficiency levels**  **(ELs) for**  **gas**

**wall fan­type**  **units and**  **gas wall**  **gravity­type units,**  **1 EL**  **for gas**  **floor­type units,**  **and 5**  **ELs for** 

**gas room­type**  **units**

**. In**  **responding to**  **this questionnaire,**  **please refer**  **to the**  **efficiency levels**  **in**

**the table**  **below. DOE**  **analyzed one**  **representative input**  **capacity range**  **for each**  **product class,** 

**including over**  **42,000 Btu/H**  **for gas**  **fan­type units,**  **27,000**

**– 46,000**  **Btu/H for**  **gas wall**  **gravity**

**type units,**  **over 37,000**  **Btu/H for**  **gas floor­type**  **units, and**  **27,000**

**– 46,000**  **for gas**  **room­type**

**units.**

Efficiency Levels under Consideration for Direct Heating Equipment

**Product Class**  **(Representative**

**Input Capacity)**  **Efficiency**

**Metric Baseline** 

**Efficiency**

**Level EL**  **1 EL**  **2 EL**  **3 EL**  **4 EL**  **5**

**Gas Wall**  **Fan­Type Units**  **with**

**Input Capacity**  **Over 42,000** 

**Btu/h Annual**  **Fuel**

**Utilization**

**Efficiency**

**(AFUE) 74**  **75 76**  **77 80** 

**Gas Wall**  **Gravity­Type Units** 

**with Input**  **Capacity Between** 

**27,000 Btu/h**  **and 46,000**  **Btu/h**

**Input Capacity**  **Annual Fuel** 

**Utilization**

**Efficiency**

**(AFUE) 64**  **66 68**  **71 72** 

**Gas Floor­Type**  **Units with** 

**Input Capacity**  **Over 37,000** 

**Btu/h Annual**  **Fuel**

**Utilization**

**Efficiency**

**(AFUE) 57**  **58**

**Gas Room­Type**  **Units with** 

**Input Capacity**  **Between 27,000** 

**Btu/h and**  **46,000 Btu/h**  **Annual Fuel** 

**Utilization**

**Efficiency**

**(AFUE) 64**  **65 66**  **67 68**  **83**

14 KEY ISSUES

**1.7 In**  **general, what**  **are the**  **key issues**  **for your**  **company regarding**  **amended energy** 

**conservation standards**  **for direct**  **heating equipment**  **and this**  **rulemaking?**

**1.8 For**  **the issues**  **identified, how**  **significant are**  **they at**  **each listed**  **efficiency level?** 

**1.9 How**  **can we**  **most effectively**  **incorporate these**  **issues in**  **the MIA?** 

**12A­47**15 COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

**DOE is**  **interested in**  **understanding manufacturer**  **impacts at**  **the plant**  **or profit**  **center level** 

**directly pertinent**  **to direct**  **heating equipment**  **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.**  **Therefore, DOE**  **invites you**  **to provide**  **these details**  **confidentially in**  **your**

**own words**  **to the**  **extent possible**  **and practical.**  **Understanding the**  **organizational setting**  **around**

**the direct**  **heating equipment**  **industry profit**  **center will**  **help DOE**  **understand the**  **probable future** 

**of the**  **manufacturing activity**  **with and**  **without amended**  **energy conservation**  **standards.**

**15.1 Do**  **you have**  **a parent**  **company, and/or**  **any subsidiaries**  **relevant to**  **the direct**  **heating**

**equipment industry?** 

**15.2 Do**  **you manufacture**  **any products**  **other than**  **direct heating**  **equipment? If**  **so, what**  **other**

**products do**  **you manufacture?** 

**15.3 What**  **percentage of**  **your total**  **manufacturing corresponds**  **to gas**  **wall fan­type**  **units, gas** 

**wall gravity­type**  **units, gas**  **floor­type units,**  **and gas**  **room­type units?** 

**15.4 Where**  **are your**  **production facilities**  **located, and**  **what type**  **of product**  **is manufactured**  **at**

**each location?**  **Could you**  **provide figures**  **for your**  **company’s manufacturing**  **at each**  **location by** 

**product type**  **(i.e., gas**  **wall fan­type**  **units, gas**  **wall gravity­type**  **units, gas**  **floor­type units,**  **and**

**gas room­type**  **units), input**  **capacity, and**  **efficiency?**

**15.5 At**  **your manufacturing**  **facilities, would**  **potential direct**  **heating equipment**  **redesigns be** 

**difficult to**  **implement? If**  **so, would**  **your company**  **modify the**  **existing facility**  **or develop**  **a new** 

**facility?**

**15.6 What**  **are your**  **employment levels**  **at each**  **of these**  **facilities?**

**12A­48 15.7**  **What are**  **your product**  **lines, niches,**  **and relative**  **strengths in**  **the direct**  **heating equipment** 

**market?**

**15.8 What**  **is your**  **company’s approximate**  **market share**  **for gas**  **wall fan­type**  **units, gas**  **wall**

**gravity­type units,**  **gas floor­type**  **units, and**  **gas room­type**  **units?**

**15.9 Would**  **you expect**  **your market**  **share to**  **change once**  **amended energy**  **conservation**

**standards become**  **effective?**

16 MANUFACTURER PRODUCTION COSTS AND SELLING PRICES

**DOE estimated**  **the manufacturer**  **production costs**  **of four­types**  **of direct**  **heating equipment.** 

**DOE defines**  **manufacturer production**  **cost as**  **all direct**  **costs associated**  **with manufacturing**  **a**

**product. It**  **includes direct**  **labor, direct**  **materials, and**  **overhead (which**  **includes depreciation** 

**costs). The**  **breakdown of**  **manufacturer production**  **cost has**  **implications for**  **the quantitative** 

**impacts on**  **direct heating**  **equipment manufacturers.**  **The per**  **unit production**  **costs are**  **necessary**

**for DOE**  **to estimate**  **labor expenditures**  **and other**  **cash flow**  **calculations.**

**Manufacturer selling**  **price is**  **the average**  **cost manufacturers**  **charge their**  **first consumers,**  **but**

**does not**  **include costs**  **along distribution**  **channels. The**  **manufacturer selling**  **price includes**  **a per** 

**unit research**  **and development**  **cost; selling,**  **general, and**  **administrative expense;**  **shipping cost;** 

**and profit.**  **The manufacturer**  **markup is**  **a multiplier**  **applied to**  **manufacturer production**  **cost to** 

**cover the**  **per unit**  **research and**  **development, selling,**  **general, and**  **administrative expense,** 

**shipping, and**  **profit.**

**For its**  **preliminary analysis,**  **DOE estimated**  **an industry­wide**  **markup of**  **1.38 for**  **direct heating** 

**equipment at**  **baseline efficiency**  **levels. DOE**  **asks a**  **series of**  **questions about**  **markups at**  **higher**

**efficiencies in**  **section 4.**  **As shown**  **in Equation**  **3­1 below,**  **the manufacturer**  **production cost** 

**multiplied by**  **the manufacturer**  **markup would**  **cover all**  **costs in**  **the manufacturer**  **selling price**  **of**

**baseline products.** 

Equation 16­1. Calculation of Manufacturer Selling Price

**16.1 Is**  **there a**  **significant difference**  **between the**  **1.38 baseline**  **markup DOE**  **calculated and** 

**your company’s**  **baseline markup?** 

**12A­49 16.2**  **Table 3­1**  **through Table**  **16­4 provide**  **DOE’s estimates**  **of the**  **manufacturer production** 

**costs and**  **manufacturer selling**  **prices for**  **direct heating**  **equipment at**  **the representative**  **input**

**capacity and**  **each efficiency**  **level being**  **considered. Could**  **you please**  **provide any**  **comments on** 

**the estimated**  **values?**

Table 16­1 Estimated Manufacturer Production Costs and Manufacturer Selling Prices for

Gas Wall Fan­Type Units with Input Capacity Over 42,000 Btu/h

**Efficiency Level** 

**(Annual Fuel** 

**Utilization**

**Efficiency) DOE’s** 

**Manufacturer**

**Production Cost** 

**Estimates***

**(2008$) DOE’s** 

**Manufacturer**

**Selling Price** 

**Estimates**

**(2008$) Manufacturer** 

**Comments or** 

**Revised Estimates** 

**Baseline Level** 

**(AFUE**

**= 74)**  **$358 $494** 

**EL 1** 

**(AFUE**

**= 75)**  **$374 $516** 

**EL 2** 

**(AFUE**

**= 76)**  **$388 $535** 

**EL 3** 

**(AFUE**

**= 77)**  **$408 $563** 

**EL 4** 

**(AFUE**

**= 80)**  **$466 $643** 

***** **DOE’s manufacturer**  **production cost**  **estimates were**  **developed using**  **a five­year**  **average of**  **raw material** 

**prices spanning**  **2004 to**  **2008.**

Table 16­2 Estimated Manufacturer Production Costs and Manufacturer Selling Prices for

Gas Wall Gravity­Type Units with Input Capacity Between 27,000 Btu/h and 46,000 Btu/h

**Efficiency**

**Level**

**(Annual Fuel** 

**Utilization**

**Efficiency) DOE’s** 

**Manufacturer**

**Production Cost** 

**Estimates***

**(2008$) DOE’s** 

**Manufacturer**

**Selling Price** 

**Estimates**

**(2008$) Manufacturer** 

**Comments or** 

**Revised Estimates** 

**Baseline Level** 

**(AFUE**

**= 64)**  **$199 $275** 

**EL 1** 

**(AFUE**

**= 66)**  **$226 $312** 

**EL 2** 

**(AFUE**

**= 68)**  **$250 $345** 

**EL 3** 

**(AFUE**

**= 71)**  **$289 $399** 

**EL 4** 

**(AFUE**

**= 72)**  **$299 $413** 

***** **DOE’s manufacturer**  **production cost**  **estimates were**  **developed using**  **a five­year**  **average of**  **raw material** 

**prices spanning**  **2004 to**  **2008.**

**12A­50**Table 16­3 Estimated Manufacturer Production Costs and Manufacturer Selling Prices for

Gas Floor­Type Units with Input Capacity Over 37,000 Btu/h

**Efficiency DOE’s**  **DOE’s Manufacturer** 

**Level Manufacturer**  **Manufacturer Comments**  **or**

**(Annual Fuel**  **Production Cost**  **Selling Price**  **Revised Estimates** 

**Utilization Estimates** * **Estimates**

**Efficiency) (2008$)**  **(2008$)**

**Baseline Level** 

**(AFUE**

**= 57)**  **$353 $487** 

**EL 1** 

**(AFUE**

**= 58)**  **$377 $520** 

***** **DOE’s manufacturer**  **production cost**  **estimates were**  **developed using**  **a five­year**  **average of**  **raw material** 

**prices spanning**  **2004 to**  **2008.**

Table 16­4 Estimated Manufacturer Production Costs and Manufacturer Selling Prices for

Gas Room­Type Units with Input Capacity Between 27,000 Btu/h and 46,000 Btu/h

**Efficiency**

**Level**

**(Annual Fuel** 

**Utilization**

**Efficiency) DOE’s** 

**Manufacturer**

**Production Cost** 

**Estimates***

**(2008$) DOE’s** 

**Manufacturer**

**Selling Price** 

**Estimates**

**(2008$) Manufacturer** 

**Comments or** 

**Revised Estimates** 

**Baseline Level** 

**(AFUE**

**= 64)**  **$226 $312** 

**EL 1** 

**(AFUE**

**= 65)**  **$241 $333** 

**EL 2** 

**(AFUE**

**= 66)**  **$257 $355** 

**EL 3** 

**(AFUE**

**= 67)**  **$269 $371** 

**EL 4** 

**(AFUE**

**= 68)**  **$279 $358** 

**EL 5** 

**(AFUE**

**= 83)**  **$382 $527** 

***** **DOE’s manufacturer**  **production cost**  **estimates were**  **developed using**  **a five­year**  **average of**  **raw material** 

**prices spanning**  **2004 to**  **2008.**

**16.3 Please**  **compare your**  **manufacturer production**  **cost percentages**  **4 to**  **the estimates** 

**tabulated below.**  **The manufacturer**  **production cost**  **breakdown is**  **used to**  **calculate the**  **total cost** 

**of goods**  **sold (COGS)**  **for the**  **industry. Having**  **an accurate**  **estimate of**  **the production**  **costs for** 

**the industry**  **allows DOE**  **to better**  **examine impacts**  **on profitability**  **and employment**  **due to** 

**amended energy**  **conservation standards.**  **Are the**  **different percentages**  **of each**  **cost representative** 

**of your**  **company or**  **the direct**  **heating equipment**  **industry? Please**  **explain any**  **differences.**

**4 The**  **manufacture production**  **cost percentages**  **shown in**  **Table 16­5**  **through Table**  **16­8 are**  **the values**  **that make**  **up**

**COGS. These**  **are percentages**  **of total**  **COGS.**

**12A­51**Table 16­5 Breakdown of Manufacturer Production Costs for Baseline Gas Wall Fan­Type

Units with Input Capacity Over 42,000 Btu/h

**Components of** 

**Manufacturer Production** 

**Cost DOE’s**  **Estimated Percentage**  **of**

**Manufacturer Production**  **Cost Manufacturer**  **Feedback**

**Materials 48.8%** 

**Labor 24.1%** 

**Overhead 11.4%** 

**Depreciation 15.6%** 

Table 16­6 Breakdown of Manufacturer Production Costs for Baseline Gas Wall GravityType Units with Input Capacity Between 27,000 Btu/h and 46,000 Btu/h

**Components of** 

**Manufacturer Production** 

**Cost DOE’s**  **Estimated Percentage**  **of**

**Manufacturer Production**  **Cost Manufacturer**  **Feedback**

**Materials 52.1%** 

**Labor 17.3%** 

**Overhead 12.0%** 

**Depreciation 18.5%** 

Table 16­7 Breakdown of Manufacturer Production Costs for Baseline Gas Floor­Type

Units with Input Capacity Over 37,000 Btu/h

**Components of** 

**Manufacturer Production** 

**Cost DOE’s**  **Estimated Percentage**  **of**

**Manufacturer Production**  **Cost Manufacturer**  **Feedback**

**Materials 48.1%** 

**Labor 28.9%** 

**Overhead 9.9%** 

**Depreciation 13.0%** 

Table 16­8 Breakdown of Manufacturer Production Costs for Baseline Gas Room­Type

Units with Input Capacity Between 27,000 Btu/h and 46,000 Btu/h

**Components of** 

**Manufacturer Production** 

**Cost DOE’s**  **Estimated Percentage**  **of**

**Manufacturer Production**  **Cost Manufacturer**  **Feedback**

**Materials 48.7%** 

**Labor 19.3%** 

**Overhead 13.1%** 

**Depreciation 18.8%** 

**12A­52**17 MARKUPS AND PROFITABILITY

**One of**  **the primary**  **objectives of**  **the MIA**  **is to**  **assess the**  **impact of**  **amended energy** 

**conservation standards**  **on industry**  **profitability. In**  **this section,**  **DOE would**  **like to**  **understand**

**the current**  **markup structure**  **of the**  **industry and**  **how setting**  **an amended**  **energy conservation** 

**standard would**  **impact your**  **company’s markup**  **structure and**  **profitability. As**  **discussed in** 

**Section 3,**  **the manufacturer**  **markup is**  **a multiplier**  **applied to**  **manufacturer production**  **cost to** 

**cover per**  **unit research**  **and development,**  **selling, general,**  **and administrative**  **expenses, shipping** 

**costs, and**  **profit.**

**17.1 Do**  **profit levels**  **currently vary**  **by product**  **class? Do**  **profit levels**  **vary by**  **efficiency**

**level? Please**  **explain why**  **or why**  **not.**

**17.2 Within**  **each product**  **class, do**  **profit levels**  **vary by**  **input capacity?** 

**17.3 DOE**  **would like**  **to understand**  **how the**  **baseline manufacturer**  **markup changes**  **at higher** 

**efficiency levels.**  **Could you**  **provide your**  **company’s markup**  **for any**  **products that**  **meet the** 

**efficiency levels**  **shown below?** 

Table 17­1 Manufacturer Markups for Gas Wall Fan­Type Units with Input Capacity Over

42,000 Btu/h

**Gas Wall**  **Fan­Type Units**  **with Input** 

**Capacity Over**  **42,000 Btu/h** 

**Efficiency Level** 

**(Annual Fuel**  **Utilization Efficiency)**  **Estimated Manufacturer**  **Markup**

**Baseline (AFUE** 

**= 74)** 

**EL 1**  **(AFUE**

**= 75)** 

**EL 2**  **(AFUE**

**= 76)** 

**EL 3**  **(AFUE**

**= 77)** 

**EL 4**  **(AFUE**

**= 80)** 

**12A­53**Table 17­2 Manufacturer Markups for Gas Wall Gravity­Type Units with Input Capacity

Between 27,000 Btu/h and 46,000 Btu/h

**Gas Wall**  **Gravity­Type Units**  **with Input** 

**Capacity Between**  **27,000 Btu/h**  **and**

**46,000 Btu/h** 

**Efficiency Level** 

**(Annual Fuel**  **Utilization Efficiency)**  **Estimated Manufacturer**  **Markup**

**Baseline (AFUE** 

**= 64)** 

**EL 1**  **(AFUE**

**= 66)** 

**EL 2**  **(AFUE**

**= 68)** 

**EL 3**  **(AFUE**

**= 71)** 

**EL 4**  **(AFUE**

**= 72)** 

Table 17­3 Manufacturer Markups for Gas Floor­Type Units with Input Capacity Over

37,000 Btu/h

**Gas Floor­Type**  **Units with**  **Input Capacity** 

**Over 37,000**  **Btu/h)**

**Efficiency Level** 

**(Annual Fuel**  **Utilization**

**Efficiency) Estimated**  **Manufacturer Markup** 

**Baseline (AFUE** 

**= 57)** 

**EL 1**  **(AFUE**

**= 58)** 

Table 17­4 Manufacturer Markups for Gas Room­Type Units with Input Capacity

Between 27,000 Btu/h and 46,000 Btu/h

**Gas Room­Type**  **Units with**  **Input Capacity**  **Between 27,000** 

**Btu/h and**  **46,000 Btu/h** 

**Efficiency Level** 

**(Annual Fuel**  **Utilization Efficiency)**  **Estimated Manufacturer**  **Markup**

**Baseline (AFUE** 

**= 64)** 

**EL 1**  **(AFUE**

**= 65)** 

**EL 2**  **(AFUE**

**= 66)** 

**EL 3**  **(AFUE**

**= 67)** 

**EL 4**  **(AFUE**

**= 68)** 

**EL 5**  **(AFUE**

**= 83)** 

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

**conservation standard?**  **If so,**  **please explain**  **why.**

18 SHIPMENT PROJECTIONS AND MARKET SHARES

**An amended**  **energy conservation**  **standard can**  **change overall**  **shipments by**  **altering product** 

**attributes, marketing**  **approaches, product**  **availability, and**  **price. The**  **industry revenue** 

**calculations are**  **based on**  **the shipment**  **projections developed**  **by DOE’s**  **shipments model.**  **The**

**shipments model**  **includes forecasts**  **for the**  **base case**  **shipments (i.e.,**  **total industry**  **shipments**

**12A­54 absent**  **amended energy**  **conservation standards)**  **and the**  **standards case**  **shipments (i.e.,**  **total**

**industry shipments**  **with amended**  **energy conservation**  **standards).**

**18.1 Please**  **compare DOE’s**  **projections of**  **annual industry­wide**  **shipments for**  **direct heating** 

**equipment with**  **your company’s**  **projections of**  **industry­wide shipments.** 

Table 18­1 Annual Industry­Wide Shipment Projections for Gas Wall Fan­Type Units with

Input Capacity Over 42,000 Btu/h Absent Amended Energy Conservation Standards

**2007**

**Total**

**Industry**

**Wide**

**Shipments 2008** 

**Total**

**Industry**

**Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2013*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2023 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2033**

**DOE’s Estimate**  **for**

**Total Industry** 

**Shipments**

**(Millions)  ** 0.037** **0.040 0.050**  **0.071 0.092** 

**Manufacturer**

**Feedback**

***** **2013 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for direct**  **heating equipment.** 

****** **For gas**  **wall fan­type**  **units, 2007**  **and 2008**  **values are**  **based on**  **data provided**  **by AHRI**  **(March and**  **May 2008)** 

Table 18­2 Annual Industry­Wide Shipment Projections for Gas Wall Gravity­Type Units

with Input Capacity Between 27,000 Btu/h and 46,000 Btu/h Absent Amended Energy

Conservation Standards

**2007**

**Total**

**Industry­Wide**

**Shipments 2008** 

**Total**

**Industry­Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2013*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2023 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2033**

**DOE’s Estimate** 

**for Total**  **Industry**

**Shipments**

**(Millions)  ** 0.108** **0.106 0.096**  **0.074 0.053** 

**Manufacturer**

**Feedback**

***** **2013 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for direct**  **heating equipment.** 

****** **For gas**  **gravity fan­type**  **units, 2007**  **and 2008**  **values are**  **based on**  **data provided**  **by AHRI**  **(March and**  **May**

**2008).**

**12A­55**Table 18­3 Annual Industry­Wide Shipment Projections for Gas Floor­Type Units with

Input Capacity Over 37,000 Btu/h Absent Amended Energy Conservation Standards

**2007**

**Total**

**Industry­Wide**

**Shipments 2008** 

**Total**

**Industry­Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2013*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2023 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2033**

**DOE’s Estimate** 

**for Total**  **Industry**

**Shipments**

**(Millions)  ** 0.003** **0.003 0.002**  **0.001 0.000** 

**Manufacturer**

**Feedback**

***** **2013 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for direct**  **heating equipment.** 

****** **For gas**  **floor­type units**  **2007 Data**  **provided by**  **AHRI (March**  **3, 2008).**  **2008 values**  **are based**  **on DOE** 

**projections.**

Table 18­4 Annual Industry­Wide Shipment Projections for Gas Room­Type Units with

Input Capacity Between 27,000 Btu/h and 46,000 Btu/h Absent Amended Energy

Conservation Standards

**2007**

**Total**

**Industry­Wide**

**Shipments 2008** 

**Total**

**Industry­Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2013*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2023 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2033**

**DOE’s Estimate** 

**for Total**  **Industry**

**Shipments**

**(Millions)  ** 0.021** **0.021 0.021**  **0.021 0.021** 

**Manufacturer**

**Feedback**

***** **2013 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for direct**  **heating equipment.** 

****** **For gas**  **room­type units**  **2007 and**  **2008 values**  **are based**  **on data**  **provided by**  **AHRI (March**  **and May**  **2008)**

**18.2 Are**  **the 2007**  **and 2008**  **industry wide­shipments**  **shown in**  **Table 5­1**  **through Table**  **18­4**

**consistent with**  **historic trends?**  **Do you**  **expect total**  **shipment levels**  **to return**  **to their**  **previous**

**levels (i.e.,**  **those levels**  **prior to**  **2007)?**

**18.3 DOE’s**  **shipments analysis**  **estimates industry­wide**  **shipments in**  **2015 would**  **remain at** 

**their current**  **levels irrespective**  **of higher**  **standard levels**  **(i.e., industry­wide**  **shipments remain** 

**constant regardless**  **of the**  **standard level**  **set by**  **DOE). Could**  **you provide**  **any qualitative** 

**information on**  **expected changes**  **in total**  **industry shipments**  **shown in**  **Table 5­1**  **through Table** 

**18­4?**

**12A­56**19 PRODUCT MIX

**Product mix**  **describes the**  **distribution of**  **current shipments**  **by efficiency**  **level. Changes**  **in the** 

**product mix**  **due to**  **amended energy**  **conservation standards**  **can have**  **a large**  **impact on**  **industry**

**revenues. Having**  **an accurate**  **estimate of**  **the current**  **product mix**  **allows DOE**  **to better**  **estimate**

**how revenues**  **might change**  **due to**  **amended energy**  **conservation standards.** 

**19.1 Does**  **your company**  **offer multiple**  **product lines**  **at different**  **efficiency levels?**  **Could you** 

**provide a**  **description of**  **your company’s**  **product lines**  **and their**  **respective efficiency**  **levels?**

**19.2 Table**  **6­1 through**  **Table 19­4**  **show DOE’s**  **estimate for**  **the current**  **mix of**  **shipments by** 

**efficiency today**  **and in**  **2013, the**  **anticipated effective**  **date of**  **amended energy**  **conservation**

**standards. Could**  **you provide**  **feedback on**  **DOE’s estimates**  **based on**  **your knowledge**  **of the** 

**industry?**

Table 19­1 Percentage of Industry­Wide Shipments by Efficiency Level for Gas Wall FanType Units with Input Capacity Over 42,000 Btu/h Today and in 2013

**Percentage of**  **Total**

**Shipments at**  **Each**

**Efficiency Baseline** 

**(AFUE**

**= 74)**  **EL 1** 

**(AFUE**

**= 75)**  **El 2** 

**(AFUE**

**= 76)**  **EL 3** 

**(AFUE**

**= 77)**  **EL 4** 

**(AFUE**

**= 80)** 

**DOE’s Estimate**  **(2008) 48%**  **12% 19%**  **19% 2%** 

**Manufacturer Feedback** 

**DOE’s Estimate**  **(2013) 48%**  **12% 19%**  **19% 2%** 

**Manufacturer Feedback** 

**12A­57**Table 19­2 Percentage of Industry­Wide Shipments by Efficiency Level for Gas Wall

Gravity­Type Units with Input Capacity Between 27,000 Btu/h and 46,000 Btu/h Today

and in 2013

**Percentage of** 

**Total Shipments** 

**at Each** 

**Efficiency Baseline** 

**(AFUE**

**= 64)**  **EL 1** 

**(AFUE**

**= 66)**  **EL 2** 

**(AFUE**

**= 68)**  **EL 3** 

**(AFUE**

**= 71)**  **EL 4** 

**(AFUE**

**= 72)** 

**DOE’s Estimate** 

**(2008) 45%**  **20% 35%**  **0% 0%** 

**Manufacturer**

**Feedback**

**DOE’s Estimate** 

**(2013) 45%**  **20% 35%**  **0% 0%** 

**Manufacturer**

**Feedback**

Table 19­3 Percentage of Industry­Wide Shipments by Efficiency Level for Gas Floor­Type

Units with Input Capacity Over 37,000 Btu/h Today and in 2013

**Percentage of**  **Total**

**Shipments at**  **each**

**Efficiency Baseline** 

**(AFUE**

**= 57)**  **EL 1** 

**(AFUE**

**= 58)** 

**DOE’s Estimate**  **(2008) 22%**  **78%**

**Manufacturer Feedback** 

**DOE’s Estimate**  **(2013) 22%**  **78%**

**Manufacturer Feedback** 

Table 19­4 Percentage of Industry­Wide Shipments by Efficiency Level for Gas RoomType Units with Input Capacity Between 27,000 Btu/h and 46,000 Btu/h Absent Amended

Energy Conservation Standards Today and in 2013

**Percentage of** 

**Total Shipments** 

**at Each** 

**Efficiency Baseline** 

**(AFUE**

**= 64)**  **EL 1** 

**(AFUE**

**= 65)**  **EL 2** 

**(AFUE**

**= 66)**  **EL 3** 

**(AFUE**

**= 67)**  **EL 4** 

**(AFUE**

**= 68)**  **EL 5** 

**(AFUE**

**= 83)** 

**DOE’s Estimate** 

**(2008) 20%**  **40% 40%**  **0% 0%**  **0%**

**Manufacturer**

**Feedback**

**DOE’s Estimate** 

**(2013) 20%**  **40% 40%**  **0% 0%**  **0%**

**Manufacturer**

**Feedback**

**12A­58 19.3**  **Are the**  **projected distributions**  **of efficiencies**  **representative of**  **direct heating**  **equipment**

**shipments by**  **product class?**  **Do you**  **expect the**  **product mix**  **to change**  **over time?**  **If so,**  **please**

**explain why.** 

**19.4 An**  **amended energy**  **conservation standard**  **affects the**  **product mix**  **by eliminating**  **the sale** 

**of products**  **below the**  **minimum efficiency**  **level. DOE**  **assumes that**  **all products**  **that fall**  **below**

**the standard**  **would roll­up**  **to the**  **efficiency level**  **set by**  **an amended**  **energy conservation** 

**standard. DOE**  **assumes the**  **distribution of**  **efficiencies above**  **the efficiency**  **level set**  **by the** 

**energy conservation**  **standard will**  **not change.**  **In other**  **words, those**  **customers already** 

**purchasing more­efficient**  **products will**  **continue to**  **do so**  **irrespective of**  **amended energy** 

**conservation standards.**  **How do**  **you think**  **amended energy**  **conservation standards**  **will impact** 

**the sales**  **of more**  **efficient products?**  **For example,**  **would customers**  **continue to**  **buy products** 

**that exceed**  **the energy**  **conservation standard**  **level? Would**  **your response**  **change at**  **higher**

**efficiency levels?** 

20 FINANCIAL PARAMETERS

**Navigant Consulting,**  **Inc. (NCI)**  **has developed**  **a “strawman”**  **model of**  **the direct**  **heating**

**equipment industry**  **financial performance**  **called the**  **Government Regulatory**  **Impact Model** 

**(GRIM) using**  **publicly available**  **data. This**  **section attempts**  **to understand**  **how your**  **company’s**

**financial situation**  **differs from**  **our industry**  **aggregate picture.** 

**12A­59 20.1**  **Please compare**  **your financial**  **parameters to**  **the GRIM**  **parameters tabulated**  **below.**

Table 20­1 Financial Parameters for Direct Heating Equipment Manufacturers

**GRIM Input**  **Definition Industry** 

**Estimated**

**Value Your**  **Actual (If** 

**Significantly**

**Different from** 

**DOE’s Estimate)** 

**Income Tax**  **Rate Corporate**  **effective income**  **tax**

**paid (percentage**  **of earnings** 

**before taxes,**  **EBT) 27.5%** 

**Discount Rate**  **Weighted average**  **cost of**  **capital**

**(inflation­adjusted weighted** 

**average of**  **corporate cost**  **of debt** 

**and return**  **on equity)**  **8.5%**

**Working Capital**  **Current assets**  **less current** 

**liabilities (percentage**  **of**

**revenues) 11.4%** 

**SG&A Selling,**  **general, and** 

**administrative expenses** 

**(percentage of**  **revenues) 20.9%** 

**R&D Research**  **and development** 

**expenses (percentage**  **of**

**revenues) 1.5%** 

**Depreciation Amortization**  **of fixed**  **assets**

**(percentage of**  **revenues) 2.2%** 

**Capital Expenditures**  **Outlay of**  **cash to**  **acquire or** 

**improve capital**  **assets**

**(percentage of**  **revenues, not** 

**including acquisition**  **or sale**  **of**

**business units)**  **2.2%**

**Cost of**  **Goods Sold**  **Includes material,**  **labor,**

**overhead, and**  **depreciation**

**(percentage of**  **revenues) 71.3%** 

**20.2 How**  **would you**  **expect an**  **amended energy**  **conservation standard**  **to impact**  **any of**  **the**

**financial parameters**  **for the**  **industry?**

21 CONVERSION COSTS

**Amended energy**  **conservation standards**  **may cause**  **your company**  **to incur**  **capital and**  **product**

**conversion costs**  **to redesign**  **existing products**  **and make**  **changes to**  **existing production**  **lines to** 

**be compliant**  **with the**  **amended energy**  **conservation standard.**  **Capital conversion**  **costs are**  **one**

**time investments**  **in plant,**  **property, and**  **equipment (PPE)**  **necessitated by**  **an amended**  **energy**

**conservation standard.**  **These may**  **be incremental**  **changes to**  **existing PPE**  **or the**  **replacement of** 

**existing PPE.**  **Replacing existing**  **PPE could**  **strand existing**  **assets before**  **the end**  **of their**  **useful**

**lives. In**  **addition to**  **capital conversion**  **costs, product**  **conversion costs**  **are costs**  **related research,** 

**12A­60 product**  **development, testing,**  **marketing and**  **other costs**  **for redesigning**  **products necessitated**  **by**

**an amended**  **energy conservation**  **standard.**

**21.1 What**  **level of**  **conversion costs**  **do you**  **anticipate incurring**  **under the**  **different efficiency** 

**levels DOE**  **is considering?**  **Refer to**  **the tables**  **below to**  **provide your**  **company’s estimates.** 

**Please provide**  **additional qualitative**  **information to**  **help DOE**  **understand the**  **types and**  **nature of** 

**your investments.** 

Table 21­1 Gas Wall Fan­Type Units Conversion Costs

**Efficiency Level**  **Gas Wall**  **Fan­Type Units** 

**(Annual Fuel** 

**Utilization**

**Efficiency) Capital** 

**Conversion**

**Costs**

**(2009$) Product** 

**Conversion**

**Costs**

**(2009$) Stranded** 

**Assets**

**(2009$)**

**Baseline**

**(AFUE**

**= 74)** 

**EL 1** 

**(AFUE**

**= 75)** 

**EL 2** 

**(AFUE**

**= 76)** 

**EL 3** 

**(AFUE**

**= 77)** 

**EL 4** 

**(AFUE**

**= 80)** 

Table 21­2 Gas Wall Gravity­Type Units Conversion Costs

**Efficiency Level**  **Gas Wall**  **Gravity­Type Units** 

**(Annual Fuel** 

**Utilization**

**Efficiency) Capital** 

**Conversion**

**Costs**

**(2009$) Product** 

**Conversion**

**Costs**

**(2009$) Stranded** 

**Assets**

**(2009$)**

**Baseline**

**(AFUE**

**= 64)** 

**EL 1** 

**(AFUE**

**= 66)** 

**EL 2** 

**(AFUE**

**= 68)** 

**EL 3** 

**(AFUE**

**= 71)** 

**EL 4** 

**(AFUE**

**= 72)** 

**12A­61**Table 21­3 Gas Floor­Type Units Conversion Costs

**Efficiency Level**  **Gas Floor­Type**  **Units**

**(Annual Fuel** 

**Utilization**

**Efficiency) Capital** 

**Conversion**

**Costs**

**(2009$) Product** 

**Conversion**

**Costs**

**(2009$) Stranded** 

**Assets**

**(2009$)**

**Baseline**

**(AFUE**

**= 57)** 

**EL 1** 

**(AFUE**

**= 58)** 

Table 21­4 Gas Room­Type Units with Input Capacity Conversion Costs

**Efficiency Level**  **Gas Room­Type**  **Units**

**(Annual Fuel** 

**Utilization**

**Efficiency) Capital** 

**Conversion**

**Costs (2009$)**  **Product**

**Conversion**

**Costs**

**(2009$) Stranded** 

**Assets**

**(2009$)**

**Baseline**

**(AFUE**

**= 64)** 

**EL 1** 

**(AFUE**

**= 65)** 

**EL 2** 

**(AFUE**

**= 66)** 

**EL 3** 

**(AFUE**

**= 67)** 

**EL 4** 

**(AFUE**

**= 68)** 

**EL 5** 

**(AFUE**

**= 83)** 

22 CUMULATIVE REGULATORY BURDEN

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

**new or**  **revised DOE**  **standards, voluntary**  **standards, and/or**  **other regulatory**  **actions affecting**  **the**

**same product**  **or industry.** 

**22.1 Are**  **there other**  **recent or**  **impending regulations**  **that direct**  **heating equipment** 

**manufacturers face**  **(from DOE**  **or otherwise)?**  **If so,**  **could you**  **identify the**  **regulation and**  **the**

**corresponding possible**  **effective dates**  **for those**  **regulations? Below**  **is a**  **list of**  **regulations that** 

**could possibly**  **affect manufacturers**  **of direct**  **heating equipment.**  **Please provide**  **any comments** 

**on the**  **listed regulations**  **in addition**  **to other**  **regulations.**

**12A­62**Table 22­1 Other Regulations Identified by DOE

**Regulation Possible**  **Effective Date(s)**  **Comments**

**DOE’s Amended**  **Energy Conservation** 

**Standards for**  **Other Products** 

**International Energy**  **Efficiency Standards** 

**State Emission**  **Requirements and**  **Other**

**State Regulations** 

**Uniform Plumbing,**  **Building, and**  **Safety**

**Codes**

**22.2 What**  **level of**  **expense are**  **you expecting**  **to incur**  **as a**  **result of**  **these regulations?** 

**22.3 Under**  **what circumstances**  **would you**  **be able**  **to coordinate**  **any expenditures**  **related to** 

**these other**  **regulations with**  **an amended**  **energy conservation**  **standard, thereby**  **lessening the** 

**cumulative burden?** 

23 DIRECT EMPLOYMENT IMPACT ASSESSMENT

**The impact**  **of amended**  **energy conservation**  **standards on**  **employment is**  **an important** 

**consideration in**  **the rulemaking**  **process. This**  **section of**  **the interview**  **guide seeks**  **to explore** 

**current trends**  **in direct**  **heating equipment**  **production employment**  **and solicit**  **manufacturer**

**views on**  **how domestic**  **employment patterns**  **might be**  **affected by**  **amended energy**  **conservation**

**standards.**

**23.1 Would**  **your domestic**  **employment levels**  **be expected**  **to change**  **significantly under** 

**amended energy**  **conservation standards?**  **If so,**  **please explain**  **how they**  **would change**  **if higher** 

**efficiency levels**  **are required.** 

**23.2 Would**  **the workforce**  **skills necessary**  **under amended**  **energy conservation**  **standards**

**require extensive**  **retraining or**  **replacement of**  **employees at**  **your manufacturing**  **facilities?**

**23.3 Would**  **amended energy**  **conservation standards**  **require extensive**  **retraining of**  **your**

**service/field technicians?**  **If so,**  **could you**  **expand on**  **how your**  **service infrastructure**  **would be** 

**impacted in**  **general as**  **a result**  **of amended**  **energy conservation**  **standards?**

**12A­63**24 EXPORTS / FOREIGN COMPETITION / OUTSOURCING

**Disparity between**  **domestic and**  **foreign energy**  **conservation standards**  **could impact**  **exports or** 

**imports. Labor**  **content and**  **material changes,**  **resulting from**  **amended energy**  **conservation**

**standards, may**  **impact sourcing**  **decisions.**

**24.1 What**  **percentage of**  **your company’s**  **direct heating**  **equipment sales**  **is domestic?**  **Absent**

**amended energy**  **conservation standards,**  **are production**  **facilities being**  **relocated to**  **foreign**

**countries? Would**  **amended energy**  **conservation standards**  **impact your**  **domestic vs.**  **foreign**

**manufacturing decision?** 

**24.2 If**  **applicable, to**  **what foreign**  **countries or**  **regions do**  **you export**  **your products?**  **What**

**percentage of**  **sales can**  **be attributed**  **to each?** 

**24.3 Would**  **an amended**  **energy conservation**  **standard be**  **expected to**  **affect your**  **export sales?** 

**What would**  **the resulting**  **impact be,**  **if any,**  **on your**  **manufacturing operations**  **and profitability?** 

**24.4 Are**  **your foreign**  **exports affected**  **by amended**  **energy conservation**  **standards in**  **other**

**countries?**

**24.5 What**  **percentage of**  **the U.S.**  **market for**  **direct heating**  **equipment is**  **imported? Would** 

**amended energy**  **conservation standards**  **have an**  **impact on**  **foreign competition?** 

**24.6 What**  **is your**  **outlook for**  **direct heating**  **equipment exports?** 

25 CONSOLIDATION

**Amended energy**  **conservation standards**  **can alter**  **the competitive**  **dynamics of**  **the market.**  **This**

**can include**  **prompting companies**  **to enter**  **or exit**  **the market,**  **or to**  **merge. DOE**  **and the** 

**Department of**  **Justice are**  **both interested**  **in any**  **potential reduction**  **in competition**  **that would** 

**result from**  **an amended**  **energy conservation**  **standard.**

**12A­64 25.1**  **Please comment**  **on industry**  **consolidation and**  **related trends**  **over the**  **last 5**  **years.**

**25.2 In**  **the absence**  **of amended**  **energy conservation**  **standards, do**  **you expect**  **any further** 

**industry consolidation?**  **Please describe**  **your expectations.** 

**25.3 How**  **would amended**  **energy conservation**  **standards affect**  **your ability**  **to compete?** 

26 IMPACTS ON SMALL BUSINESS

**26.1 The**  **Small Business**  **Association (SBA)**  **denotes a**  **small business**  **in the**  **direct heating** 

**equipment industry**  **as having**  **less than**  **500 employees**  **5**

**. By**  **this definition,**  **is your**  **company**

**considered a**  **small business?** 

**26.2 Are**  **there any**  **reasons that**  **a small**  **business might**  **be at**  **a disadvantage**  **relative to**  **a larger** 

**business under**  **amended energy**  **conservation standards?**  **Please consider**  **such factors**  **as**

**technical expertise,**  **access to**  **capital, bulk**  **purchasing power**  **for materials/components,** 

**engineering resources,**  **and any**  **other relevant**  **issues.**

**26.3 Are**  **there any**  **niche manufacturers,**  **small businesses,**  **and/or component**  **manufacturers**

**for which**  **the adoption**  **of amended**  **energy conservation**  **standards would**  **have a**  **severe impact?** 

**If so,**  **would manufacturers**  **of these**  **products have**  **different incremental**  **impacts from** 

**implemented amended**  **energy conservation**  **standards than**  **from the**  **rest of**  **the industry?** 

**5 DOE**  **uses the**  **small business**  **size standards**  **published on**  **August 22,**  **2008, as**  **amended, by**  **the Small**  **Business**

**Administration (SBA)**  **to determine**  **whether a**  **company is**  **a small**  **business. To**  **be categorized**  **as a**  **small business,**  **a**

**direct heating**  **equipment manufacturer**  **and its**  **affiliates may**  **employ a**  **maximum of**  **500 employees.**  **The 500** 

**employee threshold**  **includes all**  **employees in**  **a business’s**  **parent company**  **and any**  **other subsidiaries.** 

**12A­65**12A.4 RESIDENTIAL HEARTH PRODUCTS MANUFACTURER IMPACT ANALYSIS

GUIDE

**April 6,**  **2009**

**12A­66 As**  **part of**  **the rulemaking**  **process for**  **amended energy**  **conservation standards**  **for residential** 

**hearth products,**  **the Department**  **of Energy**  **(DOE) conducts**  **the manufacturer**  **impact analysis** 

**(MIA). In**  **this analysis,**  **DOE uses**  **publicly available**  **information and**  **information provided**  **by**

**manufacturers during**  **interviews to**  **assess possible**  **impacts on**  **manufacturers due**  **to amended** 

**energy conservation**  **standards. DOE**  **is currently**  **considering 8**  **efficiency levels**  **(EL) for**  **hearth**

**products. In**  **responding to**  **this questionnaire,**  **please refer**  **to the**  **efficiency levels**  **in the**  **table**

**below. DOE**  **analyzed one**  **representative rated**  **input capacity**  **range for**  **residential hearth** 

**products and**  **extrapolated the**  **results to**  **other rated**  **input capacity**  **ranges.**

Efficiency Levels under Consideration for Residential Hearth Products

**Product Class** 

**(Representative**

**Input Capacity** 

**Range) Efficiency** 

**Metric Baseline** 

**Efficiency**

**Level EL**  **1 EL**  **2 EL**  **3 EL**  **4 EL**  **5 EL**  **6 EL**  **7 EL**  **8**

**Residential**

**Hearth Products** 

**(Between**

**27,000 and** 

**46,000 Btu/h)**  **Annual**

**Fuel**

**Utilization**

**Efficiency**

**(AFUE) 64%**  **65% 66%**  **67% 68%**  **70% 72%**  **77% 93%** 

1 KEY ISSUES

**1.10 In**  **general, what**  **are the**  **key issues**  **for your**  **company regarding**  **amended energy** 

**conservation standards**  **for residential**  **hearth products**  **and this**  **rulemaking?**

**1.11 For**  **the issues**  **identified, how**  **significant are**  **they at**  **each listed**  **efficiency level?** 

**1.12 How**  **can we**  **most effectively**  **incorporate these**  **issues in**  **the MIA?** 

**12A­67**2 COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

**DOE is**  **interested in**  **understanding manufacturer**  **impacts at**  **the plant**  **or profit**  **center level** 

**directly pertinent**  **to residential**  **hearth products**  **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.**  **Therefore, DOE**  **invites you**  **to provide**  **these details**  **confidentially in**  **your**

**own words**  **to the**  **extent possible**  **and practical.**  **Understanding the**  **organizational setting**  **around**

**the residential**  **hearth products**  **industry profit**  **center will**  **help DOE**  **understand the**  **probable**

**future of**  **the manufacturing**  **activity with**  **and without**  **amended energy**  **conservation standards.** 

**2.1 Do**  **you have**  **a parent**  **company, and/or**  **any subsidiaries**  **relevant to**  **the residential** 

**products industry?** 

**2.2 Do**  **you manufacture**  **any products**  **other than**  **residential hearth**  **products? If**  **so, what** 

**other products**  **do you**  **manufacture?**

**2.3 What**  **percentage of**  **your total**  **manufacturing corresponds**  **to residential**  **hearth products?** 

**2.4 Where**  **are your**  **production facilities**  **located, and**  **what type**  **of product**  **is manufactured**  **at**

**each location?**  **Could you**  **provide figures**  **for your**  **company’s manufacturing**  **at each**  **location by** 

**product type**  **(residential hearth**  **products or**  **other) and**  **efficiency?**

**2.5 At**  **your manufacturing**  **facilities, would**  **potential residential**  **hearth product**  **redesigns be** 

**difficult to**  **implement? If**  **so, would**  **your company**  **modify the**  **existing facility**  **or develop**  **a new** 

**facility?**

**2.6 What**  **are your**  **employment levels**  **at each**  **of these**  **facilities?**

**2.7 What**  **are your**  **product lines,**  **niches, and**  **relative strengths**  **in the**  **residential hearth** 

**products market?** 

**12A­68 2.8**  **What is**  **your company’s**  **approximate market**  **share in**  **the residential**  **hearth products** 

**industry?**

**2.9 Would**  **you expect**  **your market**  **share to**  **change once**  **amended energy**  **conservation**

**standards become**  **effective?**

3 MANUFACTURER PRODUCTION COSTS AND SELLING PRICES

**DOE estimated**  **the manufacturer**  **production costs**  **of residential**  **hearth products.**  **DOE defines** 

**manufacturer production**  **cost as**  **all direct**  **costs associated**  **with manufacturing**  **a product.**  **It**

**includes direct**  **labor, direct**  **materials, and**  **overhead (which**  **includes depreciation**  **costs). The** 

**breakdown of**  **manufacturer production**  **cost has**  **implications for**  **the quantitative**  **impacts on** 

**residential hearth**  **products manufacturers.**  **The per**  **unit production**  **costs are**  **necessary for**  **DOE**

**to estimate**  **labor expenditures**  **and other**  **cash flow**  **calculations.**

**Manufacturer selling**  **price is**  **the average**  **cost manufacturers**  **charge their**  **first consumers,**  **but**

**does not**  **include costs**  **along distribution**  **channels. The**  **manufacturer selling**  **price includes**  **a per** 

**unit research**  **and development**  **cost; selling,**  **general, and**  **administrative expense;**  **shipping cost;** 

**and profit.**  **The manufacturer**  **markup is**  **a multiplier**  **applied to**  **manufacturer production**  **cost to** 

**cover the**  **per unit**  **research and**  **development; selling,**  **general, and**  **administrative expense;** 

**shipping; and**  **profit.**

**DOE estimated**  **an industry­wide**  **markup of**  **1.38 for**  **residential hearth**  **products at**  **baseline**

**efficiency levels.**  **DOE asks**  **a series**  **of questions**  **about markups**  **at higher**  **efficiencies in**  **section**

**4. As**  **shown in**  **Equation 3­1**  **below, the**  **manufacturer production**  **cost multiplied**  **by the** 

**manufacturer markup**  **would cover**  **all costs**  **in the**  **manufacturer selling**  **price of**  **baseline**

**products.**

Equation 3­1. Calculation of Manufacturer Selling Price

**3.1 Is**  **there a**  **significant difference**  **between the**  **1.38 baseline**  **markup DOE**  **calculated and** 

**your company’s**  **baseline markup**  **for residential**  **hearth products?** 

**12A­69 3.2**  **Table 3­1**  **provides DOE’s**  **estimates of**  **the manufacturer**  **production costs**  **and**

**manufacturer selling**  **prices for**  **residential hearth**  **products at**  **the representative**  **rated input** 

**capacity range**  **and each**  **efficiency level**  **being considered.**  **Could you**  **please provide**  **any**

**comments on**  **the estimated**  **values?**

Table 3­1 Estimated Manufacturer Production Costs and Manufacturer Selling Prices for

Residential Hearth Products (Representative Input Capacity Range: Between 27,000 and

46,000 Btu/h)

**Efficiency**

**Level**

**(AFUE) DOE’s** 

**Manufacturer**

**Production Cost** 

**Estimates***

**(2008$) DOE’s** 

**Manufacturer**

**Selling Price** 

**Estimates**

**(2008$) Manufacturer** 

**Comments or** 

**Revised Estimates** 

**Baseline Level** 

**(AFUE**

**= 64)**  **TBD**

**EL 1** 

**(AFUE**

**= 65)**  **TBD**

**EL 2** 

**(AFUE**

**= 66)**  **TBD**

**EL 3** 

**(AFUE**

**= 67)**  **TBD**

**EL 4** 

**(AFUE**

**= 68)**  **TBD**

**EL 5** 

**(AFUE**

**= 70)**  **TBD**

**EL 6** 

**(AFUE**

**= 72)**  **TBD**

**EL 7** 

**(AFUE**

**= 77)**  **TBD**

**EL 8** 

**(AFUE**

**= 93)**  **TBD**

***** **DOE’s manufacturer**  **production cost**  **estimates were**  **developed using**  **a five­year**  **average of**  **raw material** 

**prices spanning**  **2004 to**  **2008.**

**3.3 Please**  **compare your**  **manufacturer production**  **cost percentages**  **6 to**  **the estimates** 

**tabulated below.**  **The manufacturer**  **production cost**  **breakdown is**  **used to**  **calculate the**  **total cost** 

**of goods**  **sold (COGS)**  **for the**  **industry. Having**  **an accurate**  **estimate of**  **the production**  **costs for** 

**the industry**  **allows DOE**  **to better**  **examine impacts**  **on profitability**  **and employment**  **due to** 

**amended energy**  **conservation standards.**  **Are the**  **different percentages**  **of each**  **cost**

**representative of**  **your company**  **or the**  **residential hearth**  **products industry?**  **Please explain**  **any**

**differences.**

**6 The**  **manufacturer production**  **cost percentages**  **shown in**  **Table 3­2**  **are the**  **values that**  **make up**  **COGS. These**  **are**

**percentages of**  **total COGS.** 

**12A­70**Table 3­2 Breakdown of Manufacturer Production Costs for Residential Hearth Products

**Components of** 

**Manufacturer Production** 

**Costs DOE’s**  **Estimated Percentage**  **of**

**Manufacturer Production**  **Cost Manufacturer**  **Feedback**

**Materials TBD** 

**Labor TBD** 

**Overhead TBD** 

**Depreciation TBD** 

4 MARKUPS AND PROFITABILITY

**One of**  **the primary**  **objectives of**  **the MIA**  **is to**  **assess the**  **impact of**  **amended energy** 

**conservation standards**  **on industry**  **profitability. In**  **this section,**  **DOE would**  **like to**  **understand**

**the current**  **markup structure**  **of the**  **industry and**  **how setting**  **an amended**  **energy conservation** 

**standard would**  **impact your**  **company’s markup**  **structure and**  **profitability. As**  **discussed in** 

**Section 3,**  **the manufacturer**  **markup is**  **a multiplier**  **applied to**  **manufacturer production**  **cost to** 

**cover per**  **unit research**  **and development,**  **selling, general,**  **and administrative**  **expenses, shipping,** 

**and profit.**  **The manufacturer**  **production cost**  **multiplied by**  **the manufacturer**  **markup would** 

**cover all**  **costs involved**  **in manufacturing**  **the product.** 

**4.1 Do**  **profit levels**  **currently vary**  **by input**  **capacity or**  **other characteristic?**  **Do profit**  **levels**

**vary by**  **efficiency level?**  **Please explain**  **why or**  **why not.** 

**4.2 DOE**  **would like**  **to understand**  **how the**  **baseline manufacturer**  **markup changes**  **at higher** 

**efficiency levels.**  **Could you**  **provide your**  **company’s markup**  **for any**  **products that**  **meet the** 

**efficiency levels**  **shown below?** 

**12A­71**Table 4­1 Residential Hearth Products (Representative Input Capacity Range: Between

27,000 and 46,000 Btu/h) Manufacturer Markups

**Hearth Units** 

**(Between 27,000**  **and 46,000**  **Btu/h)**

**Efficiency Level**  **(Energy Factor)**  **Estimated Manufacturer**  **Markup**

**Baseline Level**  **(AFUE**

**= 64)** 

**EL 1**  **(AFUE**

**= 65)** 

**EL 2**  **(AFUE**

**= 66)** 

**EL 3**  **(AFUE**

**= 67)** 

**EL 4**  **(AFUE**

**= 68)** 

**EL 5**  **(AFUE**

**= 70)** 

**EL 6**  **(AFUE**

**= 72)** 

**EL 7**  **(AFUE**

**= 77)** 

**EL 8**  **(AFUE**

**= 93)** 

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

**conservation standard?**  **If so,**  **please explain**  **why.**

5 SHIPMENT PROJECTIONS AND MARKET SHARES

**An amended**  **energy conservation**  **standard can**  **change overall**  **shipments by**  **altering product** 

**attributes, marketing**  **approaches, product**  **availability, and**  **price. The**  **industry revenue** 

**calculations are**  **based on**  **the shipment**  **projections developed**  **by DOE’s**  **shipments model.**  **The**

**shipments model**  **includes forecasts**  **for the**  **base case**  **shipments (i.e.,**  **total industry**  **shipments**

**absent amended**  **energy conservation**  **standards) and**  **the standards**  **case shipments**  **(i.e., total** 

**industry shipments**  **with amended**  **energy conservation**  **standards).**

**5.1 Please**  **compare DOE’s**  **projections of**  **annual industry­wide**  **shipments for**  **residential**

**hearth products**  **with your**  **company’s projections**  **of industry­wide**  **shipments.**

**12A­72**Table 5­1 Annual Industry­Wide Shipment Projections for Residential Hearth Products

Absent Amended Energy Conservation Standards

**2007**

**Total**

**Industry**

**Wide**

**Shipments 2008** 

**Total**

**Industry**

**Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2013*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2023 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2033**

**DOE’s Estimate**  **for**

**Total Industry** 

**Shipments**

**(Millions)  ** 0.240** **0.240 0.240**  **0.240 0.240** 

**Manufacturer**

**Feedback**

***** **2013 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for hearth**  **products.**

****** **For hearth**  **products, data**  **was based**  **on an**  **average of**  **shipments data**  **provided by**  **AHRI for**  **2001 to**  **2004 for** 

**fireplaces and**  **other vented**  **gas heaters.** 

**5.2 Are**  **the 2007**  **and 2008**  **industry wide­shipments**  **shown in**  **Table 5­1**  **consistent with** 

**historic trends?**  **Do you**  **expect total**  **shipment levels**  **to return**  **to their**  **previous levels**  **(i.e., those** 

**levels prior**  **to 2007)?** 

**5.3 DOE’s**  **shipments analysis**  **estimates industry­wide**  **shipments in**  **2013 would**  **continue to** 

**remain the**  **same. Could**  **you provide**  **any qualitative**  **information on**  **expected changes**  **in total** 

**industry shipments**  **shown in**  **Table 5­1?** 

6 PRODUCT MIX

**Product mix**  **describes the**  **distribution of**  **current shipments**  **by efficiency**  **level. Changes**  **in the** 

**product mix**  **due to**  **amended energy**  **conservation standards**  **can have**  **a large**  **impact on**  **industry**

**revenues. Having**  **an accurate**  **estimate of**  **the current**  **product mix**  **allows DOE**  **to better**  **estimate**

**how revenues**  **might change**  **due to**  **amended energy**  **conservation standards.** 

**6.1 Does**  **your company**  **offer multiple**  **product lines**  **at different**  **efficiency levels?**  **Could you** 

**provide a**  **description of**  **your company’s**  **product lines**  **and their**  **respective efficiency**  **levels?**

**6.2 Table**  **6­1 shows**  **DOE’s estimate**  **for the**  **current mix**  **of shipments**  **by efficiency**  **today**

**and in**  **2013, the**  **anticipated effective**  **date of**  **amended energy**  **conservation standards.**  **Could you** 

**provide feedback**  **on DOE’s**  **estimates based**  **on your**  **knowledge of**  **the industry?** 

**12A­73**Table 6­1 Percentage of Industry­Wide Shipments by Efficiency Level for Residential

Hearth Products Today and in 2013

**Percentage of** 

**Total**

**Shipments at** 

**each**

**Efficiency Baseline** 

**Level**

**(AFUE**

**= 64)**  **EL 1** 

**(AFUE**

**= 65)**  **EL 2** 

**(AFUE**

**= 66)**  **EL 3** 

**(AFUE**

**= 67)**  **EL 4** 

**(AFUE**

**= 68)**  **EL 5** 

**(AFUE**

**= 70)**  **EL 6** 

**(AFUE**

**= 72)**  **EL 7** 

**(AFUE**

**= 77)**  **EL 8** 

**(AFUE**

**= 93)** 

**DOE’s**

**Estimate**

**(2008) 21%**  **19% 8%**  **19% 8%**  **8% 8%**  **8% 1%** 

**Manufacturer**

**Feedback**

**DOE’s**

**Estimate**

**(2013) 21%**  **19% 8%**  **19% 8%**  **8% 8%**  **8% 1%** 

**Manufacturer**

**Feedback**

**6.3 Do**  **you expect**  **the product**  **mix to**  **change over**  **time? If**  **so, please**  **explain why.** 

**6.4 An**  **amended energy**  **conservation standard**  **affects the**  **product mix**  **by eliminating**  **the sale** 

**of products**  **below the**  **minimum efficiency**  **level. DOE**  **assumes that**  **all products**  **that fall**  **below**

**the standard**  **would roll­up**  **to the**  **efficiency level**  **set by**  **an amended**  **energy conservation** 

**standard. DOE**  **assumes the**  **distribution of**  **efficiencies above**  **the efficiency**  **level set**  **by the** 

**energy conservation**  **standard will**  **not change.**  **In other**  **words, those**  **customers already** 

**purchasing more­efficient**  **products will**  **continue to**  **do so**  **irrespective of**  **amended energy** 

**conservation standards.**  **How do**  **you think**  **amended energy**  **conservation standards**  **will impact** 

**the sales**  **of more**  **efficient products?**  **For example,**  **would customers**  **continue to**  **buy products** 

**that exceed**  **the energy**  **conservation standard**  **level? Would**  **your response**  **change at**  **higher**

**efficiency levels?** 

7 FINANCIAL PARAMETERS

**Navigant Consulting,**  **Inc. (NCI)**  **has developed**  **a “strawman”**  **model of**  **the residential**  **hearth**

**products industry**  **financial performance**  **called the**  **Government Regulatory**  **Impact Model** 

**(GRIM) using**  **publicly available**  **data. This**  **section attempts**  **to understand**  **how your**  **company’s**

**financial situation**  **differs from**  **our industry**  **aggregate picture.** 

**7.1 Please**  **compare your**  **financial parameters**  **to the**  **GRIM parameters**  **tabulated below.** 

**12A­74**Table 7­1 Financial Parameters for Residential Hearth Products Manufacturers

**GRIM Input**  **Definition Industry** 

**Estimated**

**Value Your**  **Actual (If** 

**Significantly**

**Different from** 

**DOE’s Estimate)** 

**Income Tax**  **Rate Corporate**  **effective income**  **tax**

**paid (percentage**  **of earnings** 

**before taxes,**  **EBT) 27.5%** 

**Discount Rate**  **Weighted average**  **cost of**  **capital**

**(inflation­adjusted weighted** 

**average of**  **corporate cost**  **of debt** 

**and return**  **on equity)**  **8.5%**

**Working Capital**  **Current assets**  **less current** 

**liabilities (percentage**  **of**

**revenues) 11.4%** 

**SG&A Selling,**  **general, and** 

**administrative expenses** 

**(percentage of**  **revenues) 20.9%** 

**R&D Research**  **and development** 

**expenses (percentage**  **of**

**revenues) 1.5%** 

**Depreciation Amortization**  **of fixed**  **assets**

**(percentage of**  **revenues) 2.2%** 

**Capital Expenditures**  **Outlay of**  **cash to**  **acquire or** 

**improve capital**  **assets**

**(percentage of**  **revenues, not** 

**including acquisition**  **or sale**  **of**

**business units)**  **2.2%**

**Cost of**  **Goods Sold**  **Includes material,**  **labor,**

**overhead, and**  **depreciation**

**(percentage of**  **revenues) 71.3%** 

**7.2 How**  **would you**  **expect an**  **amended energy**  **conservation standard**  **to impact**  **any of**  **the**

**financial parameters**  **for the**  **industry?**

**12A­75**8 CONVERSION COSTS

**Amended energy**  **conservation standards**  **may cause**  **your company**  **to incur**  **capital and**  **product**

**conversion costs**  **to redesign**  **existing products**  **and make**  **changes to**  **existing production**  **lines to** 

**be compliant**  **with the**  **amended energy**  **conservation standard.**  **Capital conversion**  **costs are**  **one**

**time investments**  **in plant,**  **property, and**  **equipment (PPE)**  **necessitated by**  **an amended**  **energy**

**conservation standard.**  **These may**  **be incremental**  **changes to**  **existing PPE**  **or the**  **replacement of** 

**existing PPE.**  **Replacing existing**  **PPE could**  **strand existing**  **assets before**  **the end**  **of their**  **useful**

**lives. In**  **addition to**  **capital conversion**  **costs, product**  **conversion costs**  **are costs**  **related research,** 

**product development,**  **testing, marketing**  **and other**  **costs for**  **redesigning products**  **necessitated by** 

**an amended**  **energy conservation**  **standard.**

**8.1 What**  **level of**  **conversion costs**  **do you**  **anticipate incurring**  **under the**  **different efficiency** 

**levels DOE**  **is considering?**  **Refer to**  **the tables**  **below to**  **provide your**  **company’s estimates.** 

**Please provide**  **additional qualitative**  **information to**  **help DOE**  **understand the**  **types and**  **nature of** 

**your investments.** 

Table 8­1 Residential Hearth Products Conversion Costs

**Efficiency Level**  **Hearth Units** 

**(AFUE) Capital** 

**Conversion Costs** 

**(2009$) Product** 

**Conversion Costs** 

**(2009$) Stranded**  **Assets**

**(2009$)**

**Baseline (AFUE** 

**= 64)** 

**EL 1**  **(AFUE**

**= 65)** 

**EL 2**  **(AFUE**

**= 66)** 

**EL 3**  **(AFUE**

**= 67)** 

**EL 4**  **(AFUE**

**= 68)** 

**EL 5**  **(AFUE**

**= 70)** 

**EL 6**  **(AFUE**

**= 72)** 

**EL 7**  **(AFUE**

**= 77)** 

**EL 8**  **(AFUE**

**= 93)** 

9 CUMULATIVE REGULATORY BURDEN

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

**new or**  **revised DOE**  **standards, voluntary**  **standards, and/or**  **other regulatory**  **actions affecting**  **the**

**same product**  **or industry.** 

**9.1 Are**  **there other**  **recent or**  **impending regulations**  **that hearth**  **product manufacturers**  **face**

**(from DOE**  **or otherwise)?**  **If so,**  **could you**  **identify the**  **regulation and**  **the corresponding**  **possible**

**effective dates**  **for those**  **regulations? Below**  **is a**  **list of**  **regulations that**  **could possibly**  **affect**

**manufacturers of**  **residential hearth**  **products. Please**  **provide any**  **comments on**  **the listed** 

**regulations in**  **addition to**  **other regulations.** 

**12A­76**Table 9­1 Other Regulations Identified by DOE

**Regulation Possible**  **Effective Date(s)**  **Comments**

**DOE’s Amended**  **Energy Conservation** 

**Standards for**  **Other Products** 

**International Energy­Efficiency**  **Standards**

**State Emission**  **Requirements and**  **Other**

**State Regulations** 

**Uniform Plumbing,**  **Building, and**  **Safety**

**Codes**

**9.2 What**  **level of**  **expense are**  **you expecting**  **to incur**  **as a**  **result of**  **these regulations?** 

**9.3 Under**  **what circumstances**  **would you**  **be able**  **to coordinate**  **any expenditures**  **related to** 

**these other**  **regulations with**  **an amended**  **energy conservation**  **standard, thereby**  **lessening the** 

**cumulative burden?** 

10 DIRECT EMPLOYMENT IMPACT ASSESSMENT

**The impact**  **of amended**  **energy conservation**  **standards on**  **employment is**  **an important** 

**consideration in**  **the rulemaking**  **process. This**  **section of**  **the interview**  **guide seeks**  **to explore** 

**current trends**  **in residential**  **hearth products**  **production employment**  **and solicit**  **manufacturer**

**views on**  **how domestic**  **employment patterns**  **might be**  **affected by**  **amended energy**  **conservation**

**standards.**

**10.1 Would**  **your domestic**  **employment levels**  **be expected**  **to change**  **significantly under** 

**amended energy**  **conservation standards?**  **If so,**  **please explain**  **how they**  **would change**  **if higher** 

**efficiency levels**  **are required.** 

**10.2 Would**  **the workforce**  **skills necessary**  **under amended**  **energy conservation**  **standards**

**require extensive**  **retraining or**  **replacement of**  **employees at**  **your manufacturing**  **facilities?**

**10.3 Would**  **amended energy**  **conservation standards**  **require extensive**  **retraining of**  **your**

**service/field technicians?**  **If so,**  **could you**  **expand on**  **how your**  **service infrastructure**  **would be** 

**impacted in**  **general as**  **a result**  **of amended**  **energy conservation**  **standards?**

**12A­77**11 EXPORTS / FOREIGN COMPETITION / OUTSOURCING

**Disparity between**  **domestic and**  **foreign energy**  **conservation standards**  **could impact**  **exports or** 

**imports. Labor**  **content and**  **material changes,**  **resulting from**  **amended energy**  **conservation**

**standards, may**  **impact sourcing**  **decisions.**

**11.1 What**  **percentage of**  **your company’s**  **residential hearth**  **product sales**  **is domestic?**  **Absent**

**amended energy**  **conservation standards,**  **are production**  **facilities being**  **relocated to**  **foreign**

**countries? Would**  **amended energy**  **conservation standards**  **impact your**  **domestic vs.**  **foreign**

**manufacturing decision?** 

**11.2 If**  **applicable, to**  **what foreign**  **countries or**  **regions do**  **you export**  **your products?**  **What**

**percentage of**  **sales can**  **be attributed**  **to each?** 

**11.3 Would**  **an amended**  **energy conservation**  **standard be**  **expected to**  **affect your**  **export sales?** 

**What would**  **the resulting**  **impact be,**  **if any,**  **on your**  **manufacturing operations**  **and profitability?** 

**11.4 Are**  **your foreign**  **exports affected**  **by amended**  **energy conservation**  **standards in**  **other**

**countries?**

**11.5 What**  **percentage of**  **the U.S.**  **market for**  **residential hearth**  **products is**  **imported? Would** 

**amended energy**  **conservation standards**  **have an**  **impact on**  **foreign competition?** 

**11.6 What**  **is your**  **outlook for**  **residential hearth**  **products exports?** 

12 CONSOLIDATION

**Amended energy**  **conservation standards**  **can alter**  **the competitive**  **dynamics of**  **the market.**  **This**

**can include**  **prompting companies**  **to enter**  **or exit**  **the market,**  **or to**  **merge. DOE**  **and the** 

**Department of**  **Justice are**  **both interested**  **in any**  **potential reduction**  **in competition**  **that would** 

**12A­78 result**  **from an**  **amended energy**  **conservation standard.** 

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

**12.2 In**  **the absence**  **of amended**  **energy conservation**  **standards, do**  **you expect**  **any further** 

**industry consolidation?**  **Please describe**  **your expectations.** 

**12.3 How**  **would amended**  **energy conservation**  **standards affect**  **your ability**  **to compete?** 

13 IMPACTS ON SMALL BUSINESS

**13.1 The**  **Small Business**  **Association (SBA)**  **denotes a**  **small business**  **in the**  **residential hearth** 

**products industry**  **as having**  **less than**  **500 employees**  **7**

**. By**  **this definition,**  **is your**  **company**

**considered a**  **small business?** 

**13.2 Are**  **there any**  **reasons that**  **a small**  **business might**  **be at**  **a disadvantage**  **relative to**  **a larger** 

**business under**  **amended energy**  **conservation standards?**  **Please consider**  **such factors**  **as**

**technical expertise,**  **access to**  **capital, bulk**  **purchasing power**  **for materials/components,** 

**engineering resources,**  **and any**  **other relevant**  **issues.**

**13.3 Are**  **there any**  **niche manufacturers,**  **small businesses,**  **and/or component**  **manufacturers**

**for which**  **the adoption**  **of amended**  **energy conservation**  **standards would**  **have a**  **severe impact?** 

**If so,**  **would manufacturers**  **of these**  **products have**  **different incremental**  **impacts from** 

**implemented amended**  **energy conservation**  **standards than**  **from the**  **rest of**  **the industry?** 

**7 DOE**  **uses the**  **small business**  **size standards**  **published on**  **August 22,**  **2008, as**  **amended, by**  **the Small**  **Business**

**Administration (SBA)**  **to determine**  **whether a**  **company is**  **a small**  **business. To**  **be categorized**  **as a**  **small business,**  **a**

**hearth products**  **manufacturer and**  **its affiliates**  **may employ**  **a maximum**  **of 500**  **employees. The**  **500 employee** 

**threshold includes**  **all employees**  **in a**  **business’s parent**  **company and**  **any other**  **subsidiaries.**

**12A­79**12A.5 GAS­FIRED POOL HEATERS MANUFACTURER IMPACT ANALYSIS

INTERVIEW GUIDE

**April 6,**  **2009**

**12A­80 As**  **part of**  **the rulemaking**  **process for**  **amended energy**  **conservation standards**  **for gas­fired** 

**residential pool**  **heaters, the**  **Department of**  **Energy (DOE)**  **conducts the**  **manufacturer impact** 

**analysis (MIA).**  **In this**  **analysis, DOE**  **uses publicly**  **available information**  **and information** 

**provided by**  **manufacturers during**  **interviews to**  **assess possible**  **impacts on**  **manufacturers due**  **to**

**amended energy**  **conservation standards.**  **DOE is**  **currently considering**  **8 efficiency**  **levels (EL)** 

**for gas­fired**  **residential pool**  **heaters. In**  **responding to**  **this questionnaire,**  **please refer**  **to the** 

**efficiency levels**  **in the**  **table below.**  **DOE analyzed**  **one representative**  **input capacity**  **of 250,000** 

**British thermal**  **units per**  **hour (Btu/h)**  **for gas­fired**  **residential pool**  **heaters.**

Efficiency Levels Under Consideration for Gas­fired Residential Pool Heaters

**Product Class** 

**(Representative**

**Input Capacity)**  **Efficiency**

**Metric Baseline** 

**Efficiency**

**Level EL1** ** **EL2  ** EL3**** **EL4*** **EL5*** **EL6*** **EL7*** **EL8***

**Gas­Fired**

**Residential**

**Pool Heaters** 

**(250,000 Btu/h)**  **Thermal**

**Efficiency**

**(%) 78%**  **79% 81%**  **82% 83%**  **84% 86%**  **90% 95%** 

***** **Models having**  **electronic ignition**  **only.**

****** **Models having**  **standing pilot**  **or electronic**  **ignition.**

1 KEY ISSUES

**1.13 In**  **general, what**  **are the**  **key issues**  **for your**  **company regarding**  **amended energy** 

**conservation standards**  **for gas­fired**  **residential pool**  **heaters and**  **this rulemaking?** 

**1.14 For**  **the issues**  **identified, how**  **significant are**  **they at**  **each listed**  **efficiency level?** 

**1.15 How**  **can we**  **most effectively**  **incorporate these**  **issues in**  **the MIA?** 

2 COMPANY OVERVIEW AND ORGANIZATIONAL CHARACTERISTICS

**DOE is**  **interested in**  **understanding manufacturer**  **impacts at**  **the plant**  **or profit**  **center level** 

**directly pertinent**  **to gas­fired**  **residential pool**  **heaters 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.**  **Therefore, DOE**  **invites you**  **to provide**  **these details**  **confidentially**

**in your**  **own words**  **to the**  **extent possible**  **and practical.**  **Understanding the**  **organizational setting** 

**around the**  **residential pool**  **heater industry**  **profit center**  **will help**  **DOE understand**  **the probable** 

**future of**  **the manufacturing**  **activity with**  **and without**  **amended energy**  **conservation standards.** 

**12A­81 2.1**  **Do you**  **have a**  **parent company,**  **and/or any**  **subsidiaries relevant**  **to the**  **residential pool** 

**heater industry?** 

**2.2 Do**  **you manufacture**  **any products**  **other than**  **residential pool**  **heaters? If**  **so, what**  **other**

**products do**  **you manufacture?** 

**2.3 What**  **percentage of**  **your total**  **manufacturing corresponds**  **to gas­fired**  **residential pool** 

**heaters?**

**2.4 Where**  **are your**  **production facilities**  **located, and**  **what type**  **of product**  **is manufactured**  **at**

**each location?**  **Could you**  **provide figures**  **for your**  **company’s manufacturing**  **at each**  **location by** 

**efficiency level?** 

**2.5 At**  **your manufacturing**  **facilities, would**  **potential residential**  **pool heater**  **redesigns be** 

**difficult to**  **implement? If**  **so, would**  **your company**  **modify the**  **existing facility**  **or develop**  **a new** 

**facility?**

**2.6 What**  **are your**  **employment levels**  **at each**  **of these**  **facilities?**

**2.7 What**  **are your**  **product lines,**  **niches, and**  **relative strengths**  **in the**  **residential pool**  **heater**

**market?**

**2.8 What**  **is your**  **company’s approximate**  **market share**  **in the**  **gas­fired residential**  **pool heater** 

**industry?**

**12A­82 2.9**  **Would you**  **expect your**  **market share**  **to change**  **once amended**  **energy conservation** 

**standards become**  **effective?**

3 MANUFACTURER PRODUCTION COSTS AND SELLING PRICES

**DOE estimated**  **the manufacturer**  **production costs**  **of gas­fired**  **residential pool**  **heaters at**  **one**

**input capacity.**  **DOE defines**  **manufacturer production**  **cost as**  **all direct**  **costs associated**  **with**

**manufacturing a**  **product. It**  **includes direct**  **labor, direct**  **materials, and**  **overhead (which**  **includes**

**depreciation costs).**  **The breakdown**  **of manufacturer**  **production cost**  **has implications**  **for the** 

**quantitative impacts**  **on gas­fired**  **residential pool**  **heater manufacturers.**  **The per**  **unit production** 

**costs are**  **necessary for**  **DOE to**  **estimate labor**  **expenditures and**  **other cash**  **flow calculations.** 

**Manufacturer selling**  **price is**  **the average**  **cost manufacturers**  **charge their**  **first consumers,**  **but**

**does not**  **include costs**  **along distribution**  **channels. The**  **manufacturer selling**  **price includes**  **a per** 

**unit research**  **and development**  **cost; selling,**  **general, and**  **administrative expense;**  **shipping cost;** 

**and profit.**  **For residential**  **pool heater**  **MIA, the**  **manufacturer markup**  **is a**  **multiplier applied**  **to**

**manufacturer production**  **cost to**  **cover the**  **per unit**  **research and**  **development, selling,**  **general,**

**and administrative**  **expense, shipping**  **costs, and**  **profit.**

**DOE estimated**  **an industry­wide**  **markup of**  **1.38 for**  **residential pool**  **heaters at**  **baseline**

**efficiency levels.**  **DOE asks**  **a series**  **of questions**  **about the**  **manufacturer markups**  **associated**

**with premium**  **products at**  **higher efficiencies**  **in Section**  **4. As**  **shown in**  **Equation 3­1**  **below, the** 

**manufacturer production**  **cost multiplied**  **by the**  **manufacturer markup**  **would cover**  **all costs**  **in the** 

**manufacturer selling**  **price of**  **baseline products.** 

Equation 3­1. Calculation of Manufacturer Selling Price

**3.1 Is**  **there a**  **significant difference**  **between the**  **baseline markup**  **DOE calculated**  **and your** 

**company’s baseline**  **markup for**  **gas­fired residential**  **pool heaters?** 

**3.2 Table**  **3­1 provides**  **DOE’s estimates**  **of the**  **manufacturer production**  **costs and** 

**manufacturer selling**  **prices for**  **gas­fired residential**  **pool heaters**  **at the**  **representative input** 

**capacity and**  **each efficiency**  **level being**  **considered. Could**  **you please**  **provide any**  **comments on** 

**the estimated**  **values?**

**12A­83**Table 3­1 Estimated Manufacturer Production Costs and Manufacturer Selling Prices for

Gas fired Residential Pool Heaters Utilizing Electronic Ignition (250,000 Btu/h Input

Capacity)

**Efficiency**

**Level**

**(Thermal**

**Efficiency**

**(%)) DOE’s** 

**Manufacturer**

**Production Cost** 

**Estimates***

**(2008$) DOE’s** 

**Manufacturer**

**Selling Price** 

**Estimates**

**(2008$) Manufacturer** 

**Comments or** 

**Revised Estimates** 

**Baseline Level** 

**(78%) $520**  **$718**

**EL 1** 

**(79%) $530**  **$731**

**EL 2** 

**(81%) $544**  **$751**

**EL 3** 

**(82%) $575**  **$794**

**EL 4** 

**(83%) $646**  **$891**

**EL 5** 

**(84%) $662**  **$914**

**EL 6** 

**(86%) $862**  **$1,190**

**EL 7** 

**(90%) $906**  **$1,250**

**EL 8** 

**(95%) $965**  **$1,332**

***** **DOE’s manufacturer**  **production cost**  **estimates were**  **developed using**  **a five­year**  **average of**  **raw material** 

**prices spanning**  **2004 to**  **2008.**

**3.3 Please**  **compare your**  **manufacturer production**  **cost percentages**  **8 to**  **the estimates** 

**tabulated below.**  **The manufacturer**  **production cost**  **breakdown is**  **used to**  **calculate the**  **total cost** 

**of goods**  **sold (COGS)**  **for the**  **industry. Having**  **an accurate**  **estimate of**  **the production**  **costs for** 

**the industry**  **allows DOE**  **to better**  **examine impacts**  **on profitability**  **and employment**  **due to** 

**amended energy**  **conservation standards.**  **Are the**  **different percentages**  **of each**  **cost**

**representative of**  **your company**  **or the**  **residential pool**  **heater industry?**  **Please explain**  **any**

**differences.**

**8 The**  **manufacturer production**  **cost percentages**  **shown in**  **Table 3­2**  **are the**  **values that**  **make up**  **COGS. These**  **are**

**percentages of**  **total COGS.** 

**12A­84**Table 3­2 Breakdown of Manufacturer Production Costs for Baseline Gas­fired

Residential Pool Heaters (250,000 Btu/h Input Capacity)

**Components of** 

**Manufacturer Production** 

**Costs DOE’s**  **Estimated Percentage**  **of**

**Manufacturer Production**  **Cost Manufacturer**  **Feedback**

**Materials 60.6%** 

**Labor 16.7%** 

**Overhead 11.7%** 

**Depreciation 11.0%** 

4 MARKUPS AND PROFITABILITY

**One of**  **the primary**  **objectives of**  **the MIA**  **is to**  **assess the**  **impact of**  **amended energy** 

**conservation standards**  **on industry**  **profitability. In**  **this section,**  **DOE would**  **like to**  **understand**

**the current**  **markup structure**  **of the**  **industry and**  **how setting**  **an amended**  **energy conservation** 

**standard would**  **impact your**  **company’s markup**  **structure and**  **profitability. As**  **discussed in** 

**Section 3,**  **the manufacturer**  **markup is**  **a multiplier**  **applied to**  **manufacturer production**  **cost to** 

**cover per**  **unit research**  **and development,**  **selling, general,**  **and administrative**  **expenses, shipping** 

**costs, and**  **profit. The**  **manufacturer production**  **cost multiplied**  **by the**  **manufacturer markup** 

**would cover**  **all costs**  **involved in**  **manufacturing the**  **product.**

**4.1 Do**  **profit levels**  **currently vary**  **by efficiency**  **level? Please**  **explain why**  **or why**  **not.**

**4.2 Do**  **profit levels**  **vary by**  **input capacities,**  **and ignition**  **type?**

**4.3 DOE**  **would like**  **to understand**  **how the**  **baseline manufacturer**  **markup changes**  **at higher** 

**efficiency levels.**  **Could you**  **provide your**  **company’s markup**  **for any**  **products that**  **meet the** 

**efficiency levels**  **shown below?** 

**12A­85**Table 4­1 Gas­fired Residential Pool Heaters (250,000 Btu/h Input Capacity)

Manufacturer Markup Changes Due to Amended Energy Conservation Standards

**Gas­fired Residential**  **Pool Heaters** 

**(250,000 Btu/h**  **Input Capacity)** 

**Efficiency Level** 

**(Thermal**

**Efficiency) Estimated**  **Manufacturer Markup** 

**Baseline (78%)** 

**EL 1**  **(79%)**

**EL 2**  **(81%)**

**EL 3**  **(82%)**

**EL 4**  **(83%)**

**EL 5**  **(84%)**

**EL 6**  **(86%)**

**EL 7**  **(90%)**

**EL 8**  **(95%)**

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

**conservation standard?**  **If so,**  **please explain**  **why.**

5 SHIPMENT PROJECTIONS AND MARKET SHARES

**An amended**  **energy conservation**  **standard can**  **change overall**  **shipments by**  **altering product** 

**attributes, marketing**  **approaches, product**  **availability, and**  **price. The**  **industry revenue** 

**calculations are**  **based on**  **the shipment**  **projections developed**  **by DOE’s**  **shipments model.**  **The**

**shipments model**  **includes forecasts**  **for the**  **base case**  **shipments (i.e.,**  **total industry**  **shipments**

**absent amended**  **energy conservation**  **standards) and**  **the standards**  **case shipments**  **(i.e., total** 

**industry shipments**  **with amended**  **energy conservation**  **standards).**

**5.1 Please**  **compare DOE’s**  **projections of**  **annual industry­wide**  **shipments for**  **gas­fired**

**residential pool**  **heaters with**  **your company’s**  **projections of**  **industry­wide shipments.** 

**12A­86**Table 5­1 Annual Industry­Wide Shipment Projections for Gas­fired Residential Pool

Heaters absent Amended Energy Conservation Standards

**2007**

**Total**

**Industry**

**Wide**

**Shipments 2008** 

**Total**

**Industry**

**Wide**

**Shipments Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2013*** **Projected Total** 

**Industry­Wide**

**Shipments in** 

**2023 Projected**  **Total**

**Industry­Wide**

**Shipments in** 

**2033**

**DOE’s Estimate**  **for**

**Total Industry** 

**Shipments**

**(Millions)  ** 0.242** **0.225 0.286**  **0.316 0.345** 

**Manufacturer**

**Feedback**

***** **2013 is**  **estimated effective**  **date of**  **amended energy**  **conservation standards**  **for pool**  **heaters.**

****** **For pool**  **heaters, 2007**  **and 2008**  **data are**  **estimates from**  **DOE's shipment**  **model (updated**  **March 2009).** 

**Projections are**  **updated using**  **(1) AEO2009**  **New Housing**  **Forecast; (2)**  **New Swimming**  **Pool Shipment**  **Data; (3)** 

**historical RECS**  **Data; and**  **(4) Accounted**  **for a**  **fraction for**  **households that**  **do not**  **replace failed**  **pool heaters..** 

**5.2 Are**  **the 2007**  **and 2008**  **industry wide­shipments**  **shown in**  **Table 5­1**  **consistent with** 

**historic trends?**  **Do you**  **expect total**  **shipment levels**  **to return**  **to their**  **previous levels**  **(i.e., those** 

**levels prior**  **to 2007)?** 

**5.3 DOE’s**  **shipments analysis**  **estimates industry­wide**  **shipments in**  **2013 would**  **continue to** 

**increase even**  **as amended**  **energy conservation**  **standards become**  **effective due**  **to new**  **housing**

**starts. Could**  **you provide**  **any qualitative**  **information on**  **expected changes**  **in total**  **industry**

**shipments if**  **DOE set**  **the amended**  **energy conservation**  **standard at**  **the efficiency**  **levels shown** 

**in Table**  **5­1?**

6 PRODUCT MIX

**Product mix**  **describes the**  **distribution of**  **current shipments**  **by efficiency**  **level. Changes**  **in the** 

**product mix**  **due to**  **amended energy**  **conservation standards**  **can have**  **a large**  **impact on**  **industry**

**revenues. Having**  **an accurate**  **estimate of**  **the current**  **product mix**  **allows DOE**  **to better**  **estimate**

**how revenues**  **might change**  **due to**  **amended energy**  **conservation standards.** 

**6.1 Does**  **your company**  **offer multiple**  **product lines**  **at different**  **efficiency levels?**  **Could you** 

**provide a**  **description of**  **your company’s**  **product lines**  **and their**  **respective efficiency**  **levels?**

**6.2 Table**  **6­1 show**  **DOE’s estimate**  **for the**  **current mix**  **of shipments**  **by efficiency**  **today and** 

**12A­87 in**  **2013, the**  **anticipated effective**  **date of**  **amended energy**  **conservation standards.**  **Could you** 

**provide feedback**  **on DOE’s**  **estimates based**  **on your**  **knowledge of**  **the industry?** 

Table 6­1 Percentage of Industry­Wide Shipments by Efficiency Level for Gas­fired

Residential Pool Heaters Today and in 2013

**Percentage of** 

**Total**

**Shipments at** 

**each**

**Efficiency Baseline** 

**Level**

**(78%) EL**  **1**

**(79%) EL**  **2**

**(81%) EL**  **3**

**(82%) EL**  **4**

**(83%) EL**  **5**

**(84%) EL**  **6**

**(86%) EL**  **7**

**(90%) EL**  **8**

**(95%)**

**DOE’s**

**Estimate**

**(2008) 1%**  **12% 21%**  **33% 14%**  **12% 6%**  **0% 1%** 

**Manufacturer**

**Feedback**

**DOE’s**

**Estimate**

**(2013) 1%**  **12% 21%**  **33% 14%**  **12% 6%**  **0% 1%** 

**Manufacturer**

**Feedback**

**6.3 Do**  **you expect**  **the product**  **mix to**  **change over**  **time? If**  **so, please**  **explain why.** 

**6.4 An**  **amended energy**  **conservation standard**  **affects the**  **product mix**  **by eliminating**  **the sale** 

**of products**  **below the**  **minimum efficiency**  **level. DOE**  **assumes that**  **all products**  **that fall**  **below**

**the standard**  **would roll­up**  **to the**  **efficiency level**  **set by**  **an amended**  **energy conservation** 

**standard. DOE**  **assumes the**  **distribution of**  **efficiencies above**  **the efficiency**  **level set**  **by the** 

**energy conservation**  **standard will**  **not change.**  **In other**  **words, those**  **customers already** 

**purchasing more­efficient**  **products will**  **continue to**  **do so**  **irrespective of**  **amended energy** 

**conservation standards.**  **How do**  **you think**  **amended energy**  **conservation standards**  **will impact** 

**the sales**  **of more**  **efficient products?**  **For example,**  **would customers**  **continue to**  **buy products** 

**that exceed**  **the energy**  **conservation standard**  **level? Would**  **your response**  **change at**  **higher**

**efficiency levels?** 

7 FINANCIAL PARAMETERS

**Navigant Consulting,**  **Inc. (NCI)**  **has developed**  **a “strawman”**  **model of**  **the gas­fired**  **residential**

**pool heater**  **industry financial**  **performance called**  **the Government**  **Regulatory Impact**  **Model**

**(GRIM) using**  **publicly available**  **data. This**  **section attempts**  **to understand**  **how your**  **company’s**

**financial situation**  **differs from**  **our industry**  **aggregate picture.** 

**12A­88 7.1**  **Please compare**  **your financial**  **parameters to**  **the GRIM**  **parameters tabulated**  **below.**

Table 7­1 Financial Parameters for Residential Pool Heater Manufacturers

**GRIM Input**  **Definition Industry** 

**Estimated**

**Value Your**  **Actual (If** 

**Significantly**

**Different from** 

**DOE’s Estimate)** 

**Income Tax**  **Rate Corporate**  **effective income**  **tax**

**paid (percentage**  **of earnings** 

**before taxes,**  **EBT) 27.5%** 

**Discount Rate**  **Weighted average**  **cost of**  **capital**

**(inflation­adjusted weighted** 

**average of**  **corporate cost**  **of debt** 

**and return**  **on equity)**  **8.5%**

**Working Capital**  **Current assets**  **less current** 

**liabilities (percentage**  **of**

**revenues) 11.4%** 

**SG&A Selling,**  **general, and** 

**administrative expenses** 

**(percentage of**  **revenues) 20.9%** 

**R&D Research**  **and development** 

**expenses (percentage**  **of**

**revenues) 1.5%** 

**Depreciation Amortization**  **of fixed**  **assets**

**(percentage of**  **revenues) 2.2%** 

**Capital Expenditures**  **Outlay of**  **cash to**  **acquire or** 

**improve capital**  **assets**

**(percentage of**  **revenues, not** 

**including acquisition**  **or sale**  **of**

**business units)**  **2.2%**

**Cost of**  **Goods Sold**  **Includes material,**  **labor,**

**overhead, and**  **depreciation**

**(percentage of**  **revenues) 71.3%** 

**7.2 How**  **would you**  **expect an**  **amended energy**  **conservation standard**  **to impact**  **any of**  **the**

**financial parameters**  **for the**  **industry?**

8 CONVERSION COSTS

**Amended energy**  **conservation standards**  **may cause**  **your company**  **to incur**  **capital and**  **product**

**conversion costs**  **to redesign**  **existing products**  **and make**  **changes to**  **existing production**  **lines to** 

**be compliant**  **with the**  **amended energy**  **conservation standard.**  **Capital conversion**  **costs are**  **one**

**time investments**  **in plant,**  **property, and**  **equipment (PPE)**  **necessitated by**  **an amended**  **energy**

**conservation standard.**  **These may**  **be incremental**  **changes to**  **existing PPE**  **or the**  **replacement of** 

**existing PPE.**  **Replacing existing**  **PPE could**  **strand existing**  **assets before**  **the end**  **of their**  **useful**

**lives. In**  **addition to**  **capital conversion**  **costs, product**  **conversion costs**  **are costs**  **related research,** 

**12A­89 product**  **development, testing,**  **marketing and**  **other costs**  **for redesigning**  **products necessitated**  **by**

**an amended**  **energy conservation**  **standard.**

**8.1 What**  **level of**  **conversion costs**  **do you**  **anticipate incurring**  **under the**  **different efficiency** 

**levels DOE**  **is considering?**  **Refer to**  **the tables**  **below to**  **provide your**  **company’s estimates.** 

**Please provide**  **additional qualitative**  **information to**  **help DOE**  **understand the**  **types and**  **nature of** 

**your investments.** 

Table 8­1 Gas­fired Residential Pool Heater Conversion Costs

**Efficiency Gas­fired**  **Residential Pool**  **Heater**

**Level**

**(Thermal**

**Efficiency) Capital** 

**Conversion**

**Costs (2009$)**  **Product**

**Conversion**

**Costs (2009$)**  **Stranded Assets** 

**(2009$)**

**Baseline (78%)** 

**EL 1**  **(79%)**

**EL 2**  **(81%)**

**EL 3**  **(82%)**

**EL 4**  **(83%)**

**EL 5**  **(84%)**

**EL 6**  **(86%)**

**EL 7**  **(90%)**

**EL 8**  **(95%)**

9 CUMULATIVE REGULATORY BURDEN

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

**new or**  **revised DOE**  **standards, voluntary**  **standards, and/or**  **other regulatory**  **actions affecting**  **the**

**same product**  **or industry.** 

**9.1 Are**  **there other**  **recent or**  **impending regulations**  **that gas­fired**  **residential pool**  **heater**

**manufacturers face**  **(from DOE**  **or otherwise)?**  **If so,**  **could you**  **identify the**  **regulation and**  **the**

**corresponding possible**  **effective dates**  **for those**  **regulations? Below**  **is a**  **list of**  **regulations that** 

**could possibly**  **affect manufacturers**  **of gas­fired**  **residential pool**  **heaters. Please**  **provide any** 

**comments on**  **the listed**  **regulations in**  **addition to**  **other regulations.** 

**12A­90**Table 9­1 Other Regulations Identified by DOE

**Regulation Possible**  **Effective Date(s)**  **Comments**

**DOE’s Amended**  **Energy Conservation** 

**Standards for**  **Other Products** 

**International Energy**  **Efficiency Standards** 

**State Emission**  **Requirements and**  **Other**

**State Regulations** 

**Uniform Plumbing,**  **Building, and**  **Safety**

**Codes**

**South Coast**  **Air Quality**  **Management**

**District (SCAQMD)**  **Ultra­Low NOx** 

**Requirements**

**9.2 What**  **level of**  **expense are**  **you expecting**  **to incur**  **as a**  **result of**  **these regulations?** 

**9.3 Under**  **what circumstances**  **would you**  **be able**  **to coordinate**  **any expenditures**  **related to** 

**these other**  **regulations with**  **an amended**  **energy conservation**  **standard, thereby**  **lessening the** 

**cumulative burden?** 

10 DIRECT EMPLOYMENT IMPACT ASSESSMENT

**The impact**  **of amended**  **energy conservation**  **standards on**  **employment is**  **an important** 

**consideration in**  **the rulemaking**  **process. This**  **section of**  **the interview**  **guide seeks**  **to explore** 

**current trends**  **in residential**  **pool heater**  **production employment**  **and solicit**  **manufacturer views** 

**on how**  **domestic employment**  **patterns might**  **be affected**  **by amended**  **energy conservation** 

**standards.**

**10.1 Would**  **your domestic**  **employment levels**  **be expected**  **to change**  **significantly under** 

**amended energy**  **conservation standards?**  **If so,**  **please explain**  **how they**  **would change**  **if higher** 

**efficiency levels**  **are required.** 

**10.2 Would**  **the workforce**  **skills necessary**  **under amended**  **energy conservation**  **standards**

**require extensive**  **retraining or**  **replacement of**  **employees at**  **your manufacturing**  **facilities?**

**12A­91 10.3**  **Would amended**  **energy conservation**  **standards require**  **extensive retraining**  **of your** 

**service/field technicians?**  **If so,**  **could you**  **expand on**  **how your**  **service infrastructure**  **would be** 

**impacted in**  **general as**  **a result**  **of amended**  **energy conservation**  **standards?**

11 EXPORTS / FOREIGN COMPETITION / OUTSOURCING

**Disparity between**  **domestic and**  **foreign energy**  **conservation standards**  **could impact**  **exports or** 

**imports. Labor**  **content and**  **material changes,**  **resulting from**  **amended energy**  **conservation**

**standards, may**  **impact sourcing**  **decisions.**

**11.1 What**  **percentage of**  **your company’s**  **gas­fired residential**  **pool heater**  **sales is**  **domestic?**

**Absent amended**  **energy conservation**  **standards, are**  **production facilities**  **being relocated**  **to**

**foreign countries?**  **Would amended**  **energy conservation**  **standards impact**  **your domestic**  **vs.**

**foreign manufacturing**  **decision?**

**11.2 If**  **applicable, to**  **what foreign**  **countries or**  **regions do**  **you export**  **your products?**  **What**

**percentage of**  **sales can**  **be attributed**  **to each?** 

**11.3 Would**  **an amended**  **energy conservation**  **standard be**  **expected to**  **affect your**  **export sales?** 

**What would**  **the resulting**  **impact be,**  **if any,**  **on your**  **manufacturing operations**  **and profitability?** 

**11.4 Are**  **your foreign**  **exports affected**  **by amended**  **energy conservation**  **standards in**  **other**

**countries?**

**11.5 What**  **percentage of**  **the U.S.**  **market for**  **gas­fired residential**  **pool heaters**  **is imported?** 

**Would amended**  **energy conservation**  **standards have**  **an impact**  **on foreign**  **competition?**

**11.6 What**  **is your**  **outlook for**  **gas­fired residential**  **pool heater**  **exports?**

**12A­92**12 CONSOLIDATION

**Amended energy**  **conservation standards**  **can alter**  **the competitive**  **dynamics of**  **the market.**  **This**

**can include**  **prompting companies**  **to enter**  **or exit**  **the market,**  **or to**  **merge. DOE**  **and the** 

**Department of**  **Justice are**  **both interested**  **in any**  **potential reduction**  **in competition**  **that would** 

**result from**  **an amended**  **energy conservation**  **standard.**

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

**12.2 In**  **the absence**  **of amended**  **energy conservation**  **standards, do**  **you expect**  **any further** 

**industry consolidation?**  **Please describe**  **your expectations.** 

**12.3 How**  **would amended**  **energy conservation**  **standards affect**  **your ability**  **to compete?** 

13 IMPACTS ON SMALL BUSINESS

**13.1 The**  **Small Business**  **Association (SBA)**  **denotes a**  **small business**  **in the**  **gas­fired**

**residential pool**  **heater industry**  **as having**  **less than**  **500 employees**  **9**

**. By**  **this definition,**  **is your** 

**company considered**  **a small**  **business?**

**13.2 Are**  **there any**  **reasons that**  **a small**  **business might**  **be at**  **a disadvantage**  **relative to**  **a larger** 

**business under**  **amended energy**  **conservation standards?**  **Please consider**  **such factors**  **as**

**technical expertise,**  **access to**  **capital, bulk**  **purchasing power**  **for materials/components,** 

**engineering resources,**  **and any**  **other relevant**  **issues.**

**13.3 Are**  **there any**  **niche manufacturers,**  **small businesses,**  **and/or component**  **manufacturers**

**for which**  **the adoption**  **of amended**  **energy conservation**  **standards would**  **have a**  **severe impact?** 

**If so,**  **would manufacturers**  **of these**  **products have**  **different incremental**  **impacts from** 

**implemented amended**  **energy conservation**  **standards than**  **from the**  **rest of**  **the industry?** 

**9 DOE**  **uses the**  **small business**  **size standards**  **published on**  **August 22,**  **2008, as**  **amended, by**  **the Small**  **Business**

**Administration (SBA)**  **to determine**  **whether a**  **company is**  **a small**  **business. To**  **be categorized**  **as a**  **small business,**  **a**

**residential pool**  **heater manufacturer**  **and its**  **affiliates may**  **employ a**  **maximum of**  **500 employees.**  **The 500** 

**employee threshold**  **includes all**  **employees in**  **a business’s**  **parent company**  **and any**  **other subsidiaries.** 

**12A­93**12A.6 GOVERNMENT REGULATORY IMPACT MODEL (GRIM) OVERVIEW

12A.6.1 INTRODUCTION AND PURPOSE

**The purpose**  **of the**  **Government Regulatory**  **Impact Model**  **(GRIM) is**  **to help**  **quantify the** 

**impacts of**  **energy conservation**  **standards and**  **other regulations**  **on manufacturers.**  **The basic** 

**mode of**  **analysis is**  **to estimate**  **the change**  **in value**  **of the**  **industry or**  **manufacturers(s) following** 

**a regulation**  **or a**  **series of**  **regulations. The**  **model structure**  **also allows**  **an analysis**  **of multiple** 

**products with**  **regulations taking**  **effect over**  **a period**  **of time,**  **and of**  **multiple regulations**  **on the** 

**same products.** 

**Industry net**  **present value**  **is defined,**  **for the**  **purpose of**  **this analysis,**  **as the**  **discounted**

**sum of**  **industry free**  **cash flows**  **plus a**  **discounted terminal**  **value. The**  **model calculates**  **the**

**actual cash**  **flows by**  **year and**  **then determines**  **the present**  **value of**  **those cash**  **flows both**  **without**

**an energy**  **conservation standard**  **(** i.e.

**, the**  **base case)**  **and under**  **different trial**  **standard levels** 

**(TSLs) (**  i.e.

**, the**  **standards case).** 

**Output from**  **the model**  **consists of**  **summary financial**  **metrics, graphs**  **of major**  **variables,**

**and, when**  **appropriate, access**  **to the**  **complete cash**  **flow calculation.** 

12A.6.2 MODEL DESCRIPTION

**The basic**  **structure of**  **the GRIM**  **is a**  **standard annual**  **cash flow**  **analysis that**  **uses**

**manufacturer selling**  **prices, manufacturing**  **costs, a**  **shipments forecast,**  **and financial**  **parameters**

**as inputs**  **and accepts**  **a set**  **of regulatory**  **conditions as**  **changes in**  **costs and**  **investments. The** 

**cash flow**  **analysis is**  **separated into**  **two major**  **blocks: income**  **and cash**  **flow. The**  **income**

**calculation determines**  **net operating**  **profit after**  **taxes. The**  **cash flow**  **calculation converts**  **net**

**operating profit**  **after taxes**  **into an**  **annual cash**  **flow by**  **including investment**  **and non­cash**  **items.**

**Below are**  **definitions of**  **listed items**  **on the**  **printout of**  **the output**  **sheet (see**  **Section 12A.6.3).** 

(1) Unit Sales: **Total annual**  **shipments for**  **the industry**  **were obtained**  **from the**  **National**

**Impact Analysis**  **Spreadsheet;**

(2) Revenues: **Annual revenues**  **­ computed by**  **multiplying products’**  **unit prices**  **at each** 

**efficiency level**  **by the**  **appropriate manufacturer**  **markup;**

(3) Labor: **The portion**  **of cost**  **of goods**  **sold (COGS)**  **that includes**  **direct labor,**  **commissions,**

**dismissal pay,**  **bonuses, vacation,**  **sick leave,**  **social security**  **contributions, fringe,**  **and**

**assembly labor**  **up­time;**

(4) Material: **The portion**  **of COGS**  **that includes**  **materials;**

**12A­94**(5) Overhead: **The portion**  **of COGS**  **that includes**  **indirect labor,**  **indirect material,**  **energy use,** 

**maintenance, depreciation,**  **property taxes,**  **and insurance**  **related to**  **assets. While**  **included**

**in overhead,**  **the depreciation**  **is shown**  **as a**  **separate line**  **item;**

(6) Depreciation: **The portion**  **of overhead**  **that includes**  **an allowance**  **for the**  **total amount**  **of**

**fixed assets**  **used to**  **produce that**  **one unit.**  **Annual depreciation**  **computed as**  **a percentage** 

**of** COGS. **While included**  **in overhead,**  **the depreciation**  **is shown**  **as a**  **separate line**  **item;**

(7) Stranded Assets: **In the**  **year the**  **standard becomes**  **effective, a**  **one time**  **write­off of** 

**stranded assets**  **is accounted**  **for;**

(8) Standard SG&A: **Selling, general,**  **and administrative**  **costs are**  **computed as**  **a percentage** 

**of** Revenues (2) **;**

(9) R&D: **GRIM separately**  **accounts for**  **ordinary research**  **and development**  **(R&D) as**  **a**

**percentage of**  Revenues (2) **;**

(10) Product Conversion Costs: **Product conversion**  **costs are**  **one­time investments**  **in research,** 

**development, testing,**  **marketing, and**  **other costs**  **focused on**  **making products**  **designs**

**comply with**  **the new**  **energy conservation**  **standard. The**  **GRIM allocates**  **these costs**  **over**

**the period**  **between the**  **standard’s announcement**  **and compliance**  **dates;**

(11) Earnings Before Interest and Taxes (EBIT): **Includes profits**  **before deductions**  **for**

**interest paid**  **and taxes;** 

(12) EBIT as a Percentage of Sales (EBIT/Revenues): **GRIM calculates**  **EBIT as**  **a percentage** 

**of sales**  **to compare**  **with the**  **industry’s average**  **reported in**  **financial statements;** 

(13) Taxes: **Taxes on**  EBIT (11) **are calculated**  **by multiplying**  **the tax**  **rate contained**  **in Major** 

**Assumptions by**  EBIT (11)

**.**

(14) Net Operating Profits After Taxes (NOPAT): **Computed by**  **subtracting** Cost of Goods

Sold ((3) to (6))

**,** SG&A (8)

**,** R&D (9)

**,** Product Conversion Costs (10)

**, and**  Taxes (13)

**from** Revenues (2)

**.**

(15) NOPAT repeated **: NOPAT**  **is repeated**  **in the**  **Statement of**  **Cash Flows;** 

(16) Depreciation repeated **: Depreciation**  **and Stranded**  **Assets are**  **added back**  **in the**  **Statement**

**of Cash**  **Flows because**  **they are**  **non­cash expenses;** 

(17) Change in Working Capital **: Change**  **in cash**  **tied up**  **in accounts**  **receivable, inventory,**  **and**

**other cash**  **investments necessary**  **to support**  **operations is**  **calculated by**  **multiplying**

**working capital**  **(as a**  **percentage of**  **revenues) by**  **the change**  **in annual**  **revenues.**

**12A­95**(18) Cash Flow From Operations **: Calculated**  **by taking**  NOPAT (15)

**, adding**  **back non­cash** 

**items such**  **as a**  Depreciation (16)

**, and**  **subtracting the**  Change in Working Capital (17) **;**

(19) Ordinary Capital Expenditures: **Ordinary investments**  **in property,**  **plant, and**  **equipment to** 

**maintain and**  **replace existing**  **production assets,**  **computed as**  **a percentage**  **of** Revenues (2) **;**

(20) Capital Conversion Costs: **Capital conversion**  **costs are**  **one­time 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;**  **The GRIM**  **allocates**

**these costs**  **over the**  **period between**  **the standard’s**  **announcement and**  **compliance dates;** 

(21) Capital Investment: **Total investments**  **in property,**  **plant, and**  **equipment are**  **computed by** 

**adding** Ordinary Capital Expenditures (19) **and** Capital Conversion Costs (20) **;**

(22) Free Cash Flow: **Annual cash**  **flow from**  **operations and**  **investments; computed**  **by**

**subtracting** Capital Investment (21) **from** Cash Flow from Operations (18) **;**

(23) Terminal Value: **Estimate of**  **the continuing**  **value of**  **the industry**  **after the**  **analysis period.** 

**Computed by**  **growing the**  **Free Cash**  **Flow at**  **the beginning**  **of 2045**  **at a**  **constant rate**  **in**

**perpetuity;**

(24) Present Value Factor: **Factor used**  **to calculate**  **an estimate**  **of the**  **present value**  **of an** 

**amount to**  **be received**  **in the**  **future;**

(25) Discounted Cash Flow: Free Cash Flows (22) **multiplied by**  **the** Present Value Factor

(24)

**. For**  **the end**  **of 2044,**  **the discounted**  **cash flow**  **includes the**  **discounted** Terminal

Value (23) **; and** 

(26) Industry Value thru the end of 2044: **The sum**  **of** Discounted Cash Flows (25)

**.**

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