UNITED STATES

DEPARTMENT OF ENERGY

MANUFACTURER IMPACT ANALYSES WORKSHOP

Room 1E-245

U.S. Department of Energy

1000 Independence Avenue, SW

Washington, D.C.

Tuesday,

March 11, 1997

9:00 a.m.

U.S. Department of Energy

DOUGLAS BROOKMAN

QUONNIE LAUGHLIN

JIM RABA

SANDY BEALL

MICHAEL McCABE

CARL ADAMS

DR. BARRY BERLIN

EUGENE MARGOLIS

MARK FRIEDRICHS

List of Attendees

RANDY BARNES

Oak Ridge National Laboratory

RICHARD A. BEST

Whirlpool Corporation

JEFF BROWN

Circuit Stores, inc.

JOHN H. CYMBALSKY

U.S. Department of Energy

DAN DEMPSEY

Carrier Corporation

JIM EISENBEIS

Burnham Corporation

DAVID ARNOLD

Arthur D. Little, Inc.

`/N

1

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 EE-PI-96-001 COMMENT 88

UNITED STATES 

DEPARTMENT OF ENERGY 

MANUFACTURER IMPACT ANALYSES WORKSHOP 

Room 1E-245 

U.S. Department of Energy 

1000 Independence Avenue, SW 

Washington, D.C. 

Tuesday, 

March II, 1997 

9:00 a.m. 

U.S. Department of Energy 

DOUGLAS BROOKMAN 

QUONNIE LAUGHLIN 

JIM RABA 

SANDY BEALL 

MICHAEL McCABE 

CARL ADAMS 

DR. BARRY BERLIN 

EUGENE MARGOLIS 

MARK FRIEDRICHS 

List of Attendees 

RANDY BARNES 

Oak Ridge National Laboratory 

RICHARD A. BEST 

Whirlpool Corporation 

JEFF BROWN 

Circuit Stores, inc. 

JOHN H. CYMBALSKY 

U.S. Department of Energy 

DAN DEMPSEY 

Carrier Corporation 

JIM EISENBEIS 

Burnham Corporation 

DAVID ARNOLD 

Arthur D. Little, Inc. 

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2

List of Attendees (Continued)

L. DAN BARZEL

Circuit City Stores, Inc.

ERIN BOEDECKER

U.S. Department of Energy

THOMAS BUDREWICZ, JR.

Arthur D. Little

SUJIT DAS

Oak Ridge National Laboratory

TOM ECKMAN

Northwest Power Planning Council

BRADFORD W. FLORA

Whirlpool Corporation

GENE FOLEY

The Alliance to Save Energy

DAVID B. GOLDSTEIN

Natural Resources Defense Council

JOHN HANKEY

Modine Heat Transfer, Inc.

MARK HASKELL

Travis & Gooch

LIZ KLUMPP

Washington Energy Policy

KIRSTIE KUMMER

American Gas Association

DAVID F. LEWIS

Lennox Industries, Inc.

PATRICIA A. FRANCO

Philips Electronics

WILBUR L. HAAG, JR.

A.O. Smith Water Products Company

MARK HARMONIS

U.S. Department of Justice

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List of Attendees (Continued) 

L. DAN BARZEL 

Circuit City Stores, Inc. 

ERIN BOEDECKER 

U.S. Department of Energy 

THOMAS BUDREWICZ, JR. 

Arthur D. Little 

SUJIT DAS 

Oak Ridge National Laboratory 

TOM ECKMAN 

Northwest Power Planning Council 

BRADFORD W. FLORA 

Whirlpool Corporation 

GENE FOLEY 

The Alliance to Save Energy 

DAVID B. GOLDSTEIN 

Natural Resources Defense Council 

JOHN HANKEY 

Modine Heat Transfer, Inc. 

MARK HASKELL 

Travis & Gooch 

LIZ KLUMPP 

Washington Energy Policy 

KIRSTIE KUMMER 

American Gas Association 

DAVID F. LEWIS 

Lennox Industries, Inc. 

PATRICIA A. FRANCO 

Philips Electronics 

WILBUR L. HAAG, JR. 

A.O. Smith Water Products Company 

MARK HARMONIS 

U.S. Department of Justice 

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List of Attendees (Continued)

EARL F. JONES

General Electric Company

MARK E. KREBS

Laclede Gas Company

MARK LEVINE

Lawrence Berkeley Laboratory

DR. QUENTIN LOONEY

Policy Research Associates, Inc.

JAMES McMAHON

Lawrence Berkeley Laboratory

EDWARD J. McINERNEY

General Electric Company

BARBARA MINTZER-McMAHON

Center for Transitional Management

R. DEAN MORRISON

Rheem Manufacturing company

MICHAEL C. RIVEST

Arthur D. Little, Inc.

GLENN R. SCHLEEDE

Energy Market & Policy Analysis, Inc.

EVERETT SHOREY

Shorey Consulting, Inc.

JOSEPH M. MATTINGLEY

Gas Appliance Manufacturers Association, Inc.

MARK MIEFER

PNNL

WAYNE E. MORRIS

Association of Home Appliance Manufacturers

MARK L. PERLIS

Dickstein , Shapiro & Morin , L.L.P.

CHARLES A. SAMUELS

Association of Home Appliance Manufacturers

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List of Attendees (Continued) 

EARL F. JONES 

General Electric Company 

MARK E. KREBS 

Laclede Gas Company 

MARK LEVINE 

Lawrence Berkeley Laboratory 

DR. QUENTIN LOONEY 

Policy Research Associates, Inc. 

JAMES McMAHON 

Lawrence Berkeley Laboratory 

EDWARD J. McINERNEY 

General Electric Company 

BARBARA MINTZER-McMAHON 

Center for Transitional Management 

R. DEAN MORRISON 

Rheem Manufacturing company 

MICHAEL C. RIVEST 

Arthur D. Little, Inc. 

GLENN R. SCHLEEDE 

Energy Market & Policy Analysis, Inc. 

EVERETT SHOREY 

Shorey Consulting, Inc. 

JOSEPH M. MATTINGLEY 

3 

Gas Appliance Manufacturers Association, Inc. 

MARK MIEFER 

PNNL 

WAYNE E. MORRIS 

Association of Home Appliance Manufacturers 

MARK L. PERLIS 

Dickstein, Shapiro & Morin, L.L.P. 

CHARLES A. SAMUELS 

Association of Home Appliance Manufacturers 

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List of Attendees (Continued)

STEVE SHANKEL

Pacific Northwest National Laboratory

CHARLES STEPHENS

Oregon Department of Energy

RICHARD E. STILLWELL

Maytag Appliances

MICHAEL C. THOMPSON

Whirlpool Corporation

ISAAC TURIEL

Lawrence Berkeley National Laboratory

STEVEN WADE

U.S. Department of Energy

BERNIE WARNING

York International

LAWRENCE R. WETHJE

Air-Conditioning & Refrigeration Institute

ROBERT W. WISBEY

Advance Transformer Company

TERRY THIELE

White Consolidated Industries, Inc.

RICHARD F. TOPPING, P.E.

Arthur D. Little, Inc.

JIM VAN DYKE

Oak Ridge National Laboratory

BILL WALTER

Carrier Corporation

DOUG WEEKLY

Maytag

JOHN A. WILSON

California Energy Commission

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List of Attendees (Continued) 

STEVE SHANKEL 

Pacific Northwest National Laboratory 

CHARLES STEPHENS 

Oregon Department of Energy 

RICHARD E. STILLWELL 

May tag Appliances 

MICHAEL C. THOMPSON 

Whirlpool Corporation 

ISAAC TURIEL 

Lawrence Berkeley National Laboratory 

STEVEN WADE 

U.S. Department of Energy 

BERNIE WARNING 

York International 

LAWRENCE R. WETHJE 

Air-Conditioning & Refrigeration Institute 

ROBERT W. WISBEY 

Advance Transformer Company 

TERRY THIELE 

White Consolidated Industries, Inc. 

RICHARD F. TOPPING, P.E. 

Arthur D. Little, Inc. 

JIM VAN DYKE 

Oak Ridge National Laboratory 

BILL WALTER 

Carrier Corporation 

DOUG WEEKLY 

May tag 

JOHN A. WILSON 

California Energy Commission 

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5

A G E N D A

AGENDA ITEM: PAGE:

Opening Remarks, Overview, Agenda Review 7

Description of the Review Process 18

Major Objectives of the Process

Rule Regarding the Analysis of

Manufacturer Impacts

Process Description

Schedule

Analytical Framework

Measures of Impact

Firms Considered

Balance of Qualitative and

Quantitative Assessments

Description of New Approach

Overview

Relationship to Other Standards

Analyses

Phase 1, Industry Profile

Phase 2, Industry Cash Flow

Phase 3, Sub-Group Analysis

28

28

Description of the GRIM Model 65

Role and Applicability of the

GRIM Model

Financial Principles

Input Requirements

Output Results

Open Discussion, Suggested Modification,

e.g. inclusion of return on investment

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AGENDA 

AGENDA ITEM: 

Opening Remarks, Overview, Agenda Review 

Description of the Review Process 

Major Objectives of the Process 

Rule Regarding the Analysis of 

Manufacturer Impacts 

Process Description 

Schedule 

Analytical Framework 

Measures of Impact 

Firms Considered 

Balance of Qualitative and 

Quantitative Assessments 

Description of New Approach 

Overview 

Relationship to Other Standards 

Analyses 

Phase 1, Industry Profile 

Phase 2, Industry Cash Flow 

Phase 3, Sub-Group Analysis 

Description of the GRIM Model 

Role and Applicability of the 

GRIM Model 

Financial Principles 

Input Requirements 

Output Results 

Open Discussion, Suggested Modification, 

e.g. inclusion of return on investment 

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PAGE: 

7 

18 

28 

28 

65 
6

A G E N D A

AGENDA ITEM: PAGE:

Afternoon Session

Preparing the Industry Profiles 132

Industry Characterization

Industry Databook

Issues in Shipments Forecasts - Panel and 158

Open Discussion

Role of Forecasting Models in the

Manufacturer Impact Analyses

General Description of Models,

Including:

Input Requirements

Outputs

Key Assumptions

Uncertainty Analysis

Track Record

Operating Characteristics

New Spread Sheet Approach

Advantages and Disadvantages of

Alternate Approaches to Forecasting

Shipments for GRIM

Optional Hands-On Computer Training on the

Models

Adjournment

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AGENDA 

AGENDA ITEM: 

Afternoon Session 

Preparing the Industry Profiles 

Industry Characterization 

Industry Databook 

PAGE: 

132 

Issues in Shipments Forecasts - Panel and 158 

Open Discussion 

Role of Forecasting Models in the 

Manufacturer Impact Analyses 

General Description of Models, 

Including: 

Input Requirements 

Outputs 

Key Assumptions 

Uncertainty Analysis 

Track Record 

Operating Characteristics 

New Spread Sheet Approach 

Advantages and Disadvantages of 

Alternate Approaches to Forecasting 

Shipments for GRIM 

Optional Hands-On Computer Training on the 

Models 

Adjournment 

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1 P R O C E E D I N G S

2 9:08 a.m.

3 Opening Remarks, Overview, Agenda Review

4 MR. BROOKMAN: Take your seats, please.

5 We're going to begin shortly.

6 (Pause)

7 MR. BROOKMAN: Good morning, and welcome.

8 Welcome to the Manufacturer Impact Analyses Workshop.

9 Are you with us or are you recording? Yes.

10 Great. Okay.

11 The -- this meeting will be taped, and a

12 transcript will be available at some point after -- I

13 guess a week or two after -- yeah -- after this meeting

14 has concluded.

15 My name is Doug Brockman, and I'll be

16 facilitating this meeting today.

17 Let me start off by simply introducing

18 Quonnie Laughlin, who many of you know, for opening

19 remarks.

20 MS. LAUGHLIN: Good morning. I am Quonnie

21 Laughlin, Team Leader for the Manufacturer Impact

22 Analyses Team in the Office of Codes and Standards.

23 The following people are also on the team:

24 Carl Adams and Dr. Barry Berlin from the office of

25 Codes and Standards; Eugene Margolis from the Office of

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1 PRO C E E DIN G S 

2 9:08 a.m. 

3 Opening Remarks, Overview, Agenda Review 

4 MR. BROOKMAN: Take your seats, please. 

5 We're going to begin shortly. 

6 (Pause) 

7 MR. BROOKMAN: Good morning, and welcome. 

8 Welcome to the Manufacturer Impact Analyses Workshop. 

9 Are you with us or are you recording? Yes. 

10 Great. Okay. 

11 The -- this meeting will be taped, and a 

12 transcript will be available at some point after I 

13 guess a week or two after -- yeah -- after this meeting 

14 has concluded. 

15 My name is Doug Brookman, and I'll be 

16 facilitating this meeting today. 

17 Let me start off by simply introducing 

18 Quonnie Laughlin, who many of you know, for opening 

19 remarks. 

20 MS. LAUGHLIN: Good morning. I am Quonnie 

21 Laughlin, Team Leader for the Manufacturer Impact 

22 Analyses Team in the Office of Codes and Standards. 

23 The following people are also on the team: 

24 Carl Adams and Dr. Barry Berlin from the Office of 

25 Codes and Standards; Eugene Margolis from the Office of 

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1 General Counsel; and Mark Friedrichs from the Office of

2 Policy and International Affairs.

3 I would also like to recognize Mike Rivest

4 from Arthur D. Little, who developed the draft work

5 plan.

6 On behalf of the Department of Energy, I

7 would like to thank all of you for taking the time to

8 participate in this public workshop which will help us

9 implement the new process as set forth in the July 15th

10 process rule.

11 The purpose of this workshop is to discuss a

12 new approach to assessing the likely impacts on

13 manufacturers of appliance energy efficiency standards.

14 The department sent a letter on February

15 11th, 1996, to all interested parties that have

16 participated in process improvement activities

17 announcing this workshop. A draft work plan was sent

18 to people who indicated that they were attending the

19 workshop or were interested in receiving material

20 prepared for the workshop.

21 A public notice of this workshop was

22 published in the Federal Register.

23 Anyone attending today's workshop will be

24 added to our mailing list for future mailings.

25 The comments received here today and any

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1 General Counseli and Mark Friedrichs from the Office of 

2 Policy and International Affairs. 

3 I would also like to recognize Mike Rivest 

4 from Arthur D. Little, who developed the draft work 

5 plan. 

6 On behalf of the Department of Energy, I 

7 would like to thank all of you for taking the time to 

8 participate in this public workshop which will help us 

9 implement the new process as set forth in the July 15th 

10 process rule. 

11 The purpose of this workshop is to discuss a 

12 new approach to assessing the likely impacts on 

13 manufacturers of appliance energy efficiency standards. 

14 The department sent a letter on February 

15 11th, 1996, to all interested parties that have 

16 participated in process improvement activities 

17 announcing this workshop. A draft work plan was sent 

18 to people who indicated that they were attending the 

19 workshop or were interested in receiving material 

20 prepared for the workshop. 

21 A public notice of this workshop was 

22 published in the Federal Register. 

23 Anyone attending today's workshop will be 

24 added to our mailing list for future mailings. 

25 The comments received here today and any 

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1 which are submitted will assist the department in

2 developing the final work plan.

3 Doug Brookman will be facilitating the

4 workshop and will be setting the guidelines for

5 conducting the workshop and providing other pertinent

6 information.

7 Jim Raba of the Codes and Standards Office

8 will be assisting Doug.

9 In approximately two weeks, a complete copy

10 of the transcript will be available for inspection and

11 copying at the Department of Energy's Freedom of

12 Information Reading Room, located in Room 1E-190.

13 Anyone wishing to purchase a copy of the transcript may

14 make arrangements with the court reporter.

15 To provide the department with as much

16 pertinent information and as many views as can be

17 reasonably obtained and to enable interested persons to

18 express their views, the workshop will be conducted in

19 accordance with the following procedures.

20 The purpose of this workshop is for the

21 department to listen to comments pertinent to the draft

22 work plan and presentations. We will begin with

23 introductions, then discuss the agenda, and expand on

24 any of the topics if you feel it is necessary.

25 We will take a lunch -- an hour lunch break

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9 

1 which are submitted will assist the department in 

2 developing the final work plan. 

3 Doug Brookman will be facilitating the 

4 workshop and will be setting the guidelines for 

5 conducting the workshop and providing other pertinent 

6 information. 

7 Jim Raba of the Codes and Standards Office 

8 will be assisting Doug. 

9 In approximately two weeks, a complete copy 

10 of the transcript will be available for inspection and 

11 copying at the Department of Energy's Freedom of 

12 Information Reading Room, located in Room lE-190. 

13 Anyone wishing to purchase a copy of the transcript may 

14 make arrangements with the court reporter. 

15 To provide the department with as much 

16 pertinent information and as many views as can be 

17 reasonably obtained and to enable interested persons to 

18 express their views, the workshop will be conducted in 

19 accordance with the following procedures. 

20 The purpose of this workshop is for the 

21 department to listen to comments pertinent to the draft 

22 work plan and presentations. We will begin with 

23 introductions, then discuss the agenda, and expand on 

24 any of the topics if you feel it is necessary. 

25 We will take a lunch -- an hour lunch break 

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1 at a convenient time near 12:00 noon, which is on your

2 own. There is a snack bar one floor below us. There

3 is a DOE cafeteria on the second floor of the West

4 Building, and a number of restaurants in the under5 ground mall at L'Enfant Plaza up the street.

6 It will reduce interruptions if everyone who

7 wants to speak waits to be recognized. Please remember

8 to speak into the microphones, especially those in the

9 audience, and state your name and your company name

10 each time before you speak for the court reporter.

11 Side conversations should be kept to a

12 minimum to avoid interrupting the presenter. If a

13 lengthy private discussion is needed, please move to a

14 corner of the room or out of the room.

15 It may be necessary to cut off debate on some

16 topics to maintain the schedule. There will be time at

17 the end of the workshop on the second day for

18 discussion of additional issues.

19 I urge all persons present to participate as

20 much as possible, so that the department may get a full

21 spectrum of opinions on these topics.

22 Today's workshop is scheduled to end at 5:00

23 p.m. or sooner, if all items for today have been

24 discussed. We will commence tomorrow morning at 9 a.m.

25 and finish at 5 p.m.

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1 at a convenient time near 12:00 noon, which is on your 

2 own. There is a snack bar one floor below us. There 

3 is a DOE cafeteria on the second floor of the West 

4 Building, and a number of restaurants in the under5 ground mall at L'Enfant Plaza up the street. 

6 It will reduce interruptions if everyone who 

7 wants to speak waits to be recognized. Please remember 

8 to speak into the microphones, especially those in the 

9 audience, and state your name and your company name 

10 each time before you speak for the court reporter. 

11 Side conversations should be kept to a 

12 minimum to avoid interrupting the presenter. If a 

13 lengthy private discussion is needed, please move to a 

14 corner of the room or out of the room. 

15 It may be necessary to cut off debate on some 

16 topics to maintain the schedule. There will be time at 

17 the end of the workshop on the second day for 

18 discussion of additional issues. 

19 I urge all persons present to participate as 

20 much as possible, so that the department may get a full 

21 spectrum of opinions on these topics. 

22 Today's workshop is scheduled to end at 5:00 

23 p.m. or sooner, if all items for today have been 

24 discussed. We will commence tomorrow morning at 9 a.m. 

25 and finish at 5 p.m. 

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1 We welcome your written comments. At the end

2 of tomorrow's session, we will jointly agree upon a

3 time for submission of comments. All comments and data

4 submitted will be considered as DOE develops the final

5 draft plan.

6 All written comments and data submissions

7 will be available for public inspection at the DOE

8 Freedom of Information Reading Room. Written comments

9 should be addressed to myself or Sandy Beall at the

10 Department of Energy as noted in the Federal Register

11 Notice for today's workshop or in the letter of

12 invitation. 10 copies of the comments or data are

13 requested.

14 In addition, the department would appreciate

15 an electronic copy of the comments or data. The

16 department is using Word Perfect 6.1. No faxed

17 comments will be accepted.

18 Any person submitting information which he or

19 she believes to be confidential and exempt by law from

20 public disclosure should submit one complete copy and

21 10 copies from which information claimed to be

22 confidential has been deleted.

23 In accordance with the procedures established

24 at 10 C.F.R. 1004.11, the Department of Energy shall

25 make its own determination as to whether the

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11 

1 We welcome your written comments. At the end 

2 of tomorrow's session, we will jointly agree upon a 

3 time for submission of comments. All comments and data 

4 submitted will be considered as DOE develops the final 

5 draft plan. 

6 All written comments and data submissions 

7 will be available for public inspection at the DOE 

8 Freedom of Information Reading Room. Written comments 

9 should be addressed to myself or Sandy Beall at the 

10 Department of Energy as noted in the Federal Register 

11 Notice for today's workshop or in the letter of 

12 invitation. 10 copies of the comments or data are 

13 requested. 

14 In addition, the department would appreciate 

15 an electronic copy of the comments or data. The 

16 department is using Word Perfect 6.1. No faxed 

17 comments will be accepted. 

18 Any person submitting information which he or 

19 she believes to be confidential and exempt by law from 

20 public disclosure should submit one complete copy and 

21 10 copies from which information claimed to be 

22 confidential has been deleted. 

23 In accordance with the procedures established 

24 at 10 C.F.R. 1004.11, the Department of Energy shall 

25 make its own determination as to whether the 

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1 information shall be exempt from public disclosure.

2 In keeping with the regulations of these

3 facilities, there is no smoking allowed in this room or

4 building. The restrooms are down the hall to your left

5 and right. Phones are located by the elevators.

6 Again, we appreciate the time and effort you

7 have taken in preparing for this workshop and are

8 pleased to receive your comments and opinions.

9 I would like to reiterate the purpose of this

10 workshop is to consider stakeholder input on the new

11 approach to assess the likely impacts on manufacturers

12 of appliance energy efficiency standards that are under

13 consideration by the department.

14 At this time, I would like to turn it over to

15 Doug Brockman to begin the introductions, and then we

16 will do an agenda review.

17 MR. BROOKMAN: Thank you.

18 Boy, that was a lot. It strikes me that

19 there's quite a bit in there about comment periods and

20 the nature of the -- how you'd like to receive the

21 comments, the formats, all that.

22 How many of you worked in this process

23 improvement effort previously?

24 (Show of hands)

25 MR. BROOKMAN: So, at least half of you. So,

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12 

1 information shall be exempt from public disclosure. 

2 In keeping with the regulations of these 

3 facilities, there is no smoking allowed in this room or 

4 building. The restrooms are down the hall to your left 

5 and right. Phones are located by the elevators. 

6 Again, we appreciate the time and effort you 

7 have taken in preparing for this workshop and are 

8 pleased to receive your comments and opinions. 

9 I would like to reiterate the purpose of this 

10 workshop is to consider stakeholder input on the new 

11 approach to assess the likely impacts on manufacturers 

12 of appliance energy efficiency standards that are under 

13 consideration by the department. 

14 At this time, I would like to turn it over to 

15 Doug Brookman to begin the introductions, and then we 

16 will do an agenda review. 

17 MR. BROOKMAN: Thank you. 

18 Boy, that was a lot. It strikes me that 

19 there's quite a bit in there about comment periods and 

20 the nature of the -- how you'd like to receive the 

21 comments, the formats, all that. 

22 How many of you worked in this process 

23 improvement effort previously? 

24 (Show of hands) 

25 MR. BROOKMAN: So, at least half of you. So, 

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1 -- so, what Quonnie -- what she laid out there, is that

2 familiar for most of you or is that -- familiar to most

3 of you? Is it -- is it -- is it wholly unfamiliar to

4 any of you?

5 (No response)

6 MR. BROOKMAN: No one's raising their hand.

7 Okay. I'd just like to say if you've got additional

8 questions -- the purpose of all this is to hear from

9 you and get the best comment possible on the works in

10 progress by the department and supporting individuals.

11 So, if the format for doing this is difficult for you

12 to understand, I'd encourage you to ask Quonnie, ask

13 Sandy, ask anybody in Michael McCabe's shop for

14 clarification on that subject as we go along.

15 Let me welcome and thank you again for being

16 here.

17 There are a few housekeeping items we should

18 attend to. First and foremost, the Advisory Committee

19 meeting, the date has been changed, and the new date,

20 if you'd make a note of it for those of you that are

21 involved in the Advisory Committee, is going to be June

22 23rd, and apparently the chair and some other

23 individuals had a prior commitment that they could not

24 get out of. So, it will -- also, it will be held at

25 the Embassy Row Hotel here in Washington, D.C. So, the

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1 -- SOr what Quonnie -- what she laid out there r is that 

2 familiar for most of you or is that -- familiar to most 

3 of you? Is it -- is it -- is it wholly unfamiliar to 

4 any of you? 

5 (No response) 

6 MR. BROOKMAN: No one's raising their hand. 

7 Okay. I'd just like to say if you've got additional 

8 questions -- the purpose of all this is to hear from 

9 you and get the best comment possible on the works in 

10 progress by the department and supporting individuals. 

11 SOr if the format for doing this is difficult for you 

12 to understand r I'd encourage you to ask Quonnie r ask 

13 SandYr ask anybody in Michael McCabe's shop for 

14 clarification on that subject as we go along. 

15 Let me welcome and thank you again for being 

16 here. 

17 There are a few housekeeping items we should 

18 attend to. First and foremost r the Advisory Committee 

19 meeting r the date has been changed r and the new dater 

20 if you'd make a note of it for those of you that are 

21 involved in the Advisory Committee r is going to be June 

22 23rd r and apparently the chair and some other 

23 individuals had a prior commitment that they could not 

24 get out of. SOr it will -- also r it will be held at 

25 the Embassy Row Hotel here in Washington r D.C. SOr the 

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1 new date is June 23rd.

2 Quonnie, I thought it would be useful if the

3 other members of your team stood up and just -- just --

4 we're going to -- we're going to have everybody

5 introduce themselves briefly.

6 If other members of the Manufacturer Impact

7 Analyses Team that are in the room, Carl, and, Brian, I

8 thought I saw you.

9 MS. LAUGHLIN: Barry.

10 MR. BROOKMAN: And Barry. I thought I saw

11 Barry. There's Barry. Would you stand up, Barry?

12 MS. LAUGHLIN: And Mark. Mark Friedrichs.

13 MR. BROOKMAN: And, Mark, would you stand up,

14 please?

15 MS. LAUGHLIN: And Gene Margolis.

16 MR. BROOKMAN: And Gene. These are other

17 members of the internal team that are working on this

18 issue.

19 Thank you very much.

20 Hopefully, all of you received the complete

21 packet as you walked in the door. Sandy, by the way,

22 everybody was supposed to give you a business card,

23 correct?

24

25

MS. BEALL: Or sign in.

MR. BROOKMAN: And sign in.

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1 new date is June 23rd. 

2 Quonnie t I thought it would be useful if the 

3 other members of your team stood up and just -- just --

4 we're going to -- we're going to have everybody 

5 introduce themselves briefly. 

6 If other members of the Manufacturer Impact 

7 Analyses Team that are in the roomt Carlt and t Briant I 

8 thought I saw you. 

9 MS. LAUGHLIN: Barry. 

10 MR. BROOKMAN: And Barry. I thought I saw 

11 Barry. There's Barry. Would you stand UPt Barry? 

12 MS. LAUGHLIN: And Mark. Mark Friedrichs. 

13 MR. BROOKMAN: And t Mark t would you stand UPt 

14 please? 

15 MS. LAUGHLIN: And Gene Margolis. 

16 MR. BROOKMAN: And Gene. These are other 

17 members of the internal team that are working on this 

18 issue. 

19 Thank you very much. 

20 HopefullYt all of you received the complete 

21 packet as you walked in the door. SandYt by the waYt 

22 everybody was supposed to give you a business card t 

23 correct? 

24 

25 

MS. BEALL: Or sign in. 

MR. BROOKMAN: And sign in. 

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1 MS. BEALL: Or.

2 MR. BROOKMAN: Or sign in. Okay. So, if you

3 haven't already done that, please do that, so we get

4 you on the mailing list.

5 The agenda as written lists, I think, rather

6 clearly, and Quonnie in her opening remarks covered

7 both the purpose and the expected outcomes of this

8 workshop.

9 Hopefully, you have received a copy of this

10 agenda. I'd just like to point globally to what's

11 envisioned here. This next two days is an opportunity

12 for an open discussion of the major issues. It's not

13 contemplated that we're going to resolve the bulk of

14 the issues that are embedded in these documents here in

15 the next two days, but if you look at the expected

16 outcomes, we do expect, and the department does expect,

17 that working groups will be composed by tomorrow

18 afternoon, and that additional guidance, further

19 guidance, on the work products to date will be listed

20 for their benefit.

21 So, the basic parameters on today's meeting

22 as listed in the middle of the page of your agenda, on

23 Day 1, March 11th, today is rather an intensive

24 methodological overview and description of the

25 analytical tools.

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15 

1 MS. BEALL: Or. 

2 MR. BROOKMAN: Or sign in. Okay. So, if you 

3 haven't already done that, please do that, so we get 

4 you on the mailing list. 

5 The agenda as written lists, I think, rather 

6 clearly, and Quonnie in her opening remarks covered 

7 both the purpose and the expected outcomes of this 

8 workshop. 

9 Hopefully, you have received a copy of this 

10 agenda. I'd just like to point globally to what's 

11 envisioned here. This next two days is an opportunity 

12 for an open discussion of the major issues. It's not 

13 contemplated that we're going to resolve the bulk of 

14 the issues that are embedded in these documents here in 

15 the next two days, but if you look at the expected 

16 outcomes, we do expect, and the department does expect, 

17 that working groups will be composed by tomorrow 

18 afternoon, and that additional guidance, further 

19 guidance, on the work products to date will be listed 

20 for their benefit. 

21 So, the basic parameters on today's meeting 

22 as listed in the middle of the page of your agenda, on 

23 Day I, March 11th, today is rather an intensive 

24 methodological overview and description of the 

25 analytical tools. 

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1 The basic format's going to be a fairly

2 short, hopefully terse, presentation, followed then by

3 an opportunity for comments and questions. That's the

4 bulk of the day today, and then tomorrow, more issues

5 related to methodology implementation. So, that's

6 going to be another full day of brief presentations

7 followed by discussion and panel discussions.

8 I'm not going to go through this in any great

9 detail, the agenda, in addition to what I've already

10 said. We will have a break in the morning. You're on

11 your own for lunch. Quonnie talked about where the

12 restrooms were and where the telephones are.

13 Let me suggest some very simple ground rules

14 for the meeting today. Please say your name when you

15 speak and your company name as well, and there are

16 microphones. We have handheld microphones that we can

17 hand out, and we'll be passing them around.

18 I'd also like you to speak one at a time, and

19 I'll be trying to recognize you and create a sensible

20 queue so that everybody gets a chance to speak.

21 I really would also like to ask that your

22 critique, when you're critiqueing the existing

23 products, include what's going to make it work better,

24 include what will make it work; that is, we'd like your

25 ideas, in addition to your criticism, we'd like you to

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16 

1 The basic format's going to be a fairly 

2 short, hopefully terse, presentation, followed then by 

3 an opportunity for comments and questions. That's the 

4 bulk of the day today, and then tomorrow, more issues 

5 related to methodology implementation. So, that's 

6 going to be another full day of brief presentations 

7 followed by discussion and panel discussions. 

8 I'm not going to go through this in any great 

9 detail, the agenda, in addition to what I've already 

10 said. We will have a break in the morning. You're on 

11 your own for lunch. Quonnie talked about where the 

12 restrooms were and where the telephones are. 

13 Let me suggest some very simple ground rules 

14 for the meeting today. Please say your name when you 

15 speak and your company name as well, and there are 

16 microphones. We have handheld microphones that we can 

17 hand out, and we'll be passing them around. 

18 I'd also like you to speak one at a time, and 

19 I'll be trying to recognize you and create a sensible 

20 queue so that everybody gets a chance to speak. 

21 I really would also like to ask that your 

22 critique, when you're critiqueing the existing 

23 products, include what's going to make it work better, 

24 include what will make it work; that is, we'd like your 

25 ideas, in addition to your criticism, we'd like you to 

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1 be able to say what's going to make this better, what's

2 going to improve it, and also I'd like to encourage

3 every individual in this room to listen as an ally

4 because sometimes that framework alone can make it

5 possible for a lot more to get done.

6 I'm trying to think if there's anything else

7 I have at the outset.

8 (Pause)

9 MR. BROOKMAN: Any questions or additional

10 comments on these kind of housekeeping issues? Did I

11 forget anything, Quonnie? Sandy? Not that you can

12 think of?

13 It's -- we -- the next segment will not get

14 on the record, but as a matter of courtesy and as a

15 matter of common practice, I literally frequently ask

16 everybody to introduce themselves, so everybody knows

17 who's in the room. So, I'd like to do this, even

18 though many of you still know each other, it's not

19 going to be on the record. That's okay.

20 Just so everybody can put a name with a face,

21 if you'll indulge me, please, I think this is common

22 courtesy. I'd like to start here and loop around like

23 this.

24 If you'd stand and please say your name and

25 your organizational affiliation, so that others in the

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17 

1 be able to say what's going to make this better, what's 

2 going to improve it, and also I'd like to encourage 

3 every individual in this room to listen as an ally 

4 because sometimes that framework alone can make it 

5 possible for a lot more to get done. 

6 I'm trying to think if there's anything else 

7 I have at the outset. 

8 (Pause) 

9 MR. BROOKMAN: Any questions or additional 

10 comments on these kind of housekeeping issues? Did I 

11 forget anything, Quonnie? Sandy? Not that you can 

12 think of? 

13 It's -- we -- the next segment will not get 

14 on the record, but as a matter of courtesy and as a 

15 matter of common practice, I literally frequently ask 

16 everybody to introduce themselves, so everybody knows 

17 who's in the room. So, I'd like to do this, even 

18 though many of you still know each other, it's not 

19 going to be on the record. That's okay. 

20 Just so everybody can put a name with a face, 

21 if you'll indulge me, please, I think this is common 

22 courtesy. I'd like to start here and loop around like 

23 this. 

24 If you'd stand and please say your name and 

25 your organizational affiliation, so that others in the 

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1 room know who you are.

2 I'm going to start with you, please.

3 (Introductions)

4 MR. BROOKMAN: Thank you. Thanks to

5 everybody.

6 Did you get a chance to introduce yourself?

7 Thank you.

8 Did anybody not get a chance to introduce

9 themselves?

10 (No response)

11 MR. BROOKMAN: Okay. Thanks again for that.

12 What -- throughout the appliance standards

13 process improvement effort, one thing the department

14 has discovered is the quality of that effort has

15 depended largely on the quality of the input and the

16 quality of the interaction with all the internal and

17 external parties that want to influence this effort.

18 So, thank you again for your participation in

19 this and also in your previous efforts.

20 I guess our first presenter this morning is

21 Michael McCabe.

22 Description of the Review Process

23 MR. McCABE: Good morning.

24 I'd like to welcome everybody here in behalf

25 of myself and Christine Ervin, the Assistant Secretary

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1 room know who you are. 

2 I'm going to start with you, please. 

3 (Introductions) 

4 MR. BROOKMAN: Thank you. Thanks to 

5 everybody. 

6 Did you get a chance to introduce yourself? 

7 Thank you. 

8 Did anybody not get a chance to introduce 

9 themselves? 

10 (No response) 

11 MR. BROOKMAN: Okay. Thanks again for that. 

12 What -- throughout the appliance standards 

13 process improvement effort, one thing the department 

14 has discovered is the quality of that effort has 

15 depended largely on the quality of the input and the 

16 quality of the interaction with all the internal and 

17 external parties that want to influence this effort. 

18 So, thank you again for your participation in 

19 this and also in your previous efforts. 

20 I guess our first presenter this morning is 

21 Michael McCabe. 

22 Description of the Review Process 

23 MR. McCABE: Good morning. 

24 I'd like to welcome everybody here in behalf 

25 of myself and Christine Ervin, the Assistant Secretary 

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1 for Energy Efficiency and Renewable Energy.

2 It's with the 18 years that I have been

3 associated with the program, I'd say this is probably

4 one of the better environments that we have. I --

5 looking around, many of the people here were at the Old

6 Post Office Building back in 1980 when we had literally

7 a hundred and some degrees inside the room, and with

8 the early Spring that we're having, I'm certainly

9 enjoying the weather, and I hope that it will put

10 everybody in the mood that we can have some successes.

11 We had -- have been evolving the process for

12 conducting the meetings. Two years ago, typically our

13 meeting was -- meetings were serious talking heads.

14 When Doug had talked about the critique, he was talking

15 about what's taking place during the meeting.

16 I'm particularly interested in that, but also

17 the critique after the fact as to how we can do things

18 better because it's not -- we've had a series of

19 meetings lately that have been very productive, where

20 we have been able to get exchanges not only between DOE

21 and yourselves but also among people who have disparate

22 views on particular issues. It helps to get a full

23 discussion and resolution of some rather contentious

24 issues.

25 So, I would particularly appreciate your

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1 for Energy Efficiency and Renewable Energy. 

2 It's with the 18 years that I have been 

3 associated with the program, I'd say this is probably 

4 one of the better environments that we have. I 

5 looking around, many of the people here were at the Old 

6 Post Office Building back in 1980 when we had literally 

7 a hundred and some degrees inside the room, and with 

8 the early Spring that we're having, I'm certainly 

9 enjoying the weather, and I hope that it will put 

10 everybody in the mood that we can have some successes. 

11 We had -- have been evolving the process for 

12 conducting the meetings. Two years ago, typically our 

13 meeting was -- meetings were serious talking heads. 

14 When Doug had talked about the critique, he was talking 

15 about what's taking place during the meeting. 

16 I'm particularly interested in that, but also 

17 the critique after the fact as to how we can do things 

18 better because it's not -- we've had a series of 

19 meetings lately that have been very productive, where 

20 we have been able to get exchanges not only between DOE 

21 and yourselves but also among people who have disparate 

22 views on particular issues. It helps to get a full 

23 discussion and resolution of some rather contentious 

24 issues. 

25 So, I would particularly appreciate your 

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1 thoughts as to meetings such as this, how they can be

2 improved in the process.

3 This process that we're going through is one

4 that started nearly two years ago to look at how to

5 improve the department's appliance standards rule6 making process.

7 We committed through that process to develop

8 a new method of conducting rulemakings, starting with

9 priority-setting, where we would identify what were the

10 priority products for which we would focus our efforts.

11 We also committed to taking many of the

12 elements in the process and improving those. Today, we

13 are focusing on one of those elements, the manufacturer

14 impact anal yses.

15 In our process rule in July of '96, we

16 committed to developing a detailed review of the

17 process and methodologies included. We committed to a

18 process that was flexible, one that could meet the

19 needs of different products which had many different

20 issues associated with them, so that one size does not

21 f i t all .

22 We committed to early stakeholder input, such

23 as what's occurring today. We also committed to

24 utilizing a cash flow analysis approach as one part of

25 that.

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20 

1 thoughts as to meetings such as this, how they can be 

2 improved in the process. 

3 This process that we're going through is one 

4 that started nearly two years ago to look at how to 

5 improve the department's appliance standards rule6 making process. 

7 We committed through that process to develop 

8 a new method of conducting rulemakings, starting with 

9 priority-setting, where we would identify what were the 

10 priority products for which we would focus our efforts. 

11 We also committed to taking many of the 

12 elements in the process and improving those. Today, we 

13 are focusing on one of those elements, the manufacturer 

14 impact analyses. 

15 In our process rule in July of '96, we 

16 committed to developing a detailed review of the 

17 process and methodologies included. We committed to a 

18 process that was flexible, one that could meet the 

19 needs of different products which had many different 

20 issues associated with them, so that one size does not 

21 fit all. 

22 We committed to early stakeholder input, such 

23 as what's occurring today. We also committed to 

24 utilizing a cash flow analysis approach as one part of 

25 that. 

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1 The Government Regulatory Impact Model, which

2 had been developed for three of the major trade

3 associations, AHAM, ARI and GAMA, is going to be

4 focused on today, a review of it, update, as to what

5 it's capable of doing, how -- how to use it, since many

6 of the people, including myself, have not -- not as

7 familiar with it as I would like to be.

8 We've committed to developing estimates of

9 critical variables, drawing on sources within the

10 industry and others in order to come up with both

11 quantitative and qualitative impacts, to report the

12 distribution of impacts on a range of manufacturers,

13 not just the prototypical manufacturer but those that

14 are small, medium and large or possibly other cohorts

15 that have specific and unique interests that we want to

16 focus on, to use models that are easy to understand and

17 account for uncertainty; that is, to get away from the

18 black box and more towards the cube that Christine had

19 presented in earlier meetings, where you could see

20 through the cube.

21 Many took a look at that cube and saw it more

22 as a cube of ice that was melting. If the water's

23 clear, you can see through it. So, hopefully one way

24 or another, you'll be able to see the models,

25 methodologies, and the analysis that we conduct will be

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21 

1 The Government Regulatory Impact Model, which 

2 had been developed for three of the major trade 

3 associations, AHAM, ARI and GAMA, is going to be 

4 focused on today, a review of it, update, as to what 

5 it's capable of doing, how how to use it, since many 

6 of the people, including myself, have not not as 

7 familiar with it as I would like to be. 

8 We've committed to developing estimates of 

9 critical variables, drawing on sources within the 

10 industry and others in order to come up with both 

11 quantitative and qualitative impacts, to report the 

12 distribution of impacts on a range of manufacturers, 

13 not just the prototypical manufacturer but those that 

14 are small, medium and large or possibly other cohorts 

15 that have specific and unique interests that we want to 

16 focus on, to use models that are easy to understand and 

17 account for uncertainty; that is, to get away from the 

18 black box and more towards the cube that Christine had 

19 presented in earlier meetings, where you could see 

20 through the cube. 

21 Many took a look at that cube and saw it more 

22 as a cube of ice that was melting. If the water's 

23 clear, you can see through it. So, hopefully one way 

24 or another, you'll be able to see the models, 

25 methodologies, and the analysis that we conduct will be 

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1 clear and understandable.

2 We've also committed to consider the

3 cumulative impacts of regulations. That's not to say

4 that a regulation would not go forward because it has

5 cumulative impacts, but to understand what those

6 impacts are, and make a decision based on our under7 standing of those impacts. That decision maybe either

8 to go forward or not or as to what the standard level

9 should be set at. So, we're looking to get that as an

10 integral part of this analysis.

11 Also, and this is -- we're committed to

12 looking at the impacts on manufacturing capacity, plant

13 closures and loss of capital investment. That's

14 particularly important, we found out, when you're

15 looking at standards that push the envelope as to what

16 is available today.

17 We have developed a strawman for the

18 methodology for future manufacture impact analyses. It

19 is that strawman which will be presented at the

20 workshop and discussed. It -- the methodology being

21 developed will add procedures to the process rule. The

22 process rule is an outline of what we are committed to.

23 This will be more the detail.

24 The methodology, as I said, must have

25 flexibility built into it so that it can be adapted to

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22 

1 clear and understandable. 

2 We've also committed to consider the 

3 cumulative impacts of regulations. That's not to say 

4 that a regulation would not go forward because it has 

5 cumulative impacts, but to understand what those 

6 impacts are, and make a decision based on our under7 standing of those impacts. That decision maybe either 

8 to go forward or not or as to what the standard level 

9 should be set at. So, we're looking to get that as an 

10 integral part of this analysis. 

11 Also, and this is -- we're committed to 

12 looking at the impacts on manufacturing capacity, plant 

13 closures and loss of capital investment. That's 

14 particularly important, we found out, when you're 

15 looking at standards that push the envelope as to what 

16 is available today. 

17 We have developed a strawman for the 

18 methodology for future manufacture impact analyses. It 

19 is that strawman which will be presented at the 

20 workshop and discussed. It the methodology being 

21 developed will add procedures to the process rule. The 

22 process rule is an outline of what we are committed to. 

23 This will be more the detail. 

24 The methodology, as I said, must have 

25 flexibility built into it so that it can be adapted to 

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1 meet the needs of specific rulemakings.

2 We've had a number of discussions with

3 different industries who said a process that is

4 appropriate for my industry isn't appropriate for this

5 other industry and maybe the reverse would be the way

6 to apply it. What's good for them isn't good for me

7 because they just produce one product, and my industry

8 has a range of products which are covered by the

9 standards, and we need to look at those or the way the

10 manufacturing occurs with my product, we need to have a

11 methodology tailored for -- for my product, and

12 that's -- we hope to be able to capture that with the

13 methodology that we will be developing.

14 The methodology is not going to be a static

15 one. We're committed to -- to constantly evolving it

16 in order to meet the needs of the rulemaking process.

17 It's going to be your input that is going to guide that

18 development of future methodologies.

19 At the conclusion of the workshop, as Doug

20 had indicated, and Quonnie, you'll be invited to

21 participate in a work group or work groups tasked with

22 the development of the future models and methods. We

23 don't expect to answer the questions but rather

24 identify what the issues are and work together to

25 develop the answers.

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1 meet the needs of specific rulemakings. 

2 We've had a number of discussions with 

3 different industries who said a process that is 

4 appropriate for my industry isn't appropriate for this 

5 other industry and maybe the reverse would be the way 

6 to apply it. What's good for them isn't good for me 

7 because they just produce one product/ and my industry 

8 has a range of products which are covered by the 

9 standards/ and we need to look at those or the way the 

10 manufacturing occurs with my product/ we need to have a 

11 methodology tailored for -- for my product/ and 

12 that's -- we hope to be able to capture that with the 

13 methodology that we will be developing. 

14 The methodology is not going to be a static 

15 one. We're committed to -- to constantly evolving it 

16 in order to meet the needs of the rulemaking process. 

17 It's going to be your input that is going to guide that 

18 development of future methodologies. 

19 At the conclusion of the workshop/ as Doug 

20 had indicated/ and Quonnie/ you'll be invited to 

21 participate in a work group or work groups tasked with 

22 the development of the future models and methods. We 

23 don't expect to answer the questions but rather 

24 identify what the issues are and work together to 

25 develop the answers. 

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1 As such, the schedule as had been presented

2 at the January 8th Advisory Committee meeting calls for

3 the strawman to be complete on February 14th. I

4 believe we have circulated that. We have copies of

5 that here. Hopefully, people have had an opportunity

6 to review it so that they've come prepared to discuss

7 it in detail at the workshop today and tomorrow, with

8 the work groups being formulated.

9 At the end of the day tomorrow, I expect that

10 there will be people added to, dropped out, but

11 hopefully be added to the work -- working groups over

12 the time, and that we will have products delivered in

13 the next couple of months, but it's -- it will be an

14 on-going process.

15 Again, what we hope to accomplish is to --

16 with this two-day meeting is to define the role and

17 membership of the working group or working groups, to

18 identify those experts to assist in the review of the

19 methodologies and analyses, and to propose alternatives

20 or modifications to the procedures that are laid out in

21 the strawman.

22 Again, I'd like to thank each and every one

23 of you for your participation and encourage you to

24 participate at the fullest, challenge us, challenge the

25 others in the audience, because that's how we're going

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1 As such, the schedule as had been presented 

2 at the January 8th Advisory Committee meeting calls for 

3 the strawman to be complete on February 14th. I 

4 believe we have circulated that. We have copies of 

5 that here. Hopefully, people have had an opportunity 

6 to review it so that they've come prepared to discuss 

7 it in detail at the workshop today and tomorrow, with 

8 the work groups being formulated. 

9 At the end of the day tomorrow, I expect that 

10 there will be people added to, dropped out, but 

11 hopefully be added to the work -- working groups over 

12 the time, and that we will have products delivered in 

13 the next couple of months, but it's -- it will be an 

14 on-going process. 

15 Again, what we hope to accomplish is to --

16 with this two-day meeting is to define the role and 

17 membership of the working group or working groups, to 

18 identify those experts to assist in the review of the 

19 methodologies and analyses, and to propose alternatives 

20 or modifications to the procedures that are laid out in 

21 the strawman. 

22 Again, I'd like to thank each and everyone 

23 of you for your participation and encourage you to 

24 participate at the fullest, challenge us, challenge the 

25 others in the audience, because that's how we're going 

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1 to make progress, I believe, and the next presenter

2 will be Mike Rivest with Arthur D. Little, who will

3 present the overview of the strawman, but before Mike

4 does his presentation, I'd like to ask if there are any

5 questions the audience may have of me.

6 MR. SCHLEEDE: I have a question. Some

7 places in the document -- Glenn Schleede, Vigilante.

8 Some places in the document, you use the term

9 "stakeholders", in other places, you use "interested

10 parties". What are the distinctions you make between

11 those?

12 The second question, if you could address it

13 at the same time, would you tell us where you are in

14 the process of finding ways to determine what the

15 impact or the interests are of real consumers, and how

16 you're taking those into account?

17 MR. McCABE: As far as the first question,

18 Glenn, "interested parties" and "stakeholders", I think

19 that everybody here in the audience may have somewhat

20 of a different definition. To me, they are synonyms.

21 It may be that for stakeholders, some will consider

22 stakeholders to be ones who have money at stake.

23 Manufacturers will look at themselves as being stake24 holders because they've got an investment to protect,

25 to help to grow.

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25 

1 to make progress, I believe, and the next presenter 

2 will be Mike Rivest with Arthur D. Little, who will 

3 present the overview of the strawman, but before Mike 

4 does his presentation, I'd like to ask if there are any 

5 questions the audience may have of me. 

6 MR. SCHLEEDE: I have a question. Some 

7 places in the document -- Glenn Schleede, Vigilante. 

8 Some places in the document, you use the term 

9 "stakeholders", in other places, you use "interested 

10 parties". What are the distinctions you make between 

11 those? 

12 The second question, if you could address it 

13 at the same time, would you tell us where you are in 

14 the process of finding ways to determine what the 

15 impact or the interests are of real consumers, and how 

16 you're taking those into account? 

17 MR. McCABE: As far as the first question, 

18 Glenn, "interested parties" and "stakeholders", I think 

19 that everybody here in the audience may have somewhat 

20 of a different definition. To me, they are synonyms. 

21 It may be that for stakeholders, some will consider 

22 stakeholders to be ones who have money at stake. 

23 Manufacturers will look at themselves as being stake24 holders because they've got an investment to protect, 

25 to help to grow. 

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1 On the other hand, as consumers, taxpayers,

2 I'd have to say that we're also stakeholders because

3 one of the -- the goal of this program is to save

4 energy. One of the reasons for saving energy is

5 because -- to save the nation's and the world's

6 environment, and I think we all have a stake in that.

7 So, I think as far as stakeholders, it's a

8 matter from where you're looking as far as how you want

9 to define it. Interested parties, I'd say, in many

10 respects, is -- is the same.

11 With respect to the second question, as far

12 as to get the input from consumers, at the January 8th

13 Advisory Committee, one of the working groups that was

14 established was to do exactly that. It is not

15 proceeding as quickly as I'd like to see it, and we've

16 had some discussions with the staff as to -- as to

17 see -- see if we can find ways to encourage or help

18 that process along.

19 MR. BROOKMAN: Michael, if I may, may I

20 comment on that briefly?

21 This is Doug Brockman again.

22 I have been working with that group, Glenn,

23 and we had one conference call with -- I can't recall

24 the two individuals' names that participated in the

25 conference call to kind of flesh out or, I should say,

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1 On the other hand, as consumers, taxpayers, 

2 I'd have to say that we're also stakeholders because 

3 one of the -- the goal of this program is to save 

4 energy. One of the reasons for saving energy is 

5 because -- to save the nation's and the world's 

6 environment, and I think we all have a stake in that. 

7 So, I think as far as stakeholders, it's a 

8 matter from where you're looking as far as how you want 

9 to define it. Interested parties, I'd say, in many 

10 respects, is -- is the same. 

11 with respect to the second question, as far 

12 as to get the input from consumers, at the January 8th 

13 Advisory Committee, one of the working groups that was 

14 established was to do exactly that. It is not 

15 proceeding as quickly as I'd like to see it, and we've 

16 had some discussions with the staff as to -- as to 

17 see -- see if we can find ways to encourage or help 

18 that process along. 

19 MR. BROOKMAN: Michael, if I may, may I 

20 comment on that briefly? 

21 This is Doug Brookman again. 

22 I have been working with that group, Glenn, 

23 and we had one conference call with -- I can't recall 

24 the two individuals' names that participated in the 

25 conference call to kind of flesh out or, I should say, 

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1 block out the big chunks of how you would proceed to

2 obtain actual consumer input.

3 We have scheduled an additional -- I should

4 say we are going to schedule an additional conference

5 call after those results get typed up, and if you'd

6 like to be included in that conference call, Glenn, or

7 anybody else would like to be included, if you'd let me

8 know, and we'll include you, rope you into that.

9 So, it is proceeding, and Kathy Epping on

10 your staff has kept track of this and been shepherding

11 it along.

12 So, the goal is, however, let me state the

13 goal, is to come forward to the next Advisory Committee

14 meeting with an actual proposed methodology, although

15 it will be still not detailed. It will be just kind of

16 a broad outline of it, which would be in June.

17 MR. JONES: Earl Jones, General Electric.

18 Michael, just one comment. I think it's

19 actually on your chart, your background chart on the

20 description of the process rule improvements, your

21 next-to-last bullet. See the cumulative impacts of

22 regulation.

23 Actually with the -- if I understand what the

24 rule requires is that you will seek to mitigate them,

25 which I think is rather a different obligation than

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1 block out the big chunks of how you would proceed to 

2 obtain actual consumer input. 

3 We have scheduled an additional -- I should 

4 say we are going to schedule an additional conference 

5 call after those results get typed up/ and if you'd 

6 like to be included in that conference call/ Glenn/ or 

7 anybody else would like to be included/ if you'd let me 

8 know/ and we'll include you/ rope you into that. 

9 So/ it is proceeding/ and Kathy Epping on 

10 your staff has kept track of this and been shepherding 

11 it along. 

12 So/ the goal is/ however/ let me state the 

13 goal/ is to come forward to the next Advisory Committee 

14 meeting with an actual proposed methodology/ although 

15 it will be still not detailed. It will be just kind of 

16 a broad outline of it/ which would be in June. 

17 MR. JONES: Earl Jones/ General Electric. 

18 Michael/ just one comment. I think it's 

19 actually on your chart/ your background chart on the 

20 description of the process rule improvements/ your 

21 next-to-Iast bullet. See the cumulative impacts of 

22 regulation. 

23 Actually with the -- if I understand what the 

24 rule requires is that you will seek to mitigate them/ 

25 which I think is rather a different obligation than 

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1 simply considering them.

2 MR. McCABE: Well, in order to mitigate them

3 as far as -- at this point, I'm looking to -- to

4 develop a methodology, that we can develop a

5 methodology in which we can identify what those

6 cumulative impacts are.

7 Any further questions? If not, turn it over

8 to Mike Rivest.

9 Analytical Framework and

10 Description of New Approach

11 MR. RIVEST: This presentation -- I don't

12 know. Does this work well? I -- this presentation was

13 initially prepared for the Advisory Committee meeting

14 that was held in January.

15 I feel it's a fairly good overview of the

16 approach that we're developing currently. So, I'll ask

17 those who have seen this presentation to -- to -- to --

18 to excuse me if it's somewhat repetitious. I'll try to

19 highlight some of the improvements that have been made

20 to the approach since the last meeting.

21 In that regard, I'd like to thank all the

22 people that provided input to date, and a special

23 mention to the ballast industry, whose input has been

24 valuable to primarily the qualitative assessment

25 approaches that were developed.

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1 simply considering them. 

2 MR. McCABE: Well, in order to mitigate them 

3 as far as -- at this point, 11m looking to to 

4 develop a methodology, that we can develop a 

5 methodology in which we can identify what those 

6 cumulative impacts are. 

7 Any further questions? If not, turn it over 

8 to Mike Rivest. 

9 Analytical Framework and 

10 Description of New Approach 

11 MR. RIVEST: This presentation -- I donlt 

12 know. Does this work well? I -- this presentation was 

13 initially prepared for the Advisory Committee meeting 

14 that was held in January. 

15 I feel itls a fairly good overview of the 

16 approach that welre developing currently. So, 1111 ask 

17 those who have seen this presentation to -- to -- to 

18 to excuse me if itls somewhat repetitious. 1111 try to 

19 highlight some of the improvements that have been made 

20 to the approach since the last meeting. 

21 In that regard, lId like to thank all the 

22 people that provided input to date, and a special 

23 mention to the ballast industry, whose input has been 

24 valuable to primarily the qualitative assessment 

25 approaches that were developed. 

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1 My presentation will be divided into five

2 segments. The first segment is a description of the

3 analytical framework. What I'm doing in the first

4 section is trying to demonstrate how the interpretative

5 rule has really changed the way we think about

6 manufacturer impact. So, it's really a holistic view,

7 if you will, and we're going to contrast the past

8 approach to the new approach.

9 Sections 2, 3 and 4 are description of three

10 phases of the analysis that will be described in

11 greater detail. It's been broken down in three phases,

12 so that we can have linkages with other segments of the

13 rule-making analysis.

14 So, one of the primary changes, I would say,

15 from this approach to past approach is that it begins

16 at the very early stages of the rulemaking, and it

17 doesn't await the impact analysis -- the economic

18 impact analysis stage, which usually came after the

19 ANOPR.

20 Finally, I'd like to look at the workshop

21 agenda with you. My perspective on the agenda, how it

22 tries to fit all the pieces of the analysis, and at the

23 same time, I'd like to introduce some of the people who

24 contributed to developing the draft, introduce them and

25 maybe talk a little bit about -- along the way how the

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1 My presentation will be divided into five 

2 segments. The first segment is a description of the 

3 analytical framework. What I'm doing in the first 

4 section is trying to demonstrate how the interpretative 

5 rule has really changed the way we think about 

6 manufacturer impact. So, it's really a holistic view, 

7 if you will, and we're going to contrast the past 

8 approach to the new approach. 

9 Sections 2, 3 and 4 are description of three 

10 phases of the analysis that will be described in 

11 greater detail. It's been broken down in three phases, 

12 so that we can have linkages with other segments of the 

13 rule-making analysis. 

14 So, one of the primary changes, I would say, 

15 from this approach to past approach is that it begins 

16 at the very early stages of the rulemaking, and it 

17 doesn't await the impact analysis -- the economic 

18 impact analysis stage, which usually came after the 

19 ANOPR. 

20 Finally, I'd like to look at the workshop 

21 agenda with you. My perspective on the agenda, how it 

22 tries to fit all the pieces of the analysis, and at the 

23 same time, I'd like to introduce some of the people who 

24 contributed to developing the draft, introduce them and 

25 maybe talk a little bit about -- along the way how the 

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1 concept fits in with the different blocks.

2 Why are we doing manufacturer's impact at

3 all? Is it something that's even doable? Why are we

4 bothering?

5 It's clear from the law that -- and there are

6 two statements made about manufacturer impacts and the

7 law. The first being that the department is to

8 consider the economic impact of the standard on

9 manufacturers and on the consumers of the products

10 subject to such a standard.

11 Two key words here are the words "impact" and

12 the word "manufacturers". You'll notice that there's

13 not a whole lot of definition and certainly there's no

14 or very little additional definition in the law per se.

15 So, what this process rule has done is to a

16 great extent try and define what -- what was meant or

17 what is meant by impacts and by manufacturers.

18 Second consideration. The department -- the

19 impact of any lessening of competition has to be

20 determined in writing by the Attorney General. I'm

21 very happy to see that the Department of Justice has

22 sent a couple people representing them. They've

23 already provided input.

24 We've held meetings with them, and although

25 it's clear that the competitive assessment is a DOJ

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1 concept fits in with the different blocks. 

2 Why are we doing manufacturer's impact at 

3 all? Is it something that's even doable? Why are we 

4 bothering? 

5 It's clear from the law that -- and there are 

6 two statements made about manufacturer impacts and the 

7 law. The first being that the department is to 

8 consider the economic impact of the standard on 

9 manufacturers and on the consumers of the products 

10 subject to such a standard. 

11 Two key words here are the words "impact" and 

12 the word "manufacturers". You'll notice that there's 

13 not a whole lot of definition and certainly there's no 

14 or very little additional definition in the law per se. 

15 SOl what this process rule has done is to a 

16 great extent try and define what -- what was meant or 

17 what is meant by impacts and by manufacturers. 

18 Second consideration. The department the 

19 impact of any lessening of competition has to be 

20 determined in writing by the Attorney General. I'm 

21 very happy to see that the Department of Justice has 

22 sent a couple people representing them. They've 

23 already provided input. 

24 We've held meetings with theml and although 

25 it's clear that the competitive assessment is a DOJ 

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1 function, we have been asked throughout the process

2 improvement to try and link our analyses, at least to

3 be in sync, and to the extent that we can assist the

4 department in conducting its evaluation, we should try

5 and gather the information required for them and give

6 them more time to conduct that analysis.

7 If I were to summarize what the process

8 improvement did, the way I -- the way I summarize it is

9 it answered -- tried to answer three questions relative

10 to manufacturers impact.

11 What impact should be considered? You'll --

12 the -- the framework before was to look at the

13 financial impact, and I would say that focuses

14 primarily on long-term financial impacts.

15 How can manufacturers be described? Did --

16 did Congress mean the manufacturers that are making the

17 products as the regulation comes into effect? Are they

18 talking about an industry as something that -- that --

19 that changes over time, and where -- where, you know,

20 the manufacturers in five years or 10 years may be

21 different from the manufacturers today?

22 So, once again, the process rule has brought

23 some light on to that question, and, finally, there's

24 not a lot of guidance in the law as to how one goes

25 about evaluating the impacts. There's specific mention

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31 

1 function, we have been asked throughout the process 

2 improvement to try and link our analyses, at least to 

3 be in sync, and to the extent that we can assist the 

4 department in conducting its evaluation, we should try 

5 and gather the information required for them and give 

6 them more time to conduct that analysis. 

7 If I were to summarize what the process 

8 improvement did, the way I -- the way I summarize it is 

9 it answered -- tried to answer three questions relative 

10 to manufacturers impact. 

11 What impact should be considered? You'll 

12 the -- the framework before was to look at the 

13 financial impact, and I would say that focuses 

14 primarily on long-term financial impacts. 

15 How can manufacturers be described? Did--

16 did Congress mean the manufacturers that are making the 

17 products as the regulation comes into effect? Are they 

18 talking about an industry as something that that--

19 that changes over time, and where -- where, you know, 

20 the manufacturers in five years or 10 years may be 

21 different from the manufacturers today? 

22 So, once again, the process rule has brought 

23 some light on to that question, and, finally, there's 

24 not a lot of guidance in the law as to how one goes 

25 about evaluating the impacts. There's specific mention 

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1 to public comment, but there's no analytical framework

2 per se.

3 So, looking at the past methodology and the

4 three questions of impact, manufacturer type and

5 analysis method, this is how I'd characterize the past

6 framework.

7 Most people found it -- found that it was too

8 narrow. It was too confining. The past analysis was

9 concerned with long-run financial impacts. Such

10 industry effects like employment, dislocation, plant

11 closures and the like were not directly addressed.

12 It was felt that if our long-term financial

13 impact assessment showed serious deterioration in the

14 average profitability of the industry, that would be a

15 sort of indirect indicator of other things going on,

16 but there was no -- no sense of trying to understand

17 what it was that was going on.

18 The past analysis model, the hypothetical

19 prototypical firm, it is very hard to get data, good

20 data on -- that would -- good financial data on to what

21 -- on to different firms. So, what was done was to try

22 and simulate a firm based on industry average values.

23 So, assuming a full-line manufacturer that

24 produced the exact product mix of the industry. So, as

25 such, there was no attempt at differentiating the

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32 

1 to public comment, but there's no analytical framework 

2 per se. 

3 So, looking at the past methodology and the 

4 three questions of impact, manufacturer type and 

5 analysis method, this is how I'd characterize the past 

6 framework. 

7 Most people found it -- found that it was too 

8 narrow. It was too confining. The past analysis was 

9 concerned with long-run financial impacts. Such 

10 industry effects like employment, dislocation, plant 

11 closures and the like were not directly addressed. 

12 It was felt that if our long-term financial 

13 impact assessment showed serious deterioration in the 

14 average profitability of the industry, that would be a 

15 sort of indirect indicator of other things going on, 

16 but there was no -- no sense of trying to understand 

17 what it was that was going on. 

18 The past analysis model, the hypothetical 

19 prototypical firm, it is very hard to get data, good 

20 data on -- that would good financial data on to what 

21 -- on to different firms. So, what was done was to try 

22 and simulate a firm based on industry average values. 

23 So, assuming a full-line manufacturer that 

24 produced the exact product mix of the industry. 

25 such, there was no attempt at differentiating the 

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33

1 impacts on different subgroups of manufacturers.

2 I'd just like to footnote here that in the

3 earlier analyses of the early -- the early '80s, there

4 had been an attempt at categorizing manufacturers in

5 three groups, small, medium and large, and trying to

6 identify the various impacts on those three groups.

7 So, to an extent, we're coming back to that

8 paradigm, but we will be -- we'll try to be more

9 flexible than that.

10 Finally, the past analysis framework was

11 extremely quantitative. A model had been built, and it

12 was assumed that within one model, you could capture

13 all the intricacies -- intricacies -- intricacies --

14 help me out, Doug.

15 MR. BROOKMAN: Intricacies.

16 MR. RIVEST: Intricacies. I was reverting to

17 French. I'm sorry.

18 So, the analyst's job basically was to gather

19 all of the data that was required to run the model, and

20 then to examine the outputs of the models, and -- and,

21 so, really that's -- you know, the core of the analysis

22 was just the model itself.

23 Looking at what the interpretative rule has

24 done to the framework, it's taken us out of a box. We

25 were looking at a prototypical firm, looking at

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1 impacts on different subgroups of manufacturers. 

2 I'd just like to footnote here that in the 

3 earlier analyses of the early -- the early '80s t there 

4 had been an attempt at categorizing manufacturers in 

5 three groupst small t medium and large t and trying to 

6 identify the various impacts on those three groups. 

7 SOt to an extent t we're coming back to that 

8 paradigmt but we will be -- we'll try to be more 

9 flexible than that. 

10 FinallYt the past analysis framework was 

11 extremely quantitative. A model had been built t and it 

12 was assumed that within one model t you could capture 

13 all the intricacies -- intricacies -- intricacies --

14 help me out t Doug. 

15 MR. BROOKMAN: Intricacies. 

16 MR. RIVEST: Intricacies. I was reverting to 

17 French. I'm sorry. 

18 SOt the analyst's job basically was to gather 

19 all of the data that was required to run the model t and 

20 then to examine the outputs of the models t and -- and t 

21 SOt really that's -- you know t the core of the analysis 

22 was just the model itself. 

23 Looking at what the interpretative rule has 

24 done to the framework t it's taken us out of a box. We 

25 were looking at a prototypical firm t looking at 

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1 financial impacts, primarily long-term, and now we're

2 going to look at different types of manufacturers.

3 We're going to, you know, not necessarily do

4 small, medium and large because that may not be the

5 relevant thing to look at, but try and identify through

6 an industry characterization phase what is relevant?

7 What are the relevant groupings of manufacturers we

8 should consider?

9 Also, we're expanding the types of impacts

10 that we're going to try to capture within our analysis.

11 So, looking at things such as employment, competitive

12 impacts and capacity impacts.

13 In terms of the changes to the analysis

14 itself, we're -- we're -- we're leaving the models.

15 We're not -- we -- instead of considering the model as

16 being something that drives the analysis, the models

17 will become sometimes useful tools that we have to --

18 to -- to select for the appropriate task.

19 So, before we worry about how much, we should

20 try and understand what it is we need to measure, and

21 if it's relevant or necessary to go about those

22 measurements.

23 Going about -- despite the flexibility, we'd

24 certainly like to have some structure as well, and, so,

25 for that reason, we're trying to develop tools that

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34 

1 financial impacts, primarily long-term, and now we're 

2 going to look at different types of manufacturers. 

3 We're going to, you know, not necessarily do 

4 small, medium and large because that may not be the 

5 relevant thing to look at, but try and identify through 

6 an industry characterization phase what is relevant? 

7 What are the relevant groupings of manufacturers we 

8 should consider? 

9 Also, we're expanding the types of impacts 

10 that we're going to try to capture within our analysis. 

11 So, looking at things such as employment, competitive 

12 impacts and capacity impacts. 

13 In terms of the changes to the analysis 

14 itself, we're -- we're -- we're leaving the models. 

15 We're not -- we -- instead of considering the model as 

16 being something that drives the analysis, the models 

17 will become sometimes useful tools that we have to --

18 to -- to select for the appropriate task. 

19 So, before we worry about how much, we should 

20 try and understand what it is we need to measure, and 

21 if it's relevant or necessary to go about those 

22 measurements. 

23 Going about -- despite the flexibility, we'd 

24 certainly like to have some structure as well, and, so, 

25 for that reason, we're trying to develop tools that 

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1 will -- that will -- will be well documented, that will

2 be maintained over time, and that will be able to

3 establish a public record.

4 So, our qualitative assessments will draw on

5 multiple types of stakeholder inputs. You'll see in

6 the approach, there's discussion of having voluntary

7 manufacture interviews and facilities visits. The

8 process is described towards the end with the strawman

9 where we try to lay out a process by which we'll go

10 about conducting these interviews.

11 Stakeholders as well will be consulted

12 through interviews, workshops, surveys, and any other

13 means to develop some of the key variables that we'll

14 be looking at. Some of the variables are needed for

15 input into the GRIM Model. Others are simply

16 information that we may not even think of asking.

17 In terms of the modeling itself, our primary

18 focus is the Government Regulatory Impact Model, which

19 will be presented just after my talk.

20 MR. BROOKMAN: Can't hear, Glenn?

21 (Pause)

22 MR. RIVEST: Can you hear me now?

23 MR. SCHLEEDE: No, I cannot.

24 MR. BROOKMAN: Thanks for letting us know.

25 Can you hear this? Yes? No? Can you hear this? Oh,

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1 will -- that will -- will be well documented, that will 

2 be maintained over time, and that will be able to 

3 establish a public record. 

4 So, our qualitative assessments will draw on 

5 multiple types of stakeholder inputs. You'll see in 

6 the approach, there's discussion of having voluntary 

7 manufacture interviews and facilities visits. The 

8 process is described towards the end with the strawman 

9 where we try to layout a process by which we'll go 

10 about conducting these interviews. 

11 Stakeholders as well will be consulted 

12 through interviews, workshops, surveys, and any other 

13 means to develop some of the key variables that we'll 

14 be looking at. Some of the variables are needed for 

15 input into the GRIM Model. Others are simply 

16 information that we may not even think of asking. 

17 In terms of the modeling itself, our primary 

18 focus is the Government Regulatory Impact Model, which 

19 will be presented just after my talk. 

20 MR. BROOKMAN: Can't hear, Glenn? 

21 (Pause) 

22 MR. RIVEST: Can you hear me now? 

23 MR. SCHLEEDE: No, I cannot. 

24 MR. BROOKMAN: Thanks for letting us know. 

25 Can you hear this? Yes? No? Can you hear this? Oh, 

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1 maybe we got a problem with the speaker system. Can

2 you hear this? No. Do we have a volume control in the

3 room? No? Are you picking this up?

4 COURT REPORTER: Yes.

5 MR. BROOKMAN: Try that one, Michael.

6 MR. RIVEST: I can't take that off, though.

7 MS. LAUGHLIN: This is on.

8 MR. BROOKMAN: How about this one?

9 MS. LAUGHLIN: That's hers, I guess.

10 MR. BROOKMAN: Is that yours, too? Do I get

11 one? If he speaks real loud, can you hear him?

12 Mike, speak loudly. You're still picking him

13 up on the record, right?

14 COURT REPORTER: Yes.

15 MR. BROOKMAN: Speak loudly.

16 MS. LAUGHLIN: They'll call.

17 MR. BROOKMAN: Well, -

18 MR. RIVEST: Let me get closer and get lots

19 of water.

20 MS. LAUGHLIN: It came back on.

21 MR. BROOKMAN: It's back on? Okay.

22 MR. RIVEST: Our primary modeling tool is the

23 Government Regulatory Impact Model. The model will be

24 presented after the break. It's based on differential

25 cash flow analysis.

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1 maybe we got a problem with the speaker system. Can 

2 you hear this? No. Do we have a volume control in the 

3 room? No? Are you picking this up? 

4 COURT REPORTER: Yes. 

5 MR. BROOKMAN: Try that one, Michael. 

6 MR. RIVEST: I can't take that off, though. 

7 MS. LAUGHLIN: This is on. 

8 MR. BROOKMAN: How about this one? 

9 MS. LAUGHLIN: That's hers, I guess. 

10 MR. BROOKMAN: Is that yours, too? Do I get 

11 one? If he speaks real loud, can you hear him? 

12 Mike, speak loudly. You're still picking him 

13 up on the record, right? 

14 COURT REPORTER: Yes. 

15 MR. BROOKMAN: Speak loudly. 

16 MS. LAUGHLIN: They'll call. 

17 MR. BROOKMAN: Well, --

18 MR. RIVEST: Let me get closer and get lots 

19 of water. 

20 MS. LAUGHLIN: It came back on. 

21 MR. BROOKMAN: It's back on? Okay. 

22 MR. RIVEST: Our primary modeling tool is the 

23 Government Regulatory Impact Model. The model will be 

24 presented after the break. It's based on differential 

25 cash flow analysis. 

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1 I believe it meets all the requirements of

2 the interpretative rule in terms of clarity of inputs

3 and transparency, but certainly one of the key jobs of

4 the working group is going to be to use the current

5 version of the GRIM as a stepping stone towards any

6 enhancements that are required.

7 Also, Quonnie, we're looking at the

8 possibility of developing a spread sheet tool to help

9 us in determining prices. So, if this spread -- this

10 tool would have -- would be built on an economic core

11 that tries to bring the best economic test to offer and

12 price determination. So, that is not developed yet.

13 We are putting together a proposal to the stakeholders

14 on that.

15 Jim McMahon of LB&L tomorrow, I believe

16 tomorrow, will be presenting shortly the overall

17 concepts that might be founded on.

18 Mr. Lennox?

19 MR. LEWIS: Yeah. Dave Lewis with Lennox.

20 Is that a new idea?

21 MR. RIVEST: If that's a new idea?

22 MR. BROOKMAN: Did you pick that up?

23 MR. RIVEST: Dave, say it again, please.

24 MR. BROOKMAN: We're going to have -- this is

25 going to be awkward.

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1 I believe it meets all the requirements of 

2 the interpretative rule in terms of clarity of inputs 

3 and transparency, but certainly one of the key jobs of 

4 the working group is going to be to use the current 

5 version of the GRIM as a stepping stone towards any 

6 enhancements that are required. 

7 Also, Quonnie, we're looking at the 

8 possibility of developing a spread sheet tool to help 

9 us in determining prices. So, if this spread this 

10 tool would have -- would be built on an economic core 

11 that tries to bring the best economic test to offer and 

12 price determination. So, that is not developed yet. 

13 We are putting together a proposal to the stakeholders 

14 on that. 

15 Jim McMahon of LB&L tomorrow, I believe 

16 tomorrow, will be presenting shortly the overall 

17 concepts that might be founded on. 

18 Mr. Lennox? 

19 MR. LEWIS: Yeah. Dave Lewis with Lennox. 

20 Is that a new idea? 

21 MR. RIVEST: If that's a new idea? 

22 MR. BROOKMAN: Did you pick that up? 

23 MR. RIVEST: Dave, say it again, please. 

24 MR. BROOKMAN: We're going to have -- this is 

25 going to be awkward. 

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1 MR. LEWIS: Dave Lewis with Lennox.

2 I just wondered if this -- this spread sheet

3 tool was a new idea that was coming forth or had this

4

5 MR. RIVEST: No. Actually, it's in the

6 interpretative rule that we would be developing a price

7 forecasting tool, and it would be only one of several

8 methods of arriving at prices.

9 So, we'll see tomorrow a couple methods that

10 are being described. One is a method used by the

11 Department of Transportation. They will be present

12 tomorrow when I present their mark-up methodology.

13 An economic forecasting tool is another tool.

14 We'll go into stakeholder interview surveys as well.

15 So, we're trying to bound the price quantity

16 forecasting within the GRIM.

17 MR. BROOKMAN: I want to encourage these

18 questions, these clarifying questions as we go along.

19 Part of the goal here is to make this as dynamic as

20 possible, given the nature of the presentation.

21 MR. RIVEST: So, as we envision it now, the

22 manufacturer impact analysis would be conducted in

23 three phases.

24 The first phase will be done -- would be done

25 concurrent with the screening analysis very early in

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1 MR. LEWIS: Dave Lewis with Lennox. 

2 I just wondered if this -- this spread sheet 

3 tool was a new idea that was coming forth or had this 

4 

5 MR. RIVEST: No. Actually, it's in the 

6 interpretative rule that we would be developing a price 

7 forecasting tool, and it would be only one of several 

8 methods of arriving at prices. 

9 So, we'll see tomorrow a couple methods that 

10 are being described. One is a method used by the 

11 Department of Transportation. They will be present 

12 tomorrow when I present their mark-up methodology. 

13 An economic forecasting tool is another tool. 

14 We'll go into stakeholder interview surveys as well. 

15 So, we're trying to bound the price quantity 

16 forecasting within the GRIM. 

17 MR. BROOKMAN: I want to encourage these 

18 questions, these clarifying questions as we go along. 

19 Part of the goal here is to make this as dynamic as 

20 possible, given the nature of the presentation. 

21 MR. RIVEST: So, as we envision it now, the 

22 manufacturer impact analysis would be conducted in 

23 three phases. 

24 The first phase will be done -- would be done 

25 concurrent with the screening analysis very early in 

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1 the rulemaking, and what we're trying to do at this

2 stage is identify the major issues and also prepare a

3 road map or, if you will, do a preliminary selection of

4 the tools and methodologies that will be used during

5 Phase 2 and Phase 3 of the analysis.

6 So, we're trying to lay out the whole process

7 within Phase 1, and at the same time, assemble the

8 databook on the industry that can help us, you know,

9 estimate some of the variables later on in the

10 analysis.

11 Phase 2. The industry cash flow analysis is

12 what resembles the most -- the past manufacturer impact

13 analysis, and that here we are modeling a

14 prototypical -- sure. She touched the tape.

15 Somebody's fault.

16 MR. BROOKMAN: Can you hear this one back

17 there? Try this one.

18 MS. LAUGHLIN: Well, the guy's here.

19 MR. BROOKMAN: Yeah. I know. Keep going.

20 You let us know if -- try it, Mike. Go.

21 MR. RIVEST: So, the Phase 2 analysis is

22 essentially using the GRIM Model to try and estimate

23 the financial impacts of the -- of the standard levels

24 on the industry, and it would only be attempting to

25 model a prototypical firm, if you will, or the -- you

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1 the rulemaking, and what we're trying to do at this 

2 stage is identify the major issues and also prepare a 

3 road map or, if you will, do a preliminary selection of 

4 the tools and methodologies that will be used during 

5 Phase 2 and Phase 3 of the analysis. 

6 So, we're trying to layout the whole process 

7 within Phase I, and at the same time, assemble the 

8 databook on the industry that can help us, you know, 

9 estimate some of the variables later on in the 

10 analysis. 

11 Phase 2. The industry cash flow analysis is 

12 what resembles the most the past manufacturer impact 

13 analysis, and that here we are modeling a 

14 prototypical -- sure. She touched the tape. 

15 Somebody's fault. 

16 MR. BROOKMAN: Can you hear this one back 

17 there? Try this one. 

18 MS. LAUGHLIN: Well, the guy's here. 

19 MR. BROOKMAN: Yeah. I know. Keep going. 

20 You let us know if -- try it, Mike. Go. 

21 MR. RIVEST: So, the Phase 2 analysis is 

22 essentially using the GRIM Model to try and estimate 

23 the financial impacts of the -- of the standard levels 

24 on the industry, and it would only be attempting to 

25 model a prototypical firm, if you will, or the -- you 

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1 can't hear me?

2 MR. BROOKMAN: He's back there now? Bear

3 with us. We'll get this -- can you hear this one back

4 there? You can? Here. Try this one. Speak loudly,

5 Mike.

6 MR. RIVEST: So, the cash flow analysis, this

7 Phase 2 analysis, would be done. What we discussed at

8 the Advisory Committee is that perhaps that first cash

9 flow analysis for the industry would be prepared for

10 the ANOPR.

11 The Phase 3 analysis is done after the ANOPR,

12 and here we're going to look -- it -- it incorporates

13 most of the new -- most of the new features of the

14 manufacturer impact analysis.

15 Here, we'd be looking at the different sub16 groups of manufacturers, doing subgroup-specific cash

17 flow analyses, and also evaluating the additional

18 impacts, such as employment capacity and

19 competitiveness.

20 We tried to lay out the process here and show

21 the relationships with other segments of the rulemaking

22 analysis. Phase 1, as I mentioned earlier, would

23 happen very early, perhaps concurrently with the

24 screening analysis.

25 The industry cash flow would incorporate --

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1 can't hear me? 

2 MR. BROOKMAN: He's back there now? Bear 

3 with us. We'll get this -- can you hear this one back 

4 there? You can? Here. Try this one. Speak loudly, 

5 Mike. 

6 MR. RIVEST: So, the cash flow analysis, this 

7 Phase 2 analysis, would be done. What we discussed at 

8 the Advisory Committee is that perhaps that first cash 

9 flow analysis for the industry would be prepared for 

10 the ANOPR. 

11 The Phase 3 analysis is done after the ANOPR, 

12 and here we're going to look -- it -- it incorporates 

13 most of the new -- most of the new features of the 

14 manufacturer impact analysis. 

15 Here, we'd be looking at the different sub16 groups of manufacturers, doing subgroup-specific cash 

17 flow analyses, and also evaluating the additional 

18 impacts, such as employment capacity and 

19 competitiveness. 

20 We tried to layout the process here and show 

21 the relationships with other segments of the rulemaking 

22 analysis. Phase I, as I mentioned earlier, would 

23 happen very early, perhaps concurrently with the 

24 screening analysis. 

25 The industry cash flow would incorporate 

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1 since to do the cash flow, we need to have costs --

2 costs, manufacturing costs, price forecasts and

3 shipment forecasts, we see a lot of synergy between the

4 engineering analysis to generate the manufacturing

5 costs, for instance.

6 The life cycle cost analysis for price

7 forecasts. Of course, for life cycle costing, we're

8 interested in consumer pricing, whereas for the GRIM

9 Model, we're interested in manufacture prices. But

10 there is a relationship. Maybe.

11 The models that are currently being used to

12 forecast national energy benefits, such as net present

13 value and quads of energy saving, do derive some

14 shipment forecasts. They -- those shipment forecasts

15 can be used as one source of input to the quantities

16 needed to run the cash flow analysis.

17 Tomorrow, during the afternoon, we'll be

18 discussing other ways of generating forecasts for

19 shipments that can be incorporated in this industry

20 cash flow.

21 The other elements of the standards rule22 making analysis which are done after the ANOPR have

23 perhaps less synergy with the manufacturer impact

24 analysis. The impacts on the consumers, indirect

25 employment impacts.

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1 since to do the cash flow, we need to have costs 

2 costs, manufacturing costs, price forecasts and 

3 shipment forecasts, we see a lot of synergy between the 

4 engineering analysis to generate the manufacturing 

5 costs, for instance. 

6 The life cycle cost analysis for price 

7 forecasts. Of course, for life cycle costing, we're 

8 interested in consumer pricing, whereas for the GRIM 

9 Model, we're interested in manufacture prices. But 

10 there is a relationship. Maybe. 

11 The models that are currently being used to 

12 forecast national energy benefits, such as net present 

13 value and quads of energy saving, do derive some 

14 shipment forecasts. They those shipment forecasts 

15 can be used as one source of input to the quantities 

16 needed to run the cash flow analysis. 

17 Tomorrow, during the afternoon, we'll be 

18 discussing other ways of generating forecasts for 

19 shipments that can be incorporated in this industry 

20 cash flow. 

21 The other elements of the standards rule22 making analysis which are done after the ANOPR have 

23 perhaps less synergy with the manufacturer impact 

24 analysis. The impacts on the consumers, indirect 

25 employment impacts. 

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1 Direct employment impacts will be done in the

2 subgroup analysis through the qualitative assessments,

3 and the indirect employment impacts are more macro4 economic in nature and would be done, you know, within

5 the economic analysis itself, and the impacts on

6 utilities and impacts on the environment and energy

7 security are other elements of the rulemaking analysis.

8 The Sub-3 -- the Phase 3 subgroup analysis

9 has, as I mentioned earlier, the cash flow analysis for

10 each of the subgroups and the evaluation of impacts on

11 competition, impacts on employment, and impacts on

12 manufacturing capacity.

13 I put together quickly yesterday a structure

14 of the analyses sections. It's on three pages. It was

15 a separate hand-out. I don't know. Did you get a

16 copy? Does everybody have a copy?

17 So, what I've done here essentially is taken

18 that over -- that -- that overhead and expanded it on

19 to three pages and tried to identify the type of

20 analyses that is going on at the various stages.

21 The plan of the workshop is to take you

22 through the right-hand column here, which is all the

23 elements that we call manufacturing impact elements,

24 and the elements on the left are other rulemaking

25 elements.

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1 Direct employment impacts will be done in the 

2 subgroup analysis through the qualitative assessments, 

3 and the indirect employment impacts are more macro4 economic in nature and would be done, you know, within 

5 the economic analysis itself, and the impacts on 

6 utilities and impacts on the environment and energy 

7 security are other elements of the rulemaking analysis. 

8 The Sub-3 -- the phase 3 subgroup analysis 

9 has, as I mentioned earlier, the cash flow analysis for 

10 each of the subgroups and the evaluation of impacts on 

11 competition, impacts on employment, and impacts on 

12 manufacturing capacity. 

13 I put together quickly yesterday a structure 

14 of the analyses sections. It's on three pages. It was 

15 a separate hand-out. I don't know. Did you get a 

16 copy? Does everybody have a copy? 

17 So, what I've done here essentially is taken 

18 that over -- that -- that overhead and expanded it on 

19 to three pages and tried to identify the type of 

20 analyses that is going on at the various stages. 

21 The plan of the workshop is to take you 

22 through the right-hand column here, which is all the 

23 elements that we call manufacturing impact elements, 

24 and the elements on the left are other rulemaking 

25 elements. 

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1 There's obviously a lot of synergy, and it's

2 a somewhat arbitrary distinction.

3 You can just go on to the next slide.

4 MS. LAUGHLIN: The next slide? This or --

5 MR. RIVEST: No.

6 MS. LAUGHLIN: The whole next slide?

7 MR. RIVEST: Right. I -- I won't walk

8 through those three slides as that's what we'll be

9 doing in the next couple days.

10 The Phase 1 analysis, which is done

11 concurrent with the screening analysis, is called the

12 industry profile. That's composed of two segments.

13 There's a background industry characterization where

14 what we're trying to do is put together a databook on

15 the industry.

16 So, all information that is available, we

17 would like to put together and incorporate within one

18 bound document and have it made available to all people

19 participating in the rulemaking.

20 The type of information that could be

21 contained in there, the databook would identify the

22 producers, key market participants, identify the

23 manufacturer characteristics towards an eventual sub24 group analysis.

25 It would show time series on shipments,

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1 There's obviously a lot of synergy, and it's 

2 a somewhat arbitrary distinction. 

3 You can just go on to the next slide. 

4 MS. LAUGHLIN: The next slide? This or 

5 MR. RIVEST: No. 

6 MS. LAUGHLIN: The whole next slide? 

7 MR. RIVEST: Right. I -- I won't walk 

8 through those three slides as that's what we'll be 

9 doing in the next couple days. 

10 The Phase 1 analysis, which is done 

11 concurrent with the screening analysis, is called the 

12 industry profile. That's composed of two segments. 

13 There's a background industry characterization where 

14 what we're trying to do is put together a databook on 

15 the industry. 

16 So, all information that is available, we 

17 would like to put together and incorporate within one 

18 bound document and have it made available to all people 

19 participating in the rulemaking. 

20 The type of information that could be 

21 contained in there, the databook would identify the 

22 producers, key market participants, identify the 

23 manufacturer characteristics towards an eventual sub24 group analysis. 

25 It would show time series on shipments, 

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1 prices, features. These types of information -- this

2 type of information might be useful later on for trying

3 to come to grips with our price and quantity forecasts,

4 for example.

5 It would show time series on productivity of

6 labor capital. That could be used in a macro-economic

7 model to develop the forecasts of employment impacts.

8 It would list firms and their historical market shares.

9 That could be useful information for -- for the

10 competitive impacts assessment.

11 Does this work? Before we get into the --

12 the -- continuing the rulemaking, past the screening

13 analysis and the industry characterization, we'd like

14 to hold a workshop. During that workshop, we could

15 review the results of the screening analysis and review

16 the contents of the databook.

17 During this workshop, participants would be

18 invited to comment on the subgroups of manufacturers,

19 how we might structure the analysis for Phase 3.

20 We'd like to identify any issues, access to

21 technology that could be useful for the competitive

22 impacts assessments. We'd like to review information

23 requirements and information-gathering methods.

24 As we move on to Phase 2, we'll need to come

25 to agreement as to how we're going to collect

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1 prices, features. These types of information -- this 

2 type of information might be useful later on for trying 

3 to come to grips with our price and quantity forecasts, 

4 for example. 

5 It would show time series on productivity of 

6 labor capital. That could be used in a macro-economic 

7 model to develop the forecasts of employment impacts. 

8 It would list firms and their historical market shares. 

9 That could be useful information for -- for the 

10 competitive impacts assessment. 

11 Does this work? Before we get into the --

12 the -- continuing the rulemaking, past the screening 

13 analysis and the industry characterization, we'd like 

14 to hold a workshop. During that workshop, we could 

15 review the results of the screening analysis and review 

16 the contents of the databook. 

17 During this workshop, participants would be 

18 invited to comment on the subgroups of manufacturers, 

19 how we might structure the analysis for Phase 3. 

20 We'd like to identify any issues, access to 

21 technology that could be useful for the competitive 

22 impacts assessments. We'd like to review information 

23 requirements and information-gathering methods. 

24 As we move on to Phase 2, we'll need to come 

25 to agreement as to how we're going to collect 

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1 engineering analysis cost data, for example.

2 We'd like to identify any special analytical

3 tools needed to perform the analysis. Would the GRIM

4 need to be supplemented by some thing? Would the GRIM

5 need to be modified? Are there other tools that would

6 be useful for this particular rulemaking?

7 We'll adapt the generic methodology. You'll

8 see that the methodology really has a -- a -- a number

9 of choices or -- or approaches that are given to

10 generating some of the variables and the inputs to the

11 model, and if -- to the extent that up front we can try

12 and come to agreement as to which approaches we will

13 use within the approaches that were developed or

14 develop new approaches for the rulemaking, that -- we

15 will try to do that up front.

16 We'd like to establish the time line for

17 conducting the analysis, and we'd like to try and get

18 together a group for consultation for doing such things

19 like devising a survey of manufacturers or interested

20 parties.

21 So, -- thanks.

22 Phase 2 is the industry cash flow. A few

23 words about the GRIM Model. The cash flow would be

24 used with -- would be performed by the GRIM Model.

25 It's a standard financial model, based on a pro forma

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1 engineering analysis cost data, for example. 

2 We'd like to identify any special analytical 

3 tools needed to perform the analysis. Would the GRIM 

4 need to be supplemented by some thing? Would the GRIM 

5 need to be modified? Are there other tools that would 

6 be useful for this particular rulemaking? 

7 We'll adapt the generic methodology. You'll 

8 see that the methodology really has a -- a -- a number 

9 of choices or -- or approaches that are given to 

10 generating some of the variables and the inputs to the 

11 model, and if -- to the extent that up front we can try 

12 and come to agreement as to which approaches we will 

13 use within the approaches that were developed or 

14 develop new approaches for the rulemaking, that -- we 

15 will try to do that up front. 

16 We'd like to establish the time line for 

17 conducting the analysis, and we'd like to try and get 

18 together a group for consultation for doing such things 

19 like devising a survey of manufacturers or interested 

20 parties. 

21 So, -- thanks. 

22 Phase 2 is the industry cash flow. A few 

23 words about the GRIM Model. The cash flow would be 

24 used with -- would be performed by the GRIM Model. 

25 It's a standard financial model, based on a pro forma 

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1 income statement.

2 It does require externally-supplied price and

3 quantity forecasts. That's a subject of tomorrow's

4 workshop, how we would go about generating those

5 inputs. Also, we need to have manufacturing costs that

6 are inputted into the GRIM, and also as a starting

7 point of the firm, as we want to understand what

8 happens to the firm, after standards or without

9 standards, we need to sort of common size, if you will,

10 looking at financial information and try to understand

11 the starting position of the firm, its mix of fixed

12 variable costs or, you know, cost of capital, that type

13 of financial information, to be used as a starting

14 point.

15 That's my simplistic description of the GRIM

16 Model. So, from a starting financial position here, we

17 input variable -- variable -- well, you know,

18 incremental values for achieving energy efficiency

19 designs through incorporating manufacturing costs,

20 prices and quantities externally, and deriving a cash

21 flow.

22 Dave Arnold of ADL, after the break, will be

23 talking about -- will be describing the GRIM Model in

24 some detail. We have got it hooked up here on the

25 overhead, and I would like to walk you through.

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1 income statement. 

2 It does require externally-supplied price and 

3 quantity forecasts. That's a subject of tomorrow's 

4 workshop, how we would go about generating those 

5 inputs. Also, we need to have manufacturing costs that 

6 are inputted into the GRIM, and also as a starting 

7 point of the firm, as we want to understand what 

8 happens to the firm, after standards or without 

9 standards, we need to sort of common size, if you will, 

10 looking at financial information and try to understand 

11 the starting position of the firm, its mix of fixed 

12 variable costs or, you know, cost of capital, that type 

13 of financial information, to be used as a starting 

14 point. 

15 That's my simplistic description of the GRIM 

16 Model. So, from a starting financial position here, we 

17 input variable -- variable -- well, you know, 

18 incremental values for achieving energy efficiency 

19 designs through incorporating manufacturing costs, 

20 prices and quantities externally, and deriving a cash 

21 flow. 

22 Dave Arnold of ADL, after the break, will be 

23 talking about will be describing the GRIM Model in 

24 some detail. We have got it hooked up here on the 

25 overhead, and I would like to walk you through. 

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1 The model of the -- the version of the GRIM

2 you'll be looking at, what we've done is we've taken

3 the DOS-based version, which was developed in 1993, and

4 we've brought it on to Windows interface and Excel.

5 So, what you'll be seeing is a Beta version. I'm not

6 sure it has all the original functionality built in,

7 but we just wanted to give you a flavor of what the

8 interface might look like.

9 A couple of key questions. How should DOE go

10 about forecasting shipments? How should DOE go about

11 forecasting, and that should say, manufacturer prices?

12 That -- those are the topics of a couple of hour-long

13 workshops tomorrow.

14 Phase 3, the subgroup impact analysis. We

15 see seven tasks associated with performing this segment

16 of the analysis. The first three tasks involve running

17 the GRIM Model for those specific subgroups of

18 manufacturers that would have been determined at the

19 issues analysis workshop.

20 We have to estimate competitive impacts,

21 employment impacts, and impacts on manufacturing

22 capacity. Tomorrow afternoon, the more qualitative

23 assessments or how we envision that they may be

24 happening will be described.

25 Finally, I think one key issue, and this has

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1 The model of the -- the version of the GRIM 

2 you'll be looking at, what we've done is we've taken 

3 the DOS-based version, which was developed in 1993, and 

4 we've brought it on to Windows interface and Excel. 

5 So, what you'll be seeing is a Beta version. I'm not 

6 sure it has all the original functionality built in, 

7 but we just wanted to give you a flavor of what the 

8 interface might look like. 

9 A couple of key questions. How should DOE go 

10 about forecasting shipments? How should DOE go about 

11 forecasting, and that should say, manufacturer prices? 

12 That -- those are the topics of a couple of hour-long 

13 workshops tomorrow. 

14 Phase 3, the subgroup impact analysis. We 

15 see seven tasks associated with performing this segment 

16 of the analysis. The first three tasks involve running 

17 the GRIM Model for those specific subgroups of 

18 manufacturers that would have been determined at the 

19 issues analysis workshop. 

20 We have to estimate competitive impacts, 

21 employment impacts, and impacts on manufacturing 

22 capacity. Tomorrow afternoon, the more qualitative 

23 assessments or how we envision that they may be 

24 happening will be described. 

25 Finally, I think one key issue, and this has 

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1 not been approached in the work -- you know, not very

2 -- not very much and not very well, is how we'll

3 present the data.

4 A lot of the data that will be brought -- you

5 know, that will be obtained through the interview

6 process will be highly confidential, and we have to

7 find a way of aggregating that data to maintain

8 confidentiality but still make sure that we establish a

9 good public record.

10 A couple of tasks I just want to highlight.

11 Manufacturing costs. There's a lot of synergies

12 between the engineering analysis and the manufacturing

13 impact analyses as far as with regards to gathering

14 manufacturing cost data.

15 There are differences, however, and the main

16 differences being when you're doing an engineering

17 analysis, at least in the past, we've been looking at

18 design options and the cost of achieving those design

19 options.

20 We also tend -- so, we tend to look at a lot

21 of designs, and we tend to look at designs that may not

22 be cost effective; whereas, when we're looking at a

23 manufacturer impact, and we're looking at the GRIM

24 Model specifically, we're more concerned with the cost

25 of achieving a certain efficiency level.

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1 not been approached in the work -- you know, not very 

2 -- not very much and not very well, is how we'll 

3 present the data. 

4 A lot of the data that will be brought -- you 

5 know, that will be obtained through the interview 

6 process will be highly confidential, and we have to 

7 find a way of aggregating that data to maintain 

8 confidentiality but still make sure that we establish a 

9 good public record. 

10 A couple of tasks I just want to highlight. 

11 Manufacturing costs. There's a lot of synergies 

12 between the engineering analysis and the manufacturing 

13 impact analyses as far as with regards to gathering 

14 manufacturing cost data. 

15 There are differences, however, and the main 

16 differences being when you're doing an engineering 

17 analysis, at least in the past, we've been looking at 

18 design options and the cost of achieving those design 

19 options. 

20 We also tend -- so, we tend to look at a lot 

21 of designs, and we tend to look at designs that may not 

22 be cost effective; whereas, when we're looking at a 

23 manufacturer impact, and we're looking at the GRIM 

24 Model specifically, we're more concerned with the cost 

25 of achieving a certain efficiency level. 

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1 So, whereas in the engineering analysis, we

2 may derive a full curve, and we -- we are bound by the

3 design option specified, when we do a Phase 3 analysis,

4 for example, we will want to know the costs of that

5 firm, of achieving those energy savings, regardless of

6 the design options that were specified at the

7 engineering analysis. So, we need to be more specific.

8 In the best of all worlds, we'd like to

9 capture all those differences in the engineering

10 analysis right at the beginning. I don't think we

11 should try and lock ourselves into that paradigm. That

12 may need to be specific to the -- to the rulemaking.

13 But certainly in all instances, we will need

14 to look at manufacturing costs in detail at the sub15 group analysis because there are significant

16 differences based on efficiency level versus design

17 option types of information. Based also on the types

18 of burdens or costs which don't necessarily get

19 captured very well in the survey where you're asking

20 them to cost -- you're asking the manufacturers to cost

21 the design option, and also cumulative burden. It may

22 not reflect itself very well in unit costs once again.

23 We had meetings with the Department of

24 Justice, very enlightening. We are -- what we're

25 trying to do with DOJ is structure our analysis in a

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1 So, whereas in the engineering analysis, we 

2 may derive a full curve, and we -- we are bound by the 

3 design option specified, when we do a Phase 3 analysis, 

4 for example, we will want to know the costs of that 

5 firm, of achieving those energy savings, regardless of 

6 the design options that were specified at the 

7 engineering analysis. So, we need to be more specific. 

8 In the best of all worlds, we'd like to 

9 capture all those differences in the engineering 

10 analysis right at the beginning. I don't think we 

11 should try and lock ourselves into that paradigm. That 

12 may need to be specific to the -- to the rulemaking. 

13 But certainly in all instances, we will need 

14 to look at manufacturing costs in detail at the sub15 group analysis because there are significant 

16 differences based on efficiency level versus design 

17 option types of information. Based also on the types 

18 of burdens or costs which don't necessarily get 

19 captured very well in the survey where you're asking 

20 them to cost -- you're asking the manufacturers to cost 

21 the design option, and also cumulative burden. It may 

22 not reflect itself very well in unit costs once again. 

23 We had meetings with the Department of 

24 Justice, very enlightening. We are -- what we're 

25 trying to do with DOJ is structure our analysis in a 

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1 way that we can capture the information that is needed

2 for them to make their determination.

3 It also sheds a lot of light. Their

4 experience and methodology also adds a lot to our own

5 understanding. So, we will be able to better

6 coordinate our efforts. The types of -- they're here.

7 So, I better watch out what I say.

8 The type of information they would be looking

9 at through the questionnaires that we'll develop, the

10 surveys will develop for the Phase 3 analysis is any

11 asymmetrical cost increases to some manufacturers. The

12 increased proportion of fixed costs which could

13 increase business risk. This is an important issue,

14 particularly with smaller manufacturers, and also any

15 barriers to market entry.

16 The focus of the DOJ analysis -- the DOJ

17 analysis is the production -- is the protection of the

18 consumer, but that leads us right to an evaluation of

19 that market and the manufacturers in that market.

20 Questions so far?

21 MR. BROOKMAN: Are you all staying with him

22 and tracking? Yes? Glenn?

23 MR. SCHLEEDE: Just one question.

24 MR. BROOKMAN: Glenn, use the mike.

25 MR. SCHLEEDE: Glenn Schleede.

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1 way that we can capture the information that is needed 

2 for them to make their determination. 

3 It also sheds a lot of light. Their 

4 experience and methodology also adds a lot to our own 

5 understanding. So, we will be able to better 

6 coordinate our efforts. The types of -- they're here. 

7 So, I better watch out what I say. 

8 The type of information they would be looking 

9 at through the questionnaires that we'll develop, the 

10 surveys will develop for the Phase 3 analysis is any 

11 asymmetrical cost increases to some manufacturers. The 

12 increased proportion of fixed costs which could 

13 increase business risk. This is an important issue, 

14 particularly with smaller manufacturers, and also any 

15 barriers to market entry. 

16 The focus of the DOJ analysis -- the DOJ 

17 analysis is the production -- is the protection of the 

18 consumer, but that leads us right to an evaluation of 

19 that market and the manufacturers in that market. 

20 Questions so far? 

21 MR. BROOKMAN: Are you all staying with him 

22 and tracking? Yes? Glenn? 

23 

24 

25 

MR. SCHLEEDE: Just one question. 

MR. BROOKMAN: Glenn, use the mike. 

MR. SCHLEEDE: Glenn Schleede. 

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1 Where -- the overhead costs, the indirect

2 costs, that's what you're referring to on this Chart 4

3 under the term "Burden"? Is that where they come in?

4 MR. RIVEST: I'm sorry. Indirect?

5 MR. SCHLEEDE: Indirect costs. Everything

6 from advertising, overhead costs, for a manufacturer,

7 where do those come in to the model?

8 MR. RIVEST: They come in -- there -- there's

9 a -- they come in as one-time costs of meeting

10 regulation. So, for example, if you have to redo your

11 product literature, there are two types of costs.

12 There are capital conversion costs, and there are

13 capital -- product -- is it product conversion?

14 So, there are expensible costs, and there are

15 costs that will be capitalized, and those are inputted

16 in to the model.

17 MR. SCHLEEDE: I mean the costs of -- like

18 the costs of everybody in this room, who -- who -- that

19 --

20 MR. RIVEST: There's no -- the cost benefit

21 analysis, I don't believe includes the cost of

22 attending meetings or developing the regulations.

23 MR. SCHLEEDE: No. I'm being facetious. The

24 cost of -- normal overhead --

25 MR. RIVEST: I know you are.

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1 Where -- the overhead costs, the indirect 

2 costs, that's what you're referring to on this Chart 4 

3 under the term "Burden"? Is that where they come in? 

4 MR. RIVEST: I'm sorry. Indirect? 

5 MR. SCHLEEDE: Indirect costs. Everything 

6 from advertising, overhead costs, for a manufacturer, 

7 where do those come in to the model? 

8 MR. RIVEST: They come in there -- there's 

9 a -- they come in as one-time costs of meeting 

10 regulation. So, for example, if you have to redo your 

11 product literature, there are two types of costs. 

12 There are capital conversion costs, and there are 

13 capital -- product -- is it product conversion? 

14 So, there are expensible costs, and there are 

15 costs that will be capitalized, and those are inputted 

16 in to the model. 

17 MR. SCHLEEDE: I mean the costs of -- like 

18 the costs of everybody in this room, who -- who -- that 

19 

20 MR. RIVEST: There's no -- the cost benefit 

21 analysis, I don't believe includes the cost of 

22 attending meetings or developing the regulations. 

23 MR. SCHLEEDE: No. I'm being facetious. The 

24 cost of -- normal overhead --

25 MR. RIVEST: I know you are. 

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1 MR. SCHLEEDE: -- costs in -- in the

2 organization. It seems up to this point, you've talked

3 only about the direct costs, and I'm wondering have I

4 missed something or where do the indirect costs come

5 in? Where is the cost of the office of General

6 Counsel, advertising, all the rest?

7 AUDIENCE MEMBER: Mike, that may be

8 considered in your other model.

9 MR. SCHLEEDE: Okay. But if it comes up

10 later, fine.

11 MR. RIVEST: Okay.

12 MR. BROOKMAN: Any more questions at this

13 point?

14 MR. PERLIS: Hi. I'm Mike Perlis.

15 I have two quick questions. First is, are

16 you suggesting -- did you just suggest recently that

17 the prices that you forecast for the GRIM Model will

18 not necessarily be the same prices that we're going to

19 use in the consumer impact analysis?

20 MR. RIVEST: Very good question. In the

21 Phase -- in the Phase 2 industry cash flow, the prices

22 forecast -- the prices used for the life cycle cost

23 curves are consumer prices.

24 In the case of the ballast, they arrived

25 through a market survey.

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1 MR. SCHLEEDE: -- costs in -- in the 

2 organization. It seems up to this point, you've talked 

3 only about the direct costs, and I'm wondering have I 

4 missed something or where do the indirect costs come 

5 in? Where is the cost of the Office of General 

6 Counsel, advertising, all the rest? 

7 AUDIENCE MEMBER: Mike, that may be 

8 considered in your other model. 

9 MR. SCHLEEDE: Okay. But if it comes up 

10 later, fine. 

11 MR. RIVEST: Okay. 

12 MR. BROOKMAN: Any more questions at this 

13 point? 

14 MR. PERLIS: Hi. I'm Mike Perlis. 

15 I have two quick questions. First is, are 

16 you suggesting -- did you just suggest recently that 

17 the prices that you forecast for the GRIM Model will 

18 not necessarily be the same prices that we're going to 

19 use in the consumer impact analysis? 

20 MR. RIVEST: Very good question. In the 

21 Phase -- in the Phase 2 industry cash flow, the prices 

22 forecast the prices used for the life cycle cost 

23 curves are consumer prices. 

24 In the case of the ballast, they arrived 

25 through a market survey. 

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1 Now, the prices that the GRIM uses are prices

2 to establish the revenue of the firm. So, it would

3 be -- it would be, if you will, the same price less a

4 mark-up from manufacturer to retail, for example.

5 MR. PERLIS: Well, in theory, you might think

6 that there's that relationship, but if the prices are

7 actually developed through two alternate analyses at

8 two different stages of the DOE process, you're going

9 to have to do a reconciliation at the end; otherwise,

10 you're going to have a basic inconsistency, and I

11 suggest a court would never accept a lengthy

12 quantitative analysis that doesn't reconcile prices

13 used in the consumer impact analysis with prices used

14 in the GRIM Model. That's Point Number 1.

15 My second question is -- and I'm not sure

16 you're going to want to answer this now but perhaps

17 defer it till later, but GRIM produces a cash flow

18 analysis. I've looked through all the materials. I

19 don't ascertain anything in the materials that

20 indicates how you evaluate the cash flow detriment that

21 is determined at the end of the day.

22 I mean you do all this complicated analysis,

23 but basically all GRIM is doing is estimating the

24 increase in costs to comply with the standards, and in

25 almost all cases, it's assumed that those are going to

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1 Now l the prices that the GRIM uses are prices 

2 to establish the revenue of the firm. SOl it would 

3 be -- it would bel if you willi the same price less a 

4 mark-up from manufacturer to retail l for example. 

5 MR. PERLIS: WeIll in theorYI you might think 

6 that there's that relationshipi but if the prices are 

7 actually developed through two alternate analyses at 

8 two different stages of the DOE processl you're going 

9 to have to do a reconciliation at the endi otherwise l 

10 you're going to have a basic inconsistencYI and I 

11 suggest a court would never accept a lengthy 

12 quantitative analysis that doesn't reconcile prices 

13 used in the consumer impact analysis with prices used 

14 in the GRIM Model. That's Point Number 1. 

15 My second question is -- and I'm not sure 

16 you're going to want to answer this now but perhaps 

17 defer it till laterl but GRIM produces a cash flow 

18 analysis. I've looked through all the materials. I 

19 don't ascertain anything in the materials that 

20 indicates how you evaluate the cash flow detriment that 

21 is determined at the end of the day. 

22 I mean you do all this complicated analysisl 

23 but basically all GRIM is doing is estimating the 

24 increase in costs to comply with the standards I and in 

25 almost all cases l it's assumed that those are going to 

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1 be increases in costs.

2 There may be a price forecast to allow you to

3 raise your prices to recoup some of those costs. The

4 end of the day, you're probably going to have a cash

5 flow detriment.

6 If you have a cash flow detriment, how do you

7 evaluate it? When does it become significant? How do

8 you determine what the manufacturer impact means?

9 MR. RIVEST: The -- I'll try to differentiate

10 between coming up with a good estimate of what that

11 cash -- that negative cash flow might be, and then

12 separating, you know, that analytical exercise with the

13 -- the exercise then of trying to trade off that, you

14 know, that cash flow with energy savings, for example.

15 So, that second order policy decision, if you

16 will, is very important, and I recognize that, but it's

17 not something that -- that -- that my -- the approach

18 here is trying to -- you know, to -- to quantify or to

19 balance. We're just trying to come up and say there

20 are a thousand jobs lost, we think, plus or minus.

21 There are -- there's a negative cash flow of $200

22 million, plus or minus, and then present that to the

23 policy-maker and let the policy-maker weigh that

24 against the benefits that consumers might have or that

25 a portion of consumers might have, and weigh that

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1 be increases in costs. 

2 There may be a price forecast to allow you to 

3 raise your prices to recoup some of those costs. The 

4 end of the day, you're probably going to have a cash 

5 flow detriment. 

6 If you have a cash flow detriment, how do you 

7 evaluate it? When does it become significant? How do 

8 you determine what the manufacturer impact means? 

9 MR. RIVEST: The -- I'll try to differentiate 

10 between coming up with a good estimate of what that 

11 cash -- that negative cash flow might be, and then 

12 separating, you know, that analytical exercise with the 

13 -- the exercise then of trying to trade off that, you 

14 know, that cash flow with energy savings, for example. 

15 So, that second order policy decision, if you 

16 will, is very important, and I recognize that, but it's 

17 not something that -- that -- that my -- the approach 

18 here is trying to -- you know, to -- to quantify or to 

19 balance. We're just trying to come up and say there 

20 are a thousand jobs lost, we think, plus or minus. 

21 There are -- there's a negative cash flow of $200 

22 million, plus or minus, and then present that to the 

23 policy-maker and let the policy-maker weigh that 

24 against the benefits that consumers might have or that 

25 a portion of consumers might have, and weigh that 

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1 against quads in energy savings for the nation.

2 Does that answer your -- did I dance around

3 it or did I answer it?

4 MR. PERLIS: Well, I think what you basically

5 said is that the manufacturer's impact analysis segment

6 of the DOE process doesn't answer how we take

7 manufacturer's impact into account.

8 For example, there's no metric provided for

9 saying, okay, we have it -- a -- a net discounted

10 present value cash flow effect, I think that's the

11 bottom line in the GRIM Model, of X dollars.

12 What do we measure that against? Do we

13 measure it against total capitalization? Do we measure

14 it against some measure of energy savings that we're

15 producing, so that we want to have a ratio of

16 manufacturers hit to energy savings that justifies it?

17 What we have in the consumer impact analysis

18 from the consumer perspective is -- is the development

19 of several matrix, such as the pay-back, life cycle

20 cost, etc., and it strikes me that for all this work

21 that's being done on the manufacturer's impact

22 analysis, just from the quantitative side, leaving

23 aside the qualitative, which I acknowledge is a

24 substantial improvement and will just muddy the waters,

25 but just on the quantitative side, it seems to me you

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1 against quads in energy savings for the nation. 

2 Does that answer your -- did I dance around 

3 it or did I answer it? 

4 MR. PERLIS: Well, I think what you basically 

5 said is that the manufacturer's impact analysis segment 

6 of the DOE process doesn't answer how we take 

7 manufacturer's impact into account. 

8 For example, there's no metric provided for 

9 saying, okay, we have it -- a -- a net discounted 

10 present value cash flow effect, I think that's the 

11 bottom line in the GRIM Model, of X dollars. 

12 What do we measure that against? Do we 

13 measure it against total capitalization? Do we measure 

14 it against some measure of energy savings that we're 

15 producing, so that we want to have a ratio of 

16 manufacturers hit to energy savings that justifies it? 

17 What we have in the consumer impact analysis 

18 from the consumer perspective is -- is the development 

19 of several matrix, such as the pay-back, life cycle 

20 cost, etc., and it strikes me that for all this work 

21 that's being done on the manufacturer's impact 

22 analysis, just from the quantitative side, leaving 

23 aside the qualitative, which I acknowledge is a 

24 substantial improvement and will just muddy the waters, 

25 but just on the quantitative side, it seems to me you 

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1 should be going a step further and figuring out what

2 you're going to do with the number when you get it, and

3 how you're going to be able to evaluate it, and -- and

4 I -- and I --

5 MR. RIVEST: I'll just make a short answer,

6 and I'll -- you're certainly right in terms of the net

7 present value not giving a good -- a good measure of

8 what's -- what does a million dollars -- a hundred

9 million dollars mean to this industry? So, it depends

10 on the i ndus try ' s si z e .

11 So, certainly one of the enhancements to the

12 GRIM we've talked about is bringing that back into, if

13 you will, a relative measure, like return on equity or

14 return on investment. So, that's something that we

15 will be able to do .

16 In terms of establishing, you know, certain

17 hurdles or -- or barriers that we won't exceed in terms

18 of manufacturer impact, that -- that's not something

19 I'm qualified -- that's not something I'm qualified --

20 something I'm qualified to -- to comment on.

21 MR. BROOKMAN: Mr. Thiele?

22 MR. THIELE: Terry Thiele, WCI.

23 This is more of a comment than a question in

24 regard to the -- the dialogue.

25 I would make the observation that the value

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1 should be going a step further and figuring out what 

2 you're going to do with the number when you get it l and 

3 how you're going to be able to evaluate it l and -- and 

4 I -- and I 

5 MR. RIVEST: I'll just make a short answerl 

6 and I'll -- you're certainly right in terms of the net 

7 present value not giving a good -- a good measure of 

8 what's -- what does a million dollars -- a hundred 

9 million dollars mean to this industry? SOl it depends 

10 on the industry's size. 

11 SOl certainly one of the enhancements to the 

12 GRIM we've talked about is bringing that back into l if 

13 you willI a relative measure I like return on equity or 

14 return on investment. SOl that's something that we 

15 will be able to do. 

16 In terms of establishing l you know I certain 

17 hurdles or -- or barriers that we won't exceed in terms 

18 of manufacturer impact I that -- that's not something 

19 I'm qualified -- that's not something I'm qualified 

20 something I'm qualified to -- to comment on. 

21 MR. BROOKMAN: Mr. Thiele? 

22 MR. THIELE: Terry Thiele l WeI. 

23 This is more of a comment than a question in 

24 regard to the -- the dialogue. 

25 I would make the observation that the value 

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1 of the proposal, the GRIM, as we are discussing it, is

2 that for the first time, it will give us the

3 opportunity to debate what the appropriate standard

4 impact consequence should be on an apples-to-apples

5 basis, that we will have some measures to look at to

6 then engage in that policy debate as how much is

7 enough.

8 For example, you could make the -- the

9 argument that no regulation should require an industry

10 to lose value. Whether or not that's the appropriate

11 policy criteria, though, is a separate debate, and I

12 think what's important and we need to recognize is that

13 this analysis gives us the basis for that argument.

14 Before, we were simply talking past each other.

15 MR. BROOKMAN: Mark, did you have anything

16 specific that you wanted to say that could address your

17 last point, in addition to the comments you made

18 already?

19 MR. FRIEDRICHS: No.

20 MR. BROOKMAN: Okay. Not for now.

21 Okay. Additional questions before we move

22 back to the presentation?

23 MR. RIVEST: As far as your first issue about

24 reconciling the prices that will be used for consumer

25 impact and manufacturer impact, I entirely agree that

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1 of the proposal r the GRIM r as we are discussing itr is 

2 that for the first timer it will give us the 

3 opportunity to debate what the appropriate standard 

4 impact consequence should be on an apples-to-apples 

5 basisr that we will have some measures to look at to 

6 then engage in that policy debate as how much is 

7 enough. 

8 For example r you could make the -- the 

9 argument that no regulation should require an industry 

10 to lose value. Whether or not that's the appropriate 

11 policy criteria r thoughr is a separate debater and I 

12 think what's important and we need to recognize is that 

13 this analysis gives us the basis for that argument. 

14 Before r we were simply talking past each other. 

15 MR. BROOKMAN: Mark r did you have anything 

16 specific that you wanted to say that could address your 

17 last pointr in addition to the comments you made 

18 already? 

19 MR. FRIEDRICHS: No. 

20 MR. BROOKMAN: Okay. Not for now. 

21 Okay. Additional questions before we move 

22 back to the presentation? 

23 MR. RIVEST: As far as your first issue about 

24 reconciling the prices that will be used for consumer 

25 impact and manufacturer impact r I entirely agree that 

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1 we have to be consistent.

2 However, there have been a lot of comments

3 along the way that there -- there is -- it's very

4 difficult to know what, you know, what that mark-up is

5 from one price to the next.

6 So, we'll try to do that through uncertainty

7 analysis, and both the consumer analysis and the

8 manufacturer impact analysis will -- and -- and this is

9 something I -- this is something we can add right now,

10 should have that same uncertainty range that's

11 captured. So, thanks.

12 I'd like to walk through the agenda of the

13 meeting simply to try and put every piece in its

14 perspective.

15 Right after the break, Dave Arnold will be

16 describing the GRIM Model, walking through it, doing a

17 short presentation on the concepts, the underlying

18 financial concept of cash flow analysis, and we can

19 maybe try to start identifying some of the enhancements

20 that -- that might be needed and certainly the return

21 on equity or the absolute metric would be a useful one.

22 This afternoon, Steve Shankel of PNNL, who

23 contributed to the segment, the Phase 1 analysis

24 segment, will describe how we envision that the

25 industry characterization and the production of the

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1 we have to be consistent. 

2 However, there have been a lot of comments 

3 along the way that there there is -- it's very 

4 difficult to know what, you know, what that mark-up is 

5 from one price to the next. 

6 So, we'll try to do that through uncertainty 

7 analysis, and both the consumer analysis and the 

8 manufacturer impact analysis will -- and and this is 

9 something I -- this is something we can add right now, 

10 should have that same uncertainty range that's 

11 captured. So, thanks. 

12 I'd like to walk through the agenda of the 

13 meeting simply to try and put every piece in its 

14 perspective. 

15 Right after the break, Dave Arnold will be 

16 describing the GRIM Model, walking through it, doing a 

17 short presentation on the concepts, the underlying 

18 financial concept of cash flow analysis, and we can 

19 maybe try to start identifying some of the enhancements 

20 that -- that might be needed and certainly the return 

21 on equity or the absolute metric would be a useful one. 

22 This afternoon, Steve Shankel of PNNL, who 

23 contributed to the segment, the Phase 1 analysis 

24 segment, will describe how we envision that the 

25 industry characterization and the production of the 

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1 databook might -- might proceed.

2 So, he's -- he's essentially got a strawman

3 approach to industry characterization that includes an

4 initial review, a quantitative analysis, which is based

5 -- statistics-based, historical in nature, a

6 qualitative analysis which will seek a lot of public

7 input, and finally a stakeholder review through that

8 workshop that we identified which might be concurrent

9 with the screening analysis workshop.

10 We've talked -- we will have talked about one

11 of our tools, which is the GRIM Model. The GRIM

12 integrates and calculates. We do need inputs into that

13 -- into the GRIM for manufacturing costs, for prices

14 and quantities.

15 As you mentioned before, we have to reconcile

16 prices from one segment of the analysis, which is the

17 consumer life cycle, and with the manufacturer price

18 for -- for GRIM.

19 We also have to reconcile the shipment values

20 that we'll use for the industry Phase 2 cash flow with

21 the national benefit forecast of savings. So, one way

22 to picture this is that we can run the models and

23 generate a series of forecasts for a base case and for

24 several efficiency levels, use those as one of several

25 inputs in determining future shipments for the GRIM,

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1 databook might -- might proceed. 

2 So, he's -- he's essentially got a strawman 

3 approach to industry characterization that includes an 

4 initial review, a quantitative analysis, which is based 

5 -- statistics-based, historical in nature, a 

6 qualitative analysis which will seek a lot of public 

7 input, and finally a stakeholder review through that 

8 workshop that we identified which might be concurrent 

9 with the screening analysis workshop. 

10 We've talked -- we will have talked about one 

11 of our tools, which is the GRIM Model. The GRIM 

12 integrates and calculates. We do need inputs into that 

13 -- into the GRIM for manufacturing costs, for prices 

14 and quantities. 

15 As you mentioned before, we have to reconcile 

16 prices from one segment of the analysis, which is the 

17 consumer life cycle, and with the manufacturer price 

18 for -- for GRIM. 

19 We also have to reconcile the shipment values 

20 that we'll use for the industry Phase 2 cash flow with 

21 the national benefit forecast of savings. So, one way 

22 to picture this is that we can run the models and 

23 generate a series of forecasts for a base case and for 

24 several efficiency levels, use those as one of several 

25 inputs in determining future shipments for the GRIM, 

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1 and once we have characterized the range of shipments

2 for GRIM, then we need to put those back into the net

3 national benefit models to make sure that we're in sync

4 on both analyses sections.

5 So, that's what Jim McMahon at LB&L will be

6 talking about. LB&L has been running the net national

7 benefits segment, the RIM model, for numerous years.

8 He'll also be talking about other approaches to

9 forecasting the national benefits and the quantity

10 forecasts, talking a little bit about other models that

11 are available.

12 We have people here from EIA who will talk a

13 little -- or will be available to answer questions

14 about the NEMS model. Steve Shankel is going to --

15 from PNNL is going to -- to -- yes? Doesn't work?

16 MR. BROOKMAN: Here, use this one.

17 MR. RIVEST: I'm almost over.

18 Steve Shankel of PNNL will talk about the

19 NEMS model, using the application for water heating,

20 and, finally, the whole purpose of this segment is to

21 try and narrow -- or try to identify what are the

22 critical variables in forecasting shipments for the

23 GRIM, and see if we could begin to scope out, if you

24 will, a simple spread sheet model which could identify

25 those and consider those key variables.

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1 and once we have characterized the range of shipments 

2 for GRIM, then we need to put those back into the net 

3 national benefit models to make sure that we're in sync 

4 on both analyses sections. 

5 So, that's what Jim McMahon at LB&L will be 

6 talking about. LB&L has been running the net national 

7 benefits segment, the RIM model, for numerous years. 

8 He'll also be talking about other approaches to 

9 forecasting the national benefits and the quantity 

10 forecasts, talking a little bit about other models that 

11 are available. 

12 We have people here from EIA who will talk a 

13 little -- or will be available to answer questions 

14 about the NEMS model. Steve Shankel is going to --

15 from PNNL is going to to -- yes? Doesn't work? 

16 MR. BROOKMAN: Here, use this one. 

17 MR. RIVEST: I'm almost over. 

18 Steve Shankel of PNNL will talk about the 

19 NEMS model, using the application for water heating, 

20 and, finally, the whole purpose of this segment is to 

21 try and narrow -- or try to identify what are the 

22 critical variables in forecasting shipments for the 

23 GRIM, and see if we could begin to scope out, if you 

24 will, a simple spread sheet model which could identify 

25 those and consider those key variables. 

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1 So, leading from huge models that forecast 30

2 years in the future to simplified models that only

3 consider what's important in, say, five- to eight-year

4 horizon, which is what the GRIM Model will consider.

5 MR. BROOKMAN: Mike's just laid out the rest

6 of the day's work. As you look at it, are there any

7 major gaps that -- that jump out at you at this point?

8 AUDIENCE MEMBER: We will have an afternoon

9 break.

10 MR. BROOKMAN: We will have an afternoon

11 break. Thank you, Deborah.

12 This is -- let me ask you the larger

13 question. We've gone from some fairly -- some overview

14 this morning. We're going to get into some detail

15 after the break.

16 Is -- so far, is this working? Is this -- is

17 this the level of presentation that suits your needs?

18 I'm seeing some heads go up and down yes. Yeah. So

19 far so good. Okay.

20 My goal is to make this as dynamic as at all

21 possible, given that there's a dense bit of

22 presentation going on. So, if you have questions,

23 comments as we go along, we're going to try and

24 entertain them rapidly and keep this moving. Okay.

25 MR. RIVEST: Go on to Day 2. Oh, just -- I'm

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1 So, leading from huge models that forecast 30 

2 years in the future to simplified models that only 

3 consider what's important in, say, five- to eight-year 

4 horizon, which is what the GRIM Model will consider. 

5 MR. BROOKMAN: Mike's just laid out the rest 

6 of the day's work. As you look at it, are there any 

7 major gaps that -- that jump out at you at this point? 

8 AUDIENCE MEMBER: We will have an afternoon 

9 break. 

10 MR. BROOKMAN: We will have an afternoon 

11 break. Thank you, Deborah. 

12 This is -- let me ask you the larger 

13 question. We've gone from some fairly -- some overview 

14 this morning. We're going to get into some detail 

15 after the break. 

16 Is -- so far, is this working? Is this -- is 

17 this the level of presentation that suits your needs? 

18 I'm seeing some heads go up and down yes. Yeah. So 

19 far so good. Okay. 

20 My goal is to make this as dynamic as at all 

21 possible, given that there's a dense bit of 

22 presentation going on. So, if you have questions, 

23 comments as we go along, we're going to try and 

24 entertain them rapidly and keep this moving. Okay. 

25 MR. RIVEST: Go on to Day 2. Oh, just -- I'm 

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1 sorry. From -- we'll try to finish early and have some

2 of the models up and running on several laptops and on

3 a couple of overheads. We'll have the GRIM Model. I

4 believe we have the -- the EPRI REEPS model. We also

5 have Commend. Just to give you a flavor of data entry,

6 the types of variables that are considered. So,

7 they'll be available from 3:30 to 5.

8 In the second day, we're looking at four

9 things. We're looking at the three major inputs to

10 GRIM, which are the prices, the quantities and the

11 costs, and we're going to describe some of the

12 approaches that are laid out in the strawman as to how

13 we might derive those various variables.

14 The morning session looks at estimating

15 manufacturer costs. Several -- several approaches are

16 described. One is essentially looking at what we've

17 done in the past, which is design option-based, survey18 based, looking at what was done much earlier, which is

19 a more of a cost modeling approach, doing a bottoms-up

20 assessment of costs, and also we'll be looking at the

21 ASHRAE methodology that was used within the ASHRAE

22 Committees, and I've got it here within the block

23 called "Manufacturing Costs", but the ASHRAE

24 methodology goes further in that the way it's designed,

25 it -- it can -- it's designed to capture manufacturing

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1 sorry. From -- we'll try to finish early and have some 

2 of the models up and running on several laptops and on 

3 a couple of overheads. We'll have the GRIM Model. I 

4 believe we have the the EPRI REEPS model. We also 

5 have Commend. Just to give you a flavor of data entry, 

6 the types of variables that are considered. So, 

7 they'll be available from 3:30 to 5. 

8 In the second day, we're looking at four 

9 things. We're looking at the three major inputs to 

10 GRIM, which are the prices, the quantities and the 

11 costs, and we're going to describe some of the 

12 approaches that are laid out in the strawman as to how 

13 we might derive those various variables. 

14 The morning session looks at estimating 

15 manufacturer costs. Several -- several approaches are 

16 described. One is essentially looking at what we've 

17 done in the past, which is design option-based, survey18 based, looking at what was done much earlier, which is 

19 a more of a cost modeling approach, doing a bottoms-up 

20 assessment of costs, and also we'll be looking at the 

21 ASHRAE methodology that was used within the ASHRAE 

22 Committees, and I've got it here within the block 

23 called "Manufacturing Costs", but the ASHRAE 

24 methodology goes further in that the way it's designed, 

25 it -- it can -- it's designed to capture manufacturing 

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1 costs as well in the way that the data is reported.

2 So, Larry Wethje of ARI and Ron Jurnigan of

3 PNNL will describe the methodology, and we might begin

4 initiating a discussion of how we might try to -- to at

5 least try to start to look at if we can reconcile the

6 approaches, and how that approach could be used in one

7 specific rulemaking or several.

8 So, the idea here is not to lock ourselves

9 into any specific approach but just make sure that each

10 approach could be consistent in a larger framework.

11 The afternoon session -- one afternoon

12 session will deal with price determination for input

13 into the GRIM. We'll be looking at a survey data

14 approach, which is a survey of manufacturers. I've got

15 copies of a survey of manufacturers from the 1982 TSD

16 just to give an idea of how that might happen.

17 The Department of Transportation methodology

18 for price determination, which is, I would say,

19 accounting-based, looking at available 10-ks. So, that

20 will be described, and the gentleman from the

21 Department of Transportation will be here to -- to

22 answer any questions on that methodology.

23 An economic mark-up approach, Mr. Lewis.

24 That's the spread sheet we talked about, how that might

25 be used, so that will just be a skeletal outline for

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1 costs as well in the way that the data is reported. 

2 So, Larry Wethje of ARI and Ron Jurnigan of 

3 PNNL will describe the methodology, and we might begin 

4 initiating a discussion of how we might try to -- to at 

5 least try to start to look at if we can reconcile the 

6 approaches, and how that approach could be used in one 

7 specific rulemaking or several. 

8 So, the idea here is not to lock ourselves 

9 into any specific approach but just make sure that each 

10 approach could be consistent in a larger framework. 

11 The afternoon session -- one afternoon 

12 session will deal with price determination for input 

13 into the GRIM. We'll be looking at a survey data 

14 approach, which is a survey of manufacturers. I've got 

15 copies of a survey of manufacturers from the 1982 TSD 

16 just to give an idea of how that might happen. 

17 The Department of Transportation methodology 

18 for price determination, which is, I would say, 

19 accounting-based, looking at available 10-ks. So, that 

20 will be described, and the gentleman from the 

21 Department of Transportation will be here to -- to 

22 answer any questions on that methodology. 

23 An economic mark-up approach, Mr. Lewis. 

24 That's the spread sheet we talked about, how that might 

25 be used, so that will just be a skeletal outline for 

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1 now.

2 And then talk about scenario analysis. How

3 are we going to combine all of those different

4 forecasts into some sort of meaningful way within the

5 GRIM?

6 In the afternoon, shipment inputs to the

7 GRIM. We will have looked at the energy forecasting

8 models and -- and see how they may -- may or may not be

9 suitable for that task. Also looking at how we might

10 conduct -- use information developed in the industry

11 characterization databook to try and come up with

12 forecasts.

13 Finally, looking at the methodology for

14 trying to get a handle on the other impact elements

15 through interviews, more qualitative-type assessments,

16 mostly trying to understand the process by which we

17 might gather that information, and, finally, try to at

18 that point make sure that we have working group or

19 groups, try to identify the missions of those groups,

20 and try to establish a time line from here on.

21 MR. BROOKMAN: So, that's one of the things

22 we'd like all of you to consider as we're going through

23 this, is what the shape of that group or groups might

24 be that we can establish by tomorrow afternoon.

25 Questions, comments before we go to break?

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1 now. 

2 And then talk about scenario analysis. How 

3 are we going to combine all of those different 

4 forecasts into some sort of meaningful way within the 

5 GRIM? 

6 In the afternoon, shipment inputs to the 

7 GRIM. We will have looked at the energy forecasting 

8 models and -- and see how they may -- mayor may not be 

9 suitable for that task. Also looking at how we might 

10 conduct -- use information developed in the industry 

11 characterization databook to try and come up with 

12 forecasts. 

13 Finally, looking at the methodology for 

14 trying to get a handle on the other impact elements 

15 through interviews, more qualitative-type assessments, 

16 mostly trying to understand the process by which we 

17 might gather that information, and, finally, try to at 

18 that point make sure that we have working group or 

19 groups, try to identify the missions of those groups, 

20 and try to establish a time line from here on. 

21 MR. BROOKMAN: So, that's one of the things 

22 we'd like all of you to consider as we're going through 

23 this, is what the shape of that group or groups might 

24 be that we can establish by tomorrow afternoon. 

25 Questions, comments before we go to break? 

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1 (No response)

2 MR. BROOKMAN: I see none. Let's take a

3 break. Let's start up at -- let's try to start up at

4 quarter of. There is a snack bar one floor beneath us.

5 There's stairs right down here this way to the left out

6 the door, and it's right beneath us and across the

7 hall, there's a snack bar where you can get some coffee

8 and tea and things.

9 (Whereupon, a recess was taken.)

10 MR. BROOKMAN: I think we're ready to go.

11 Our next presenter is David Arnold, Arnold,

12 also from Arthur D. Little, and he's been working on

13 the GRIM Model, and, so, you've got -- I'll turn off

14 the lights, and you're going to walk us through your

15 screens, right?

16 Description of the GRIM Model

17 MR. ARNOLD: Yes, of which there are many,

18 but also by way of introduction, I would also like to

19 point out that Tom Budrewicz is joining us from Arthur

20 D. Little as well.

21 MR. BROOKMAN: Tom, will you stand up?

22 MR. ARNOLD: Who is, among his many

23 responsibilities as part of this process, the prime

24 programmer of the GRIM Model about which we will be

25 talking in a few moments.

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1 (No response) 

2 MR. BROOKMAN: I see none. Let's take a 

3 break. Let's start up at -- let's try to start up at 

4 quarter of. There is a snack bar one floor beneath us. 

5 There's stairs right down here this way to the left out 

6 the door, and it's right beneath us and across the 

7 hall, there's a snack bar where you can get some coffee 

8 and tea and things. 

9 (Whereupon, a recess was taken.) 

10 MR. BROOKMAN: I think we're ready to go. 

11 Our next presenter is David Arnold, Arnold, 

12 also from Arthur D. Little, and he's been working on 

13 the GRIM Model, and, so, you've got -- I'll turn off 

14 the lights, and you're going to walk us through your 

15 screens, right? 

16 Description of the GRIM Model 

17 MR. ARNOLD: Yes, of which there are many, 

18 but also by way of introduction, I would also like to 

19 point out that Tom Budrewicz is joining us from Arthur 

20 D. Little as well. 

21 MR. BROOKMAN: Tom, will you stand up? 

22 MR. ARNOLD: Who is, among his many 

23 responsibilities as part of this process, the prime 

24 programmer of the GRIM Model about which we will be 

25 talking in a few moments. 

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1 MR. BROOKMAN: Dave, before you -- can you

2 see okay in the back of the room if we keep it lighted

3 like this? Yeah. This is good. I like it like this.

4 Okay.

5 MR. ARNOLD: But, in any event, with respect

6 to the programming of the GRIM Model, Tom, of course,

7 will take full credit if your reaction is favorable; if

8 not, he has vowed to shift that elsewhere, and my

9 suspicion is that yours truly would -- would bear the

10 -- the brunt of that.

11 But it is my pleasure today to be able to

12 stand before you and speak to the virtues of such an

13 uplifting concept as the GRIM, the Government

14 Regulatory Impact Model. The acronym itself, of

15 course, is -- is the only thing that we chose not to

16 change in this most recent update. I guess going back

17 to the old Smuckers commercials and tag line, with a

18 name like GRIM, it has to be good. So, we'll leave it

19 at that for now, but by the same token, as a part of

20 our later discussions, if there's some suggestions for

21 change in an acronym, those would be most welcomed.

22 What I'd like to do today is to focus largely

23 upon the GRIM Model itself and also doing a few slides

24 up front that will provide overviews in terms of its

25 goals and applicability to this process that will give

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1 MR. BROOKMAN: Dave, before you -- can you 

2 see okay in the back of the room if we keep it lighted 

3 like this? Yeah. This is good. I like it like this. 

4 Okay. 

5 MR. ARNOLD: But, in any event, with respect 

6 to the programming of the GRIM Model, Tom, of course, 

7 will take full credit if your reaction is favorable; if 

8 not, he has vowed to shift that elsewhere, and my 

9 suspicion is that yours truly would -- would bear the 

10 -- the brunt of that. 

11 But it is my pleasure today to be able to 

12 stand before you and speak to the virtues of such an 

13 uplifting concept as the GRIM, the Government 

14 Regulatory Impact Model. The acronym itself, of 

15 course, is -- is the only thing that we chose not to 

16 change in this most recent update. I guess going back 

17 to the old Smuckers commercials and tag line, with a 

18 name like GRIM, it has to be good. So, we'll leave it 

19 at that for now, but by the same token, as a part of 

20 our later discussions, if there's some suggestions for 

21 change in an acronym, those would be most welcomed. 

22 What I'd like to do today is to focus largely 

23 upon the GRIM Model itself and also doing a few slides 

24 up front that will provide overviews in terms of its 

25 goals and applicability to this process that will give 

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1 you a bit of a high-level view as to what changes have

2 been made for the purposes of new GRIM versus old.

3 We'll walk through a few slides on the

4 discounted cash flow analysis for the benefit of those

5 of you who either do not have a tremendous amount of

6 familiarity with the concept or would like a quick

7 update.

8 Those of you who are enormously familiar may

9 very well like to leave the room for a quick -- for a

10 quick refreshment, but that in itself, I promise, will

11 only take about 10 minutes or so, and then followed

12 immediately thereafter by a physical walk-through of

13 the GRIM Model itself, and then we'll open it up for

14 questions and discussions at the end.

15 The -- the GRIM Model itself, whether we're

16 talking old versus new, is very basic in its

17 functionality. It is simply a tool, one of -- one of

18 several, but a tool which helps to identify the

19 financial effects of regulations, be they efficiency or

20 otherwise.

21 It does so based upon a very conventional

22 analysis of discounted cash flows. There's not a

23 tremendous amount of rocket science here. It's

24 basically just a simple matter of laying out the cash

25 flows that are anticipated with and without regulation

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1 you a bit of a high-level view as to what changes have 

2 been made for the purposes of new GRIM versus old. 

3 We'll walk through a few slides on the 

4 discounted cash flow analysis for the benefit of those 

5 of you who either do not have a tremendous amount of 

6 familiarity with the concept or would like a quick 

7 update. 

8 Those of you who are enormously familiar may 

9 very well like to leave the room for a quick -- for a 

10 quick refreshment, but that in itself, I promise, will 

11 only take about 10 minutes or so, and then followed 

12 immediately thereafter by a physical walk-through of 

13 the GRIM Model itself, and then we'll open it up for 

14 questions and discussions at the end. 

15 The -- the GRIM Model itself, whether we're 

16 talking old versus new, is very basic in its 

17 functionality. It is simply a tool, one of one of 

18 several, but a tool which helps to identify the 

19 financial effects of regulations, be they efficiency or 

20 otherwise. 

21 It does so based upon a very conventional 

22 analysis of discounted cash flows. There's not a 

23 tremendous amount of rocket science here. It's 

24 basically just a simple matter of laying out the cash 

25 flows that are anticipated with and without regulation 

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1 and creating comparisons of the effects between two

2 scenarios in this case.

3 It also provides a net present value

4 analysis, which we term for the purposes of this model

5 "industry value", however the industry might be defined

6 in the given scenario, and, lastly, it offers a

7 mechanism by which you can make comparisons, either

8 numerical in spread sheet form or through graphical

9 comparisons.

10 The 1997 update, the new model year, if you

11 will, -- incidentally, just out of curiosity, could I

12 see a show of hands of those who had some exposure to

13 old GRIM, the DOS GRIM?

14 (Show of hands)

15 MR. ARNOLD: And the same show of hands for

16 those of you who enjoyed that interaction? Not all

17 together unanticipated.

18 What we basically have done here is brought

19 the GRIM Model forward from 1993 to vintage 1997, most

20 significantly through a modernization of the platform.

21 Old GRIM was built in an earlier version -- a much

22 earlier version of Lotus in DOS platform. This one

23 moves it up to not the most recent version of Excel but

24 Excel Version 5, which is fairly commonplace, we

25 believe, throughout the business world, and Excel

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1 and creating comparisons of the effects between two 

2 scenarios in this case. 

3 It also provides a net present value 

4 analysis, which we term for the purposes of this model 

5 "industry value", however the industry might be defined 

6 in the given scenario, and, lastly, it offers a 

7 mechanism by which you can make comparisons, either 

8 numerical in spread sheet form or through graphical 

9 comparisons. 

10 The 1997 update, the new model year, if you 

11 will, incidentally, just out of curiosity, could I 

12 see a show of hands of those who had some exposure to 

13 old GRIM, the DOS GRIM? 

14 (Show of hands) 

15 MR. ARNOLD: And the same show of hands for 

16 those of you who enjoyed that interaction? Not all 

17 together unanticipated. 

18 What we basically have done here is brought 

19 the GRIM Model forward from 1993 to vintage 1997, most 

20 significantly through a modernization of the platform. 

21 Old GRIM was built in an earlier version -- a much 

22 earlier version of Lotus in DOS platform. This one 

23 moves it up to not the most recent version of Excel but 

24 Excel Version 5, which is fairly commonplace, we 

25 believe, throughout the business world, and Excel 

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1 Version 5, by the way, can't be migrated across to

2 other platforms, for example, Lotus for Windows.

3 In terms of user-friendliness, this is the

4 key area of improvement, mainly by virtue of just

5 shifting it to the Windows platform as opposed to the

6 DOS platform.

7 What you will see today is a mode of

8 operation very different from old GRIM. Old GRIM was

9 largely an encapsulation of almost a thousand lines of

10 macro and coding within a Lotus spread sheet; whereas,

11 the GRIM Model you will see today in Excel features

12 zero lines of programming. It's all very intuitive

13 linkages in a pure spread sheet form.

14 The input process has been streamlined quite

15 significantly. It will be possible for you to

16 integrate simple analysis and put all of your

17 assumptions in a single page and let the GRIM Model

18 take it from there.

19 There are some capabilities built in for

20 overrides in case you're trying to get a bit more

21 specific than the cash flow pages themselves, but in

22 large part, whereas in the old GRIM, you may have found

23 yourself searching throughout the model just to locate

24 the areas that will require GRIM, but it should be

25 very straightforward and intuitive here.

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1 Version 5, by the way, can't be migrated across to 

2 other platforms, for example, Lotus for Windows. 

3 In terms of user-friendliness, this is the 

4 key area of improvement, mainly by virtue of just 

5 shifting it to the Windows platform as opposed to the 

6 DOS platform. 

7 What you will see today is a mode of 

8 operation very different from old GRIM. Old GRIM was 

9 largely an encapsulation of almost a thousand lines of 

10 macro and coding within a Lotus spread sheet; whereas, 

11 the GRIM Model you will see today in Excel features 

12 zero lines of programming. It's all very intuitive 

13 linkages in a pure spread sheet form. 

14 The input process has been streamlined quite 

15 significantly. It will be possible for you to 

16 integrate simple analysis and put all of your 

17 assumptions in a single page and let the GRIM Model 

18 take it from there. 

19 There are some capabilities built in for 

20 overrides in case you're trying to get a bit more 

21 specific than the cash flow pages themselves, but ln 

22 large part, whereas in the old GRIM, you may have found 

23 yourself searching throughout the model just to locate 

24 the areas that will require GRIM, but it should be 

25 very straightforward and intuitive here. 

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1 And the last primary area of improvement,

2 graphs are now available for you on the screen as

3 opposed to having to -- to print those out using

4 macros.

5 Before moving into the GRIM, though, a few

6 slides, general commentary on the notion of discounted

7 cash flow analysis, which is the theoretical under8 pinning of everything that is happening within the GRIM

9 Model itself.

10 Discounted cash flow is still among the most

11 widely-accepted and commonly-used valuation techniques.

12 It is by no means the only one, and I do know that

13 there are going to be several recommendations put

14 forward to add in such other representations of values,

15 such as return on investment and internal rate of

16 return, all of which can be performed relatively easily

17 once the cash flows -- the projected cash flows are

18 established.

19 However, it is important to keep in mind that

20 the results themselves of such an analysis are only as

21 good as the assumptions that are incorporated therein,

22 and, of course, the bulk of this two-day session is

23 oriented towards just that, the quality of the data

24 that's going to be going into the model.

25 Another point on discounted cash flow is

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1 And the last primary area of improvement, 

2 graphs are now available for you on the screen as 

3 opposed to having to -- to print those out using 

4 macros. 

5 Before moving into the GRIM, though, a few 

6 slides, general commentary on the notion of discounted 

7 cash flow analysis, which is the theoretical under8 pinning of everything that is happening within the GRIM 

9 Model itself. 

10 Discounted cash flow is still among the most 

11 widely-accepted and commonly-used valuation techniques. 

12 It is by no means the only one, and I do know that 

13 there are going to be several recommendations put 

14 forward to add in such other representations of values, 

15 such as return on investment and internal rate of 

16 return, all of which can be performed relatively easily 

17 once the cash flows -- the projected cash flows are 

18 established. 

19 However, it is important to keep in mind that 

20 the results themselves of such an analysis are only as 

21 good as the assumptions that are incorporated therein, 

22 and, of course, the bulk of this two-day session is 

23 oriented towards just that, the quality of the data 

24 that's going to be going into the model. 

25 Another point on discounted cash flow is 

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1 there was this notion of terminal value. Discounted

2 cash flows in and of themselves cover a finite time

3 frame. In the case of the GRIM Model, we're going to

4 be looking at 15 years in detail, and then at the final

5 year of cash flows, we establish the terminal value

6 that would theoretically reflect for the on-going value

7 past year.

8 This can and does in most analyses, including

9 those which you will be performing with the GRIM,

10 comprise a substantial portion of total value.

11 The basic format for discounted cash flow

12 analysis is -- is twofold. Number 1, to establish the

13 cash flow. Number 2, discount the cash flow back to

14 the present.

15 This slide deals with the mechanics of

16 determining cash flow in any given year, using a very

17 conventional methodology, starting with the net income

18 that is reported by the company or companies that

19 comprise an industry in total. Then working forward

20 from this net income to an amount known as a cash flow

21 from operations.

22 In order to get there, two key changes have

23 to be made. Number 1, you have to add back any sort of

24 changes in your working capital structure that would be

25 commensurate with changes in the size of the industry,

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1 there was this notion of terminal value. Discounted 

2 cash flows in and of themselves cover a finite time 

3 frame. In the case of the GRIM Model, we're going to 

4 be looking at 15 years in detail, and then at the final 

5 year of cash flows, we establish the terminal value 

6 that would theoretically reflect for the on-going value 

7 past year. 

8 This can and does in most analyses, including 

9 those which you will be performing with the GRIM, 

10 comprise a substantial portion of total value. 

11 The basic format for discounted cash flow 

12 analysis is -- is twofold. Number I, to establish the 

13 cash flow. Number 2, discount the cash flow back to 

14 the present. 

15 This slide deals with the mechanics of 

16 determining cash flow in any given year, using a very 

17 conventional methodology, starting with the net income 

18 that is reported by the company or companies that 

19 comprise an industry in total. Then working forward 

20 from this net income to an amount known as a cash flow 

21 from operations. 

22 In order to get there, two key changes have 

23 to be made. Number I, you have to add back any sort of 

24 changes in your working capital structure that would be 

25 commensurate with changes in the size of the industry, 

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1 the volume and the like.

2 Also, it's necessary to add back any sort of

3 non-cash items that are reflected in net income, most

4 significant of which, most common, without question,

5 depreciation, which is not -- not cash in the year that

6 it's recorded; it is cash -- it is a cash transaction

7 in the year that capital expenditures are made.

8 From cash flow and from operations, there's a

9 second category of total cash in any given year termed

10 "cash flow from investments", and that essentially is a

11 recordation of any sort of investment activity you

12 might be making in terms of capital expenditures, which

13 is in all cases a reduction of cash.

14 I'm also showing on this slide that we need

15 to consider the net effect of any sort of other

16 investments that might be non-capital-related, but for

17 the purposes of the GRIM in its current simple form,

18 there's -- there's no such consideration built in for

19 other -- other investments.

20 But at the end of the day, considering cash

21 flow from operations, cash flow from investments, we

22 come to an annual amount known as "net cash flow",

23 which is the central indication of value that's been

24 created in a single year.

25 One of the most misunderstood elements of

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1 the volume and the like. 

2 Also, it's necessary to add back any sort of 

3 non-cash items that are reflected in net income, most 

4 significant of which, most common, without question, 

5 depreciation, which is not -- not cash in the year that 

6 it's recorded; it is cash -- it is a cash transaction 

7 in the year that capital expenditures are made. 

8 From cash flow and from operations, there's a 

9 second category of total cash in any given year termed 

10 IIcash flow from investmentsll , and that essentially is a 

11 recordation of any sort of investment activity you 

12 might be making in terms of capital expenditures, which 

13 is in all cases a reduction of cash. 

14 I'm also showing on this slide that we need 

15 to consider the net effect of any sort of other 

16 investments that might be non-capital-related, but for 

17 the purposes of the GRIM in its current simple form, 

18 there's -- there's no such consideration built in for 

19 other -- other investments. 

20 But at the end of the day, considering cash 

21 flow from operations, cash flow from investments, we 

22 come to an annual amount known as IInet cash flow lI , 

23 which is the central indication of value that's been 

24 created in a single year. 

25 One of the most misunderstood elements of 

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1 such an analysis is the working capital considerations.

2 In the GRIM Model itself, you'll be provided with an

3 opportunity to make a simplistic assumption of what the

4 working capital requirements are stated as a percentage

5 of revenues, but just to provide you with an indication

6 of the philosophical underpinnings of that, working

7 capital is expressed in terms of the net of current

8 assets and current liabilities.

9 So, in essence, these are the assets that

10 would be required on a net basis in the near-term to

11 support the business, irrespective of any financing

12 considerations.

13 Changes in working capital over the course of

14 any given year can either be used as a source -- acts

15 as a source of cash or a use of cash. If inventory,

16 for example, increases over the course of any given

17 year, the assumption is made that in essence cash is

18 being used to finance that inventory. The same holds

19 true for other elements on the asset side, accounts

20 receivable, and any sort of near-term accounts payable,

21 current liabilities being termed -- being determined as

22 anything that would be expected to transpire within a

23 single year, that can have the opposite effect.

24 The key take-away from this slide is that any

25 sort of growth is -- is -- will -- on an annual basis

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1 such an analysis is the working capital considerations. 

2 In the GRIM Model itself, you'll be provided with an 

3 opportunity to make a simplistic assumption of what the 

4 working capital requirements are stated as a percentage 

5 of revenues, but just to provide you with an indication 

6 of the philosophical underpinnings of that, working 

7 capital is expressed in terms of the net of current 

8 assets and current liabilities. 

9 So, in essence, these are the assets that 

10 would be required on a net basis in the near-term to 

11 support the business, irrespective of any financing 

12 considerations. 

13 Changes in working capital over the course of 

14 any given year can either be used as a source -- acts 

15 as a source of cash or a use of cash. If inventory, 

16 for example, increases over the course of any given 

17 year, the assumption is made that in essence cash is 

18 being used to finance that inventory. The same holds 

19 true for other elements on the asset side, accounts 

20 receivable, and any sort of near-term accounts payable, 

21 current liabilities being termed -- being determined as 

22 anything that would be expected to transpire within a 

23 single year, that can have the opposite effect. 

24 The key take-away from this slide is that any 

25 sort of growth is -- is -- will -- on an annual basis 

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1 will require an increase in -- in working capital. If

2 business is headed the other way, the opposite will be

3 true.

4 For the -- for the purposes of the GRIM

5 Model, the general going assumption is that we are in a

6 growth mode, and that -- and as revenues increase, our

7 working capital requirements will increase along with

8 it.

9 Once cash flows are established, it is

10 necessary to -- to discount back to present value, and

11 this all boils back to a concept basic in explanation

12 and yet sometimes very --

13 MR. BROOKMAN: Dave, one question. Gene?

14 MR. FOLEY: I'm sorry. Gene Foley, The

15 Alliance to Save Energy.

16 Just real quick. Can you sort of go into a

17 little bit more detail on the assumption about where

18 the industry or industries, as they might be, are in

19 terms of requiring cash or generating cash?

20 MR. ARNOLD: The assumption for the purposes

21 of -- of GRIM, you're actually able to -- to interject

22 any sort of growth assumptions that you would like, but

23 the default position that we're using in the GRIM Model

24 is -- is for growth over the long-term.

25 MR. FOLEY: As opposed to?

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1 will require an increase in in working capital. If 

2 business is headed the other way, the opposite will be 

3 true. 

4 For the -- for the purposes of the GRIM 

5 Model, the general going assumption is that we are in a 

6 growth mode, and that -- and as revenues increase, our 

7 working capital requirements will increase along with 

8 it. 

9 Once cash flows are established, it is 

10 necessary to -- to discount back to present value, and 

11 this all boils back to a concept basic in explanation 

12 and yet sometimes very 

13 MR. BROOKMAN: Dave, one question. Gene? 

14 MR. FOLEY: I'm sorry. Gene Foley, The 

15 Alliance to Save Energy. 

16 Just real quick. Can you sort of go into a 

17 little bit more detail on the assumption about where 

18 the industry or industries, as they might be, are in 

19 terms of requiring cash or generating cash? 

20 MR. ARNOLD: The assumption for the purposes 

21 of -- of GRIM, you're actually able to -- to interject 

22 any sort of growth assumptions that you would like, but 

23 the default position that we're using in the GRIM Model 

24 is -- is for growth over the long-term. 

25 MR. FOLEY: As opposed to? 

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1 MR. ARNOLD: A shrinking industry.

2 MR. FOLEY: Okay. Because then I -- from the

3 arguments I've heard, there are a number of people -

4 number of the industry representatives that would argue

5 that they are part of a shrinking industry.

6 MR. ARNOLD: That -- that functionality --

7 you're free to put in any sort of growth assumptions

8 that you like into -- into the model.

9 MR. BROOKMAN: Did you describe what level of

10 aggregation you're using?

11 MR. ARNOLD: It's dependent upon whatever is

12 being reflected in the GRIM Model itself.

13 The time value of money essentially relates

14 to two basic concepts of finance. Number 1 is the

15 notion that dollars received today are worth more than

16 the dollars received tomorrow. This is known as a

17 positive time preference, merely a reflection of the

18 fact that you can take a dollar that's in your pocket

19 today and -- and reinvest it and presumably have more,

20 if certainly invested in the right vehicles, one year,

21 two years down the road as opposed to putting it in

22 your mattress.

23 The second fundamental notion of time value

24 of money is what's known as risk aversion, the fact

25 that a dollar in hand is secure while a dollar to be

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1 MR. ARNOLD: A shrinking industry. 

2 MR. FOLEY: Okay. Because then I from the 

3 arguments I've heard, there are a number of people --

4 number of the industry representatives that would argue 

5 that they are part of a shrinking industry. 

6 MR. ARNOLD: That -- that functionality 

7 you're free to put in any sort of growth assumptions 

8 that you like into into the model. 

9 MR. BROOKMAN: Did you describe what level of 

10 aggregation you're using? 

11 MR. ARNOLD: It's dependent upon whatever is 

12 being reflected in the GRIM Model itself. 

13 The time value of money essentially relates 

14 to two basic concepts of finance. Number 1 is the 

15 notion that dollars received today are worth more than 

16 the dollars received tomorrow. This is known as a 

17 positive time preference, merely a reflection of the 

18 fact that you can take a dollar that's in your pocket 

19 today and and reinvest it and presumably have more, 

20 if certainly invested in the right vehicles, one year, 

21 two years down the road as opposed to putting it in 

22 your mattress. 

23 The second fundamental notion of time value 

24 of money is what's known as risk aversion, the fact 

25 that a dollar in hand is secure while a dollar to be 

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1 received in the future from other parties is -- is

2 somewhat risky.

3 The way time value is typically expressed is

4 either in terms of -- of discount rate, inflation rate,

5 interest rate. There's a number of different terms

6 that can be attached to it, but the whole premise being

7 that discounted cash flows in the future can look very

8 different in a real return sense from those which might

9 be present today.

10 Here on this slide are two points of

11 comparison, using different inflation rates and yet

12 viewing the effects of -- of the current value as

13 opposed to a value from a year out. The top effect is

14 the five-percent rate of inflation. The formula for

15 determining what a dollar earned one year from now in

16 comparison to today is simply one divided by -- or the

17 amount at -- at risk, one dollar, divided by one plus

18 the inflation rate.

19 In reality, the formula is dependent upon the

20 number of periods to which you're discounting. In this

21 case, we're doing it as a single year. So, it would be

22 one plus inflation rate raised to the power of one. If

23 we were going two years out, we would have to raise it

24 to two and the like.

25 But at the bottom, using simply different

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1 received in the future from other parties is is 

2 somewhat risky. 

3 The way time value is typically expressed is 

4 either in terms of -- of discount rate, inflation rate, 

5 interest rate. There's a number of different terms 

6 that can be attached to it, but the whole premise being 

7 that discounted cash flows in the future can look very 

8 different in a real return sense from those which might 

9 be present today. 

10 Here on this slide are two points of 

11 comparison, using different inflation rates and yet 

12 viewing the effects of -- of the current value as 

13 opposed to a value from a year out. The top effect is 

14 the five-percent rate of inflation. The formula for 

15 determining what a dollar earned one year from now ln 

16 comparison to today is simply one divided by -- or the 

17 amount at -- at risk, one dollar, divided by one plus 

18 the inflation rate. 

19 In reality, the formula is dependent upon the 

20 number of periods to which you're discounting. In this 

21 case, we're doing it as a single year. So, it would be 

22 one plus inflation rate raised to the power of one. If 

23 we were going two years out, we would have to raise it 

24 to two and the like. 

25 But at the bottom, using simply different 

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1 discount rates, still keeping the one-year time frame

2 intact, we experience a decrease in present value of --

3 substantially different from that which is associated

4 with five-percent effect.

5 So, again, this slide just shows the

6 comparison, keeping time the same, and yet varying the

7 discount rate.

8 The next slide takes a slightly different

9 tack, this time keeping the interest rate intact at 10

10 percent, which is actually quite a reasonable rate of

11 return that we would experience in -- in many aspects

12 of business. In fact, 10 percent on a real basis, not

13 terribly different from that which we would expect to

14 be seeing in the industries that are represented in

15 this room. Perhaps something a little higher.

16 In fact, just for the purposes of -- of

17 representation, the GRIM Model in a default posture

18 assumes a discount rate of -- of 12 percent. But again

19 you're free to change that to the specifics of any

20 given industry or subset thereof.

21 But, here, noting that $500 in current terms

22 rapidly depreciates over the course of a three-year

23 time frame, using this modest discount rate to $376,

24 and we'll point out that the GRIM Model itself runs out

25 to 15 years, using discount rates comparable to these.

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1 discount rates, still keeping the one-year time frame 

2 intact, we experience a decrease in present value of --

3 substantially different from that which is associated 

4 with five-percent effect. 

5 So, again, this slide just shows the 

6 comparison, keeping time the same, and yet varying the 

7 discount rate. 

8 The next slide takes a slightly different 

9 tack, this time keeping the interest rate intact at 10 

10 percent, which is actually quite a reasonable rate of 

11 return that we would experience in -- in many aspects 

12 of business. In fact, 10 percent on a real basis, not 

13 terribly different from that which we would expect to 

14 be seeing in the industries that are represented in 

15 this room. Perhaps something a little higher. 

16 In fact, just for the purposes of of 

17 representation, the GRIM Model in a default posture 

18 assumes a discount rate of of 12 percent. But again 

19 you're free to change that to the specifics of any 

20 given industry or subset thereof. 

21 But, here, noting that $500 In current terms 

22 rapidly depreciates over the course of a three-year 

23 time frame, using this modest discount rate to $376, 

24 and we'll point out that the GRIM Model itself runs out 

25 to 15 years, using discount rates comparable to these. 

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1 So, clearly the notion of cash some

2 substantial period out, for example, the time when

3 we're considering terminal value of discount, it does

4 have a significant effect.

5 Discount rate computations themselves, when

6 they're -- when they're built up on a theoretical

7 basis, reflect these two elements. Number 1, the --

8 what's known as a risk-free rate of return. This goes

9 back to that positive time frame preference that we

10 were mentioning on an earlier slide.

11 For the purposes of a general rule of thumb,

12 most of the financial academics recognize risk-free

13 rate of return to correlate quite closely to long-term

14 Treasury bill rates.

15 So, again, this is the component of the

16 discount rate that is associated just purely with the

17 timing differentials.

18 The second component of the discount rate is

19 a risk premium, which again accounts for uncertainty of

20 receiving dollars in the future as opposed to current.

21 When you sum total those two elements, you

22 can derive a wide variety of -- of discount rates.

23 This scale gives you some idea of the spectrum of

24 discount rates that are commonly used in analyses such

25 as these.

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1 So, clearly the notion of cash some 

2 substantial period out, for example, the time when 

3 we're considering terminal value of discount, it does 

4 have a significant effect. 

5 Discount rate computations themselves, when 

6 they're -- when they're built up on a theoretical 

7 basis, reflect these two elements. Number I, the 

8 what's known as a risk-free rate of return. This goes 

9 back to that positive time frame preference that we 

10 were mentioning on an earlier slide. 

11 For the purposes of a general rule of thumb, 

12 most of the financial academics recognize risk-free 

13 rate of return to correlate quite closely to long-term 

14 Treasury bill rates. 

15 So, again, this is the component of the 

16 discount rate that is associated just purely with the 

17 timing differentials. 

18 The second component of the discount rate is 

19 a risk premium, which again accounts for uncertainty of 

20 receiving dollars in the future as opposed to current. 

21 When you sum total those two elements, you 

22 can derive a wide variety of -- of discount rates. 

23 This scale gives you some idea of the spectrum of 

24 discount rates that are commonly used in analyses such 

25 as these. 

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1 Starting at the bottom, four percent is our

2 risk-free rate of return for Treasury bills. Moving up

3 the scale slightly, regulated industries, although

4 becoming riskier by the day, by virtue of deregulation,

5 still being valued using discount rates in the

6 approximately eight-percent range.

7 The average for stock market in recent times,

8 given our current era of relatively low inflation,

9 roughly 15 percent, and then, of course, moving on up

10 to venture capital rates of return, 25 percent and

11 above.

12 Again, for the purposes of the GRIM, the

13 default position is that we'll use a discount rate

14 generally in the 12-percent range. That is perceived

15 to be somewhat lower than the average level of risk

16 associated with the economy as a whole, which can be

17 justified at least in a very broad form, based upon the

18 relatively stable nature of your industries and lower

19 level of risk associated therewith.

20 MR. BROOKMAN: Question here in the front.

21 Jim?

22 MR. McMAHON: The discount rates that you've

23 shown there are nominal rates. You'd have to take out

24 inflation to get the real rates?

25 MR. ARNOLD: Yes. Yes, purely in a nominal

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1 Starting at the bottom, four percent is our 

2 risk-free rate of return for Treasury bills. Moving up 

3 the scale slightly, regulated industries, although 

4 becoming riskier by the day, by virtue of deregulation, 

5 still being valued using discount rates in the 

6 approximately eight-percent range. 

7 The average for stock market in recent times, 

8 given our current era of relatively low inflation, 

9 roughly 15 percent, and then, of course, moving on up 

10 to venture capital rates of return, 25 percent and 

11 above. 

12 Again, for the purposes of the GRIM, the 

13 default position is that we'll use a discount rate 

14 generally in the 12-percent range. That is perceived 

15 to be somewhat lower than the average level of risk 

16 associated with the economy as a whole, which can be 

17 justified at least in a very broad form, based upon the 

18 relatively stable nature of your industries and lower 

19 level of risk associated therewith. 

20 MR. BROOKMAN: Question here in the front. 

21 Jim? 

22 MR. McMAHON: The discount rates that you've 

23 shown there are nominal rates. You'd have to take out 

24 inflation to get the real rates? 

25 MR. ARNOLD: Yes. Yes, purely in a nominal 

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1 sense. This would be built on the notion of, for

2 example, about a four-percent rate of inflation.

3 Last slide on the discounted cash flow deals

4 with this issue of -- of terminal value, which you'll

5 see reflected in the GRIM Model for both scenarios,

6 base case and -- and with standards.

7 This is simply a mathematical accommodation

8 of the time horizon that's employed in discounted cash

9 flows, which allows us to place a value upon the future

10 beyond the final year of the analysis. The formula

11 that the GRIM Model uses is a discounted perpetuity,

12 which takes the cash flows in the final year, Year 15

13 of the analysis, divides it by the discount rate that's

14 employed therein.

15 Do we have any other -- any questions on --

16 we're about to move into the GRIM Model itself. I just

17 wanted to take any questions now on the discounted cash

18 flow analysis.

19 MR. BROOKMAN: Please state your name for the

20 record.

21 MR. VAN DYKE: Jim Van Dyke, Oak Ridge

22 National Laboratory.

23 Your -- on that one slide, you have Treasury

24 bills at four percent, and you're saying that your

25 inflation assumption is also four percent, and you said

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1 sense. This would be built on the notion of, for 

2 example, about a four-percent rate of inflation. 

3 Last slide on the discounted cash flow deals 

4 with this issue of -- of terminal value, which you'll 

5 see reflected in the GRIM Model for both scenarios, 

6 base case and and with standards. 

7 This is simply a mathematical accommodation 

8 of the time horizon that's employed in discounted cash 

9 flows, which allows us to place a value upon the future 

10 beyond the final year of the analysis. The formula 

11 that the GRIM Model uses is a discounted perpetuity, 

12 which takes the cash flows in the final year, Year 15 

13 of the analysis, divides it by the discount rate that's 

14 employed therein. 

15 Do we have any other -- any questions on 

16 we're about to move into the GRIM Model itself. I just 

17 wanted to take any questions now on the discounted cash 

18 flow analysis. 

19 MR. BROOKMAN: Please state your name for the 

20 record. 

21 MR. VAN DYKE: Jim Van Dyke, Oak Ridge 

22 National Laboratory. 

23 Your -- on that one slide, you have Treasury 

24 bills at four percent, and you're saying that your 

25 inflation assumption is also four percent, and you said 

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1 these were nominal?

2 MR. ARNOLD: Yes.

3 MR. VAN DYKE: So, are you saying that the

4 real return on Treasury bills is zero?

5 MR. ARNOLD: Is approximately net zero, yes.

6 Very close to level of inflation.

7 MR. BROOKMAN: Let me ask the group

8 generally. This is background. These -- these

9 fundamentals, these building blocks, is this useful for

10 you as a starting point? Yes, keep going.

11 MR. ARNOLD: Moving on in to the -- the GRIM

12 Model itself, this is again -- I'll give you a quick

13 overview of the lay-out. This is presented in Excel

14 Version 5, which I believe in itself is a program about

15 four years old. So, should be very much in keeping

16 with the level of software that's in use throughout the

17 Department of Energy as well as most of the industry.

18 The model itself is laid out as a multi-tier

19 workbook, multiple worksheets within a single work

20 book. When you open up the model, you'll come, first

21 of all, to a cover sheet. I'm going to flip, first of

22 all, through the sheets themselves. You're free to

23 follow along with me in the package, if you like, but I

24 just wanted to give you a visual of the overall lay-out

25 of the model, and we'll come back and discuss

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1 these were nominal? 

2 MR. ARNOLD: Yes. 

3 MR. VAN DYKE: So, are you saying that the 

4 real return on Treasury bills is zero? 

5 MR. ARNOLD: Is approximately net zero, yes. 

6 Very close to level of inflation. 

7 MR. BROOKMAN: Let me ask the group 

8 generally. This is background. These -- these 

9 fundamentals, these building blocks, is this useful for 

10 you as a starting point? Yes, keep going. 

11 MR. ARNOLD: Moving on in to the -- the GRIM 

12 Model itself, this is again -- I'll give you a quick 

13 overview of the lay-out. This is presented in Excel 

14 Version 5, which I believe in itself is a program about 

15 four years old. So, should be very much in keeping 

16 with the level of software that's in use throughout the 

17 Department of Energy as well as most of the industry. 

18 The model itself is laid out as a multi-tier 

19 workbook, multiple worksheets within a single work 

20 book. When you open up the model, you'll come, first 

21 of all, to a cover sheet. I'm going to flip, first of 

22 all, through the sheets themselves. You're free to 

23 follow along with me in the package, if you like, but I 

24 just wanted to give you a visual of the overall lay-out 

25 of the model, and we'll come back and discuss 

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1 individual sheets as we --

2 MR. BROOKMAN: Yes?

3 MR. SAMUELS: This is Chuck Samuels from

4 AHAM.

5 I just wanted to say that for some reason,

6 your slide has AHAM on there. It is true that ARAM,

7 along with other associations, contracted for the work

8 that was done for the original GRIM, but we have

9 essentially given it to the department, placed it in

10 the public domain.

11 It's no longer an ARAM model. We don't have

12 any legal rights to it that we've retained, and I just

13 want to make clear to everybody that this is now

14 something for the department and the public generally

15 to use and to revise in whatever way is -- is

16 appropriate, and the version of it that's used should

17 not particularly mention AHAM in the future, and it

18 should be clear that this is something to be used by

19 the department and others.

20 MR. ARNOLD: Point well taken. That was just

21 purely a reflection of the original GRIM Model, which

22 did include such sponsorship, but we'll be happy to

23 delete the reference..

24 Okay. The second tab of the worksheet is a

25 single sheet of assumptions, about 25 or so of them in

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1 individual sheets as we 

2 MR. BROOKMAN: Yes? 

3 MR. SAMUELS: This is Chuck Samuels from 

4 AHAM. 

5 I just wanted to say that for some reason, 

6 your slide has AHAM on there. It is true that AHAM, 

7 along with other associations, contracted for the work 

8 that was done for the original GRIM, but we have 

9 essentially given it to the department, placed it ln 

10 the public domain. 

11 It's no longer an AHAM model. We don't have 

12 any legal rights to it that we've retained, and I just 

13 want to make clear to everybody that this is now 

14 something for the department and the public generally 

15 to use and to revise in whatever way is -- is 

16 appropriate, and the version of it that's used should 

17 not particularly mention AHAM in the future, and it 

18 should be clear that this is something to be used by 

19 the department and others. 

20 MR. ARNOLD: Point well taken. That was just 

21 purely a reflection of the original GRIM Model, which 

22 did include such sponsorship, but we'll be happy to 

23 delete the reference .. 

24 Okay. The second tab of the worksheet is a 

25 single sheet of assumptions, about 25 or so of them in 

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1 total, and we'll come back and look at these

2 individually, but I -- I want to point out that it is

3 technically possible for one to work through a complete

4 GRIM analysis by filling in this assumption page and

5 this assumption page alone, which we do view as a major

6 improvement over original GRIM, wherein these

7 assumptions were -- were largely intact but spread all

8 over the place.

9 The next tab is what we term the "base case

10 scenario", which is a complete lay-out of the as-is do

11 nothing scenario, no standards employed, built purely

12 upon the assumptions that are laid out on the

13 assumptions page.

14 However, I will point out that this

15 particular cash flow analysis as -- as does the next

16 cash flow analysis does allow the user the flexibility

17 to come in to this area, both the price unit portion as

18 well as unit sales, to the extent that we have any sort

19 of modifications that we want to make over and above

20 those which are being formula-driven off of the

21 assumptions page. You do have the flexibility to make

22 those changes here. It's purely on an optional basis.

23 The standard case, of course, similar in lay24 out, look and feel to the base case, and yet this

25 reflects the impacts on cash flows of the decision to

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1 total, and we'll come back and look at these 

2 individually, but I -- I want to point out that it is 

3 technically possible for one to work through a complete 

4 GRIM analysis by filling in this assumption page and 

5 this assumption page alone, which we do view as a major 

6 improvement over original GRIM, wherein these 

7 assumptions were -- were largely intact but spread all 

8 over the place. 

9 The next tab is what we term the "base case 

10 scenario", which is a complete lay-out of the as-is do 

11 nothing scenario, no standards employed, built purely 

12 upon the assumptions that are laid out on the 

13 assumptions page. 

14 However, I will point out that this 

15 particular cash flow analysis as -- as does the next 

16 cash flow analysis does allow the user the flexibility 

17 to come in to this area, both the price unit portion as 

18 well as unit sales, to the extent that we have any sort 

19 of modifications that we want to make over and above 

20 those which are being formula-driven off of the 

21 assumptions page. You do have the flexibility to make 

22 those changes here. It's purely on an optional basis. 

23 The standard case, of course, similar in lay24 out, look and feel to the base case, and yet this 

25 reflects the impacts on cash flows of the decision to 

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1 implement a regulation versus -- versus the as-is

2 condition.

3 So, those two schedules comprise the bulk of

4 the cash flow portion. Another report, summary

5 information on a separate tab, which -- on -- on a

6 single sheet provides indications of many of the key

7 elements of both analyses. This is a replication of

8 the summary in the original GRIM, and then from there,

9 you can move immediately into a series of graphs which

10 are driven directly by the cash flows themselves.

11 They're about a half a dozen or so of them in

12 -- in basic form. We'll flip through them individually

13 after we work through the entire model, but just to say

14 that everything from this portion of the work book back

15 is purely -- purely graphical representations of items

16 that are presented elsewhere.

17 Going back now to the assumptions page, work

18 through each of the -- the 25 or so items that are

19 allowed to change in form, the first one is just simply

20 a scenario description, which you can play as you like.

21 We have example text in here, but this will print on

22 every single page, be it quantitative or graphical, to

23 provide you with a permanent record of which scenario

24 you're analyzing at the time.

25 Next section very simply -- let me adjust

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1 implement a regulation versus -- versus the as-is 

2 condition. 

3 So/ those two schedules comprise the bulk of 

4 the cash flow portion. Another report/ summary 

5 information on a separate tab/ which on -- on a 

6 single sheet provides indications of many of the key 

7 elements of both analyses. This is a replication of 

8 the summary in the original GRIM/ and then from there/ 

9 you can move immediately into a series of graphs which 

10 are driven directly by the cash flows themselves. 

11 They're about a half a dozen or so of them in 

12 in basic form. We'll flip through them individually 

13 after we work through the entire model/ but just to say 

14 that everything from this portion of the work book back 

15 is purely -- purely graphical representations of items 

16 that are presented elsewhere. 

17 Going back now to the assumptions page/ work 

18 through each of the -- the 25 or so items that are 

19 allowed to change in form/ the first one is just simply 

20 a scenario description/ which you can playas you like. 

21 We have example text in here/ but this will print on 

22 every single page/ be it quantitative or graphical/ to 

23 provide you with a permanent record of which scenario 

24 you're analyzing at the time. 

25 Next section very simply -- let me adjust 

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1 down the size here somewhat so you can see a bit more

2 of it in the same frame.

3 Indications of the years that we want to

4 reflect as starting points. The base year is -- will

5 generally be the current year for the purposes of these

6 analyses. Announcement year is the year in which we

7 expect regulation announcement to be made. Standard

8 year is the effective date of the regulation.

9 These two years are important in that there

10 are certain cells in the standard scenario which are

11 time-sensitive to the differential between standard

12 year and announcement year. You do have flexibility to

13 make this announcement -- the period between

14 announcement year and standard year as long or short as

15 you like.

16 I believe current version allows you to have

17 up to eight years between announcement date and -- and

18 standard year.

19 Then a section of general financial inputs

20 that will drive both scenarios. First of all, the tax

21 rate, and what you're seeing here is defaults that

22 we're placing in the model. We can certainly change

23 these defaults as a result of these discussions, and,

24 of course, the user will be able to change them at any

25 time to tailor the model to specific circumstances.

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1 down the size here somewhat so you can see a bit more 

2 of it in the same frame. 

3 Indications of the years that we want to 

4 reflect as starting points. The base year is -- will 

5 generally be the current year for the purposes of these 

6 analyses. Announcement year is the year in which we 

7 expect regulation announcement to be made. Standard 

8 year is the effective date of the regulation. 

9 These two years are important in that there 

10 are certain cells in the standard scenario which are 

11 time-sensitive to the differential between standard 

12 year and announcement year. You do have flexibility to 

13 make this announcement -- the period between 

14 announcement year and standard year as long or short as 

15 you like. 

16 I believe current version allows you to have 

17 up to eight years between announcement date and -- and 

18 standard year. 

19 Then a section of general financial inputs 

20 that will drive both scenarios. First of all, the tax 

21 rate, and what you're seeing here is defaults that 

22 we're placing in the model. We can certainly change 

23 these defaults as a result of these discussions, and, 

24 of course, the user will be able to change them at any 

25 time to tailor the model to specific circumstances. 

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1 Discount rate again, which we are using in a

2 default, is 12 percent. This is used purely for the

3 net present value purposes.

4 We're also building in to the new GRIM the

5 ability to add in an inflation rate, which the model

6 will apply to both prices and cost under both

7 scenarios.

8 MR. WEEKLY: I have one question.

9 MR. ARNOLD: Yes?

10 MR. WEEKLY: Will those be -- raise your

11 costs four percent and raise your prices a different

12 percent or does your model assume that both increase at

13 the same amount?

14 MR. ARNOLD: As it stands now in this Beta

15 version, the same inflation rate is being used for both

16 cost and price. But I'll also point out that you do

17 have the flexibility by virtue of these input areas as

18 it stands now on base case and scenario. You could

19 affect price differently through a manual override in

20 the other tabs.

21 MR. BROOKMAN: Please restate your name and

22 the first half of the question.

23 MR. WEEKLY: My name is Doug Weekly, and my

24 only question was is the model as it's set up assumes

25 that the price and the cost rise with inflation, and

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1 Discount rate again, which we are using in a 

2 default, is 12 percent. This is used purely for the 

3 net present value purposes. 

4 We're also building in to the new GRIM the 

5 ability to add in an inflation rate, which the model 

6 will apply to both prices and cost under both 

7 scenarios. 

8 MR. WEEKLY: I have one question. 

9 MR. ARNOLD: Yes? 

10 MR. WEEKLY: Will those be -- raise your 

11 costs four percent and raise your prices a different 

12 percent or does your model assume that both increase at 

13 the same amount? 

14 MR. ARNOLD: As it stands now in this Beta 

15 version, the same inflation rate is being used for both 

16 cost and price. But I'll also point out that you do 

17 have the flexibility by virtue of these input areas as 

18 it stands now on base case and scenario. You could 

19 affect price differently through a manual override in 

20 the other tabs. 

21 MR. BROOKMAN: Please restate your name and 

22 the first half of the question. 

23 MR. WEEKLY: My name is Doug Weekly, and my 

24 only question was is the model as it's set up assumes 

25 that the price and the cost rise with inflation, and 

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1 they may operate independently.

2 MR. BROOKMAN: Thanks.

3 MR. ARNOLD: The next is for working capital,

4 which is expressed as a percentage of revenues, and

5 this percentage is expected as a part of the model to

6 remain constant over the life of either scenario.

7 Next series of inputs, you have the ability

8 to input base or unit price, base year or unit sales

9 expressed in millions, and unit sales growth, which is

10 used to formulate the increase of sales under both base

11 case and standard case going forward. So, a unit

12 increase as opposed to any sort of an inflationary

13 increase with respect to price.

14 Standard SG&A. This -- I believe this is

15 where we have the answer to the earlier question on

16 where the cost of everyone in this room is placed. You

17 appear here as a fixed element of the model which is

18 expected to remain constant, except for any sort of

19 inflationary effect going forward.

20 Also, research and development assumed as a

21 percentage of revenues. This, too, remains constant in

22 relative terms over the life of the model.

23 Depreciation assumptions are twofold. First

24 of all, you are allowed to input an expected beginning

25 depreciation amount expressed in -- as a percentage of

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1 they may operate independently. 

2 MR. BROOKMAN: Thanks. 

3 MR. ARNOLD: The next is for working capital, 

4 which is expressed as a percentage of revenues, and 

5 this percentage is expected as a part of the model to 

6 remain constant over the life of either scenario. 

7 Next series of inputs, you have the ability 

8 to input base or unit price, base year or unit sales 

9 expressed in millions, and unit sales growth, which is 

10 used to formulate the increase of sales under both base 

11 case and standard case going forward. So, a unit 

12 increase as opposed to any sort of an inflationary 

13 increase with respect to price. 

14 Standard SG&A. This -- I believe this is 

15 where we have the answer to the earlier question on 

16 where the cost of everyone in this room is placed. You 

17 appear here as a fixed element of the model which is 

18 expected to remain constant, except for any sort of 

19 inflationary effect going forward. 

20 Also, research and development assumed as a 

21 percentage of revenues. This, too, remains constant in 

22 relative terms over the life of the model. 

23 Depreciation assumptions are twofold. First 

24 of all, you are allowed to input an expected beginning 

25 depreciation amount expressed in as a percentage of 

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1 revenues in the base year. This, too, will remain --

2 once established for the base year, it remains constant

3 over the life of the model. The same holds true for

4 ordinary capital expenditures.

5 We're terming these ordinary depreciation and

6 ordinary capital expenditures in that this would be one

7 of the -- the as-is -- this drives the as-is scenario

8 as opposed to considering any sort of direct changes as

9 a result of the regulation. That appears below -- that

10 element of the assumption appears below.

11 And, lastly, in the conventional sense, with

12 respect to manufacturing overhead, you're allowed to

13 input an assumption as to what portion of that would be

14 variable as opposed to fixed.

15 MR. FLORA: Excuse me.

16 MR. BROOKMAN: Please state your name.

17 MR. FLORA: Yeah. Brad Flora, Whirlpool

18 Corporation.

19 I just want to make sure just for

20 clarification. So, your base year, your unit price

21 then is driven by your inflation assumption as you move

22 out?

23 MR. ARNOLD: Well, yes. Let's take a look at

24 that.

25 MR. FLORA: And then the volume is driven by

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1 revenues in the base year. Thisl tOOl will remain 

2 once established for the base yearl it remains constant 

3 over the life of the model. The same holds true for 

4 ordinary capital expenditures. 

5 We're terming these ordinary depreciation and 

6 ordinary capital expenditures in that this would be one 

7 of the -- the as-is -- this drives the as-is scenario 

8 as opposed to considering any sort of direct changes as 

9 a result of the regulation. That appears below -- that 

10 element of the assumption appears below. 

11 And I lastlYI in the conventional senseI with 

12 respect to manufacturing overhead I you're allowed to 

13 input an assumption as to what portion of that would be 

14 variable as opposed to fixed. 

15 MR. FLORA: Excuse me. 

16 MR. BROOKMAN: Please state your name. 

17 MR. FLORA: Yeah. Brad Floral Whirlpool 

18 Corporation. 

19 I just want to make sure just for 

20 clarification. SOl your base yearl your unit price 

21 then is driven by your inflation assumption as you move 

22 out? 

23 

24 that. 

25 

MR. ARNOLD: WeIll yes. Let's take a look at 

MR. FLORA: And then the volume is driven by 

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1 the -- the unit sales growth?

2 MR. ARNOLD: Yes.

3 MR. FLORA: Okay.

4 MR. ARNOLD: So, they're operating

5 independently.

6 MR. FLORA: So, -- okay. So, -- so, we have

7 a lot of issues around the price volume relationships.

8 We'd have to go in and manually override those in the

9 standard case, I think, huh?

10 MR. ARNOLD: Well, actually, as it stands

11 now, base case and standard case make the same

12 assumptions --

13 MR. FLORA: Yeah. I saw that in the graph.

14 MR. ARNOLD: -- with respect to both price

15 and volume, unless you override, but, you, for example,

16 can keep base case fixed and choose to override

17 standard, but the default position coming off of this

18 assumption table is a series of formulas that -- that

19 raise both just in percentage terms.

20 MR. FLORA: Right. It's driven by inflation

21 and by your growth --

22 MR. ARNOLD: Right.

23 MR. FLORA: -- rate. Okay. Thank you.

24 MR. ARNOLD: But, again, you're free to -- to

25 override either.

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1 the -- the unit sales growth? 

2 MR. ARNOLD: Yes. 

3 MR. FLORA: Okay. 

4 MR. ARNOLD: So, they're operating 

5 independently. 

6 MR. FLORA: So, -- okay. So, -- so, we have 

7 a lot of issues around the price volume relationships. 

8 We'd have to go in and manually override those in the 

9 standard case, I think, huh? 

10 MR. ARNOLD: Well, actually, as it stands 

11 now, base case and standard case make the same 

12 assumptions --

13 MR. FLORA: Yeah. I saw that in the graph. 

14 MR. ARNOLD: -- with respect to both price 

15 and volume, unless you override, but, you, for example, 

16 can keep base case fixed and choose to override 

17 standard, but the default position coming off of this 

18 assumption table is a series of formulas that that 

19 raise both just in percentage terms. 

20 MR. FLORA: Right. It's driven by inflation 

21 and by your growth --

22 MR. ARNOLD: Right. 

23 MR. FLORA: -- rate. Okay. Thank you. 

24 MR. ARNOLD: But, again, you're free to -- to 

25 override either. 

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1 The last elements of the assumptions page,

2 and, of course, quite a bit of the discussion going

3 into the derivation of these rather simple dollar

4 amounts in the final analysis, but you're allowed to

5 input manufacturing costs on a unit basis in base year,

6 both for materials, labor and overhead, and then you're

7 allowed to reflect for the purposes of this standard

8 case analysis any sort of incremental effect due to

9 implementation of the standard.

10 So, for example, here, not including any sort

11 of inflationary effects, which are also employed as a

12 part of the -- the cash flow analysis, if materials is

13 $80 in base year, the assumption is that with standard

14 it would increase to 100.

15 MR. BROOKMAN: Mark?

16 MR. PERLIS: Could you explain why there's no

17 charge for interest to cover the incremental capital

18 expenditures?

19 MR. ARNOLD: This is actually a general

20 element of all cash flow analyses. Any sort of

21 financing costs that would be associated with -- with

22 the scenarios under consideration are captured in the

23 discount rate itself.

24 So, -- so, in other words, you need to lay

25 out the -- this cash flow analysis lays out cash flow,

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1 The last elements of the assumptions page, 

2 and, of course, quite a bit of the discussion going 

3 into the derivation of these rather simple dollar 

4 amounts in the final analysis, but you're allowed to 

5 input manufacturing costs on a unit basis in base year, 

6 both for materials, labor and overhead, and then you're 

7 allowed to reflect for the purposes of this standard 

8 case analysis any sort of incremental effect due to 

9 implementation of the standard. 

10 So, for example, here, not including any sort 

11 of inflationary effects, which are also employed as a 

12 part of the -- the cash flow analysis, if materials is 

13 $80 in base year, the assumption is that with standard 

14 it would increase to 100. 

15 MR. BROOKMAN: Mark? 

16 MR. PERLIS: Could you explain why there's no 

17 charge for interest to cover the incremental capital 

18 expenditures? 

19 MR. ARNOLD: This is actually a general 

20 element of all cash flow analyses. Any sort of 

21 financing costs that would be associated with -- with 

22 the scenarios under consideration are captured in the 

23 discount rate itself. 

24 

25 out the 

So, -- so, in other words, you need to lay 

this cash flow analysis lays out cash flow, 

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1 excluding any sort of financing considerations, on the

2 grounds that when they are discounted, that will in

3 essence capture the -- the financing effect.

4 MR. PERLIS: I still don't understand that.

5 Is another way of saying what you're saying that you're

6 just assuming that the costs are financed out of

7 working capital?

8 MR. ARNOLD: No, not that they're financed

9 out of any sort of mechanism per se. It's just that

10 they're -- they're financed as an effective rate equal

11 to the discount rate that's being used for the

12 analysis.

13 MR. PERLIS: Okay.

14 MR. ARNOLD: So, -- so, in other words, as a

15 part of the default GRIM, the assumption is that all of

16 the negative cash flows is being financed at a 12-

17 percent rate, which is the discount rate that's

18 employed.

19 The last element of the assumptions is the

20 conversion costs themselves. In this example,

21 conversion costs are expressed in two forms --

22 actually, for all GRIM exercises, there's two elements

23 of conversion costs. That portion which is

24 capitalizable, so any sort of incremental fixed assets

25 associated with -- with conforming to the regulation.

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1 excluding any sort of financing considerations, on the 

2 grounds that when they are discounted, that will in 

3 essence capture the -- the financing effect. 

4 MR. PERLIS: I still don't understand that. 

5 Is another way of saying what you're saying that you're 

6 just assuming that the costs are financed out of 

7 working capital? 

8 MR. ARNOLD: No, not that they're financed 

9 out of any sort of mechanism per se. It's just that 

10 they're -- they're financed as an effective rate equal 

11 to the discount rate that's being used for the 

12 analysis. 

13 MR. PERLIS: Okay. 

14 MR. ARNOLD: So, so, in other words, as a 

15 part of the default GRIM, the assumption is that all of 

16 the negative cash flows is being financed at a 12-

17 percent rate, which is the discount rate that's 

18 employed. 

19 The last element of the assumptions is the 

20 conversion costs themselves. In this example, 

21 conversion costs are expressed in two forms --

22 actually, for all GRIM exercises, there'S two elements 

23 of conversion costs. That portion which is 

24 capitalizable, so any sort of incremental fixed assets 

25 associated with -- with conforming to the regulation. 

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1 Here, we --

2 MR. BROOKMAN: Question? Yes? Question?

3 MS. KLUMPP: Thanks. Liz Klumpp, Washington

4 State.

5 My question is you could clarify for me, you

6 know, it's a lengthy process, the standard-setting

7 process, and, so, you have the ANOPR and then the NOPR,

8 and I'm wondering at what point are you considering it

9 final with regards to what the base case is, and

10 therefore it affects incremental price to the consumer,

11 incremental savings to the consumer, because I'm

12 assuming the base case -- the base year represents the

13 marketplace and not the last code.

14 So, as you go from the ANOPR to the NOPR, are

15 you revising these numbers? Am I being clear?

16 MR. ARNOLD: The --

17 MS. KLUMPP: I'm assuming the market is

18 evolving each year.

19 MR. McCABE: Dave? Dave? I'm looking at

20 Mike McCabe here, which I don't see anything wrong, but

21 my understanding is that we would do one set of

22 analyses for the ANOPR and revise them at the NOPR.

23 MR. BROOKMAN: Yes? Additional question?

24 MR. DEMPSEY: Dan Dempsey with Carrier.

25 On the conversion costs, the fixed capital

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1 Here, we --

2 MR. BROOKMAN: Question? Yes? Question? 

3 MS. KLUMPP: Thanks. Liz Klumpp, Washington 

4 State. 

5 My question is you could clarify for me, you 

6 know, it's a lengthy process, the standard-setting 

7 process, and, so, you have the ANOPR and then the NOPR, 

8 and I'm wondering at what point are you considering it 

9 final with regards to what the base case is, and 

10 therefore it affects incremental price to the consumer, 

11 incremental savings to the consumer, because I'm 

12 assuming the base case -- the base year represents the 

13 marketplace and not the last code. 

14 So, as you go from the ANOPR to the NOPR, are 

15 you revising these numbers? Am I being clear? 

16 MR. ARNOLD: The 

17 MS. KLUMPP: I'm assuming the market is 

18 evolving each year. 

19 MR. McCABE: Dave? Dave? I'm looking at 

20 Mike McCabe here, which I don't see anything wrong, but 

21 my understanding is that we would do one set of 

22 analyses for the ANOPR and revise them at the NOPR. 

23 

24 

25 

MR. BROOKMAN: Yes? Additional question? 

MR. DEMPSEY: Dan Dempsey with Carrier. 

On the conversion costs, the fixed capital 

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1 expenditures and the expenses, does the model assume a

2 particular year in which they're incurred or -- or do

3 you have to go in and override and spread those out?

4 MR. ARNOLD: The model does have some

5 assumptions built in. Actually, there's a table which

6 is built up off of historical experiences in terms of

7 the portion that's experienced in a given year versus

8 another.

9 So, for example, if there were a five-year

10 time frame between the announcement date and the date

11 that the regulation took effect, there is a table --

12 actually the -- very back in the -- in one of the

13 corners of the spread sheet, that establishes a pro

14 ration of those charges over a broader time frame.

15 MR. DEMPSEY: All right. Thanks.

16 MR. ARNOLD: You'll see the effects of that

17 as we work through the standard case, but in any event,

18 conversion costs again separated out in terms of

19 capital expenditures, here assuming 500 million in

20 total capital, for the purposes of depreciating those

21 incremental capital expenditures, are asked to provide

22 a useful life, here 15 years of default position, and,

23 lastly, what we're terming design and marketing

24 expenses. These would be basically everything else

25 that might be associated with converting to accommodate

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1 expenditures and the expenses, does the model assume a 

2 particular year in which they're incurred or -- or do 

3 you have to go in and override and spread those out? 

4 MR. ARNOLD: The model does have some 

5 assumptions built in. Actually, there's a table which 

6 is built up off of historical experiences in terms of 

7 the portion that's experienced in a given year versus 

8 another. 

9 So, for example, if there were a five-year 

10 time frame between the announcement date and the date 

11 that the regulation took effect, there is a table 

12 actually the -- very back in the -- in one of the 

13 corners of the spread sheet, that establishes a pro 

14 ration of those charges over a broader time frame. 

15 MR. DEMPSEY: All right. Thanks. 

16 MR. ARNOLD: You'll see the effects of that 

17 as we work through the standard case, but in any event, 

18 conversion costs again separated out in terms of 

19 capital expenditures, here assuming 500 million in 

20 total capital, for the purposes of depreciating those 

21 incremental capital expenditures, are asked to provide 

22 a useful life, here 15 years of default position, and, 

23 lastly, what we're terming design and marketing 

24 expenses. These would be basically everything else 

25 that might be associated with converting to accommodate 

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1 a new standard. They would not be capitalizable. They

2 could only be expensed in the current year.

3 So, again, after moving through the major

4 assumptions area of the worksheet, it is possible to

5 just go ahead and start trending and analyzing the

6 scenarios that are provided or if you'd like to get

7 more sophisticated with respect to varying price units

8 and unit sales, you can do that as well.

9 But, here, let's just walk through very

10 briefly the output, and I'll -- I'll cursor through the

11 first couple of cells of each line item. The formulas

12 themselves aren't all the way out to the end of the 15-

13 year time period, but here, briefly, price per unit

14 begins with the $200 that we'd implemented to execute

15 it as a base year assumption and then starts inflating

16 it by four percent.

17 MR. RIVEST: Dave, if I can just make a

18 comment. This is Mike Rivest.

19 If -- in a nutshell, if I were to make -- you

20 know, try to illustrate the difference between this

21 model and the previous model, is that in the previous

22 model, you were -- you would input the manufacturing

23 costs, and the model would determine both the price and

24 the quantity.

25 Now, it's possible to go back and use the

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1 a new standard. They would not be capitalizable. They 

2 could only be expensed in the current year. 

3 So, again, after moving through the major 

4 assumptions area of the worksheet, it is possible to 

5 just go ahead and start trending and analyzing the 

6 scenarios that are provided or if you'd like to get 

7 more sophisticated with respect to varying price units 

8 and unit sales, you can do that as well. 

9 But, here, let's just walk through very 

10 briefly the output, and I'll -- I'll cursor through the 

11 first couple of cells of each line item. The formulas 

12 themselves aren't all the way out to the end of the 15-

13 year time period, but here, briefly, price per unit 

14 begins with the $200 that we'd implemented to execute 

15 it as a base year assumption and then starts inflating 

16 it by four percent. 

17 MR. RIVEST: Dave, if I can just make a 

18 comment. This is Mike Rivest. 

19 If -- in a nutshell, if I were to make -- you 

20 know, try to illustrate the difference between this 

21 model and the previous model, is that in the previous 

22 model, you were -- you would input the manufacturing 

23 costs, and the model would determine both the price and 

24 the quantity. 

25 Now, it's possible to go back and use the 

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1 same economics and derive what those -- what economics

2 say the prices and quantities might be, and to use

3 those as one input to the spread sheet.

4 What we've done, though, is allow now for

5 other forecasts to be integrated in the analysis.

6 MR. ARNOLD: Questions?

7 (No response)

8 MR. ARNOLD: The next line item being unit

9 sales, which again starts with the base case

10 assumption, 5.61 million in 1998, and then begins

11 inflating not in accordance with the inflation rate

12 but, rather, in this unit -- unit growth rate, which is

13 also expressed as an assumption.

14 Simple multiply the two up to provide total

15 revenues. The cost of sales looks back also to the

16 assumptions page, multiplying unit sales in any given

17 year by the per-unit charges, either for labor or

18 material or overhead, although you'll notice in this

19 analysis that we actually go so far as to break down

20 overhead into both the fixed and variable component in

21 accordance with the percentages established on the

22 assumptions page. So, you can cull that out

23 separately.

24 The fixed portion of overhead, for example,

25 you'll see starting at 60 percent of the total for the

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1 same economics and derive what those -- what economics 

2 say the prices and quantities might be, and to use 

3 those as one input to the spread sheet. 

4 What we've done, though, is allow now for 

5 other forecasts to be integrated in the analysis. 

6 MR. ARNOLD: Questions? 

7 (No response) 

8 MR. ARNOLD: The next line item being unit 

9 sales, which again starts with the base case 

10 assumption, 5.61 million in 1998, and then begins 

11 inflating not in accordance with the inflation rate 

12 but, rather, in this unit -- unit growth rate, which is 

13 also expressed as an assumption. 

14 Simple mUltiply the two up to provide total 

15 revenues. The cost of sales looks back also to the 

16 assumptions page, mUltiplying unit sales in any given 

17 year by the per-unit charges, either for labor or 

18 material or overhead, although you'll notice in this 

19 analysis that we actually go so far as to break down 

20 overhead into both the fixed and variable component in 

21 accordance with the percentages established on the 

22 assumptions page. So, you can cull that out 

23 separately. 

24 The fixed portion of overhead, for example, 

25 you'll see starting at 60 percent of the total for the 

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1 year, but it, too, inflates in accordance with the rate

2 established in the model.

3 Lastly, under cost of sales, depreciation.

4 This number 36 million is derived from the depreciation

5 as a percentage of revenues on the assumptions page.

6 It, unlike most other elements of the model does --

7 does not inflate on the assumption that it's just

8 simply a recurring charge.

9 Moving down to SG&A expenses, we have the

10 standard component, which comes straight from the

11 assumption page and then inflates. We have research

12 and development, which maintains relationship as two

13 percent of revenues.

14 Product conversion expenses, a line item

15 which is not used in the base case, you'll see it

16 taking effect in the standard case, and then from

17 there, just some very simple computation of net income,

18 profit before tax equals revenues minus expenses. We

19 apply 46-percent tax rate to come to net income before

20 financing.

21 Having completed the income statement

22 portion, the analysis moves to cash flow, which takes

23 the net income derived above, and then, first of all,

24 adds back non-cash items that were reflected in income,

25 namely depreciation, takes into account any sort of

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1 year, but it, too, inflates in accordance with the rate 

2 established in the model. 

3 Lastly, under cost of sales, depreciation. 

4 This number 36 million is derived from the depreciation 

5 as a percentage of revenues on the assumptions page. 

6 It, unlike most other elements of the model does --

7 does not inflate on the assumption that it's just 

8 simply a recurring charge. 

9 Moving down to SG&A expenses, we have the 

10 standard component, which comes straight from the 

11 assumption page and then inflates. We have research 

12 and development, which maintains relationship as two 

13 percent of revenues. 

14 Product conversion expenses, a line item 

15 which is not used in the base case, you'll see it 

16 taking effect in the standard case, and then from 

17 there, just some very simple computation of net income, 

18 profit before tax equals revenues minus expenses. We 

19 apply 46-percent tax rate to come to net income before 

20 financing. 

21 Having completed the income statement 

22 portion, the analysis moves to cash flow, which takes 

23 the net income derived above, and then, first of all, 

24 adds back non-cash items that were reflected in income, 

25 namely depreciation, takes into account any sort of 

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1 changes in working capital, which are again purely a

2 function of the -- the changes in revenues.

3 Working capital, you'll recall from the

4 assumptions page, was fixed at 18 percent of revenues.

5 This provides indication of cash flow from

6 operations, the sum total of the above.

7 Next, for the purposes of cash used in

8 investments, there are two points of consideration in

9 this model, both of which are capital-related.

10 Ordinary capital expenditures is just the expected on11 going run rate in the as-is scenario, assuming no

12 additional investment for -- for conformity to the

13 regulations. This, too, was expressed as a percentage

14 of revenues on the assumptions page. Four percent, I

15 believe it was.

16 The sum total and cash flow from operations

17 with cash used in investments. We get net cash flow

18 for any given year.

19 I'll come back to the terminal value line as

20 we move out to the far right, but all that's necessary

21 to perform a discounted cash flow analysis now that we

22 have the cash flows in hand is to simply apply a

23 present value effect factors which state the cash flows

24 of any given year in -- in present terms. So, notice

25 we begin with -- with non-discounting in the base year,

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1 changes in working capital, which are again purely a 

2 function of the -- the changes in revenues. 

3 Working capital, you'll recall from the 

4 assumptions page, was fixed at 18 percent of revenues. 

5 This provides indication of cash flow from 

6 operations, the sum total of the above. 

7 Next, for the purposes of cash used in 

8 investments, there are two points of consideration in 

9 this model, both of which are capital-related. 

10 Ordinary capital expenditures is just the expected on11 going run rate in the as-is scenario, assuming no 

12 additional investment for -- for conformity to the 

13 regulations. This, too, was expressed as a percentage 

14 of revenues on the assumptions page. Four percent, I 

15 believe it was. 

16 The sum total and cash flow from operations 

17 with cash used in investments. We get net cash flow 

18 for any given year. 

19 I'll come back to the terminal value line as 

20 we move out to the far right, but all that's necessary 

21 to perform a discounted cash flow analysis now that we 

22 have the cash flows in hand is to simply apply a 

23 present value effect factors which state the cash flows 

24 of any given year in -- in present terms. So, notice 

25 we begin with -- with non-discounting in the base year, 

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1 and then with the application of this 12-percent rate,

2 the effective factor lowers over time.

3 In Year 2012, Year 15 of the analysis, you'll

4 notice the reflection of a terminal value, which

5 conceptually represents the value of -- of all of the

6 cash flows going out into the -- into perpetuity, and

7 this again is based upon the perpetuity formula of

8 final year cash flows divided by the discount rate.

9 Sum total --

10 MR. BROOKMAN: Questions?

11 MR. MORRIS: Wayne Morris, AHAM.

12 Just a question on that. So, the discounted

13 cash flow shown in the Year 2012 is essentially the

14 terminal value discounted by the present value factor

15 to give you that essentially cumulative discounted cash

16 flow, is that right?

17 MR. ARNOLD: It's cumulative discounted cash

18 flow, but it's -- but it's looking forward. It's --

19 it's standing in the Year 2012 looking out into -- into

20 infinity. So, it provides -- the $965,000 is -- is

21 what the value of the future cash flows will be in --

22 in 2012, and then this present value factor is -- is

23 applied to bring that back to 1998.

24 So, then sum totaling up all of the

25 discounted cash flows, including -- including terminal

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1 and then with the application of this 12-percent rate, 

2 the effective factor lowers over time. 

3 In Year 2012, Year 15 of the analysis, you'll 

4 notice the reflection of a terminal value, which 

5 conceptually represents the value of -- of all of the 

6 cash flows going out into the -- into perpetuity, and 

7 this again is based upon the perpetuity formula of 

8 final year cash flows divided by the discount rate. 

9 Sum total --

10 MR. BROOKMAN: Questions? 

11 MR. MORRIS: Wayne Morris, AHAM. 

12 Just a question on that. So, the discounted 

13 cash flow shown in the Year 2012 is essentially the 

14 terminal value discounted by the present value factor 

15 to give you that essentially cumulative discounted cash 

16 flow, is that right? 

17 MR. ARNOLD: It's cumulative discounted cash 

18 flow, but it's -- but it's looking forward. It's 

19 it's standing in the Year 2012 looking out into -- into 

20 infinity. So, it provides -- the $965,000 is -- is 

21 what the value of the future cash flows will be in --

22 in 2012, and then this present value factor is -- is 

23 applied to bring that back to 1998. 

24 So, then sum totaling up all of the 

25 discounted cash flows, including -- including terminal 

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1 value, we're able to derive a conceptual industry value

2 or net present value of $425 million. So, that will be

3 a reference point for the base case.

4 Moving now to the standard case, I won't go

5 through each individual line item. We'll -- and if

6 they do remain consistent one scenario to the next, but

7 we'll highlight items that change as a part of the

8 standards.

9 In general, they're concentrated in -- in

10 three areas. First of all, cost of sales, you'll

11 notice remaining essentially mirror image as compared

12 to base case, until we get to the announcement year,

13 wherein the incremental effects that were indicated in

14 the assumptions page take effect.

15 So, you'll see that change for labor,

16 materials, and in this model, the overhead differential

17 is -- is assumed to be only affecting variable overhead

18 costs as opposed to fixed -- to fixed costs. This

19 might also -- this is the logic that was used in the

20 original GRIM. It's also a topic that's -- that could

21 be a point of discussion for future versions.

22 Depreciation, you'll also notice increasing

23 dramatically in the standard year. This is purely a

24 function of -- of taking our -- our base depreciation

25 coming in, but suddenly in the standard year, all of

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1 value, we're able to derive a conceptual industry value 

2 or net present value of $425 million. So, that will be 

3 a reference point for the base case. 

4 Moving now to the standard case, I won't go 

5 through each individual line item. We'll and if 

6 they do remain consistent one scenario to the next, but 

7 we'll highlight items that change as a part of the 

8 standards. 

9 In general, they're concentrated in in 

10 three areas. First of all, cost of sales, you'll 

11 notice remaining essentially mirror image as compared 

12 to base case, until we get to the announcement year, 

13 wherein the incremental effects that were indicated in 

14 the assumptions page take effect. 

15 So, you'll see that change for labor, 

16 materials, and in this model, the overhead differential 

17 is -- is assumed to be only affecting variable overhead 

18 costs as opposed to fixed -- to fixed costs. This 

19 might also -- this is the logic that was used in the 

20 original GRIM. It's also a topic that's -- that could 

21 be a point of discussion for future versions. 

22 Depreciation, you'll also notice increasing 

23 dramatically in the standard year. This is purely a 

24 function of -- of taking our -- our base depreciation 

25 coming in, but suddenly in the standard year, all of 

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1 the capital expenditures that were involved as part of

2 the conversion will suddenly become assets of record

3 appreciable, and there is a reflection in this case of

4 an almost doubling of the depreciation.

5 MR. BROOKMAN: Yes? Mark Perlis. Why do you

6 assume that the depreciation doesn't take place until

7 the --

8 MR. PERLIS: Until the standard takes effect?

9 MR. BROOKMAN: Yes.

10 MR. ARNOLD: The reason being -- and this is

11 more in conformity with generally accepted accounting

12 principles. The assumption is that these conversion

13 expenditures are -- are being built as -- as a capital

14 project in process that does not become used until the

15 regulations take effect.

16 So, although the cash outflow is occurring

17 for some several years prior to the point of

18 initiation, the assumption is that the assets are not

19 placed in service until the standard is -- becomes

20 effective.

21 MR. BROOKMAN: Quick question here, and

22 then --

23 MR. WADE: Steve Wade, EIA.

24 Is that standard accounting principles? I'm

25 not familiar with those, but --

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1 the capital expenditures that were involved as part of 

2 the conversion will suddenly become assets of record 

3 appreciable, and there is a reflection in this case of 

4 an almost doubling of the depreciation. 

5 MR. BROOKMAN: Yes? Mark Perlis. Why do you 

6 assume that the depreciation doesn't take place until 

7 the --

8 MR. PERLIS: Until the standard takes effect? 

9 MR. BROOKMAN: Yes. 

10 MR. ARNOLD: The reason being -- and this is 

11 more in conformity with generally accepted accounting 

12 principles. The assumption is that these conversion 

13 expenditures are -- are being built as -- as a capital 

14 project in process that does not become used until the 

15 regulations take effect. 

16 So, although the cash outflow is occurring 

17 for some several years prior to the point of 

18 initiation, the assumption is that the assets are not 

19 placed in service until the standard is -- becomes 

20 effective. 

21 MR. BROOKMAN: Quick question here, and 

22 then --

23 MR. WADE: Steve Wade, EIA. 

24 Is that standard accounting principles? I'm 

25 not familiar with those, but --

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1 MR. ARNOLD: Yes, it's very similar to

2 construction process.

3 MR. WADE: I know they do that. It's

4 regulatory -- regulated utilities, you know, have that

5 type of --

6 MR. RIVEST: Dave, if I remember from my

7 accounting course, it's called the matching principle,

8 match expense with revenue.

9 MR. BROOKMAN: Charlie? Can we hand this

10 over?

11 MR. STEPHENS: Charlie Stephens, Oregon

12 Energy Office.

13 Does that mean that if you were to run a case

14 where you had a -- sort of a diversified industry

15 situation facing a standard where you had one company

16 that was already -- had already had production in

17 process producing the equipment that would meet the

18 standard five years or three years or whatever before

19 the standard took effect, that that would be included

20 in the base case for that company and then any

21 incremental production that was required after the

22 standard took effect would be what would be included in

23 your analysis of the standard, quote unquote?

24 MR. ARNOLD: For the purposes of -- of the

25 GRIM, which again is in many ways a simplification of

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1 MR. ARNOLD: Yes, it's very similar to 

2 construction process. 

3 MR. WADE: I know they do that. It's 

4 regulatory regulated utilities, you know, have that 

5 type of 

6 MR. RIVEST: Dave, if I remember from my 

7 accounting course, it's called the matching principle, 

8 match expense with revenue. 

9 MR. BROOKMAN: Charlie? Can we hand this 

10 over? 

11 MR. STEPHENS: Charlie Stephens, Oregon 

12 Energy Office. 

13 Does that mean that if you were to run a case 

14 where you had a -- sort of a diversified industry 

15 situation facing a standard where you had one company 

16 that was already -- had already had production in 

17 process producing the equipment that would meet the 

18 standard five years or three years or whatever before 

19 the standard took effect, that that would be included 

20 in the base case for that company and then any 

21 incremental production that was required after the 

22 standard took effect would be what would be included in 

23 your analysis of the standard, quote unquote? 

24 MR. ARNOLD: For the purposes of -- of the 

25 GRIM, which again is in many ways a simplification of 

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1 the overall dynamics here, the assumption would be that

2 that one -- that one instance where you had a company

3 that was already in conformity, there's -- there's no

4 specific accommodation for certain elements of them

5 being ahead of -- ahead of the game as opposed to the

6 remainder of the industry.

7 The assumption here is that everyone --

8 everyone changes at once.

9 MR. RIVEST: My understanding is --

10 MR. STEPHENS: Yeah. I was just going to

11 say, we're going to need to -- to fix that if that is

12 -- or -- or do the analysis in a way, I think, that can

13 account for that.

14 MR. BROOKMAN: Wait a second, everyone. Let

15 me capture -- let me have the mike back. We want this

16 on the record. This is useful. This is what we're

17 here for. Can I have that, please? You also had a

18 question, did you? Yeah. Okay. Come to the dais.

19 Everett Shorey.

20 MR. SHOREY: Hi. I'm Everett Shorey.

21 I probably have the dubious distinction of

22 being the original author of the GRIM. So, the -- the

23 GRIM analyzes, and David's right, it treats as a

24 unified group everybody that we're analyzing, but we

25 can analyze any subsegment that we want to. So, for

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1 the overall dynamics here l the assumption would be that 

2 that one that one instance where you had a company 

3 that was already in conformitYI there's -- there's no 

4 specific accommodation for certain elements of them 

5 being ahead of -- ahead of the game as opposed to the 

6 remainder of the industry. 

7 The assumption here is that everyone --

8 everyone changes at once. 

9 MR. RIVEST: My understanding is 

10 MR. STEPHENS: Yeah. I was just going to 

11 saYI we're going to need to to fix that if that is 

12 -- or -- or do the analysis in a waYI I thinkl that can 

13 account for that. 

14 MR. BROOKMAN: Wait a second l everyone. Let 

15 me capture -- let me have the mike back. We want this 

16 on the record. This is useful. This is what we're 

17 here for. Can I have that l please? You also had a 

18 question l did you? Yeah. Okay. Come to the dais. 

19 Everett Shorey. 

20 MR. SHOREY: Hi. I'm Everett Shorey. 

21 I probably have the dubious distinction of 

22 being the original author of the GRIM. SOl the -- the 

23 GRIM analyzes I and David's right I it treats as a 

24 unified group everybody that we're analyzing l but we 

25 can analyze any subsegment that we want to. SOl for 

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1 the purposes of an industry where some people are in

2 compliance and some people aren't or some people are

3 large companies and some people are small or any set of

4 -- of subsegments, you can run a GRIM analysis for that

5 subsegment.

6 So, if you have people who aren't in -- who

7 are already in compliance, then all of those costs are

8 already in the base case and won't come -- and -- and

9 don't show up as incremental costs.

10 If you have people with very different cost

11 situations, I think part of -- part of what DOE is --

12 is -- is talking about by looking at different sub13 groups is trying in fact to capture those differences,

14 and you can use the GRIM as a calculator. It really is

15 nothing more than a calculator to capture those

16 different situations.

17 But David's right. For whatever group -- set

18 of -- set of people you're analyzing, they're all

19 treated as -- as one, but you can analyze any -- any

20 subsegment you want to.

21 MR. BROOKMAN: I believe this gentleman here.

22 Did you also have a question or comment?

23 MR. FLORA: Yes. Brad Flora, Whirlpool.

24 The only point I would make is in our

25 experience, I think we've got four or five year lead

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1 the purposes of an industry where some people are in 

2 compliance and some people aren't or some people are 

3 large companies and some people are small or any set of 

4 -- of subsegments, you can run a GRIM analysis for that 

5 subsegment. 

6 So, if you have people who aren't in -- who 

7 are already in compliance, then all of those costs are 

8 already in the base case and won't come -- and -- and 

9 don't show up as incremental costs. 

10 If you have people with very different cost 

11 situations, I think part of -- part of what DOE is --

12 is -- is talking about by looking at different sub13 groups is trying in fact to capture those differences, 

14 and you can use the GRIM as a calculator. It really is 

15 nothing more than a calculator to capture those 

16 different situations. 

17 But David's right. For whatever group -- set 

18 of -- set of people you're analyzing, they're all 

19 treated as -- as one, but you can analyze any -- any 

20 subsegment you want to. 

21 MR. BROOKMAN: I believe this gentleman here. 

22 Did you also have a question or comment? 

23 MR. FLORA: Yes. Brad Flora, Whirlpool. 

24 The only point I would make is in our 

25 experience, I think we've got four or five year lead 

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1 time built into your model example, and we see more

2 like two or three. That's the only -- I mean it's just

3 a minor thing, I think.

4 MR. BROOKMAN: Additional questions or

5 comments? I thought I saw one more.

6 (No response)

7 MR. BROOKMAN: No? Okay.

8 MR. ARNOLD: Moving into the SG&A category,

9 again on the standard case, no changes for standard

10 SG&A. No changes for research and development, but

11 here you begin to see the effect of product conversion

12 expenses, and again these are those expenses which

13 would not be capitalizable by any sort of -- I guess

14 more commonly referred to as design and marketing-type

15 expenses as prime examples.

16 What you see happening here is with respect

17 to the dollar amount that was input originally back on

18 the assumptions page at $300,000 -- $300 million in

19 assumed total design and marketing expenses.

20 On this line, the -- the model spreads these

21 expenses in the years between year of announcement and

22 year of -- of standard, and this again is referring to

23 a table that maps out general experiences with

24 regulatory implementation over various time frames.

25 But over the course of this five-year period,

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1 time built into your model example, and we see more 

2 like two or three. That's the only -- I mean it's just 

3 a minor thing, I think. 

4 MR. BROOKMAN: Additional questions or 

5 comments? I thought I saw one more. 

6 (No response) 

7 MR. BROOKMAN: No? Okay. 

8 MR. ARNOLD: Moving into the SG&A category, 

9 again on the standard case, no changes for standard 

10 SG&A. No changes for research and development, but 

11 here you begin to see the effect of product conversion 

12 expenses, and again these are those expenses which 

13 would not be capitalizable by any sort of -- I guess 

14 more commonly referred to as design and marketing-type 

15 expenses as prime examples. 

16 What you see happening here is with respect 

17 to the dollar amount that was input originally back on 

18 the assumptions page at $300,000 -- $300 million in 

19 assumed total design and marketing expenses. 

20 On this line, the -- the model spreads these 

21 expenses in the years between year of announcement and 

22 year of -- of standard, and this again is referring to 

23 a table that maps out general experiences with 

24 regulatory implementation over various time frames. 

25 But over the course of this five-year period, 

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1 I believe you should see the entire $300 million

2 reflected.

3 Formulas, of course, remain the same for

4 profit, taxes, net income.

5 Moving down to cash flow, the formulas also

6 remain intact. The only change as you see here is

7 again the offset, the add-back increases in association

8 with the increase in depreciation we saw above.

9 The capital expenditures line. First of all,

10 on the conversion side, you'll see a representation of

11 the $500 million that was assumed as total

12 capitalizable cost. That, too, is spread over the time

13 frame between announcement and implementation of the

14 standard.

15 And the only other change that occurs with

16 respect to capital expenditures is that there is an

17 assumption made that in the year that the standard is

18 implemented, you will -- by virtue of the fact that you

19 now have a significant increase in your total capital

20 basis by having implemented this regulation, that you

21 will begin replenishing it at a much higher rate than

22 would have been the case with -- in the absence of the

23 standard.

24 The differential between the 44 million

25 coming in and the 78 million that's reflected in the

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1 I believe you should see the entire $300 million 

2 reflected. 

3 Formulas, of course, remain the same for 

4 profit, taxes, net income. 

5 Moving down to cash flow, the formulas also 

6 remain intact. The only change as you see here is 

7 again the offset, the add-back increases in association 

8 with the increase in depreciation we saw above. 

9 The capital expenditures line. First of all, 

10 on the conversion side, you'll see a representation of 

11 the $500 million that was assumed as total 

12 capitalizable cost. That, too, is spread over the time 

13 frame between announcement and implementation of the 

14 standard. 

15 And the only other change that occurs with 

16 respect to capital expenditures is that there is an 

17 assumption made that in the year that the standard is 

18 implemented, you will -- by virtue of the fact that you 

19 now have a significant increase in your total capital 

20 basis by having implemented this regulation, that you 

21 will begin replenishing it at a much higher rate than 

22 would have been the case with -- in the absence of the 

23 standard. 

24 The differential between the 44 million 

25 coming in and the 78 million that's reflected in the 

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1 standard here. That essentially provides for a

2 replenishment of the capital associated with conversion

3 over a 15-year time frame.

4 Otherwise, all computations remain the same,

5 and we now see what we don't see. The new net present

6 value. We locked down the spread sheet? Oh. Backed

7 it down to 100 percent. There we are. Minus one

8 million -- one billion, 95 million.

9 So, essentially, by -- by virtue of

10 implementing the standards, we have experienced in

11 financial terms a degradation in our net present value

12 from positive 425 million in the base case to negative

13 one billion with standard. So, that is how the output

14 is to be interpreted.

15 MR. BROOKMAN: Question?

16 MR. PERLIS: I have one more question. Mark

17 Perlis.

18 The terminal value is supposed to be a

19 perpetuity calculation from 2012 values on out. The

20 2012 values reflect the amortization of the conversion

21 capital expenditures.

22 Are you assuming that those conversion

23 capital expenditures continue on into perpetuity or is

24 there some incremental capital expenditure increase

25 that ought to be reflected in terminal value?

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1 standard here. That essentially provides for a 

2 replenishment of the capital associated with conversion 

3 over a 15-year time frame. 

4 Otherwise t all computations remain the samet 

5 and we now see what we don't see. The new net present 

6 value. We locked down the spread sheet? Oh. Backed 

7 it down to 100 percent. There we are. Minus one 

8 million one billiont 95 million. 

9 SOt essentiallYt by -- by virtue of 

10 implementing the standardst we have experienced in 

11 financial terms a degradation in our net present value 

12 from positive 425 million in the base case to negative 

13 one billion with standard. SOt that is how the output 

14 is to be interpreted. 

15 MR. BROOKMAN: Question? 

16 MR. PERLIS: I have one more question. Mark 

17 Perlis. 

18 The terminal value is supposed to be a 

19 perpetuity calculation from 2012 values on out. The 

20 2012 values reflect the amortization of the conversion 

21 capital expenditures. 

22 Are you assuming that those conversion 

23 capital expenditures continue on into perpetuity or is 

24 there some incremental capital expenditure increase 

25 that ought to be reflected in terminal value? 

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1 MR. ARNOLD: The assumption is that going out

2 into the future, you will continue -- you will be

3 incurring capital expenditures in association with your

4 new and enhanced capital base by virtue of having

5 implemented the regulation.

6 So, in other words, $78 million that you see

7 reflected above the terminal value, that is -- that is

8 the assumption for on-going capital replenishment

9 that's built in to the terminal value that's reflected.

10 MR. PERLIS: Let me just follow up. So, I

11 interpret that as saying that there is going to be a

12 continued higher level of capital expenditure required

13 in the standards than in the base case in perpetuity,

14 not just a one-time amortized conversion effect but a

15 permanent capital effect.

16 MR. ARNOLD: Yes, by virtue of -- of --

17 MR. PERLIS: Now, is that -- is that

18 permanent capital effect equal to the conversion cost,

19 which is what it appears in this example, or shouldn't

20 it be something that stands by itself as a permanent

21 capital conversion cost?

22 MR. ARNOLD: The assumption for -- that's

23 reflected here is that beginning in the year of

24 standard, you suddenly find yourself in a -- in a new

25 environment with respect to the total capital

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1 MR. ARNOLD: The assumption is that going out 

2 into the future, you will continue -- you will be 

3 incurring capital expenditures in association with your 

4 new and enhanced capital base by virtue of having 

5 implemented the regulation. 

6 So, in other words, $78 million that you see 

7 reflected above the terminal value, that is -- that is 

8 the assumption for on-going capital replenishment 

9 that's built in to the terminal value that's reflected. 

10 MR. PERLIS: Let me just follow up. So, I 

11 interpret that as saying that there is going to be a 

12 continued higher level of capital expenditure required 

13 in the standards than in the base case in perpetuity, 

14 not just a one-time amortized conversion effect but a 

15 permanent capital effect. 

16 MR. ARNOLD: Yes, by virtue of -- of 

17 MR. PERLIS: Now, is that -- is that 

18 permanent capital effect equal to the conversion cost, 

19 which is what it appears in this example, or shouldn't 

20 it be something that stands by itself as a permanent 

21 capital conversion cost? 

22 MR. ARNOLD: The assumption for -- that's 

23 reflected here is that beginning in the year of 

24 standard, you suddenly find yourself in a -- in a new 

25 environment with respect to the total capital 

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1 investment that is required as part of the business,

2 and that that -- that continues on in to perpetuity.

3 MR. BROOKMAN: We have several perhaps

4 follow-on comments, and then, Glenn, is yours a related

5 question or is it a different question?

6 MR. SCHLEEDE: Glenn Schleede.

7 Does this basically assume that the standards

8 remain constant for the next 15 years or what happens

9 if the standards change five years out?

10 MR. ARNOLD: The -- the assumption in -- in

11 GRIM is that once the standards take effect, they

12 remain in effect. So, no incremental change in

13 standard or new standards.

14 If -- if there were to be a need to consider,

15 for example, the effects of multiple regulations or

16 multiple changes over time, then that is something that

17 could be best served by using the multiple GRIMs and

18 sum totaling up the results.

19 MR. FOLEY: I'm still a little confused. I'm

20 sorry. Gene Foley, Alliance to Save Energy.

21 On the assumption where it goes from the 44.9

22 million to the 78.2 million, why that in fact would be

23 in perpetuity. Can you elaborate that just a little

24 bit more?

25 The logic would be that it wouldn't -- it

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1 investment that is required as part of the business, 

2 and that that -- that continues on in to perpetuity. 

3 MR. BROOKMAN: We have several perhaps 

4 follow-on comments, and then, Glenn, is yours a related 

5 question or is it a different question? 

6 MR. SCHLEEDE: Glenn Schleede. 

7 Does this basically assume that the standards 

8 remain constant for the next 15 years or what happens 

9 if the standards change five years out? 

10 MR. ARNOLD: The -- the assumption in in 

11 GRIM is that once the standards take effect, they 

12 remain in effect. So, no incremental change in 

13 standard or new standards. 

14 If if there were to be a need to consider, 

15 for example, the effects of multiple regulations or 

16 mUltiple changes over time, then that is something that 

17 could be best served by using the multiple GRIMs and 

18 sum totaling up the results. 

19 MR. FOLEY: I'm still a little confused. I'm 

20 sorry. Gene Foley, Alliance to Save Energy. 

21 On the assumption where it goes from the 44.9 

22 million to the 78.2 million, why that in fact would be 

23 in perpetuity. Can you elaborate that just a little 

24 bit more? 

25 The logic would be that it wouldn't -- it 

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1 would go up and then would come back down again, at

2 least from my perspective.

3 MR. ARNOLD: Again, what's driving the up

4 tick that you see there in capital expenditures is the

5 fundamental assumption that in the year the standard is

6 implemented, you do, of course, have this increase in

7 -- in cash flow to conversion expenditures that appears

8 in four to five years preceding that, but once that

9 standard is -- is implemented, the assumption is that

10 you have a -- an increase, a permanent increase in the

11 amount of fixed assets that are associated with the

12 industry going forward, and hence the increase in level

13 of capital expenditures required to simply --

14 MR. FOLEY: I'm sorry. As opposed to just a

15 change in the manufacturing practices? So, the base

16 case assumption is you have to make everything in the

17 plant more expensive and replacing everything will

18 continue to be more expensive as opposed to just

19 changing what you've got?

20 MR. ARNOLD: The assumption here is that

21 there's -- that it's not just merely a one-time effect

22 of -- of new capital, but, rather, that once that new

23 capital is employed, it remains as an incremental part

24 of the business in to perpetuity.

25 MR. FOLEY: Can we get a little specific on

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1 would go up and then would come back down again, at 

2 least from my perspective. 

3 MR. ARNOLD: Again, what's driving the up 

4 tick that you see there in capital expenditures is the 

5 fundamental assumption that in the year the standard is 

6 implemented, you do, of course, have this increase in 

7 in cash flow to conversion expenditures that appears 

8 in four to five years preceding that, but once that 

9 standard is -- is implemented, the assumption is that 

10 you have a -- an increase, a permanent increase in the 

11 amount of fixed assets that are associated with the 

12 industry going forward, and hence the increase in level 

13 of capital expenditures required to simply --

14 MR. FOLEY: I'm sorry. As opposed to just a 

15 change in the manufacturing practices? So, the base 

16 case assumption is you have to make everything in the 

17 plant more expensive and replacing everything will 

18 continue to be more expensive as opposed to just 

19 changing what you've got? 

20 MR. ARNOLD: The assumption here is that 

21 there's -- that it's not just merely a one-time effect 

22 of -- of new capital, but, rather, that once that new 

23 capital is employed, it remains as an incremental part 

24 of the business in to perpetuity. 

25 MR. FOLEY: Can we get a little specific on 

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1 this in questioning that? I mean the capital

2 expenditure is to change making an F-40 Cool White to

3 an F-40 Super Saver, you make the change, but basically

4 everything else stays relatively the same. It's not

5 any more expensive in perpetuity to make the lamp after

6 you make that one-time change.

7 MR. BROOKMAN: Follow-on comment, and then

8 over to Charlie.

9 MR. SHOREY: For the purposes of -- of this

10 morning, it's probably useful to separate a discussion

11 of how does the model work from the numbers that David

12 has plugged in there because there, I think they're

13 there as an example of how the analysis works, and it's

14 exactly those kinds of questions of what is in fact a

15 right number that is at the heart of much of the rest

16 of the process, and in some circumstances, you will

17 perhaps see large capital investments, in some

18 circumstances you won't.

19 The purpose of the model is to be able to

20 understand the effects. So, -- so, I think that there

21 really -- you know, this page is some data that came

22 from -- from some earlier analyses, but its principal

23 purpose today is to show how the thing works rather

24 than to say it is a -- it is a regulatory analysis.

25 MR. BROOKMAN: It's good to note the issues

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1 this in questioning that? I mean the capital 

2 expenditure is to change making an F-40 Cool White to 

3 an F-40 Super Saver, you make the change, but basically 

4 everything else stays relatively the same. It's not 

5 any more expensive in perpetuity to make the lamp after 

6 you make that one-time change. 

7 MR. BROOKMAN: Follow-on comment, and then 

8 over to Charlie. 

9 MR. SHOREY: For the purposes of -- of this 

10 morning, it's probably useful to separate a discussion 

11 of how does the model work from the numbers that David 

12 has plugged in there because there, I think they're 

13 there as an example of how the analysis works, and it's 

14 exactly those kinds of questions of what is in fact a 

15 right number that is at the heart of much of the rest 

16 of the process, and in some circumstances, you will 

17 perhaps see large capital investments, in some 

18 circumstances you won't. 

19 The purpose of the model is to be able to 

20 understand the effects. So, -- so, I think that there 

21 really -- you know, this page is some data that came 

22 from -- from some earlier analyses, but its principal 

23 purpose today is to show how the thing works rather 

24 than to say it is a -- it is a regulatory analysis. 

25 MR. BROOKMAN: It's good to note the issues 

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1 like this that are important, and Jim Raba here in the

2 front of the room is capturing these questions as we go

3 along.

4 Can you hand this over to Charlie, please?

5 MR. STEPHENS: Charlie Stephens, Oregon

6 Energy office again.

7 I guess my question is about how it works,

8 and -- and what that value is being calculated on.

9 That sort of implies that all of your capital

10 investments in a corporate enterprise maintain their

11 value and ever-increasing value forever.

12 Shouldn ' t that be -- shouldn't that be

13 calculated on the basis of the depreciated base? I

14 mean otherwise, you know, over 50 years, your company

15 could come to have what would be considered infinite

16 capital assets at the time you put money in.

17 It seems like for tax purposes, for

18 accounting purposes, that base is being depreciated,

19 and that ' s the base upon which you determine your --

20 your new capital requirements . Is that -- am I off

21 base here?

22 MR. ARNOLD: Not at all . I mean it is -- it

23 is very important to maintain synchronization in the

24 model between what we're showing as capital

25 expenditures on an on-going basis and what we're

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1 like this that are important, and Jim Raba here in the 

2 front of the room is capturing these questions as we go 

3 along. 

4 Can you hand this over to Charlie, please? 

5 MR. STEPHENS: Charlie Stephens, Oregon 

6 Energy Office again. 

7 I guess my question is about how it works, 

8 and -- and what that value is being calculated on. 

9 That sort of implies that all of your capital 

10 investments in a corporate enterprise maintain their 

11 value and ever-increasing value forever. 

12 Shouldn't that be -- shouldn't that be 

13 calculated on the basis of the depreciated base? I 

14 mean otherwise, you know, over 50 years, your company 

15 could come to have what would be considered infinite 

16 capital assets at the time you put money in. 

17 It seems like for tax purposes, for 

18 accounting purposes, that base is being depreciated, 

19 and that's the base upon which you determine your --

20 your new capital requirements. Is that -- am I off 

21 base here? 

22 MR. ARNOLD: Not at all. I mean it is -- it 

23 is very important to maintain synchronization in the 

24 model between what we're showing as capital 

25 expenditures on an on-going basis and what we're 

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1 showing as depreciation.

2 So, you'll notice that -- that, for example,

3 here, the assumption is that our capital expenditures

4 on an on-going basis increase dramatically in standard

5 year and beyond.

6 You'll also notice an offsetting effect in

7 depreciation.

8 MR. BROOKMAN: It's an equivalent offset?

9 MR. STEPHENS: It's the constant value.

10 MR. ARNOLD: On both the depreciation side

11 and the -- and the capitalization side?

12 MR. BROOKMAN: We can get into the nuance of

13 this right at the point of further analysis, but we're

14 trying to understand what's -- what collectively --

15 we're trying to understand what is actually happening

16 with these different lines.

17 So, we understand at least now, irrespective

18 of whether we like the quantities or not.

19 Yes?

20 MR. FOLEY: The line and how -- what -- how

21 does this --

22 MR. BROOKMAN: Gene, have we captured it? We

23 captured the key concern?

24 Mark?

25 MR. PERLIS: This isn't about numbers. It is

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1 showing as depreciation. 

2 So, you'll notice that -- that, for example, 

3 here, the assumption is that our capital expenditures 

4 on an on-going basis increase dramatically in standard 

5 year and beyond. 

6 You'll also notice an offsetting effect in 

7 depreciation. 

8 MR. BROOKMAN: It's an equivalent offset? 

9 MR. STEPHENS: It's the constant value. 

10 MR. ARNOLD: On both the depreciation side 

11 and the -- and the capitalization side? 

12 MR. BROOKMAN: We can get into the nuance of 

13 this right at the point of further analysis, but we're 

14 trying to understand what's -- what collectively 

15 we're trying to understand what is actually happening 

16 with these different lines. 

17 So, we understand at least now, irrespective 

18 of whether we like the quantities or not. 

19 Yes? 

20 MR. FOLEY: The line and how -- what -- how 

21 does this 

22 MR. BROOKMAN: Gene, have we captured it? We 

23 captured the key concern? 

24 Mark? 

25 MR. PERLIS: This isn't about numbers. It is 

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1 about concepts. Perhaps one way that you might

2 consider, if anyone's going to be considering making

3 modifications to the GRIM, is to make the -- the

4 terminal value -- maybe have another column for

5 terminal value, so that you could have two lines for

6 capital expenditures in perpetuity, and one line would

7 be for -- that would capture the permanent increase in

8 costs, and the other one would weed out those which are

9 one-time increases in capital costs, and different

10 products will be weighted differently within that

11 category.

12 Some will be close to permanent, and others

13 might be more one-time conversion costs and relatively

14 less in terms of -- of -- of permanently increasing

15 their capital costs, and I -- I think it might help if

16 you're going to rely on the concept of terminal value

17 that you separate out the two components of capital

18 cost so that you can make the distinctions between the

19 different product classes right in the model, in the

20 lines of the model.

21 MR. BROOKMAN: Yes? An additional comment.

22 MS. KLUMPP: Liz Klumpp, Washington State.

23 I have one more point of clarification before

24 you move on. When I asked my first question, I thought

25 base case and consequently all the data that we're

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1 about concepts. Perhaps one way that you might 

2 considerr if anyone's going to be considering making 

3 modifications to the GRIM r is to make the -- the 

4 terminal value -- maybe have another column for 

5 terminal valuer so that you could have two lines for 

6 capital expenditures in perpetuitYr and one line would 

7 be for -- that would capture the permanent increase in 

8 costsr and the other one would weed out those which are 

9 one-time increases in capital costsr and different 

10 products will be weighted differently within that 

11 category. 

12 Some will be close to permanent r and others 

13 might be more one-time conversion costs and relatively 

14 less in terms of -- of -- of permanently increasing 

15 their capital costsr and I -- I think it might help if 

16 you're going to rely on the concept of terminal value 

17 that you separate out the two components of capital 

18 cost so that you can make the distinctions between the 

19 different product classes right in the model r in the 

20 lines of the model. 

21 MR. BROOKMAN: Yes? An additional comment. 

22 MS. KLUMPP: Liz KlumpPr Washington State. 

23 I have one more point of clarification before 

24 you move on. When I asked my first question r I thought 

25 base case and consequently all the data that we're 

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1 looking at was going to be an amalgam of all the

2 manufacturers represented in the marketplace at the

3 point in time you did the analysis, and, so, if -- and

4 the comment was that no, you're really kind of making

5 some generalizations that most of the manufacturers are

6 just starting point, and, so, we'll do the analysis

7 there, and then we'll do a subgroup analysis.

8 My concern is if you had a subgroup analysis,

9 and there was only one manufacturer with a large

10 production in that, would you be able to release that?

11 I mean I thought that was sort of proprietary on an

12 individual manufacturer basis.

13 So, I'm wondering logistically how do you

14 capture the amount, you know, what the net effect is in

15 the market if -- if you can actually do an amalgam in

16 this analysis.

17 Someone over here made it sound like if you

18 had some manufacturers that were in a unique

19 production, perhaps producing products on a different

20 efficiency level, that they would have to be in a sub21 group analysis and wouldn't just be doing one that

22 represented manufacturing in the country at that time.

23 So, maybe I don't understand the model.

24 MR. RIVEST: Ideally, you would want to run

25 the GRIM with each manufacturer and understand then

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1 looking at was going to be an amalgam of all the 

2 manufacturers represented in the marketplace at the 

3 point in time you did the analysis, and, so, if -- and 

4 the comment was that no, youlre really kind of making 

5 some generalizations that most of the manufacturers are 

6 just starting point, and, so, weIll do the analysis 

7 there, and then weIll do a subgroup analysis. 

8 My concern is if you had a subgroup analysis, 

9 and there was only one manufacturer with a large 

10 production in that, would you be able to release that? 

11 I mean I thought that was sort of proprietary on an 

12 individual manufacturer basis. 

13 So, 11m wondering logistically how do you 

14 capture the amount, you know, what the net effect is in 

15 the market if -- if you can actually do an amalgam in 

16 this analysis. 

17 Someone over here made it sound like if you 

18 had some manufacturers that were in a unique 

19 production, perhaps producing products on a different 

20 efficiency level, that they would have to be in a sub21 group analysis and wouldnlt just be doing one that 

22 represented manufacturing in the country at that time. 

23 So, maybe I donlt understand the model. 

24 MR. RIVEST: Ideally, you would want to run 

25 the GRIM with each manufacturer and understand then 

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1 find a way of reporting the information that keeps

2 confidentiality.

3 Another way you might do it, for example, for

4 capital conversion costs, you could make a few

5 assumptions about where they are in terms of -- if we

6 know that to -- to raise the manufacturing production

7 facilities to the standards level will cost a billion

8 dollars, but that different manufacturers are in

9 different stages, you can assume, you know, that some

10 of it's -- 20 percent or 50 percent of those capital

11 costs already and then run the GRIM on those

12 assumptions.

13 So,

14 MR. BROOKMAN: Terry?

15 MR. THIELE: Terry Thiele with White

16 Consolidated.

17 To that exact point, one of the problems that

18 we historically have had is the ability to use

19 individual manufacturer data in a constructive manner,

20 and as soon as you clump it into average numbers, it

21 loses a lot of its critical ability to discriminate the

22 effects between very large manufacturers and very small

23 manufacturers.

24 The strength and the vigor of the GRIM is

25 that it allows you -- and most of our discussion over

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1 find a way of reporting the information that keeps 

2 confidentiality. 

3 Another way you might do it, for example, for 

4 capital conversion costs, you could make a few 

5 assumptions about where they are in terms of -- if we 

6 know that to -- to raise the manufacturing production 

7 facilities to the standards level will cost a billion 

8 dollars, but that different manufacturers are in 

9 different stages, you can assume, you know, that some 

10 of it's -- 20 percent or 50 percent of those capital 

11 costs already and then run the GRIM on those 

12 assumptions. 

13 So, 

14 MR. BROOKMAN: Terry? 

15 MR. THIELE: Terry Thiele with White 

16 Consolidated. 

17 To that exact point, one of the problems that 

18 we historically have had is the ability to use 

19 individual manufacturer data in a constructive manner, 

20 and as soon as you clump it into average numbers, it 

21 loses a lot of its critical ability to discriminate the 

22 effects between very large manufacturers and very small 

23 manufacturers. 

24 The strength and the vigor of the GRIM is 

25 that it allows you -- and most of our discussion over 

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1 the past hour has been over assumptions. The strength

2 of the model is that it allows you to, as an individual

3 manufacturer, to run your own analysis and submit it on

4 a confidential basis to DOE to demonstrate the impact

5 of a proposed standard level on you as an individual

6 manufacturer.

7 The confidentiality issues, though, are the

8 same whether you would have submitted that data in

9 historic paper format or whether you'd do it with the

10 model. It's still going to be an issue.

11 You can with this model, however, run so many

12 different variables, groupings of manufacturers,

13 perhaps get a critical level of data where you can

14 aggregate it, that demonstrates trends or impacts. You

15 can play with the variables and make your arguments

16 accordingly, and again I'm repeating my earlier

17 comment, but what makes this so important for us is

18 that it gives us a common ground upon which to have

19 those arguments.

20 So that when we argue what the appropriate

21 discount rate should be, we can see the consequences of

22 those different positions by simply running different

23 analyses, and -- and people shouldn't confuse what this

24 model does. The assumptions built into it are all

25 subject to change, but it gives you a methodology for

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1 the past hour has been over assumptions. The strength 

2 of the model is that it allows you to, as an individual 

3 manufacturer, to run your own analysis and submit it on 

4 a confidential basis to DOE to demonstrate the impact 

5 of a proposed standard level on you as an individual 

6 manufacturer. 

7 The confidentiality issues, though, are the 

8 same whether you would have submitted that data in 

9 historic paper format or whether you'd do it with the 

10 model. It's still going to be an issue. 

11 You can with this model, however, run so many 

12 different variables, groupings of manufacturers, 

13 perhaps get a critical level of data where you can 

14 aggregate it, that demonstrates trends or impacts. You 

15 can play with the variables and make your arguments 

16 accordingly, and again I'm repeating my earlier 

17 comment, but what makes this so important for us is 

18 that it gives us a common ground upon which to have 

19 those arguments. 

20 So that when we argue what the appropriate 

21 discount rate should be, we can see the consequences of 

22 those different positions by simply running different 

23 analyses, and -- and people shouldn't confuse what this 

24 model does. The assumptions built into it are all 

25 subject to change, but it gives you a methodology for 

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1 bracketing those assumptions and then comparing the

2 consequences.

3 MR. BROOKMAN: And as I understand the nature

4 of the invitation from the department and the support

5 team, it is for those of you that have specific ways

6 that you would like to see this model niggled or

7 recalibrated for you to join these working groups and

8 work them, roll up your sleeves and help to recalibrate

9 them, make them all the more on point.

10 Earl Jones?

11 MR. JONES: Thanks. Earl Jones, GE.

12 Mike, if I could ask you, please, to --

13 because I think again you're sort of near the

14 conclusion of this portion of the program.

15 Could you just characterize for us then --

16 because I think those who not have had the same

17 experience in working with the standard-setting

18 process, using whatever model, using the models which

19 are in existence prior to the one which we're now

20 considering today, can you characterize what the

21 benefits are of this approach and the output of this

22 analysis in contrast to that which we have worked

23 with -- the department, rather, has used in the past?

24 And if you can sort of somehow give us a qualitative

25 view of the value of the output with this approach

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1 bracketing those assumptions and then comparing the 

2 consequences. 

3 MR. BROOKMAN: And as I understand the nature 

4 of the invitation from the department and the support 

5 team, it is for those of you that have specific ways 

6 that you would like to see this model niggled or 

7 recalibrated for you to join these working groups and 

8 work them, roll up your sleeves and help to recalibrate 

9 them, make them all the more on point. 

10 Earl Jones? 

11 MR. JONES: Thanks. Earl Jones, GE. 

12 Mike, if I could ask you, please, to 

13 because I think again you're sort of near the 

14 conclusion of this portion of the program. 

15 Could you just characterize for us then 

16 because I think those who not have had the same 

17 experience in working with the standard-setting 

18 process, using whatever model, using the models which 

19 are in existence prior to the one which we're now 

20 considering today, can you characterize what the 

21 benefits are of this approach and the output of this 

22 analysis in contrast to that which we have worked 

23 with -- the department, rather, has used in the past? 

24 And if you can sort of somehow give us a qualitative 

25 view of the value of the output with this approach 

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1 versus the other.

2 MR. RIVEST: Well, as I mentioned before, the

3 driving assumptions of the other model were that

4 manufacturing costs -- the variable portion of

5 manufacturing costs would be marked up, and there were

6 some moderating circumstances, such as increases in

7 price, which may vary that mark-up, but essentially

8 costs would be marked up, and the -- the way you could

9 get a negative outcome from the previous model was if

10 there was very large capital investment required

11 because the model assumed that you could not mark up

12 one-time costs, and, you know, I'll ask anybody from

13 LBL to interject if I'm off pace here, but --

14 MR. McMAHON: That's correct.

15 MR. RIVEST: So, essentially, the price and

16 quantities were determined by the costs that were

17 input, and there was no room for discussion of what the

18 prices might be and the quantities might be. The

19 discussion was on such things as what is the elasticity

20 value of refrigerators in the market.

21 So, the advantage of this process is that we

22 can talk about, you know, what will happen to the price

23 if our costs go up 20 percent. Also, what will be

24 the -- what will happen to shipments. The model tried

25 to capture a lot of things, but it certainly can't

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1 versus the other. 

2 MR. RIVEST: Well, as I mentioned before, the 

3 driving assumptions of the other model were that 

4 manufacturing costs the variable portion of 

5 manufacturing costs would be marked up, and there were 

6 some moderating circumstances, such as increases in 

7 price, which may vary that mark-up, but essentially 

8 costs would be marked up, and the -- the way you could 

9 get a negative outcome from the previous model was if 

10 there was very large capital investment required 

11 because the model assumed that you could not mark up 

12 one-time costs, and, you know, I'll ask anybody from 

13 LBL to interject if I'm off pace here, but 

14 MR. McMAHON: That's correct. 

15 MR. RIVEST: So, essentially, the price and 

16 quantities were determined by the costs that were 

17 input, and there was no room for discussion of what the 

18 prices might be and the quantities might be. The 

19 discussion was on such things as what is the elasticity 

20 value of refrigerators in the market. 

21 So, the advantage of this process is that we 

22 can talk about, you know, what will happen to the price 

23 if our costs go up 20 percent. Also, what will be 

24 the -- what will happen to shipments. The model tried 

25 to capture a lot of things, but it certainly can't 

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1 capture marketing criteria. It can't -- you know, a

2 lot of the consumer behavior modeling that was done,

3 you know, couldn't capture all the nuances.

4 So, I think here we're allowing a lot of

5 external expertise to guide us in generating those

6 critical variables, and I want to repeat. We still

7 have those models or -- or -- not models, but we still

8 have those economic principles that can help us derive

9 some inputs, and sometimes they'll be good and

10 sometimes they'll be suspect, but at lesat we can

11 debate them now.

12 MR. BROOKMAN: Dave, I want to make sure.

13 You've gone through the bulk of your presentation?

14 MR. ARNOLD: Yes, at this point, the --

15 everything that remains from here is just simply a

16 summary report and/or graphs that are derived from the

17 two schedules that were most recently presented, either

18 the base case or the standard case.

19 MR. BROOKMAN: Why don't you proceed to

20 those, and then we'll take final questions before we go

21 to lunch? You have a few more to show?

22 MR. ARNOLD: Yes.

23 MR. BROOKMAN: Yes.

24 MR. ARNOLD: And in fact, we could -- we can

25 just rush through these in that there's no analysis

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1 capture marketing criteria. It can't -- you know, a 

2 lot of the consumer behavior modeling that was done, 

3 you know, couldn't capture all the nuances. 

4 So, I think here we're allowing a lot of 

5 external expertise to guide us in generating those 

6 critical variables, and I want to repeat. We still 

7 have those models or -- or -- not models, but we still 

8 have those economic principles that can help us derive 

9 some inputs, and sometimes they'll be good and 

10 sometimes they'll be suspect, but at lesat we can 

11 debate them now. 

12 MR. BROOKMAN: Dave, I want to make sure. 

13 You've gone through the bulk of your presentation? 

14 MR. ARNOLD: Yes, at this point, the --

15 everything that remains from here is just simply a 

16 summary report and/or graphs that are derived from the 

17 two schedules that were most recently presented, either 

18 the base case or the standard case. 

19 MR. BROOKMAN: Why don't you proceed to 

20 those, and then we'll take final questions before we go 

21 to lunch? You have a few more to show? 

22 MR. ARNOLD: Yes. 

23 MR. BROOKMAN: Yes. 

24 MR. ARNOLD: And in fact, we could -- we can 

25 just rush through these in that there's no analysis 

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1 involved in -- in these schedules going forward. Just

2 simply reports that are based upon the cash flow

3 analysis themselves.

4 Summary report that compares total industry

5 values as well as the state of the -- state of affairs

6 with respect to various line items in both the base

7 year and the year of implementation of standard.

8 This is nothing more than a reapplication of

9 a schedule that was in original GRIM for this purpose,

10 and then from there, we -- we move on to graphs that

11 are driven exclusively by the cash flow analyses

12 themselves for comparative purposes.

13 Cash flow. Single graph showing relative

14 size of net present value. The differential between

15 these two, by the way, is the conceptual net total cost

16 of the regulation to the industry.

17 A graph for --

18 MR. BROOKMAN: Jim McMahon?

19 MR. McMAHON: Before you move to the graphs,

20 this is Jim McMahon at Lawrence Berkeley National Lab.

21 You're comparing a pre-regulation case in

22 1998 to a post-regulation case in Year 2005. I would

23 just point out that the price per unit, the shipments

24 and the total revenues are the same in the Year 2005

25 for the pre-regulation and post-regulation case.

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1 involved in -- in these schedules going forward. Just 

2 simply reports that are based upon the cash flow 

3 analysis themselves. 

4 Summary report that compares total industry 

5 values as well as the state of the state of affairs 

6 with respect to various line items in both the base 

7 year and the year of implementation of standard. 

8 This is nothing more than a reapplication of 

9 a schedule that was in original GRIM for this purpose t 

10 and then from there t we -- we move on to graphs that 

11 are driven exclusively by the cash flow analyses 

12 themselves for comparative purposes. 

13 Cash flow. Single graph showing relative 

14 size of net present value. The differential between 

15 these two t by the waYt is the conceptual net total cost 

16 of the regulation to the industry. 

17 A graph for --

18 MR. BROOKMAN: Jim McMahon? 

19 MR. McMAHON: Before you move to the graphst 

20 this is Jim McMahon at Lawrence Berkeley National Lab. 

21 You're comparing a pre-regulation case in 

22 1998 to a post-regulation case in Year 2005. I would 

23 just point out that the price per unitt the shipments 

24 and the total revenues are the same in the Year 2005 

25 for the pre-regulation and post-regulation case. 

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1 So, I don't want there to be any mis2 impression here about what is due to standards and what

3 is due to the time frame. You might want to include a

4 pre-regulation Year 2005 for a fairer comparison.

5 MR. BROOKMAN: Your comment -- that's not a

6 rate on this sheet presently. The pre-regulation.

7 Yeah. Right? Yes. Okay.

8 MR. ARNOLD: So, comparison between base case

9 and standard case in the year that the regulation is

10 implemented, yes.

11 Remaining graphs are a comparison of revenues

12 by year. As it stands now, you'll notice both cases

13 the same only because we have identical assumptions for

14 unit sales as well as -- as well as price, but to the

15 extent again you were inclined to modify either of

16 those, you would begin to see a line separation here.

17 Income after tax. Shipments, also the same

18 under either case due to the identical nature of the

19 two under default position. Price, same way, and last

20 graph just indicating cash used in investments.

21 These were all graphs that were presented in

22 original GRIM, and we're certainly free to add more in

23 accordance with the line items as we see fit.

24 MR. BROOKMAN: Streamed through those.

25 Questions based on that stream? Yes?

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1 So, I don't want there to be any mis2 impression here about what is due to standards and what 

3 is due to the time frame. You might want to include a 

4 pre-regulation Year 2005 for a fairer comparison. 

5 MR. BROOKMAN: Your comment -- that's not a 

6 rate on this sheet presently. The pre-regulation. 

7 Yeah. Right? Yes. Okay. 

8 MR. ARNOLD: So, comparison between base case 

9 and standard case in the year that the regulation is 

10 implemented, yes. 

11 Remaining graphs are a comparison of revenues 

12 by year. As it stands now, you'll notice both cases 

13 the same only because we have identical assumptions for 

14 unit sales as well as as well as price, but to the 

15 extent again you were inclined to modify either of 

16 those, you would begin to see a line separation here. 

17 Income after tax. Shipments, also the same 

18 under either case due to the identical nature of the 

19 two under default position. Price, same way, and last 

20 graph just indicating cash used in investments. 

21 These were all graphs that were presented in 

22 original GRIM, and we're certainly free to add more in 

23 accordance with the line items as we see fit. 

24 MR. BROOKMAN: Streamed through those. 

25 Questions based on that stream? Yes? 

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1 MR. THIELE: Terry Thiele, WCI.

2 One final comment. The -- the additional

3 value that I neglected to mention earlier to this

4 approach is that because it is transparent and each

5 participant in the process can argue his or her own

6 assumptions, those analyses can run simultaneously,

7 instantaneously, and I would hope that the use of this

8 sort of modeling approach would greatly accelerate the

9 speed of the rulemaking process.

10 Historically, we've had to send data off,

11 wait for it to be mulched, and then come back to us,

12 and then argue about what that data means because we

13 don't understand what's in the black box, and then as

14 we change variables, send it back for additional

15 mulching. That time line becomes very long.

16 This model allows you to do those cycles

17 through assumptions in a matter of minutes because

18 you're simply changing your data entries to argue

19 obviously garbage-in/garbage-out, but the speed of the

20 process should be greatly accelerated.

21 MR. BROOKMAN: Before I -- I want to make

22 sure before we go to lunch, though, any other

23 significant comments you would like to make about --

24 based on this presentation, things you've noted that

25 modify the approach, just to note them for the record

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1 MR. THIELE: Terry Thiele, weI. 

2 One final comment. The the additional 

3 value that I neglected to mention earlier to this 

4 approach is that because it is transparent and each 

5 participant in the process can argue his or her own 

6 assumptions, those analyses can run simultaneously, 

7 instantaneously, and I would hope that the use of this 

8 sort of modeling approach would greatly accelerate the 

9 speed of the rulemaking process. 

10 Historically, we've had to send data off, 

11 wait for it to be mulched, and then come back to us, 

12 and then argue about what that data means because we 

13 don't understand what's in the black box, and then as 

14 we change variables, send it back for additional 

15 mulching. That time line becomes very long. 

16 This model allows you to do those cycles 

17 through assumptions in a matter of minutes because 

18 you're simply changing your data entries to argue 

19 obviously garbage-in/garbage-out, but the speed of the 

20 process should be greatly accelerated. 

21 MR. BROOKMAN: Before I -- I want to make 

22 sure before we go to lunch, though, any other 

23 significant comments you would like to make about 

24 based on this presentation, things you've noted that 

25 modify the approach, just to note them for the record 

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1 before we move on.

2 I'm going to see if we can capture those

3 before we go to lunch.

4 MR. SHOREY: Dave, as the model is currently

5 structured, it does one regulation, sort of one

6 appliance at a time.

7 How difficult would it be to -- to modify

8 or -- or build an accumulator or something that would

9 allow you to look at multiple regulations and

10 cumulative burden?

11 MR. ARNOLD: Oh, it's quite easy to develop a

12 consolidation mechanism that would pull multiple GRIM

13 Models together on a menu basis.

14 Of course, it certainly behooves us to settle

15 in on the GRIM Model in a simple form before moving on

16 to the consolidation process.

17 MR. GOLDSTEIN: Yeah. David Goldstein, NIDC.

18 I have two suggestions for changes in the

19 model that are minor structural changes as opposed to

20 suggestions for changes in assumption which I won't

21 burden everyone with listening to right now.

22 First is you should extend the number of

23 years beyond what you've got. The end effects can be

24 very big. It's not necessarily clear that everything's

25 going to be constant for the years beyond when your

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1 before we move on. 

2 I'm going to see if we can capture those 

3 before we go to lunch. 

4 MR. SHOREY: Dave, as the model is currently 

5 structured, it does one regulation, sort of one 

6 appliance at a time. 

7 How difficult would it be to -- to modify 

8 or -- or build an accumulator or something that would 

9 allow you to look at multiple regulations and 

10 cumulative burden? 

11 MR. ARNOLD: Oh, it's quite easy to develop a 

12 consolidation mechanism that would pull multiple GRIM 

13 Models together on a menu basis. 

14 Of course, it certainly behooves us to settle 

15 in on the GRIM Model in a simple form before moving on 

16 to the consolidation process. 

17 MR. GOLDSTEIN: Yeah. David Goldstein, NIDC. 

18 I have two suggestions for changes in the 

19 model that are minor structural changes as opposed to 

20 suggestions for changes in assumption which I won't 

21 burden everyone with listening to right now. 

22 First is you should extend the number of 

23 years beyond what you've got. The end effects can be 

24 very big. It's not necessarily clear that everything's 

25 going to be constant for the years beyond when your 

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1 spread sheet runs out, and as it is in the example

2 you've got, there's only eight years of the standard,

3 which may not be that much. So, it would be pretty

4 easy to extend it another five or 10 years, and

5 everything else stays the same.

6 Secondly, following up on a comment that a

7 gentleman made behind me, you should separate the cost

8 of borrowing from the discount rate because with a 46-

9 percent tax rate, the cost of debt is a lot lower than

10 12 percent because it's tax deductible. In fact, most

11 corporations, I think, can issue debt below 12 percent

12 nominal and then deduct the interest rates.

13 So, that's a very different effect than an

14 incremental investment that they couldn't make in

15 something else.

16 MR. BROOKMAN: Would you wish to comment on

17 that?

18 MR. ARNOLD: No, no. Just to note it.

19 Certainly the structural considerations up front does

20 make sense to maximize the time frame under

21 consideration to -- to the extent possible.

22 The main reason, by the way, that 15 years

23 was selected was for printing purposes and single page,

24 but if you don't mind using a little extra paper, I can

25 certainly make that accommodation.

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1 spread sheet runs out, and as it is in the example 

2 you've got, there's only eight years of the standard, 

3 which may not be that much. So, it would be pretty 

4 easy to extend it another five or 10 years, and 

5 everything else stays the same. 

6 Secondly, following up on a comment that a 

7 gentleman made behind me, you should separate the cost 

8 of borrowing from the discount rate because with a 46-

9 percent tax rate, the cost of debt is a lot lower than 

10 12 percent because it's tax deductible. In fact, most 

11 corporations, I think, can issue debt below 12 percent 

12 nominal and then deduct the interest rates. 

13 So, that's a very different effect than an 

14 incremental investment that they couldn't make in 

15 something else. 

16 MR. BROOKMAN: Would you wish to comment on 

17 that? 

18 MR. ARNOLD: No, no. Just to note it. 

19 Certainly the structural considerations up front does 

20 make sense to maximize the time frame under 

21 consideration to -- to the extent possible. 

22 The main reason, by the way, that 15 years 

23 was selected was for printing purposes and single page, 

24 but if you don't mind using a little extra paper, I can 

25 certainly make that accommodation. 

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1 MR. BROOKMAN: Additional comments on kind of

2 the broad stroke of this? Kind of, you know, the

3 approach that's being used, as being suggested here,

4 notations about issues to be taken up in more detail

5 later.

6 Yes?

7 MR. WARNING: I'm Bernie Warning with York

8 International.

9 Your base year unit price and base year unit

10 sales, how did you determine those?

11 MR. ARNOLD: The ones that are in here just

12 reflected for purposes of example.

13 MR. WARNING: Is it an average? If you've

14 got a wide range of products, say you're making

15 furnaces, and you got 18 different models involved, is

16 that an average for the -- for the base price? I'm a

17 little bit lost as to how you would determine that.

18 MR. RIVEST: I'm looking at Everett right

19 now. Every product is -- is on the analysis. So, if

20 you're -- if you're doing -- if you have six regulated

21 products, you would do six analyses.

22 MR. BROOKMAN: Follow-on comment? We'll hear

23 from Larry, and then from -- Larry?

24 MR. ECKMAN: I'd just like to interpret the

25 question. I think what he's saying is if you've got 10

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1 MR. BROOKMAN: Additional comments on kind of 

2 the broad stroke of this? Kind of, you know, the 

3 approach that's being used, as being suggested here, 

4 notations about issues to be taken up in more detail 

5 later. 

6 Yes? 

7 MR. WARNING: I'm Bernie Warning with York 

8 International. 

9 Your base year unit price and base year unit 

10 sales, how did you determine those? 

11 MR. ARNOLD: The ones that are in here just 

12 reflected for purposes of example. 

13 MR. WARNING: Is it an average? If you've 

14 got a wide range of products, say you're making 

15 furnaces, and you got 18 different models involved, lS 

16 that an average for the -- for the base price? I'm a 

17 little bit lost as to how you would determine that. 

18 MR. RIVEST: I'm looking at Everett right 

19 now. Every product is is on the analysis. So, if 

20 you're -- if you're doing if you have six regulated 

21 products, you would do six analyses. 

22 MR. BROOKMAN: Follow-on comment? We'll hear 

23 from Larry, and then from -- Larry? 

24 MR. ECKMAN: I'd just like to interpret the 

25 question. I think what he's saying is if you've got 10 

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1 models that all meet the base efficiency level of, say,

2 for furnace 78 percent AFUE, and they all cost, you

3 know, differently, what are you using for the cost?

4 That's the question.

5 MR. BROOKMAN: And, so, who answers it then?

6 Jim?

7 MR. McMAHON: It is the average. One of the

8 differences between this approach and the old

9 methodology is that this is an average. The old

10 methodology had specific values for each design option,

11 had a lot more detail. So, it had the different

12 product classes. It had the different design options

13 within the product classes, not model-by-model. Okay.

14 So, -- but it's a relevant question about the

15 level of aggregation. This is an average unit price

16 for the manufacturer or whatever economic --

17 (Multiple conversations)

18 MR. BROOKMAN: Let's try to be --

19 MR. RIVEST: I -- I still think my answer was

20 correct.

21 MR. BROOKMAN: State -- let -- Mike, state

22 the answer again, and then we'll sort through this.

23 MR. RIVEST: I still think the answer I gave

24 was correct. In other words, if you are -- this is a

25 differential cash flow analyses. So, if you're

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1 models that all meet the base efficiency level of, say, 

2 for furnace 78 percent AFUE, and they all cost, you 

3 know, differently, what are you using for the cost? 

4 That's the question. 

5 MR. BROOKMAN: And, so, who answers it then? 

6 Jim? 

7 MR. McMAHON: It is the average. One of the 

8 differences between this approach and the old 

9 methodology is that this is an average. The old 

10 methodology had specific values for each design option, 

11 had a lot more detail. So, it had the different 

12 product classes. It had the different design options 

13 within the product classes, not model-by-model. Okay. 

14 So, -- but it's a relevant question about the 

15 level of aggregation. This is an average unit price 

16 for the manufacturer or whatever economic 

17 (Multiple conversations) 

18 MR. BROOKMAN: Let's try to be --

19 MR. RIVEST: I -- I still think my answer was 

20 correct. 

21 MR. BROOKMAN: State -- let -- Mike, state 

22 the answer again, and then we'll sort through this. 

23 MR. RIVEST: I still think the answer I gave 

24 was correct. In other words, if you are -- this is a 

25 differential cash flow analyses. So, if you're 

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1 analyzing the impact of regulations on one of your

2 products, then the units you're considering are your

3 shipments of that product and the differential costs of

4 that product.

5 So, if you want to do the impact of

6 regulations on your company, you would do -- look at

7 every product one-by-one. So, there's -- the

8 flexibility is there. It's just --

9 MR. BROOKMAN: I see Everett.

10 MR. RIVEST: It depends what you're

11 analyzing.

12 MR. BROOKMAN: I see Everett, our former

13 modeler, shaking his head yes. Do you have an

14 additional --

15 MR. WARNING: In other -- Bernie Warning with

16 York.

17 If I had 10 models that were affected, I have

18 to go through this process 10 times?

19 MR. SHOREY: It depends on what the basis for

20 analysis is.

21 MR. BROOKMAN: Everett Shorey says it depends

22 on what the basis for the analysis is.

23 Let's pass this over to Charlie.

24 MR. STEPHENS: Charlie Stephens, Oregon

25 Energy Office.

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1 analyzing the impact of regulations on one of your 

2 products I then the units you're considering are your 

3 shipments of that product and the differential costs of 

4 that product. 

5 SOl if you want to do the impact of 

6 regulations on your company I you would do -- look at 

7 every product one-by-one. SOl there's the 

8 flexibility is there. It's just --

9 MR. BROOKMAN: I see Everett. 

10 MR. RIVEST: It depends what you're 

11 analyzing. 

12 MR. BROOKMAN: I see Everett I our former 

13 modelerl shaking his head yes. Do you have an 

14 additional --

15 MR. WARNING: In other -- Bernie Warning with 

16 York. 

17 If I had 10 models that were affected I I have 

18 to go through this process 10 times? 

19 MR. SHOREY: It depends on what the basis for 

20 analysis is. 

21 MR. BROOKMAN: Everett Shorey says it depends 

22 on what the basis for the analysis is. 

23 Let's pass this over to Charlie. 

24 MR. STEPHENS: Charlie Stephens I Oregon 

25 Energy Office. 

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1 I think I understand his question exactly.

2 He's -- if he's talking about furnaces, you're looking

3 at furnaces that are anywhere in capacity 40,000 to a

4 180,000 BTU per hour. There may be a dozen models in

5 there. They're all affected. They all have to meet

6 the same minimum standard.

7 I think in that case, you could shipment

8 weight the price or the cost or whatever for that line

9 that had to meet that one standard.

10 MR. WARNING: That would be impracticable.

11 MR. STEPHENS: I think that will work, at

12 least that's how we do some of the analyses, the other

13 analyses now. But that's how I would approach it.

14 MR. RIVEST: You either shipment weight it or

15 you do 10 analyses. I don't think it's that long to do

16 10 analyses.

17 MR. FOLEY: What about ballasts? I mean

18 you're talking a thousand analyses.

19 MR. BROOKMAN: Gene Foley says what about

20 ballasts? You're talking about a thousand analyses.

21 Wait a second. Wait a second. Everybody's

22 hungry, but we need to stay disciplined, otherwise this

23 doesn't get on the record.

24 So, here's Everett Shorey.

25 MR. SHOREY: It depends on how people choose

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1 I think I understand his question exactly. 

2 He's -- if he's talking about furnaces, you're looking 

3 at furnaces that are anywhere in capacity 40,000 to a 

4 180,000 BTU per hour. There may be a dozen models in 

5 there. They're all affected. They all have to meet 

6 the same minimum standard. 

7 I think in that case, you could shipment 

8 weight the price or the cost or whatever for that line 

9 that had to meet that one standard. 

10 MR. WARNING: That would be impracticable. 

11 MR. STEPHENS: I think that will work, at 

12 least that's how we do some of the analyses, the other 

13 analyses now. But that's how I would approach it. 

14 MR. RIVEST: You either shipment weight it or 

15 you do 10 analyses. I don't think it's that long to do 

16 10 analyses. 

17 MR. FOLEY: What about ballasts? I mean 

18 you're talking a thousand analyses. 

19 MR. BROOKMAN: Gene Foley says what about 

20 ballasts? You're talking about a thousand analyses. 

21 Wait a second. Wait a second. Everybody's 

22 hungry, but we need to stay disciplined, otherwise this 

23 doesn't get on the record. 

24 So, here's Everett Shorey. 

25 MR. SHOREY: It depends on how people choose 

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1 to do -- to do the process. So, this data that you're

2 looking at came out of refrigerators. As people

3 started to go through that, there was some aggregation

4 that said we would look at -- and I'm not going to

5 remember the -- the product classes, but basically

6 there was one analysis that was done on top-mounted

7 refrigerators. There was another that at one point was

8 done on side-by-sides. There was another that was done

9 on a shipment-weighted average for all refrigerators.

10 Now, when people brought in data at various

11 times, they brought them in depending on how the class

12 of analysis was done. If you -- if you had -- for some

13 reason, you wanted to do a thousand analyses on

14 ballasts, you could do a thousand analyses.

15 If, for some reason, you wanted to look at

16 all ballasts as one class, then you do a shipment17 weighted average.

18 What we have is a calculator. The decision

19 on what it is that we're going to calculate is in fact

20 the essence of how the regulatory scenarios are going

21 to get put together.

22 This calculator as it's set up can do every

23 class if you want to in the way that the old GRIM does.

24 It can aggregate them up in a fashion. It's really a

25 question of how you want to use the tool. The tool can

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1 to do -- to do the process. So, this data that you're 

2 looking at came out of refrigerators. As people 

3 started to go through that, there was some aggregation 

4 that said we would look at -- and I'm not going to 

5 remember the -- the product classes, but basically 

6 there was one analysis that was done on top-mounted 

7 refrigerators. There was another that at one point was 

8 done on side-by-sides. There was another that was done 

9 on a shipment-weighted average for all refrigerators. 

10 Now, when people brought in data at various 

11 times, they brought them in depending on how the class 

12 of analysis was done. If you -- if you had -- for some 

13 reason, you wanted to do a thousand analyses on 

14 ballasts, you could do a thousand analyses. 

15 If, for some reason, you wanted to look at 

16 all ballasts as one class, then you do a shipment17 weighted average. 

18 What we have is a calculator. The decision 

19 on what it is that we're going to calculate is in fact 

20 the essence of how the regulatory scenarios are going 

21 to get put together. 

22 This calculator as it's set up can do every 

23 class if you want to in the way that the old GRIM does. 

24 It can aggregate them up in a fashion. It's really a 

25 question of how you want to use the tool. The tool can 

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1 be used at any level of aggregation.

2 So, when I sat there and nodded and said you

3 could do all of them, yeah, you can do all of them. If

4 you want to shipment weight average and do only one

5 class for your company, you can do that.

6 The point is what makes sense for that

7 regulation, and -- or for that scenario, and how can we

8 now have a discussion on defining those -- those

9 companies so that we can work through the process?

10 MR. BROOKMAN: So, -- and, of course, the

11 purpose of this morning's discussion is to begin to

12 understand the tool that primarily -- but your note --

13 your comment is that some -- from your perspective as a

14 manufacturer, it needs to be practical as well.

15 MR. SHOREY: Right.

16 MR. BROOKMAN: Okay. Let's capture that for

17 the record.

18 Additional comments, broad stroke, before we

19 head off to lunch?

20 (No response)

21 MR. ARNOLD: I could also point out that

22 although this concludes the formal presentation, we do

23 have this session coming up at 3:30 this afternoon

24 wherein those who are so inclined could step forward

25 and experience the wonders of the GRIM firsthand.

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1 be used at any level of aggregation. 

2 So, when I sat there and nodded and said you 

3 could do all of them, yeah, you can do all of them. If 

4 you want to shipment weight average and do only one 

5 class for your company, you can do that. 

6 The point is what makes sense for that 

7 regulation, and -- or for that scenario, and how can we 

8 now have a discussion on defining those -- those 

9 companies so that we can work through the process? 

10 MR. BROOKMAN: So, -- and, of course, the 

11 purpose of this morning's discussion is to begin to 

12 understand the tool that primarily -- but your note 

13 your comment is that some from your perspective as a 

14 manufacturer, it needs to be practical as well. 

15 MR. SHOREY: Right. 

16 MR. BROOKMAN: Okay. Let's capture that for 

17 the record. 

18 Additional comments, broad stroke, before we 

19 head off to lunch? 

20 (No response) 

21 MR. ARNOLD: I could also point out that 

22 although this concludes the formal presentation, we do 

23 have this session coming up at 3:30 this afternoon 

24 wherein those who are so inclined could step forward 

25 and experience the wonders of the GRIM firsthand. 

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1 MR. BROOKMAN: After lunch. Please pay

2 attention for one more second. Just one moment.

3 After lunch, let's say at 1:15, we'll

4 reconvene. Let's -- they're talking about the -- the

5 group is going to talk about preparing industry

6 profiles and then talk about shipments forecasts and

7 have a panel and an open discussion on that, and then

8 there will be hands-on computer-based GRIM

9 investigation in the late afternoon time frame.

10 Let's -- let's offer a round of applause to

11 our presenter.

12 (Applause)

13 MR. BROOKMAN: Let's start back up at 1:15.

14 Thank you. Good start this morning.

15 (Whereupon, at 12:15 p.m., the meeting was

16 recessed, to reconvene this same day, Tuesday, March

17 11th, 1997, at 1:15 p.m.)

18

19

20

21

22

23

24

25

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1 MR. BROOKMAN: After lunch. Please pay 

2 attention for one more second. Just one moment. 

3 After lunch, let's say at 1:15, we'll 

4 reconvene. Let's -- they're talking about the -- the 

5 group is going to talk about preparing industry 

6 profiles and then talk about shipments forecasts and 

7 have a panel and an open discussion on that, and then 

8 there will be hands-on computer-based GRIM 

9 investigation in the late afternoon time frame. 

10 Let's -- let's offer a round of applause to 

11 our presenter. 

12 (Applause) 

13 MR. BROOKMAN: Let's start back up at 1:15. 

14 Thank you. Good start this morning. 

15 (Whereupon, at 12:15 p.m., the meeting was 

16 recessed, to reconvene this same day, Tuesday, March 

17 11th, 1997, at 1:15 p.m.) 

18 

19 

20 

21 

22 

23 

24 

25 

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2 1:20 p.m.

3 MR. BROOKMAN: Welcome back.

4 As a way of rewarding those of you that have

5 been punctual, we're going to start.

6 Our first presenter this afternoon to talk

7 about industry profiles is Steve Shankel from PNNL.

8 So, Steve, take it away.

9 Preparing the Industry Profiles

10 MR. SHANKEL: Okay. I'm going to be talking

11 about the -- the section in the draft methodology on

12 industry profiles.

13 This is still, you know, very much a work in

14 progress, and I'm going to lay out what my thoughts are

15 or what the thoughts of a number of people involved in

16 this are, but I'm really soliciting here a feedback

17 from you guys on whether this is appropriate or whether

18 there can be a better way of doing this.

19 The industry profiles or the industry

20 characterization will result in -- is intended to

21 result in a databook that should provide a common

22 reference for all the tasks and everybody involved, all

23 the stakeholders involved, in the -- in the

24 manufacturer's impact assessment.

25 A number of -- one of the places that's

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1 AFT ERN 0 0 N S E S S ION 

2 1:20 p.m. 

3 MR. BROOKMAN: Welcome back. 

4 As a way of rewarding those of you that have 

5 been punctual, we're going to start. 

6 Our first presenter this afternoon to talk 

7 about industry profiles is Steve Shankel from PNNL. 

8 So, Steve, take it away. 

9 Preparing the Industry Profiles 

10 MR. SHANKEL: Okay. I'm going to be talking 

11 about the -- the section in the draft methodology on 

12 industry profiles. 

13 This is still, you know, very much a work in 

14 progress, and I'm going to layout what my thoughts are 

15 or what the thoughts of a number of people involved in 

16 this are, but I'm really soliciting here a feedback 

17 from you guys on whether this is appropriate or whether 

18 there can be a better way of doing this. 

19 The industry profiles or the industry 

20 characterization will result in is intended to 

21 result in a databook that should provide a common 

22 reference for all the tasks and everybody involved, all 

23 the stakeholders involved, in the -- in the 

24 manufacturer's impact assessment. 

25 A number of -- one of the places that's 

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1 probably most relevant is on the -- looking at the

2 impacts on competition.

3 The databook is call e d for or i s motivat ed by

4 the int erpretive rule, which requires DOE to seek input

5 on the present and past industry structure and market

6 charact eristics prior to the initiation of impact

7 studies . So, it's fairly soon in the whole -- in the

8 time frame.

9 The way we're talking about fulfilling the

10 interpretive rule requirement is to do a databook

11 profili ng the impacted industries.

12 The items that the databook is projected to

13 -- to c ontain would be, first off, simply the

14 identif ication of who the manufacturers are. To the

15 extent that we can get some of this information, things

16 like their market shares, something that I think would

17 be real ly useful, there's a lot of concern over the

18 issue o f cumulative impacts, which is somewhat of a

19 complex issue.

20 It seems like this sort of a format would be

21 a good place to try to identify some of those

22 cumulat ive impacts and where they -- where they are an

23 issue, and where they are not.

24 The financial situation of manufacturers

25 would be useful. The degree -- this is related to the

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1 probably most relevant is on the -- looking at the 

2 impacts on competition. 

3 The databook is called for or is motivated by 

4 the interpretive rule, which requires DOE to seek input 

5 on the present and past industry structure and market 

6 characteristics prior to the initiation of impact 

7 studies. So, it's fairly soon in the whole -- in the 

8 time frame. 

9 The way we're talking about fulfilling the 

10 interpretive rule requirement is to do a databook 

11 profiling the impacted industries. 

12 The items that the databook is projected to 

13 -- to contain would be, first off, simply the 

14 identification of who the manufacturers are. To the 

15 extent that we can get some of this information, things 

16 like their market shares, something that I think would 

17 be really useful, there's a lot of concern over the 

18 issue of cumulative impacts, which is somewhat of a 

19 complex issue. 

20 It seems like this sort of a format would be 

21 a good place to try to identify some of those 

22 cumulative impacts and where they where they are an 

23 issue, and where they are not. 

24 The financial situation of manufacturers 

25 would be useful. The degree -- this is related to the 

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1 market shares, the degree of concentration in the

2 industry. Is it an industry with a lot of small

3 manufacturers or is it a few large manufacturers? And

4 for each of the manufacturers, what their degree of

5 market coverage is. Is it a particular -- do they

6 carry a whole suite of products across all the lines?

7 This is related also to the cumulative

8 impacts. Do they carry a lot of products all of which

9 are subject to regulation or is a particular

10 manufacturer dealing with a specific niche?

11 That is sort of snapshot in time kind of

12 data, but we also have to look at -- at tasks data.

13 So, we'll also try to collect trends data, looking at

14 trends in product characterizations, product

15 characteristics in retail markets, trends in

16 concentrations, trends in financial characteristics.

17 We've already had some discussion on this

18 today as to whether it's an expanding or contracting

19 industry. This is the kind of data that we would hope

20 to -- hope to be able to characterize.

21 It's a four-stage -- we anticipate or propose

22 a four-stage approach. First off is an initial review,

23 followed by a quantitative analysis and a qualitative

24 analysis, and the last phase would be the stakeholder

25 review.

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1 market sharest the degree of concentration in the 

2 industry. Is it an industry with a lot of small 

3 manufacturers or is it a few large manufacturers? And 

4 for each of the manufacturers t what their degree of 

5 market coverage is. Is it a particular -- do they 

6 carry a whole suite of products across all the lines? 

7 This is related also to the cumulative 

8 impacts. Do they carry a lot of products all of which 

9 are subject to regulation or is a particular 

10 manufacturer dealing with a specific niche? 

11 That is sort of snapshot in time kind of 

12 datat but we also have to look at -- at tasks data. 

13 SOt we'll also try to collect trends datat looking at 

14 trends in product characterizationst product 

15 characteristics in retail marketst trends in 

16 concentrationst trends in financial characteristics. 

17 We've already had some discussion on this 

18 today as to whether it's an expanding or contracting 

19 industry. This is the kind of data that we would hope 

20 to -- hope to be able to characterize. 

21 It's a four-stage -- we anticipate or propose 

22 a four-stage approach. First off is an initial review t 

23 followed by a quantitative analysis and a qualitative 

24 analysist and the last phase would be the stakeholder 

25 review. 

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1 That's not exactly accurate. The stakeholder

2 review occurs throughout, starting with things like

3 today.

4 In the initial review, we simply identify the

5 firms that are subject to -- to the standards, where we

6 will need to establish contacts in these firms, figure

7 out who is the right person to talk to. We need basic

8 information about the product lines carried by each

9 firm, and have to define what we mean by the market.

10 If we're going to do any sort of analysis of market

11 shares or concentration, you have to first define your

12 market. That actually gets somewhat tricky.

13 For the quantitative analysis, here's where

14 we're proposing to look at firm level data, such as is

15 available in the census manufacturers -- excuse me --

16 such as is collected in the census manufacturers, and

17 then from that and some other sources, construct

18 measures of -- of market structure and do some time

19 series analysis to try to assess the determinants of

20 firm share.

21 What we're talking about there is if you

22 can -- if you can separate out some of the impacts on

23 firm share, and if you can assess the effect of

24 standards, that seems like that would be useful

25 information for something like this to contain, if

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1 That's not exactly accurate. The stakeholder 

2 review occurs throughout, starting with things like 

3 today. 

4 In the initial review, we simply identify the 

5 firms that are subject to -- to the standards, where we 

6 will need to establish contacts in these firms, figure 

7 out who is the right person to talk to. We need basic 

8 information about the product lines carried by each 

9 firm, and have to define what we mean by the market. 

10 If we're going to do any sort of analysis of market 

11 shares or concentration, you have to first define your 

12 market. That actually gets somewhat tricky. 

13 For the quantitative analysis, here's where 

14 we're proposing to look at firm level data, such as is 

15 available in the census manufacturers -- excuse me --

16 such as is collected in the census manufacturers, and 

17 then from that and some other sources, construct 

18 measures of -- of market structure and do some time 

19 series analysis to try to assess the determinants of 

20 firm share. 

21 What we're talking about there is if you 

22 can -- if you can separate out some of the impacts on 

23 firm share, and if you can assess the effect of 

24 standards, that seems like that would be useful 

25 information for something like this to contain, if 

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1 that's possible.

2 The quantitative analysis focuses on the

3 entire market. These -- these estimates of market

4 share and market industry concentration. These are

5 snapshots of the entire market in one broad swoop.

6 By contrast, the qualitative analysis, which

7 is a more survey-based approach, lets you look in more

8 depth at particular firms or particular categories of

9 firms that you're interested in, and here we can try to

10 get some of the information that -- that doesn't come

11 through on the quantitative analysis.

12 Stakeholder review. The databook, a draft

13 version, would be distributed for comment and comments

14 would be collected and incorporated.

15 Okay. So, that's what -- that's what we

16 thought of. Then what I'm -- what I'm interested in

17 hearing from -- from you is, is this the type of

18 information that would be useful for the databook or

19 are there other types? How -- what's the best way to

20 get it? Is quantitative analysis, things like census

21 data, supplemented with survey data of firms the right

22 way, or -- or is other approaches better?

23 We -- I've mentioned financial data a couple

24 of times. I'm not sure on how much of that is actually

25 available, and I'd appreciate any feedback I could get

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1 that's possible. 

2 The quantitative analysis focuses on the 

3 entire market. These -- these estimates of market 

4 share and market industry concentration. These are 

5 snapshots of the entire market in one broad swoop. 

6 By contrast, the qualitative analysis, which 

7 is a more survey-based approach, lets you look in more 

8 depth at particular firms or particular categories of 

9 firms that you're interested in, and here we can try to 

10 get some of the information that -- that doesn't come 

11 through on the quantitative analysis. 

12 Stakeholder review. The databook, a draft 

13 version, would be distributed for comment and comments 

14 would be collected and incorporated. 

15 Okay. So, that's what -- that's what we 

16 thought of. Then what I'm -- what I'm interested in 

17 hearing from -- from you is, is this the type of 

18 information that would be useful for the databook or 

19 are there other types? How -- what's the best way to 

20 get it? Is quantitative analysis, things like census 

21 data, supplemented with survey data of firms the right 

22 way, or -- or is other approaches better? 

23 We -- I've mentioned financial data a couple 

24 of times. I'm not sure on how much of that is actually 

25 available, and I'd appreciate any feedback I could get 

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1 on that, and what issues did I miss?

2 MR. BROOKMAN: You want to start with the

3 first one first, Gene, or you can take them --

4 MR. FOLEY: I just have a question on your

5 Page --

6 MR. BROOKMAN: This is Gene Foley.

7 MR. FOLEY: -- 8. I'm sorry. On Page 8, the

8 time series analysis to assess determinants of firm

9 share. Could you review that just a little bit more

10 thoroughly as to what is involved there?

11 My concern is the databook should be

12 something not subject to debate, at least it ought to

13 be a start, and any time you get that kind of analysis

14 in there, it sounds to me like it becomes much more

15 open for debate.

16 MR. SHANKEL: That's a good point. I do want

17 the databook to be a reference that people can

18 reference without having other people go oh, yeah, but

19 that's the databook. We disagree with the fundamentals

20 there. Maybe this is -- maybe this is an inappropriate

21 over-reach of that.

22 What I was thinking of was taking the data --

23 taking historical data that we have on firm

24 characteristics and -- and generating time series. Let

25 us see how past standards -- what sort of effects past

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1 on that t and what issues did I miss? 

2 MR. BROOKMAN: You want to start with the 

3 first one first t Genet or you can take them --

4 MR. FOLEY: I just have a question on your 

5 Page --

6 MR. BROOKMAN: This is Gene Foley. 

7 MR. FOLEY: 8. I'm sorry. On Page 8 t the 

8 time series analysis to assess determinants of firm 

9 share. Could you review that just a little bit more 

10 thoroughly as to what is involved there? 

11 My concern is the databook should be 

12 something not subject to debate t at least it ought to 

13 be a start t and any time you get that kind of analysis 

14 in there t it sounds to me like it becomes much more 

15 open for debate. 

16 MR. SHANKEL: That's a good point. I do want 

17 the databook to be a reference that people can 

18 reference without having other people go oh t yeah t but 

19 that's the databook. We disagree with the fundamentals 

20 there. Maybe this is maybe this is an inappropriate 

21 over-reach of that. 

22 What I was thinking of was taking the data --

23 taking historical data that we have on firm 

24 characteristics and -- and generating time series. Let 

25 us see how past standards -- what sort of effects past 

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1 standards have had.

2 But you may be right. That may well be an

3 over-reach of it.

4 MR. BROOKMAN: Charlie, additional overview

5 comments before we move to the specific questions.

6 Let's try and answer some of them.

7 MR. STEPHENS: Charlie Stephens, Oregon

8 Energy Office.

9 I -- I would like to echo a little bit what

10 Gene said because I think you may find, even if you

11 have past standards, there may only be one cycle, if

12 any, for a lot of these products that we're going to be

13 looking at, and what you'll have is an anecdote or an

14 anecdotal situation, and you really won't have the

15 determinants you're looking for.

16 MR. SHANKEL: Thanks. That's true.

17 MR. BROOKMAN: Comments before we get back to

18 the questions?

19 (No response)

20 MR. BROOKMAN: You largely endorse the broad

21 approach that's outlined here?

22 MR. LEWIS: No.

23 MR. BROOKMAN: No? Say so then. You get the

24 mike. You can comment later. Okay. But we want to

25 hear it. That's what the purpose of this is.

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1 standards have had. 

2 But you may be right. That may well be an 

3 over-reach of it. 

4 MR. BROOKMAN: Charlier additional overview 

5 comments before we move to the specific questions. 

6 Let's try and answer some of them. 

7 MR. STEPHENS: Charlie Stephens r Oregon 

8 Energy Office. 

9 I -- I would like to echo a little bit what 

10 Gene said because I think you may find r even if you 

11 have past standardsr there may only be one cycler if 

12 anYr for a lot of these products that we're going to be 

13 looking at r and what you'll have is an anecdote or an 

14 anecdotal situationr and you really won't have the 

15 determinants you're looking for. 

16 MR. SHANKEL: Thanks. That's true. 

17 MR. BROOKMAN: Comments before we get back to 

18 the questions? 

19 (No response) 

20 MR. BROOKMAN: You largely endorse the broad 

21 approach that's outlined here? 

22 MR. LEWIS: No. 

23 MR. BROOKMAN: No? Say so then. You get the 

24 mike. You can comment later. Okay. But we want to 

25 hear it. That's what the purpose of this is. 

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1 You want to put the questions back up there?

2 MR. SHANKEL: Sure.

3 MR. BROOKMAN: Can you read it from the back

4 of the room? What types of information would be most

5 useful in profiling these industries?

6 Yes, Charlie?

7 MR. STEPHENS: Charlie Stephens, Oregon

8 Energy Office.

9 Again, this is a question more for the whole

10 group, I guess. Does anybody think that retailing

11 channels and distribution, the nature of the

12 distribution or the way the products are sold, is

13 important?

14 MR. BROOKMAN: Who can respond to that?

15 MR. SHANKEL: I think it's a neat idea.

16 MR. BROOKMAN: Charlie says how big is this

17 box?

18 MR. STEPHENS: Pricing. Certain products

19 move through certain channels in certain ways, certain

20 people make decisions.

21 MR. ECKMAN: Tom Eckman, Northwest Power

22 Planning Council.

23 In response, it's more a question to

24 Charlie's proposal or proposition. Presumptively at

25 least that there are different retail margins

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1 You want to put the questions back up there? 

2 MR. SHANKEL: Sure. 

3 MR. BROOKMAN: Can you read it from the back 

4 of the room? What types of information would be most 

5 useful in profiling these industries? 

6 Yes, Charlie? 

7 MR. STEPHENS: Charlie Stephens, Oregon 

8 Energy Office. 

9 Again, this is a question more for the whole 

10 group, I guess. Does anybody think that retailing 

11 channels and distribution, the nature of the 

12 distribution or the way the products are sold, is 

13 important? 

14 MR. BROOKMAN: Who can respond to that? 

15 MR. SHANKEL: I think it's a neat idea. 

16 MR. BROOKMAN: Charlie says how big is this 

17 box? 

18 MR. STEPHENS: Pricing. Certain products 

19 move through certain channels in certain ways, certain 

20 people make decisions. 

21 MR. ECKMAN: Tom Eckman, Northwest Power 

22 Planning Council. 

23 In response, it's more a question to 

24 Charlie's proposal or proposition. Presumptively at 

25 least that there are different retail margins 

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1 associated with different distribution networks, and to

2 the extent that one manufacturer distributes one way or

3 another distributes another or product lines are

4 distributed different ways, the margins that are

5 affected here may be different, and you might want to

6 track on that.

7 MR. SHANKEL: That -- that's a good point.

8 This methodology is being developed for all of the

9 activities of the Office of Codes and Standards. This

10 includes both residential equipment and commercial

11 equipment. There's very different distribution

12 channels there, you know, from a contractor-provided

13 versus a retail outlet, and -- and that may well be a

14 useful thing to attach to each of the pieces of

15 equipment, so you will understand that going into it.

16 MR. STEPHENS: Charlie Stephens again.

17 The thing I had in mind as I was thinking

18 about this was like the difference between a white

19 goods appliance and ballasts, for instance.

20 MR. SHANKEL: That's a good point. The

21 ballasts are incorporated already as a --

22 MR. STEPHENS: Many times in a product or

23 not, and the decision-makers are -- are quite different

24 and use different criteria.

25 MR. SHANKEL: Right.

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1 associated with different distribution networks, and to 

2 the extent that one manufacturer distributes one way or 

3 another distributes another or product lines are 

4 distributed different ways, the margins that are 

5 affected here may be different, and you might want to 

6 track on that. 

7 MR. SHANKEL: That -- that's a good point. 

8 This methodology is being developed for all of the 

9 activities of the Office of Codes and Standards. This 

10 includes both residential equipment and commercial 

11 equipment. There's very different distribution 

12 channels there, you know, from a contractor-provided 

13 versus a retail outlet, and -- and that may well be a 

14 useful thing to attach to each of the pieces of 

15 equipment, so you will understand that going into it. 

16 MR. STEPHENS: Charlie Stephens again. 

17 The thing I had in mind as I was thinking 

18 about this was like the difference between a white 

19 goods appliance and ballasts, for instance. 

20 MR. SHANKEL: That's a good point. The 

21 ballasts are incorporated already as a 

22 MR. STEPHENS: Many times in a product or 

23 not, and the decision-makers are -- are quite different 

24 and use different criteria. 

25 MR. SHANKEL: Right. 

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1 MR. RIVEST: The reason I think it might be

2 useful as well is that in the interpretive rule, we're

3 supposed to consider the employment impacts on -- on

4 the related industries. So, certainly we'd have to

5 identify what they are before we could measure the

6 impacts.

7 Also, there are questions of sometimes if the

8 technology overreaches, there may be structural changes

9 to the distribution channels or -- or the servicing

10 channels in this case. So, it seems relevant.

11 MR. LEWIS: Dave Lewis with Lennox.

12 I can only think of a parallel, and in our

13 office, we oftentimes have people come in and provide

14 research for us, and in those meetings when research is

15 provided, oftentimes the result is, boy, that's

16 interesting, and I guess the concern I have is some of

17 the data that you're saying is going to be created,

18 it's going to be put in nice volumes. There will

19 probably be several copies made of them. They will be

20 circulated to a lot of people. People will read

21 through them, and the comment could be, gee, that's

22 interesting.

23 I'm a little bit -- I have a little bit of a

24 disconnect as far as how this -- because each industry

25 that you're dealing with here under NICA standards is

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1 MR. RIVEST: The reason I think it might be 

2 useful as well is that in the interpretive rule, we're 

3 supposed to consider the employment impacts on -- on 

4 the related industries. So, certainly we'd have to 

5 identify what they are before we could measure the 

6 impacts. 

7 Also, there are questions of sometimes if the 

8 technology overreaches, there may be structural changes 

9 to the distribution channels or -- or the servicing 

10 channels in this case. So, it seems relevant. 

11 MR. LEWIS: Dave Lewis with Lennox. 

12 I can only think of a parallel, and in our 

13 office, we oftentimes have people come in and provide 

14 research for us, and in those meetings when research is 

15 provided, oftentimes the result is, boy, that's 

16 interesting, and I guess the concern I have is some of 

17 the data that you're saying is going to be created, 

18 it's going to be put in nice volumes. There will 

19 probably be several copies made of them. They will be 

20 circulated to a lot of people. People will read 

21 through them, and the comment could be, gee, that's 

22 interesting. 

23 I'm a little bit -- I have a little bit of a 

24 disconnect as far as how this -- because each industry 

25 that you're dealing with here under NICA standards is 

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1 so different, it's hard for me to see how one

2 particular template would be able to really meet the

3 needs of the varied industries that are represented,

4 other than filling volumes with information and people

5 saying, gee, that's interesting.

6 MR. SHANKEL: Let me respond to that for a

7 second. Having people say, gee, that's interesting,

8 and that be the end of it is certainly not a desired

9 outcome.

10 There's -- I guess I have two comments. One

11 is to some extent, you know, we want everything to be

12 geared towards being as relevant and as useful as

13 possible. But there's also some requirement that some

14 things happen.

15 So, the interpretative rule does require some

16 sort of characteristic of -- of industry

17 characterizations and market characteristics. Now, how

18 you meet that, of course, is -- is wide open.

19 MR. MATTINGLEY: Joe Mattingley from GAMA.

20 I guess I would be concerned that during a

21 screening analysis, I can imagine coming in and making

22 some comments about some potential proposals and

23 saying, well, a problem there is this -- you know, our

24 products are contractor-installed, and you really have

25 some serious installation issues with -- that would be

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1 so different, it's hard for me to see how one 

2 particular template would be able to really meet the 

3 needs of the varied industries that are represented, 

4 other than filling volumes with information and people 

5 saying, gee, that's interesting. 

6 MR. SHANKEL: Let me respond to that for a 

7 second. Having people say, gee, that's interesting, 

8 and that be the end of it is certainly not a desired 

9 outcome. 

10 There's -- I guess I have two comments. One 

11 is to some extent, you know, we want everything to be 

12 geared towards being as relevant and as useful as 

13 possible. But there's also some requirement that some 

14 things happen. 

15 So, the interpretative rule does require some 

16 sort of characteristic of -- of industry 

17 characterizations and market characteristics. Now, how 

18 you meet that, of course, is -- is wide open. 

19 MR. MATTINGLEY: Joe Mattingley from GAMA. 

20 I guess I would be concerned that during a 

21 screening analysis, I can imagine coming in and making 

22 some comments about some potential proposals and 

23 saying, well, a problem there is this -- you know, our 

24 products are contractor-installed, and you really have 

25 some serious installation issues with -- that would be 

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1 raised by a standard, if you think about a standard

2 around that level, and, so, I'd wonder if that kind of

3 information goes -- would go in the industry profile.

4 But the bigger question is, in order to make

5 an argument during the screening analysis, is it

6 something that has to be covered in the industry

7 profile or otherwise is it considered to be out of

8 bounds?

9 MR. McCABE: I did not -- I just --

10 MR. BROOKMAN: Mike Rivest just stepped up to

11 the mike. Michael McCabe. Mike Rivest leaned forward

12 as if he was going to say something, and then Michael

13 McCabe stepped forward.

14 Michael?

15 MR. McCABE: Michael McCabe.

16 As far as other items, they would certainly

17 be open to be considered in the process during the

18 screening. So, it would not be limited to this, and,

19 of course, in developing a template as we said, we're

20 trying to develop something that is flexible, so that

21 there may be certain elements that we would determine

22 in advance are not appropriate for particular industry

23 or product.

24 MR. BROOKMAN: John?

25 MR. WILSON: John Wilson.

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1 raised by a standard, if you think about a standard 

2 around that level, and, so, I'd wonder if that kind of 

3 information goes -- would go in the industry profile. 

4 But the bigger question is, in order to make 

5 an argument during the screening analysis, is it 

6 something that has to be covered in the industry 

7 profile or otherwise is it considered to be out of 

8 bounds? 

9 MR. McCABE: I did not -- I just --

10 MR. BROOKMAN: Mike Rivest just stepped up to 

11 the mike. Michael McCabe. Mike Rivest leaned forward 

12 as if he was going to say something, and then Michael 

13 McCabe stepped forward. 

14 Michael? 

15 MR. McCABE: Michael McCabe. 

16 As far as other items, they would certainly 

17 be open to be considered in the process during the 

18 screening. So, it would not be limited to this, and, 

19 of course, in developing a template as we said, we're 

20 trying to develop something that is flexible, so that 

21 there may be certain elements that we would determine 

22 in advance are not appropriate for particular industry 

23 or product. 

24 

25 

MR. BROOKMAN: John? 

MR. WILSON: John Wilson. 

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1 I wonder if you should include information on

2 international firms who might sell product into this

3 market.

4 MR. SHANKEL: Yeah. One issue that we've

5 identified that's -- that would need to be covered in

6 here is the -- is the whole question of exports and

7 imports, and imported equipment would be -- is subject

8 to the standards, and, so, you need to know something

9 about those; whereas exported equipment is not covered

10 by the standards. So, that's -- there's an issue there

11 as to how the U.S. manufacturers are going to handle

12 differential regulations on their equipment.

13 MR. DEMPSEY: Dan Dempsey with Carrier.

14 I have a comment and a question. The first

15 comment is considering many of the companies in this

16 room are multi-national global companies with multiple

17 divisions, I -- I think you have a significant

18 challenge in trying to boil it down to a by-product

19 level. I mean that's -- that's information that's very

20 highly guarded, at least within the manufacturing

21 community, assuming they know what that is themselves.

22 The second one is a question. If you do a

23 retrospective, how are you going to separate out the

24 impact of the standard versus just the general health

25 and well-being in the economy?

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1 I wonder if you should include information on 

2 international firms who might sell product into this 

3 market. 

4 MR. SHANKEL: Yeah. One issue that we1ve 

5 identified that1s -- that would need to be covered in 

6 here is the -- is the whole question of exports and 

7 imports, and imported equipment would be -- is subject 

8 to the standards, and, so, you need to know something 

9 about those; whereas exported equipment is not covered 

10 by the standards. So, that1s there1s an issue there 

11 as to how the u.S. manufacturers are going to handle 

12 differential regulations on their equipment. 

13 MR. DEMPSEY: Dan Dempsey with Carrier. 

14 I have a comment and a question. The first 

15 comment is considering many of the companies in this 

16 room are multi-national global companies with mUltiple 

17 divisions, I -- I think you have a significant 

18 challenge in trying to boil it down to a by-product 

19 level. I mean that1s -- that1s information that1s very 

20 highly guarded, at least within the manufacturing 

21 community, assuming they know what that is themselves. 

22 The second one is a question. If you do a 

23 retrospective, how are you going to separate out the 

24 impact of the standard versus just the general health 

25 and well-being in the economy? 

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1 MR. SHANKEL: Well, that, of course, would be

2 the -- the magic of a full-blown statistical analysis,

3 to try to tease out those impacts, and I don't -- and I

4 don't actually propose doing that for the databook.

5 What I was talking about were the time series

6 analysis for the databook would be something simpler,

7 and say here's characteristic of -- of the industry

8 health, and then there's some -- there's some impacts.

9 There's the overall well-being of the economy. There's

10 a standard, and then for each individual firm, there

11 are other sets of exogenous factors, and all I would

12 propose doing in the databook is to try to shed some

13 early light on that kind of -- on those kinds of

14 issues.

15 MR. BROOKMAN: Dave?

16 MR. SHANKEL: And that may not be

17 appropriate.

18 MR. LEWIS: Yeah. Dave Lewis with Lennox.

19 Just a follow-up on Dan's comment. I heard

20 earlier that you said that you would be taking a look

21 at potentially how maybe a standard historically

22 affected an industry, but you couple that with Dan's

23 question, if you're not doing that kind of an analysis,

24 taking into account the economic impacts that were

25 occurring in the -- in the overall society at that

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1 MR. SHANKEL: Well, that, of course, would be 

2 the -- the magic of a full-blown statistical analysis, 

3 to try to tease out those impacts, and I don't -- and I 

4 don't actually propose doing that for the databook. 

5 What I was talking about were the time series 

6 analysis for the databook would be something simpler, 

7 and say here's characteristic of -- of the industry 

8 health, and then there's some there's some impacts. 

9 There's the overall well-being of the economy_ There's 

10 a standard, and then for each individual firm, there 

11 are other sets of exogenous factors, and all I would 

12 propose doing in the databook is to try to shed some 

13 early light on that kind of -- on those kinds of 

14 issues. 

15 MR. BROOKMAN: Dave? 

16 MR. SHANKEL: And that may not be 

17 appropriate. 

18 MR. LEWIS: Yeah. Dave Lewis with Lennox. 

19 Just a follow-up on Dan's comment. I heard 

20 earlier that you said that you would be taking a look 

21 at potentially how maybe a standard historically 

22 affected an industry, but you couple that with Dan's 

23 question, if you're not doing that kind of an analysis, 

24 taking into account the economic impacts that were 

25 occurring in the -- in the overall society at that 

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1 time, you'd have a difficult time saying or concluding

2 that a standard had this or that effect on a given

3 industry or a given manufacturer.

4 MR. SHANKEL: Yes.

5 MR. BROOKMAN: I see a few of Dave's industry

6 counterparts nodding their head yes. Point taken.

7 David Goldstein?

8 MR. GOLDSTEIN: David Goldstein, NIDC.

9 I think there are a few other time trends you

10 need to look at for the kind of impact analysis that

11 would come later because impacts implies a difference

12 from base case, and we need to know what the base case

13 is, particularly issues like productivity.

14 What's the cost structure of the industry

15 been like? Has it been the same for 10 years or are

16 they making productivity gains? Employment. Is this

17 an industry that's maintaining the same employment for

18 constant production or is employment dropping? Are

19 plants closing? For plant closings, we ought to know

20 how many plants have already been closed. Maybe that's

21 because you're consolidating things in bigger plants or

22 maybe it's because employment goes down, but it's a

23 separate time trend, and we ought to know it.

24 Out-sourcing. If there's some component, say

25 a compressor in a refrigeration system that used to be

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1 time, you'd have a difficult time saying or concluding 

2 that a standard had this or that effect on a given 

3 industry or a given manufacturer. 

4 MR. SHANKEL: Yes. 

5 MR. BROOKMAN: I see a few of Dave's industry 

6 counterparts nodding their head yes. Point taken. 

7 David Goldstein? 

8 MR. GOLDSTEIN: David Goldstein, NIDC. 

9 I think there are a few other time trends you 

10 need to look at for the kind of impact analysis that 

11 would come later because impacts implies a difference 

12 from base case, and we need to know what the base case 

13 is, particularly issues like productivity. 

14 What's the cost structure of the industry 

15 been like? Has it been the same for 10 years or are 

16 they making productivity gains? Employment. Is this 

17 an industry that's maintaining the same employment for 

18 constant production or is employment dropping? Are 

19 plants closing? For plant closings, we ought to know 

20 how many plants have already been closed. Maybe that's 

21 because you're consolidating things in bigger plants or 

22 maybe it's because employment goes down, but it's a 

23 separate time trend, and we ought to know it. 

24 Out-sourcing. If there's some component, say 

25 a compressor in a refrigeration system that used to be 

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1 made in the plant and is now being made some place

2 else, maybe overseas, that's something we ought to know

3 because otherwise we're going to get all these impacts,

4 and we don't know compared to what.

5 MR. BROOKMAN: Additional comments? Are we

6 -- have we answered fully the first question, what

7 types of information would be most useful in profiling

8 these industries?

9 MR. SHANKEL: Provided a lot of input on the

10 first question, yes.

11 MR. BROOKMAN: Maybe we should move on to the

12 second one. Can you see it? What method of acquiring

13 information would be most productive?

14 MR. LEWIS: Dave Lewis, Lennox.

15 My suggestion would be that the trade

16 associations be kept in close communication as this

17 process develops. Not that they are necessarily the

18 sole participant as far as providing information, but I

19 think in -- at one spot, they generally know what is

20 occurring and where it's occurring, and therefore it

21 seems like there would be a lot of time saved rather

22 than conducting individual-by-individual interviews

23 across a given industry.

24 It scares me just a little bit about the

25 comment you made earlier in your presentation, where

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1 made in the plant and is now being made some place 

2 else, maybe overseas, that's something we ought to know 

3 because otherwise we're going to get all these impacts, 

4 and we don't know compared to what. 

5 MR. BROOKMAN: Additional comments? Are we 

6 -- have we answered fully the first question, what 

7 types of information would be most useful in profiling 

8 these industries? 

9 MR. SHANKEL: Provided a lot of input on the 

10 first question, yes. 

11 MR. BROOKMAN: Maybe we should move on to the 

12 second one. Can you see it? What method of acquiring 

13 information would be most productive? 

14 MR. LEWIS: Dave Lewis, Lennox. 

15 My suggestion would be that the trade 

16 associations be kept in close communication as this 

17 process develops. Not that they are necessarily the 

18 sole participant as far as providing information, but I 

19 think in -- at one spot, they generally know what is 

20 occurring and where it's occurring, and therefore it 

21 seems like there would be a lot of time saved rather 

22 than conducting individual-by-individual interviews 

23 across a given industry. 

24 It scares me just a little bit about the 

25 comment you made earlier in your presentation, where 

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1 you said you want to gather a list of names of those

2 people to go and conduct interviews with. Somewhere

3 along the line, rather than just accumulating a bunch

4 of names to go interview, it seems like there needs to

5 be kind of a top-level suggestion to your efforts

6 directed through the trade associations.

7 MR. BROOKMAN: Joe Mattingley?

8 MR. MATTINGLEY: Thank you for that comment,

9 David, but -- but you'd have a whole lot of trouble

10 getting market share information out of my trade

11 association. Okay. We wouldn't be able to provide

12 that.

13 MR. BROOKMAN: Maybe we can note some other

14 limitations. What would be some other limitations on

15 the scheme that Steve's suggesting?

16 Yes, Gene?

17 MR. FOLEY: Gene Foley, The Alliance to Save

18 Energy.

19 The dilemma with trade associations is that

20 they represent a large group of manufacturers. They by

21 no means represent all manufacturers and especially in

22 industries that are changing, they may represent

23 increasingly shrinking portions of the industry.

24 So, I would be really leery of just limiting

25 this to working with trade associations.

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1 you said you want to gather a list of names of those 

2 people to go and conduct interviews with. Somewhere 

3 along the line, rather than just accumulating a bunch 

4 of names to go interview, it seems like there needs to 

5 be kind of a top-level suggestion to your efforts 

6 directed through the trade associations. 

7 MR. BROOKMAN: Joe Mattingley? 

8 MR. MATTINGLEY: Thank you for that comment, 

9 David, but -- but you'd have a whole lot of trouble 

10 getting market share information out of my trade 

11 association. Okay. We wouldn't be able to provide 

12 that. 

13 MR. BROOKMAN: Maybe we can note some other 

14 limitations. What would be some other limitations on 

15 the scheme that Steve's suggesting? 

16 Yes, Gene? 

17 MR. FOLEY: Gene Foley, The Alliance to Save 

18 Energy. 

19 The dilemma with trade associations is that 

20 they represent a large group of manufacturers. They by 

21 no means represent all manufacturers and especially in 

22 industries that are changing, they may represent 

23 increasingly shrinking portions of the industry. 

24 So, I would be really leery of just limiting 

25 this to working with trade associations. 

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1 MR. LEWIS: That wasn't my intention.

2 MR. BROOKMAN: Well, maybe it gets to the

3 second -- the third question, which are suggested data

4 sources and methods of acquisition?

5 Are there others that exist that would be

6 useful?

7 MR. SHANKEL: I would propose that the trade

8 associations would probably be our first point of

9 contact. Historically, we've typically gone there

10 first, and what I was thinking here, if I didn't make

11 it clear, is the trade associations might be our first

12 point of contact, but there is a number of types of --

13 there are a number of types of information that we

14 can't get there, and -- and we were thinking then of

15 approaching individual firms for supplemental

16 information.

17 MR. BROOKMAN: Are there additional data

18 sources and methods that should be considered?

19 MR. McMAHON: Jim McMahon from LBL.

20 There's a number of public data sources that

21 are available. You can start with the trade

22 publications. Appliance Magazine will give you market

23 shares every year. There's a number of government

24 surveys that are useful. You mentioned census earlier,

25 but there are other government surveys that you can

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1 MR. LEWIS: That wasn't my intention. 

2 MR. BROOKMAN: Wellr maybe it gets to the 

3 second -- the third question r which are suggested data 

4 sources and methods of acquisition? 

5 Are there others that exist that would be 

6 useful? 

7 MR. SHANKEL: I would propose that the trade 

8 associations would probably be our first point of 

9 contact. HistoricallYr we've typically gone there 

10 firstr and what I was thinking here r if I didn't make 

11 it clearr is the trade associations might be our first 

12 point of contact r but there is a number of types of 

13 there are a number of types of information that we 

14 can't get there r and -- and we were thinking then of 

15 approaching individual firms for supplemental 

16 information. 

17 MR. BROOKMAN: Are there additional data 

18 sources and methods that should be considered? 

19 MR. McMAHON: Jim McMahon from LBL. 

20 There's a number of public data sources that 

21 are available. You can start with the trade 

22 publications. Appliance Magazine will give you market 

23 shares every year. There's a number of government 

24 surveys that are useful. You mentioned census earlierr 

25 but there are other government surveys that you can 

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1 find.

2 I think starting with the trade associations

3 is great. There's the AHAM Fact Book, for example,

4 which has a lot of the information that you're looking

5 for. There are issues of levels of aggregation and so

6 forth that you will have to deal with, but there's

7 quite a bit to start with.

8 One self-serving comment. There's a number

9 of Lawrence Berkeley Laboratory reports. We have a

10 baseline data report on residential products that

11 includes historical shipments for all the products by

12 field type. There's efficiency data in there. There's

13 a whole lot of things that are readily available,

14 already published.

15 MR. SHANKEL: Thanks.

16 MR. MATTINGLEY: And you don't need me to

17 tell you this, but if you're working with the Justice

18 Department, this would be an area where they could

19 really help you out because I was in antitrust

20 enforcement for awhile myself, and all the information

21 that you want for industry profile is what you

22 routinely do in a merger investigation or an antitrust

23 investigation. I'm sure that can be a big help to you.

24

25

MR. SHANKEL: Thanks.

MR. BROOKMAN: So, in addition to the

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1 find. 

2 I think starting with the trade associations 

3 is great. There's the AHAM Fact Book, for example, 

4 which has a lot of the information that you're looking 

5 for. There are issues of levels of aggregation and so 

6 forth that you will have to deal with, but there's 

7 quite a bit to start with. 

8 One self-serving comment. There's a number 

9 of Lawrence Berkeley Laboratory reports. We have a 

10 baseline data report on residential products that 

11 includes historical shipments for all the products by 

12 field type. There's efficiency data in there. There's 

13 a whole lot of things that are readily available, 

14 already published. 

15 MR. SHANKEL: Thanks. 

16 MR. MATTINGLEY: And you don't need me to 

17 tell you this, but if you're working with the Justice 

18 Department, this would be an area where they could 

19 really help you out because I was in antitrust 

20 enforcement for awhile myself, and all the information 

21 that you want for industry profile is what you 

22 routinely do in a merger investigation or an antitrust 

23 

24 

25 

investigation. I'm sure that can be a big help to you. 

MR. SHANKEL: Thanks. 

MR. BROOKMAN: So, in addition to the 

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1 question about suggested data sources and methods of

2 acquisition, what financial data are available and

3 useful?

4 (Laughter)

5 MR. BROOKMAN: Does the tape pick up

6 laughter? Okay. We've noted that.

7 No comments on that question?

8 (No response)

9 MR. BROOKMAN: The trade associations

10 wouldn't --

11 MR. MATTINGLEY: You can't get them to pay

12 their dues.

13 MR. BROOKMAN: Financial data. Okay. And

14 the final question is, other issues you -- are there

15 other issues that you feel this databook should address

16 or I mean speak about this in kind of the larger

17 picture, in the aggregate. Dave and others started

18 talking about that. What a task it is, for example.

19 Other kind of broader comments on this or the

20 approach to it?

21 (No response)

22 MR. BROOKMAN: I see none. Mike Rivest?

23 MR. RIVEST: I might just want to get your

24 comments on the timing of this phase of the analysis.

25 I have it down as being concurrent with the screening

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1 question about suggested data sources and methods of 

2 acquisition, what financial data are available and 

3 useful? 

4 (Laughter) 

5 MR. BROOKMAN: Does the tape pick up 

6 laughter? Okay. We've noted that. 

7 No comments on that question? 

8 (No response) 

9 MR. BROOKMAN: The trade associations 

10 wouldn't 

11 MR. MATTINGLEY: You can't get them to pay 

12 their dues. 

13 MR. BROOKMAN: Financial data. Okay. And 

14 the final question is, other issues you -- are there 

15 other issues that you feel this databook should address 

16 or I mean speak about this in kind of the larger 

17 picture, in the aggregate. Dave and others started 

18 talking about that. What a task it is, for example. 

19 Other kind of broader comments on this or the 

20 approach to it? 

21 (No response) 

22 MR. BROOKMAN: I see none. Mike Rivest? 

23 MR. RIVEST: I might just want to get your 

24 comments on the timing of this phase of the analysis. 

25 I have it down as being concurrent with the screening 

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1 analysis.

2 Do you feel that this is the appropriate time

3 to be doing this, and when should we be completing this

4 analysis? Should it be ready after -- you know, ready

5 before we start the engineering analysis?

6 If there are no comments, it stays where it

7 is.

8 MR. BROOKMAN: I see one or two heads saying

9 yes. Can you say a little more about your rationale

10 for structuring it the way you have?

11 MR. RIVEST: Well, I hadn't realized this,

12 but certainly some of that information in the databook

13 might have been useful to -- for the screening process

14 itself. I hadn't thought of that when we drafted that

15 flow chart, flow diagram initially.

16 The rationale was simply that as soon as the

17 rule -- as soon as the priority listing states that

18 this product is a priority product, we want to initiate

19 the work as quickly as possible, and I -- I saw those

20 two tasks as being possibly concurrent.

21 MR. WARNING: Bernie Warning with York.

22 I'm thinking about two things. One is on

23 stakeholder review, what is your definition of

24 stakeholder?

25 MR. SHANKEL: My definition of stakeholder is

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1 analysis. 

2 Do you feel that this is the appropriate time 

3 to be doing this, and when should we be completing this 

4 analysis? Should it be ready after -- you know, ready 

5 before we start the engineering analysis? 

6 If there are no comments, it stays where it 

7 is. 

8 MR. BROOKMAN: I see one or two heads saying 

9 yes. Can you say a little more about your rationale 

10 for structuring it the way you have? 

11 MR. RIVEST: Well, I hadn't realized this, 

12 but certainly some of that information in the databook 

13 might have been useful to for the screening process 

14 itself. I hadn't thought of that when we drafted that 

15 flow chart, flow diagram initially. 

16 The rationale was simply that as soon as the 

17 rule as soon as the priority listing states that 

18 this product is a priority product, we want to initiate 

19 the work as quickly as possible, and I I saw those 

20 two tasks as being possibly concurrent. 

21 MR. WARNING: Bernie Warning with York. 

22 I'm thinking about two things. One is on 

23 stakeholder review, what is your definition of 

24 stakeholder? 

25 MR. SHANKEL: My definition of stakeholder is 

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1 -- well, I would draw on the interpretive rule and --

2 and go back to the folks that were involved in drafting

3 that, involved in that.

4 I guess I feel stakeholder is somewhat self5 defined. Stakeholders are people who feel they're

6 stakeholders.

7 My definition, though, I'm not sure is the

8 most relevant one. The department has -- Mike might be

9 willing to speak to this or he might not.

10 MR. McCABE: Glenn asked the question

11 earlier. I'll attempt to answer it. This is Michael

12 McCabe, DOE.

13 Within this process as well as other steps

14 that there may be subsets of the body of people

15 involved that would be looking at to -- if we -- but in

16 this case when we're -- as I see this data-gathering

17 exercise, the databook, concurrent with the screening,

18 is to give some -- some qualified input as to the

19 significance of particular design options, particularly

20 where you're going well beyond -- where you get into an

21 area where there may be some significant impacts or

22 significant changes that are occurring within the

23 industry, and I don't see the stakeholders being just

24 manufacturers, but a broader set of parties who can

25 bring in some knowledge and information that deals with

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1 -- well, I would draw on the interpretive rule and 

2 and go back to the folks that were involved in drafting 

3 that, involved in that. 

4 I guess I feel stakeholder is somewhat self5 defined. Stakeholders are people who feel they're 

6 stakeholders. 

7 My definition, though, I'm not sure is the 

8 most relevant one. The department has -- Mike might be 

9 willing to speak to this or he might not. 

10 MR. McCABE: Glenn asked the question 

11 earlier. I'll attempt to answer it. This is Michael 

12 McCabe, DOE. 

13 Within this process as well as other steps 

14 that there may be subsets of the body of people 

15 involved that would be looking at to -- if we -- but in 

16 this case when we're -- as I see this data-gathering 

17 exercise, the databook, concurrent with the screening, 

18 is to give some -- some qualified input as to the 

19 significance of particular design options, particularly 

20 where you're going well beyond -- where you get into an 

21 area where there may be some significant impacts or 

22 significant changes that are occurring within the 

23 industry, and I don't see the stakeholders being just 

24 manufacturers, but a broader set of parties who can 

25 bring in some knowledge and information that deals with 

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1 what is happening.

2 But I see that each one, particularly the

3 manufacturers, may have more information or different

4 types of information to provide than some of the others

5 who are not manufacturers.

6 So, I see this as being -- the stakeholders

7 here being -- including manufacturers and others,

8 researchers, efficiency advocates, policy-makers, but

9 that the type of input and review that I would expect

10 would be different, and it would be commensurate with

11 their background and their expertise.

12 MR. WARNING: I thought I heard earlier this

13 morning that the DOE would assemble a databook, no

14 problem, and that it would be available to anyone.

15 MR. McCABE: The difference between -- those

16 who participate or those who want to participate --

17 MR. WARNING: I guess what I'm looking for

18 are the participant would be the one who would

19 interview and so forth, that actually gave you the data

20 to put in to the databook.

21 MR. McCABE: It -- the data -- it will be an

22 open process. However, recognizing that there -- there

23 is a fair amount of highly-proprietary information,

24 that that -- if it's proprietary information, that

25 would certainly not be shared. It will look -- if we

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1 what is happening. 

2 But I see that each one, particularly the 

3 manufacturers, may have more information or different 

4 types of information to provide than some of the others 

5 who are not manufacturers. 

6 So, I see this as being -- the stakeholders 

7 here being -- including manufacturers and others, 

8 researchers, efficiency advocates, policy-makers, but 

9 that the type of input and review that I would expect 

10 would be different, and it would be commensurate with 

11 their background and their expertise. 

12 MR. WARNING: I thought I heard earlier this 

13 morning that the DOE would assemble a databook, no 

14 problem, and that it would be available to anyone. 

15 MR. McCABE: The difference between -- those 

16 who participate or those who want to participate 

17 MR. WARNING: I guess what I'm looking for 

18 are the participant would be the one who would 

19 interview and so forth, that actually gave you the data 

20 to put in to the databook. 

21 MR. McCABE: It -- the data -- it will be an 

22 open process. However, recognizing that there -- there 

23 is a fair amount of highly-proprietary information, 

24 that that -- if it's proprietary information, that 

25 would certainly not be shared. It will look -- if we 

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1 have it, we either look to take an -- aggregate it in a

2 way that it can be used, but I would not -- if it's

3 something that we collect some proprietary information

4 from a particular manufacturer, and we use it to make

5 some judgments on, that those data would not be made

6 available. They would be protected under the

7 procedures that we have for protecting proprietary

8 information.

9 MR. SHANKEL: My anticipation is that the

10 databook --

11 MR. BROOKMAN: Before you answer the

12 question, let me back up, because the question that

13 Michael answered was not on the record, and the

14 question relates to who receives this data, and what is

15 the level -- with the way he responded, the level of

16 aggregation.

17 To just complete the record, it was, it was

18 implied earlier that those that participated in the

19 survey and giving the data, that they should -- they

20 might receive it back, but your re-interpretation of

21 what you heard was that maybe everybody would receive

22 it back.

23 So, Mike -- Michael hopefully answered that

24 question.

25 Okay. I'll try and get better at this. Go

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1 have it, we either look to take an -- aggregate it in a 

2 way that it can be used, but I would not -- if it's 

3 something that we collect some proprietary information 

4 from a particular manufacturer, and we use it to make 

5 some judgments on, that those data would not be made 

6 available. They would be protected under the 

7 procedures that we have for protecting proprietary 

8 information. 

9 MR. SHANKEL: My anticipation is that the 

10 databook 

11 MR. BROOKMAN: Before you answer the 

12 question, let me back up, because the question that 

13 Michael answered was not on the record, and the 

14 question relates to who receives this data, and what is 

15 the level -- with the way he responded, the level of 

16 aggregation. 

17 To just complete the record, it was, it was 

18 implied earlier that those that participated in the 

19 survey and giving the data, that they should they 

20 might receive it back, but your re-interpretation of 

21 what you heard was that maybe everybody would receive 

22 it back. 

23 So, Mike -- Michael hopefully answered that 

24 question. 

25 Okay. I'll try and get better at this. Go 

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1 ahead.

2 MR. SHANKEL: I was -- I was going to

3 probably echo what Michael said, that I anticipate the

4 databook being a fairly publicly-available reference.

5 So, to the extent that there's proprietary data, it

6 wouldn't -- it wouldn't be in there.

7 MR. BROOKMAN: Dave?

8 MR. LEWIS: Based on the -- Dave Lewis,

9 Lennox.

10 Based on the last discussion, you can see how

11 the next-to-the-last bullet point on your slide can be

12 very difficult as far as any individual manufacturer

13 providing exhaustive data to you that you would find so

14 helpful.

15 MR. SHANKEL: I know.

16 MR. BROOKMAN: Additional questions or, I

17 should say, comments and advice on the issues that are

18 listed up there by Steve?

19 (No response)

20 MR. SHANKEL: Thank you very much.

21 MR. BROOKMAN: Thank you, Steve.

22 Our next presenter --

23 MR. FOLEY: Follow-up question?

24 MR. BROOKMAN: Yes. By all means, let's get

25 you on the record, Gene. Is this for Steve or for

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1 ahead. 

2 MR. SHANKEL: I was -- I was going to 

3 probably echo what Michael said, that I anticipate the 

4 databook being a fairly publicly-available reference. 

5 So, to the extent that there's proprietary data, it 

6 wouldn't -- it wouldn't be in there. 

7 MR. BROOKMAN: Dave? 

8 MR. LEWIS: Based on the -- Dave Lewis, 

9 Lennox. 

10 Based on the last discussion, you can see how 

11 the next-to-the-Iast bullet point on your slide can be 

12 very difficult as far as any individual manufacturer 

13 providing exhaustive data to you that you would find so 

14 helpful. 

15 MR. SHANKEL: I know. 

16 MR. BROOKMAN: Additional questions or, I 

17 should say, comments and advice on the issues that are 

18 listed up there by Steve? 

19 (No response) 

20 

21 

22 

23 

24 

25 

MR. SHANKEL: Thank you very much. 

MR. BROOKMAN: Thank you, Steve. 

Our next presenter --

MR. FOLEY: Follow-up question? 

MR. BROOKMAN: Yes. By all means, let's get 

you on the record, Gene. Is this for Steve or for 

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1 whom?

2 MR. FOLEY: It's for Steve. Just in terms of

3 process, is there a databook currently being produced,

4 talked about being produced? Is there one -- an order

5 in which you think you're going to be producing these,

6 and what's the time table at this point?

7 MR. SHANKEL: At this point, we are -- at

8 this point, we are doing our initial thinking about

9 what a databook should be and what it should contain

10 and how we get it, year up-to-date on -- on the

11 process.

12 There's not one being produced right now that

13 I'm aware of. The -- what the databook is and what it

14 contains will be part of the manufacturer impact

15 assessment methodology, the document being put together

16 under Arthur D. Little.

17 What I have talked to you about is a section

18 of that document that says one part of the assessed

19 manufacturers impacts is produce this databook. So,

20 we're still drafting that section.

21 MR. BROOKMAN: Let me give you a choice. Do

22 you want to take a real short break now or do you want

23 to go another half an hour, then take a break? Go.

24 Keep going now. Yeah. This is a pretty tough bunch.

25 Have you noticed? There's been hardly anybody fading,

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1 whom? 

2 MR. FOLEY: It's for Steve. Just in terms of 

3 process, is there a databook currently being produced, 

4 talked about being produced? Is there one -- an order 

5 in which you think you're going to be producing these, 

6 and what's the time table at this point? 

7 MR. SHANKEL: At this point, we are -- at 

8 this point, we are doing our initial thinking about 

9 what a databook should be and what it should contain 

10 and how we get it, year up-to-date on -- on the 

11 process. 

12 There's not one being produced right now that 

13 I'm aware of. The -- what the databook is and what it 

14 contains will be part of the manufacturer impact 

15 assessment methodology, the document being put together 

16 under Arthur D. Little. 

17 What I have talked to you about is a section 

18 of that document that says one part of the assessed 

19 manufacturers impacts is produce this databook. So, 

20 we're still drafting that section. 

21 MR. BROOKMAN: Let me give you a choice. Do 

22 you want to take a real short break now or do you want 

23 to go another half an hour, then take a break? Go. 

24 Keep going now. Yeah. This is a pretty tough bunch. 

25 Have you noticed? There's been hardly anybody fading, 

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1 but we have another day.

2 Okay. Jim McMahon from Lawrence Berkeley

3 National Laboratory is going to be our next presenter,

4 and do you need time to set up?

5 MR. McMAHON: I'll be very quick.

6 MR. BROOKMAN: Okay.

7 (Pause)

8 Issues in Shipments Forecasts

9 MR. McMAHON: Good afternoon. It's a

10 pleasure to be here.

11 MR. BROOKMAN: Would you like to use the

12 microphone? Are we working? Yes. Okay.

13 MR. McMAHON: It's a pleasure to be here. I

14 appreciate the opportunity to continue to collaborate

15 on the development of analysis for appliance standards.

16 The topic in this session is the manufacturer

17 impact analysis issues in shipments forecasts, and as

18 was indicated this morning, the intention here today is

19 not to get quantitative but to be qualitative and

20 discuss the important issues that are necessary to

21 consider in estimating shipments in the standards

22 rulemakings.

23 One of the topics that I'm going to discuss

24 is the role of forecasting models. So, while I talk to

25 you, with my other hand, I'm going to start up REEPS,

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1 but we have another day. 

2 Okay. Jim McMahon from Lawrence Berkeley 

3 National Laboratory is going to be our next presenter, 

4 and do you need time to set up? 

5 MR. McMAHON: I'll be very quick. 

6 MR. BROOKMAN: Okay. 

7 (Pause) 

8 Issues in Shipments Forecasts 

9 MR. McMAHON: Good afternoon. It's a 

10 pleasure to be here. 

11 MR. BROOKMAN: Would you like to use the 

12 microphone? Are we working? Yes. Okay. 

13 MR. McMAHON: It's a pleasure to be here. I 

14 appreciate the opportunity to continue to collaborate 

15 on the development of analysis for appliance standards. 

16 The topic in this session is the manufacturer 

17 impact analysis issues in shipments forecasts, and as 

18 was indicated this morning, the intention here today is 

19 not to get quantitative but to be qualitative and 

20 discuss the important issues that are necessary to 

21 consider in estimating shipments in the standards 

22 rulemakings. 

23 One of the topics that I'm going to discuss 

24 is the role of forecasting models. So, while I talk to 

25 you, with my other hand, I'm going to start up REEPS, 

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1 which I brought with me, as an example of an end-use

2 forecasting model, and we'll have a forecast for you to

3 look at in the session after this.

4 Why use forecasting models? Projected

5 shipments of appliances and lighting equipment are

6 necessary inputs to the manufacturer impact analysis.

7 As you saw in the GRIM presentation, the

8 shipments numbers for the future are exogenous inputs.

9 So, it's a separate task to figure out what the

10 shipments will be in the future.

11 As you also saw in the GRIM presentation, in

12 its present form, the shipments in the base case and

13 the standards case are assumed to be the same. If any

14 of you challenge that assumption, we need to figure out

15 what the difference will be.

16 Is there anybody who thinks that they won't

17 be the same?

18 (No response)

19 MR. McMAHON: Okay. So, we should continue.

20 There's a number of ways to estimate the shipments in

21 the future. A number of spread sheet analyses have

22 been done by various interested parties in recent rule23 makings that assume constant shipments in the future.

24 That has the beauty of simplicity, but it has problems

25 with picking the right number that's going to be true

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1 which I brought with mel as an example of an end-use 

2 forecasting model l and we'll have a forecast for you to 

3 look at in the session after this. 

4 Why use forecasting models? Projected 

5 shipments of appliances and lighting equipment are 

6 necessary inputs to the manufacturer impact analysis. 

7 As you saw in the GRIM presentationl the 

8 shipments numbers for the future are exogenous inputs. 

9 SOl it's a separate task to figure out what the 

10 shipments will be in the future. 

11 As you also saw in the GRIM presentationl in 

12 its present form l the shipments in the base case and 

13 the standards case are assumed to be the same. If any 

14 of you challenge that assumption l we need to figure out 

15 what the difference will be. 

16 Is there anybody who thinks that they won't 

17 be the same? 

18 (No response) 

19 MR. McMAHON: Okay. SOl we should continue. 

20 There's a number of ways to estimate the shipments in 

21 the future. A number of spread sheet analyses have 

22 been done by various interested parties in recent rule23 makings that assume constant shipments in the future. 

24 That has the beauty of simplicitYI but it has problems 

25 with picking the right number that's going to be true 

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1 for end years in the future.

2 One can also extrapolate historical trends.

3 That's simple, easy to explain, transparent, not

4 necessarily accurate, but we can discuss that. There

5 are more detailed forecasting models, and today, I will

6 review a few of those very quickly and give you an idea

7 of what those are about.

8 Why go into detail forecasting models?

9 Because obviously you lose simplicity. Things get more

10 complicated. The reason that's worth doing or worth

11 considering is demographics for starters. For

12 appliances, the number of households is an important

13 driver. The number of new houses built in a given year

14 is an important driver.

15 If you assume constant shipments or

16 extrapolation from an historical trend, you need to

17 ignore demographics.

18 Another reason is economics and market

19 behavior. It's true that energy prices change and are

20 expected to change. It's true that product prices

21 change and are expected to change, and it's true that

22 consumers change what they want to buy. Without a more

23 complicated model, you need to ignore those things.

24 Engineering. Technologies are changing all

25 the time. I have to say that I'm very encouraged

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1 for end years in the future. 

2 One can also extrapolate historical trends. 

3 That's simple, easy to explain, transparent, not 

4 necessarily accurate, but we can discuss that. There 

5 are more detailed forecasting models, and today, I will 

6 review a few of those very quickly and give you an idea 

7 of what those are about. 

8 Why go into detail forecasting models? 

9 Because obviously you lose simplicity. Things get more 

10 complicated. The reason that's worth doing or worth 

11 considering is demographics for starters. For 

12 appliances, the number of households is an important 

13 driver. The number of new houses built in a given year 

14 is an important driver. 

15 If you assume constant shipments or 

16 extrapolation from an historical trend, you need to 

17 ignore demographics. 

18 Another reason is economics and market 

19 behavior. It's true that energy prices change and are 

20 expected to change. It's true that product prices 

21 change and are expected to change, and it's true that 

22 consumers change what they want to buy. Without a more 

23 complicated model, you need to ignore those things. 

24 

25 the time. 

Engineering. Technologies are changing all 

I have to say that I'm very encouraged 

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1 having been doing this for a long time at the state of

2 the art of the technology and the software as

3 illustrated by the GRIM presentation earlier today.

4 I know there's the issue of the black boxes.

5 When I started, there were computer programs, 20,000

6 lines of FORTRAN code, and only those people who knew

7 FORTRAN were capable of really getting into the models

8 to understanding them.

9 When I first started the forecasting models,

10 I brought over Oak Ridge's model, and I would say it

11 took me about a year to be sure that I had been through

12 every nook and cranny of those 20,000 lines of code, so

13 that I really knew everything that this model might be

14 capable of doing in various circumstances, and I'm

15 really pleased that now we have spread sheets.

16 We all -- not all but most of us have laptops

17 or at least someone else who knows how to use one. My

18 kids teach me a lot these days about how to use

19 computers. So, we're at a place where we can

20 communicate a lot more clearly and get into these

21 issues.

22 As Terry Thiele said earlier, we can

23 communicate these results instantaneously. A lot of

24 our stuff these days is done by e-mail, and, so, we can

25 pass the spread sheets around, critique them fairly

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1 having been doing this for a long time at the state of 

2 the art of the technology and the software as 

3 illustrated by the GRIM presentation earlier today. 

4 I know there's the issue of the black boxes. 

5 When I started, there were computer programs, 20,000 

6 lines of FORTRAN code, and only those people who knew 

7 FORTRAN were capable of really getting into the models 

8 to understanding them. 

9 When I first started the forecasting models, 

10 I brought over Oak Ridge's model, and I would say it 

11 took me about a year to be sure that I had been through 

12 every nook and cranny of those 20,000 lines of code, so 

13 that I really knew everything that this model might be 

14 capable of doing in various circumstances, and I'm 

15 really pleased that now we have spread sheets. 

16 We all -- not all but most of us have laptops 

17 or at least someone else who knows how to use one. My 

18 kids teach me a lot these days about how to use 

19 computers. So, we're at a place where we can 

20 communicate a lot more clearly and get into these 

21 issues. 

22 As Terry Thiele said earlier, we can 

23 communicate these results instantaneously. A lot of 

24 our stuff these days is done by e-mail, and, so, we can 

25 pass the spread sheets around, critique them fairly 

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1 quickly, and have a real open discussion, and I'm very

2 encouraged by that.

3 Okay. Engineering. Besides computers, lots

4 of other things are changing. The way that appliances

5 are built, the way that lighting is built is very

6 different, and that sometimes affects the price and

7 sometimes affects the demand for these products, and we

8 need to consider those things, and there are other

9 programs going on.

10 One of the important things in the change in

11 the new process is to consider other regulations, and I

12 would add to that regulations and other market forces.

13 I've mentioned some of these factors. I

14 don't think this is an exhaustive list, and I would

15 welcome your comments for other things that we should

16 add on here.

17 Clearly replacement of existing equipment in

18 the United States in the appliance markets is extremely

19 important. In fact, it dominates sales because it's a

20 very mature market. Virtually every home in the

21 country has a refrigerator or two or three, and most of

22 the sales are to replace those as they age.

23 New construction is important because new

24 houses need appliances and lighting, also. There is

25 competition among fuels for some of the products, and

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1 quickly, and have a real open discussion, and I'm very 

2 encouraged by that. 

3 Okay. Engineering. Besides computers, lots 

4 of other things are changing. The way that appliances 

5 are built, the way that lighting is built is very 

6 different, and that sometimes affects the price and 

7 sometimes affects the demand for these products, and we 

8 need to consider those things, and there are other 

9 programs going on. 

10 One of the important things in the change in 

11 the new process is to consider other regulations, and I 

12 would add to that regulations and other market forces. 

13 I've mentioned some of these factors. I 

14 don't think this is an exhaustive list, and I would 

15 welcome your comments for other things that we should 

16 add on here. 

17 Clearly replacement of existing equipment in 

18 the United States in the appliance markets is extremely 

19 important. In fact, it dominates sales because it's a 

20 very mature market. Virtually every home in the 

21 country has a refrigerator or two or three, and most of 

22 the sales are to replace those as they age. 

23 New construction is important because new 

24 houses need appliances and lighting, also. There is 

25 competition among fuels for some of the products, and 

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1 clearly that's an issue that needs to be considered

2 when you're considering a policy that may change the

3 characteristics or price of competing products.

4 There's other market and regulatory factors.

5 Again, not an exhaustive list. The EPA green lights

6 program is something that comes to mind that's had an

7 impact on the sales of efficient lighting equipment.

8 There are incentives by utilities. There are fewer of

9 those programs now and projected to be fewer, but they

10 have had a major impact in the past, and some are

11 probably going to continue in the future.

12 There are building codes. The prices of

13 appliances and equipment are changing. So are the

14 features. Clearly the price is related to the

15 features, and we need consider those things.

16 I've told you why forecasting models. Now,

17 what do they do for us? I've boiled it down to

18 basically four calculations that they do for us or four

19 projections that they do for the future.

20 The first one is pretty much accounting.

21 It's the stock turnover. We can find out fairly well

22 from the Department of Energy surveys and other surveys

23 how many appliances or how much lighting is in place

24 right now.

25 We also know that that equipment will age and

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1 clearly that's an issue that needs to be considered 

2 when you're considering a policy that may change the 

3 characteristics or price of competing products. 

4 There's other market and regulatory factors. 

5 Again, not an exhaustive list. The EPA green lights 

6 program is something that comes to mind that's had an 

7 impact on the sales of efficient lighting equipment. 

8 There are incentives by utilities. There are fewer of 

9 those programs now and projected to be fewer, but they 

10 have had a major impact in the past, and some are 

11 probably going to continue in the future. 

12 There are building codes. The prices of 

13 appliances and equipment are changing. So are the 

14 features. Clearly the price is related to the 

15 features, and we need consider those things. 

16 I've told you why forecasting models. Now, 

17 what do they do for us? I've boiled it down to 

18 basically four calculations that they do for us or four 

19 projections that they do for the future. 

20 The first one is pretty much accounting. 

21 It's the stock turnover. We can find out fairly well 

22 from the Department of Energy surveys and other surveys 

23 how many appliances or how much lighting is in place 

24 right now. 

25 We also know that that equipment will age and 

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1 be replaced over time, and we can do a fairly decent

2 job of projecting the turnover.

3 As I've indicated in the earlier slide,

4 that's a major driver of future purchases. So, that's

5 an important piece to have.

6 The second piece is fuel choice. Clearly for

7 those products where there's a fuel choice, let's say

8 furnaces or water heaters or clothes dryers, one needs

9 to consider that. The prices of the fuels don't always

10 change together. Electricity and gas don't always go

11 together, and, so, we need to think a little bit about

12 how to account for projected changes in those things.

13 Technology choice. This has to do with the

14 choice of efficiency as well as the choice between

15 different technologies. Even if they use the same

16 fuel, you have different options. As the technologies

17 mature, their prices may change, and this is a way to

18 account for that .

19 Usage behavior. One of the things that --

20 that the most detailed models account for is what's

21 been called a rebound or take-back effect. If we make

22 appliances more efficient, consumers may use them more

23 because they're now cheaper to operate, and most of the

24 models that are reviewed today take account of those.

25 Okay. I'm going to get into the alternative

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1 be replaced over time, and we can do a fairly decent 

2 job of projecting the turnover. 

3 As I've indicated in the earlier slide, 

4 that's a major driver of future purchases. So, that's 

5 an important piece to have. 

6 The second piece is fuel choice. Clearly for 

7 those products where there's a fuel choice, let's say 

8 furnaces or water heaters or clothes dryers, one needs 

9 to consider that. The prices of the fuels don't always 

10 change together. Electricity and gas don't always go 

11 together, and, so, we need to think a little bit about 

12 how to account for projected changes in those things. 

13 Technology choice. This has to do with the 

14 choice of efficiency as well as the choice between 

15 different technologies. Even if they use the same 

16 fuel, you have different options. As the technologies 

17 mature, their prices may change, and this is a way to 

18 account for that. 

19 Usage behavior. One of the things that --

20 that the most detailed models account for is what's 

21 been called a rebound or take-back effect. If we make 

22 appliances more efficient, consumers may use them more 

23 because they're now cheaper to operate, and most of the 

24 models that are reviewed today take account of those. 

25 Okay. I'm going to get into the alternative 

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1 forecasting models. If anyone has any comments or

2 questions along the way, please put up your hand, I'll

3 be happy to take them as we go along here.

4 MR. LEWIS: Will we have time for questions

5 afterwards?

6 MR. McMAHON: Absolutely. There will be time

7 for questions after.

8 okay. So, the alternative forecasting

9 models, I've grouped these by the sectors. So,

10 residential and commercial. Historically, the

11 appliances have been modeled by residential models, and

12 lighting has been done in commercial because the major

13 focus is fluorescent lighting, which is mostly in the

14 commercial sector.

15 Footnote. That's commercial/industrial. We

16 do account for lighting in industrial buildings.

17 I've listed four major models here, maybe

18 three major models in a spread sheet for residential.

19 The EIA National Energy Modeling System is a complete

20 energy sector model, and it has a residential module.

21 So, it has one piece that forecasts residential energy

22 consumption in the U.S. But that's connected to other

23 models that calculate the predicted energy consumption

24 for commercial, transportation, industrial, and hook it

25 all up to the energy supply.

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1 forecasting models. If anyone has any comments or 

2 questions along the way, please put up your hand, I'll 

3 be happy to take them as we go along here. 

4 MR. LEWIS: Will we have time for questions 

5 afterwards? 

6 MR. McMAHON: Absolutely. There will be time 

7 for questions after. 

8 Okay. So, the alternative forecasting 

9 models, I've grouped these by the sectors. So, 

10 residential and commercial. Historically, the 

11 appliances have been modeled by residential models, and 

12 lighting has been done in commercial because the major 

13 focus is fluorescent lighting, which is mostly in the 

14 commercial sector. 

15 Footnote. That's commercial/industrial. We 

16 do account for lighting in industrial buildings. 

17 I've listed four major models here, maybe 

18 three major models in a spread sheet for residential. 

19 The EIA National Energy Modeling System is a complete 

20 energy sector model, and it has a residential module. 

21 So, it has one piece that forecasts residential energy 

22 consumption in the u.S. But that's connected to other 

23 models that calculate the predicted energy consumption 

24 for commercial, transportation, industrial, and hook it 

25 all up to the energy supply. 

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1 So, it's a -- it's an integrated model of the

2 entire energy sector. That's the model that's used for

3 the annual -- the official U.S. Department of Energy

4 Annual Energy outlook every year. It's been used since

5 1994.

6 The second one is the LBL Residential Energy

7 Model. That got its origins at Oak Ridge in the 1970s,

8 and I've been the keeper of that model and developer of

9 that model ever since, and we'll talk about that more

10 in a minute.

11 The Electric Power Research Institute

12 developed a residential end-use model in the 1980s

13 that's been used by a variety of utilities. That model

14 is not typically used for national forecasts. It's

15 typically used for an individual utility company, but

16 if you give it national data, it certainly is capable

17 of doing national forecasts, and we have used it to do

18 that at LBL.

19 The fourth one is under development. In the

20 idea of making things more transparent and as a

21 teaching tool, getting away from the more complicated

22 models, we found it useful to develop some spread

23 sheets that lay out the assumptions in a clear way that

24 we can share with a lot of people.

25 So, I have some examples of spread sheets

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1 SOl it's a -- it's an integrated model of the 

2 entire energy sector. That's the model that's used for 

3 the annual -- the official u.S. Department of Energy 

4 Annual Energy Outlook every year. It's been used since 

5 1994. 

6 The second one is the LBL Residential Energy 

7 Model. That got its origins at Oak Ridge in the 1970s 1 

8 and I've been the keeper of that model and developer of 

9 that model ever since l and we'll talk about that more 

10 in a minute. 

11 The Electric Power Research Institute 

12 developed a residential end-use model in the 1980s 

13 that's been used by a variety of utilities. That model 

14 is not typically used for national forecasts. It's 

15 typically used for an individual utility company I but 

16 if you give it national datal it certainly is capable 

17 of doing national forecasts l and we have used it to do 

18 that at LBL. 

19 The fourth one is under development. In the 

20 idea of making things more transparent and as a 

21 teaching tool l getting away from the more complicated 

22 models l we found it useful to develop some spread 

23 sheets that layout the assumptions in a clear way that 

24 we can share with a lot of people. 

25 SOl I have some examples of spread sheets 

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1 that I can show you later on, but clearly this is work

2 under development, and I hope that that will continue.

3 On the commercial side, again EIA on a

4 different part of the NEMS module, the Electric Power

5 Research Institute has a commercial model called

6 Commend that has been used at LBL to do lighting

7 studies for quite awhile. In fact, I will comment that

8 both REEPS and Commend, the two EPRI models, were done

9 in collaboration between EPRI and its contractors and

10 the Lawrence Berkeley Laboratory. We tried to

11 incorporate the best features of all our forecasting

12 models into theirs, and finally, another spread sheet

13 for commercial.

14 Let me say something about track record. The

15 oldest model is REM. As I said, that came from an Oak

16 Ridge model that's even older. That's been used by the

17 Codes and -- the Department -- the Office of Codes and

18 Standards at DOE for 18 years. It's in the public

19 domain. Anybody who wants a copy of it can tell me,

20 and I'll be happy to give it to you.

21 REEPS has been around about 15 years. It's

22 used primarily by member utilities. It is a commercial

23 product. I imagine you can buy it if you approach

24 EPRI. You'll have to negotiate with them about the

25 price. It's normally used by their member utilities,

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1 that I can show you later on, but clearly this is work 

2 under development, and I hope that that will continue. 

3 On the commercial side, again EIA on a 

4 different part of the NEMS module, the Electric Power 

5 Research Institute has a commercial model called 

6 Commend that has been used at LBL to do lighting 

7 studies for quite awhile. In fact, I will comment that 

8 both REEPS and Commend, the two EPRI models, were done 

9 in collaboration between EPRI and its contractors and 

10 the Lawrence Berkeley Laboratory. We tried to 

11 incorporate the best features of all our forecasting 

12 models into theirs, and finally, another spread sheet 

13 for commercial. 

14 Let me say something about track record. The 

15 oldest model is REM. As I said, that came from an Oak 

16 Ridge model that's even older. That's been used by the 

17 Codes and the Department -- the Office of Codes and 

18 Standards at DOE for 18 years. It's in the public 

19 domain. Anybody who wants a copy of it can tell me, 

20 and I'll be happy to give it to you. 

21 REEPS has been around about 15 years. It's 

22 used primarily by member utilities. It is a commercial 

23 product. I imagine you can buy it if you approach 

24 EPRI. You'll have to negotiate with them about the 

25 price. It's normally used by their member utilities, 

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1 but I do know that they market it internationally, and

2 I imagine they wouldn't mind selling copies of it.

3 Commend, same situation. NEMS is a publicly4 available model. You can get it here in the building

5 from EIA, and -- anyone from EIA here currently? Back

6 there. Okay. So, I'll pass the buck on questions

7 about that to folks from EIA.

8 Spread sheet will be developed in the public

9 domain and available to anybody.

10 Operating characteristics. The REM model

11 works on a work station. It's written in FORTRAN. A

12 personal computer version is certainly possible. 10

13 years ago, we put one up on a personal computer, and

14 there's no reason we couldn't do that again, but back

15 then, there weren't things like Windows and user16 friendly interfaces and that kind of stuff. So, you're

17 still dealing with tables of numbers and very

18 rudimentary graphics.

19 So, if we wanted to make that friendlier, I

20 would suggest that we rewrite it in a more modern

21 language with all the bells and whistles that are

22 available to us today.

23 REEPS and Commend are available on the

24 personal computer. I have copies here and be happy to

25 show you a demo in the next session.

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1 but I do know that they market it internationally, and 

2 I imagine they wouldn't mind selling copies of it. 

3 Commend, same situation. NEMS is a publicly4 available model. You can get it here in the building 

5 from EIA, and anyone from EIA here currently? Back 

6 there. Okay. So, I'll pass the buck on questions 

7 about that to folks from EIA. 

8 Spread sheet will be developed in the public 

9 domain and available to anybody. 

10 Operating characteristics. The REM model 

11 works on a work station. It's written in FORTRAN. A 

12 personal computer version is certainly possible. 10 

13 years ago, we put one up on a personal computer, and 

14 there's no reason we couldn't do that again, but back 

15 then, there weren't things like Windows and user16 friendly interfaces and that kind of stuff. So, you're 

17 still dealing with tables of numbers and very 

18 rudimentary graphics. 

19 So, if we wanted to make that friendlier, I 

20 would suggest that we rewrite it in a more modern 

21 language with all the bells and whistles that are 

22 available to us today. 

23 REEPS and Commend are available on the 

24 personal computer. I have copies here and be happy to 

25 show you a demo in the next session. 

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1 NEMS is developed as a mean frame model. In

2 fact, it's -- you're fairly limited in the computer you

3 can run it on. We just bought a $100,000 IBM last year

4 to run this model at LBL, and it uses a specific math

5 package. So, it's not as accessible as some of the

6 others.

7 A personal computer version was available,

8 but I understood from the January workshop that that's

9 no longer going to be supported, is that correct?

10 STAFF MEMBER: That's true.

11 MR. McMAHON: That's true. Okay. Okay. And

12 the spread sheet obviously will be available to

13 anybody. So, let's come back to this issue of black

14 boxes. What can we do so that we never again have a

15 black box? And let's hope we even get beyond making

16 them gray boxes, and we get to our pristine transparent

17 cube that we can all see through and understand.

18 First, let's make the models as simple as

19 possible. Now, I've just given you all the reasons why

20 we have to use complex models, right, the demographics

21 and the economics and the engineering. So, how are we

22 going to make them simple?

23 The answer to that is you want to segment

24 this into tractable problems. So, let's deal with the

25 issue of shipments as a separate issue. It will depend

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1 NEMS is developed as a mean frame model. In 

2 fact, it's -- you're fairly limited in the computer you 

3 can run it on. We just bought a $100,000 IBM last year 

4 to run this model at LBL, and it uses a specific math 

5 package. So, it's not as accessible as some of the 

6 others. 

7 A personal computer version was available, 

8 but I understood from the January workshop that that's 

9 no longer going to be supported, is that correct? 

10 STAFF MEMBER: That's true. 

11 MR. McMAHON: That's true. Okay. Okay. And 

12 the spread sheet obviously will be available to 

13 anybody. So, let's come back to this issue of black 

14 boxes. What can we do so that we never again have a 

15 black box? And let's hope we even get beyond making 

16 them gray boxes, and we get to our pristine transparent 

17 cube that we can all see through and understand. 

18 First, let's make the models as simple as 

19 possible. Now, I've just given you all the reasons why 

20 we have to use complex models, right, the demographics 

21 and the economics and the engineering. So, how are we 

22 going to make them simple? 

23 The answer to that is you want to segment 

24 this into tractable problems. So, let's deal with the 

25 issue of shipments as a separate issue. It will depend 

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1 upon prices, but then we deal with prices as a working

2 group, a small number of people who are knowledgeable

3 to work on that issue.

4 So, that's how we make it tractable, is by

5 breaking it down into the components and having those

6 available in simple forms, spread sheets or whatever

7 works .

8 Secondly, we need to make it accessible. LBL

9 has a Web site. There are a number of things available

10 there. A lot of the data in our baseline databook,

11 Steve Shankel will be available there shortly, so that

12 you can pick up all the historical shipments and

13 efficiency data that has been published and lots of

14 other things.

15 That's one way to go. Copies could be

16 provided through DOE or through a contractor to DOE.

17 There's lots of ways to do this. So, I think that's

18 something that today, we're much more capable of doing

19 than we were some years ago.

20 Developing detailed documentation. One of

21 the flaws in the approach in the past was that the

22 effort was not to provide documentation for the

23 interested parties, but to provide mostly documentation

24 for DOE, and I think we're beyond that now, and we need

25 to be at a place where by breaking this down into

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1 upon prices, but then we deal with prices as a working 

2 group, a small number of people who are knowledgeable 

3 to work on that issue. 

4 So, that's how we make it tractable, is by 

5 breaking it down into the components and having those 

6 available in simple forms, spread sheets or whatever 

7 works. 

8 Secondly, we need to make it accessible. LBL 

9 has a Web site. There are a number of things available 

10 there. A lot of the data in our baseline databook, 

11 Steve Shankel will be available there shortly, so that 

12 you can pick up all the historical shipments and 

13 efficiency data that has been published and lots of 

14 other things. 

15 That's one way to go. Copies could be 

16 provided through DOE or through a contractor to DOE. 

17 There's lots of ways to do this. So, I think that's 

18 something that today, we're much more capable of doing 

19 than we were some years ago. 

20 Developing detailed documentation. One of 

21 the flaws in the approach in the past was that the 

22 effort was not to provide documentation for the 

23 interested parties, but to provide mostly documentation 

24 for DOE, and I think we're beyond that now, and we need 

25 to be at a place where by breaking this down into 

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1 smaller pieces and documenting it well internally,

2 everyone will be able to understand what's going on

3 there, not these 500-page technical support documents

4 that everybody hates.

5 Training workshops. We've done a little bit

6 of training. LBL has a record of doing training

7 workshops in other areas of research. We can do that

8 in a central location. Other contractors can do this.

9 This can be done on your location. We can send someone

10 to show you how to work models. Things can be done by

11 video conferences. Lots of ways to work that.

12 The point is we're going to try and make the

13 information much more accessible and much more

14 responsive.

15 The last major element that I wanted to touch

16 on is the uncertainty analysis. Clearly we want to

17 identify key uncertainties. Just saying something is

18 uncertain is not enough. We then want to estimate the

19 ranges around that. So, let's say that we have a

20 concern about the prices in the future. Even though we

21 might not be able to predict exactly what the price is,

22 we might be able to agree that it's between $10 and

23 $100.

24 There are things that we can do to narrow the

25 range, and that helps a lot with the analysis because

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1 smaller pieces and documenting it well internally, 

2 everyone will be able to understand what's going on 

3 there, not these 500-page technical support documents 

4 that everybody hates. 

5 Training workshops. We've done a little bit 

6 of training. LBL has a record of doing training 

7 workshops in other areas of research. We can do that 

8 in a central location. Other contractors can do this. 

9 This can be done on your location. We can send someone 

10 to show you how to work models. Things can be done by 

11 video conferences. Lots of ways to work that. 

12 The point is we're going to try and make the 

13 information much more accessible and much more 

14 responsive. 

15 The last major element that I wanted to touch 

16 on is the uncertainty analysis. Clearly we want to 

17 identify key uncertainties. Just saying something is 

18 uncertain is not enough. We then want to estimate the 

19 ranges around that. So, let's say that we have a 

20 concern about the prices in the future. Even though we 

21 might not be able to predict exactly what the price is, 

22 we might be able to agree that it's between $10 and 

23 $100. 

24 There are things that we can do to narrow the 

25 range, and that helps a lot with the analysis because 

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1 you can then do the low and high bounds and find out if

2 it matters.

3 We'd like to express the output as ranges.

4 This is a point that Chuck Samuels made at a previous

5 workshop, that although the uncertainty was analyzed in

6 manufacturer analysis before, and if you look at the

7 old TSDs, you'll find the output with a standard

8 deviation next to it. That wasn't carried through

9 downstream to the impacts of the standards in other

10 areas, and we would like to carry that all the way

11 through so that the policy-makers here at DOE see not

12 just a point answer, this saves so many quads of

13 energy, but it saves so many quads of energy with this

14 probability of saving only one or more than 10.

15 Lastly, we want to conduct scenario analyses

16 or what-if analyses. Clearly, any single scenario is

17 going to be wrong. Mike Rothkoff, who at one time was

18 the head of the Energy Analysis Program at LBL, when he

19 first joined, came in, walked into my office,

20 introduced himself and said I'm here to tell you that

21 your forecasts are wrong, and I said, hello, Mike, you

22 know, why do you say that, and he said because all

23 forecasts are wrong. Don't ever think that your

24 forecasts are right.

25 But you have to be able to think about the

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1 you can then do the low and high bounds and find out if 

2 it matters. 

3 We'd like to express the output as ranges. 

4 This is a point that Chuck Samuels made at a previous 

5 workshop, that although the uncertainty was analyzed in 

6 manufacturer analysis before, and if you look at the 

7 old TSDs, you'll find the output with a standard 

8 deviation next to it. That wasn't carried through 

9 downstream to the impacts of the standards in other 

10 areas, and we would like to carry that all the way 

11 through so that the policy-makers here at DOE see not 

12 just a point answer, this saves so many quads of 

13 energy, but it saves so many quads of energy with this 

14 probability of saving only one or more than 10. 

15 Lastly, we want to conduct scenario analyses 

16 or what-if analyses. Clearly, any single scenario is 

17 going to be wrong. Mike Rothkoff, who at one time was 

18 the head of the Energy Analysis Program at LBL, when he 

19 first joined, came in, walked into my office, 

20 introduced himself and said I'm here to tell you that 

21 your forecasts are wrong, and I said, hello, Mike, you 

22 know, why do you say that, and he said because all 

23 forecasts are wrong. Don't ever think that your 

24 forecasts are right. 

25 But you have to be able to think about the 

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1 importance of that. What's the impact of this forecast

2 being a little bit this way or that way? So, it's

3 useful to do the what-if scenarios.

4 I want to conclude with a cartoon. There's a

5 problem with forecasting, so you always have to go back

6 to the databook and to historical experience and make

7 sure that these things are in context, and they make

8 sense.

9 (Laughter)

10 MR. McMAHON: Thank you for your attention.

11 I'll take any questions.

12 MR. BROOKMAN: Questions for Jim McMahon?

13 John?

14 MR. WILSON: John Wilson.

15 Jim, how would you deal with imports and

16 exports in shipments?

17 MR. McMAHON: The historical data is there to

18 a large extent about what imports and exports are. In

19 terms of the impacts on manufacturers, this is -- this

20 is the issue of where you draw the boundary.

21 As was indicated, most of the manufacturers

22 are international corporations with appliance

23 divisions, and some thought has to go into the smallest

24 set of information that we can gather that is

25 available. You know, we don't want to do the entire

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1 importance of that. What's the impact of this forecast 

2 being a little bit this way or that way? So, it's 

3 useful to do the what-if scenarios. 

4 I want to conclude with a cartoon. There's a 

5 problem with forecasting, so you always have to go back 

6 to the databook and to historical experience and make 

7 sure that these things are in context, and they make 

8 sense. 

9 (Laughter) 

10 MR. McMAHON: Thank you for your attention. 

11 I'll take any questions. 

12 MR. BROOKMAN: Questions for Jim McMahon? 

13 John? 

14 MR. WILSON: John Wilson. 

15 Jim, how would you deal with imports and 

16 exports in shipments? 

17 MR. McMAHON: The historical data is there to 

18 a large extent about what imports and exports are. In 

19 terms of the impacts on manufacturers, this is -- this 

20 is the issue of where you draw the boundary. 

21 As was indicated, most of the manufacturers 

22 are international corporations with appliance 

23 divisions, and some thought has to go into the smallest 

24 set of information that we can gather that is 

25 available. You know, we don't want to do the entire 

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1 international economy, but we want relevant information

2 that we can gather.

3 I think it is going to be difficult to deal

4 with competition on an international level with a

5 quantitative model, and I think that's going to wind up

6 falling back on the opinions of experts through

7 interviews with knowledgeable people in the industry

8 and observers of the industry to try and deal with

9 that.

10 MR. BROOKMAN: That's okay. We're taping

11 this. So, please say your name.

12 MR. KREBS: Hi. My name's Mark Krebs, and I

13 was wondering in your opinion, what are the short14 comings of off-the-shelf spread sheets as opposed to

15 the more traditional FORTRAN black box?

16 MR. McMAHON: It's a good question. Spread

17 sheets are good for simple things. However, if any of

18 you have used a complicated spread sheet, it's easy to

19 put something in there that you don't want and not know

20 you did it.

21 FORTRAN codes and other high-level languages

22 are useful where you want to write an equation and have

23 it iterate over the next 30 years. So, here's how

24 prices respond to whatever, and you have a formula, and

25 then you can feed in a vector of driving variables

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1 international economy, but we want relevant information 

2 that we can gather. 

3 I think it is going to be difficult to deal 

4 with competition on an international level with a 

5 quantitative model, and I think that's going to wind up 

6 falling back on the opinions of experts through 

7 interviews with knowledgeable people in the industry 

8 and observers of the industry to try and deal with 

9 that. 

10 MR. BROOKMAN: That's okay. We're taping 

11 this. So, please say your name. 

12 MR. KREBS: Hi. My name's Mark Krebs, and I 

13 was wondering in your opinion, what are the short14 comings of off-the-shelf spread sheets as opposed to 

15 the more traditional FORTRAN black box? 

16 MR. McMAHON: It's a good question. Spread 

17 sheets are good for simple things. However, if any of 

18 you have used a complicated spread sheet, it's easy to 

19 put something in there that you don't want and not know 

20 you did it. 

21 FORTRAN codes and other high-level languages 

22 are useful where you want to write an equation and have 

23 it iterate over the next 30 years. So, here's how 

24 prices respond to whatever, and you have a formula, and 

25 then you can feed in a vector of driving variables 

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1 later on.

2 In a spread sheet sometimes manually, you

3 have to do a lot more work to do that than just doing

4 it in code.

5 Does that answer your question? It's a short

6 answer. I could go on longer, but I think that's the

7 fundamental difference.

8 MR. LEWIS: Dave Lewis with Lennox.

9 How will this current effort that you are

10 undertaking now produce a result that is more credible

11 than what the past NEMS model did?

12 MR. McMAHON: I think the important element

13 in making it more credible is workshops like this.

14 It's forming a working group or a set of working groups

15 with people who have knowledge and are involved from

16 the beginning in an open process to develop this all

17 the way through.

18 In the past, I think DOE felt that it had an

19 obligation to take the first shot and produce something

20 out there and then get comments on it, and I think that

21 that sometimes led to problems, and I think that

22 starting from the beginning, all of this stuff is open

23 to discussion right now. There's no locked-in model.

24 That we can get a lot of information and a lot of

25 expertise brought to bear and narrow the areas of

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1 later on. 

2 In a spread sheet sometimes manually, you 

3 have to do a lot more work to do that than just doing 

4 it in code. 

5 Does that answer your question? It's a short 

6 answer. I could go on longer, but I think that's the 

7 fundamental difference. 

8 MR. LEWIS: Dave Lewis with Lennox. 

9 How will this current effort that you are 

10 undertaking now produce a result that is more credible 

11 than what the past NEMS model did? 

12 MR. McMAHON: I think the important element 

13 in making it more credible is workshops like this. 

14 It's forming a working group or a set of working groups 

15 with people who have knowledge and are involved from 

16 the beginning in an open process to develop this all 

17 the way through. 

18 In the past, I think DOE felt that it had an 

19 obligation to take the first shot and produce something 

20 out there and then get comments on it, and I think that 

21 that sometimes led to problems, and I think that 

22 starting from the beginning, all of this stuff is open 

23 to discussion right now. There's no locked-in model. 

24 That we can get a lot of information and a lot of 

25 expertise brought to bear and narrow the areas of 

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1 disagreement.

2 By analogy, when we did the consensus process

3 for refrigerators in 1992 to 1994, when we came into

4 the first meetings, there was a lot of issues on the

5 table between the different interested parties, the

6 environmental groups and the manufacturers, about what

7 they thought was true and was not true or the ranges of

8 values for different things.

9 Even within the engineering analysis, there

10 was disagreement among manufacturers about what was

11 possible at what cost.

12 Over the course of time, through discussion

13 and quantifying those differences, we wound up saying

14 okay, we can't be sure about the effect of a heat

15 exchanger in this particular application, but it's only

16 a five-percent effect. Okay.

17 So, I think we'll work through identifying

18 the issues, trying to quantify how important they are,

19 and although in the end, not everybody will agree on an

20 exact number, we can come to some closure on a lot of

21 the issues and bring it down to the things that really

22 matter.

23 MR. MORRIS: Wayne Morris with AHAM.

24 I guess with all deference to the work that

25 you're doing, Jim, in terms of trying to make this

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1 disagreement. 

2 By analogy, when we did the consensus process 

3 for refrigerators in 1992 to 1994, when we came into 

4 the first meetings, there was a lot of issues on the 

5 table between the different interested parties, the 

6 environmental groups and the manufacturers, about what 

7 they thought was true and was not true or the ranges of 

8 values for different things. 

9 Even within the engineering analysis, there 

10 was disagreement among manufacturers about what was 

11 possible at what cost. 

12 Over the course of time, through discussion 

13 and quantifying those differences, we wound up saying 

14 okay, we can't be sure about the effect of a heat 

15 exchanger in this particular application, but it's only 

16 a five-percent effect. Okay. 

17 So, I think we'll work through identifying 

18 the issues, trying to quantify how important they are, 

19 and although in the end, not everybody will agree on an 

20 exact number, we can come to some closure on a lot of 

21 the issues and bring it down to the things that really 

22 matter. 

23 MR. MORRIS: Wayne Morris with AHAM. 

24 I guess with all deference to the work that 

25 you're doing, Jim, in terms of trying to make this 

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1 forecasting model better than it was, and certainly I

2 think we all feel that it -- that it -- it does

3 definitely deserve that attention.

4 I guess I would urge the department not to do

5 a forecasting of shipments on a total basis but rather

6 to -- to look at the shipments forecasting on an

7 individual product-by-product rulemaking basis, to do

8 it as the first stage of assumptions of the -- of the

9 rulemaking.

10 I don't think that necessarily the forecasts

11 that we're looking at here, that the same assumptions

12 and the same variables would be true from one industry

13 to another, and I think that -- that certainly the work

14 that you're doing in developing this could be useful to

15 use as a check-back, as NEMS has been for other such

16 situations. So that we look at the numbers of house17 holds and all of that type of thing, and I think that's

18 very valuable.

19 But as an actual number to plug in to the --

20 the -- the GRIM analysis of the shipments, I would urge

21 the department to do that on an individual product-by22 product basis as we -- as we go forward with each of

23 the rulemakings rather than do it on a universal basis.

24 MR. McMAHON: I agree. I don't know if

25 anyone from DOE wants to comment on that.

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1 forecasting model better than it was, and certainly I 

2 think we all feel that it -- that it -- it does 

3 definitely deserve that attention. 

4 I guess I would urge the department not to do 

5 a forecasting of shipments on a total basis but rather 

6 to -- to look at the shipments forecasting on an 

7 individual product-by-product rulemaking basis, to do 

8 it as the first stage of assumptions of the -- of the 

9 rulemaking. 

10 I don't think that necessarily the forecasts 

11 that we're looking at here, that the same assumptions 

12 and the same variables would be true from one industry 

13 to another, and I think that that certainly the work 

14 that you're doing in developing this could be useful to 

15 use as a check-back, as NEMS has been for other such 

16 situations. So that we look at the numbers of house17 holds and all of that type of thing, and I think that's 

18 very valuable. 

19 But as an actual number to plug in to the --

20 the the GRIM analysis of the shipments, I would urge 

21 the department to do that on an individual product-by22 product basis as we -- as we go forward with each of 

23 the rulemakings rather than do it on a universal basis. 

24 MR. McMAHON: I agree. I don't know if 

25 anyone from DOE wants to comment on that. 

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1 MR. McCABE: This is Michael McCabe.

2 I would agree as well.

3 MR. BROOKMAN: He loves the easy ones.

4 MR. SHOREY: Everett Shorey.

5 I -- I would like to commend Jim for a great

6 statement of how to make models as simple as possible,

7 and I think it's -- if I can quote you, breaking it

8 into tractable problems, and a large part of what

9 we've, I think, had in the past is we've tried to do

10 everything all at once, and we've lost -- you can't

11 really tell what's going on.

12 I've been as guilty of that as anybody has,

13 and I think that if we can start it early in the

14 process and say what matters, and what are the

15 tractable problems, that they will become a lot easier

16 to solve because in many cases, what we're trying to

17 understand is the incremental change caused by

18 regulation, and a lot of the things that -- that you've

19 talked about modeling are very important for getting

20 the absolute numbers, but may have very little effect

21 on the incremental change, and a lot of what we need to

22 do is make sure we understand what that incremental

23 change is, and it may be only two or three factors, and

24 we may have a much easier time getting to those, and I

25 think that's going to be a terrific step forward.

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1 MR. McCABE: This is Michael McCabe. 

2 I would agree as well. 

3 MR. BROOKMAN: He loves the easy ones. 

4 MR. SHOREY: Everett Shorey. 

5 I -- I would like to commend Jim for a great 

6 statement of how to make models as simple as possible, 

7 and I think it's if I can quote you, breaking it 

8 into tractable problems, and a large part of what 

9 we've, I think, had in the past is we've tried to do 

10 everything all at once, and we've lost -- you can't 

11 really tell what's going on. 

12 I've been as guilty of that as anybody has, 

13 and I think that if we can start it early in the 

14 process and say what matters, and what are the 

15 tractable problems, that they will become a lot easier 

16 to solve because in many cases, what we're trying to 

17 understand is the incremental change caused by 

18 regulation, and a lot of the things that that you've 

19 talked about modeling are very important for getting 

20 the absolute numbers, but may have very little effect 

21 on the incremental change, and a lot of what we need to 

22 do is make sure we understand what that incremental 

23 change is, and it may be only two or three factors, and 

24 we may have a much easier time getting to those, and I 

25 think that's going to be a terrific step forward. 

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1 MR. BROOKMAN: Any other comments? Global

2 comments like that on what's being suggested, you know,

3 as approaches, methodologies? Or any other specific

4 questions at this point? Yes, Dave?

5 MR. LEWIS: Dave Lewis, Lennox.

6 What -- what is your plan concerning the

7 issue of utility deregulation? It seems like the

8 impact of that on the consumer is tremendous

9 potentially, and it seems very likely that we'll see a

10 lot of change in that over the next five years.

11 What -- what -- what process will you put in

12 place to identify that as -- as an issue?

13 MR. McMAHON: That's a very major problem.

14 That's a good question. I understand that EIA has a

15 study underway to try and get a handle on what utility

16 restructuring will do to energy prices, which I think

17 is the key thing here.

18 I'm not sure in the realm of forecasting

19 whether anyone will successfully forecast exactly the

20 future of energy prices. So, what I would propose as a

21 simple immediate solution is to do sensitivity

22 analyses.

23 I think we should start with what's the

24 marginal price for residential electricity. How low

25 could it possibly go, and, secondly, how fast might it

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1 MR. BROOKMAN: Any other comments? Global 

2 comments like that on what's being suggested, you know, 

3 as approaches, methodologies? Or any other specific 

4 questions at this point? Yes, Dave? 

5 MR. LEWIS: Dave Lewis, Lennox. 

6 What -- what is your plan concerning the 

7 issue of utility deregulation? It seems like the 

8 impact of that on the consumer is tremendous 

9 potentially, and it seems very likely that we'll see a 

10 lot of change in that over the next five years. 

11 What -- what what process will you put in 

12 place to identify that as -- as an issue? 

13 MR. McMAHON: That's a very major problem. 

14 That's a good question. I understand that EIA has a 

15 study underway to try and get a handle on what utility 

16 restructuring will do to energy prices, which I think 

17 is the key thing here. 

18 I'm not sure in the realm of forecasting 

19 whether anyone will successfully forecast exactly the 

20 future of energy prices. So, what I would propose as a 

21 simple immediate solution is to do sensitivity 

22 analyses. 

23 I think we should start with what's the 

24 marginal price for residential electricity. How low 

25 could it possibly go, and, secondly, how fast might it 

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1 decline to get from where we are now to where it's

2 going to go, and use that as kind of the bounds of

3 uncertainty.

4 Beyond that, to try and come up with a more

5 rigorous forecast, we can rely on EIA to do some good

6 work. There's a utility policy and planning group at

7 LBL that tracks this very closely, and they're also

8 trying to figure this out. There's a number of efforts

9 at the state levels.

10 So, yeah, it's a real problem. We're doing a

11 workshop next week with the ballast data in which we've

12 done an uncertainty analysis on electricity prices, and

13 one of the things that we did was take the current

14 range of prices among utilities in the U.S. So, we

15 took the EIA survey utility-by-utility of commercial

16 electricity rates today, and they range from one cent a

17 kilowatt hour to 14 cents a kilowatt hour, and we did

18 the sensitivity saying if that were the range of

19 prices, how many people would benefit or suffer from a

20 particular regulation.

21 So, we can do those kind of studies for the

22 future in terms of where the prices are going to go.

23 I think there's general agreement that the

24 high electricity price regions will come down. There's

25 concern at the same time that some of the low price

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1 decline to get from where we are now to where it's 

2 going to go, and use that as kind of the bounds of 

3 uncertainty. 

4 Beyond that, to try and come up with a more 

5 rigorous forecast, we can rely on EIA to do some good 

6 work. There's a utility policy and planning group at 

7 LBL that tracks this very closely, and they're also 

8 trying to figure this out. There's a number of efforts 

9 at the state levels. 

10 So, yeah, it's a real problem. We're doing a 

11 workshop next week with the ballast data in which we've 

12 done an uncertainty analysis on electricity prices, and 

13 one of the things that we did was take the current 

14 range of prices among utilities in the u.S. So, we 

15 took the EIA survey utility-by-utility of commercial 

16 electricity rates today, and they range from one cent a 

17 kilowatt hour to 14 cents a kilowatt hour, and we did 

18 the sensitivity saying if that were the range of 

19 prices, how many people would benefit or suffer from a 

20 particular regulation. 

21 So, we can do those kind of studies for the 

22 future in terms of where the prices are going to go. 

23 I think there's general agreement that the 

24 high electricity price regions will come down. There's 

25 concern at the same time that some of the low price 

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1 regions, the price will come up because they'll be able

2 to sell cheap electricity at a higher price to a

3 different market. Okay.

4 So, where we wind up in the end is going to

5 be really tough to call, and I think we're going to

6 wind up doing, you know, the best sensitivities that we

7 can do to account for it.

8 MR. BROOKMAN: I wanted to give the audience

9 generally a chance to follow up on comments to what you

10 suggested. I saw several people in the audience, maybe

11 three or four, kind of going like this with nodding yes

12 to the thrust of your comments.

13 Are there any other comments about this

14 critical and pretty complicated issue? And then we've

15 got one question in the back.

16 Glenn, he actually was first. Is yours

17 different or is it a follow-on? Yeah. So, let me

18 ask --

19 MR. SCHLEEDE: I don't think this is the

20 right place to put it in, but I don't want to miss an

21 opportuni ty here.

22 Glenn Schleede again.

23 I think that the use of the total price of

24 electricity -- I've recorded this point several times,

25 and it keeps getting ignored by DOE. The use of the

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1 regions, the price will come up because they'll be able 

2 to sell cheap electricity at a higher price to a 

3 different market. Okay. 

4 So, where we wind up in the end is going to 

5 be really tough to call, and I think we're going to 

6 wind up doing, you know, the best sensitivities that we 

7 can do to account for it. 

8 MR. BROOKMAN: I wanted to give the audience 

9 generally a chance to follow up on comments to what you 

10 suggested. I saw several people in the audience, maybe 

11 three or four, kind of going like this with nodding yes 

12 to the thrust of your comments. 

13 Are there any other comments about this 

14 critical and pretty complicated issue? And then we've 

15 got one question in the back. 

16 Glenn, he actually was first. Is yours 

17 different or is it a follow-on? Yeah. So, let me 

18 ask --

19 MR. SCHLEEDE: I don't think this is the 

20 right place to put it in, but I don't want to miss an 

21 opportunity here. 

22 Glenn Schleede again. 

23 I think that the use of the total price of 

24 electricity -- I've recorded this point several times, 

25 and it keeps getting ignored by DOE. The use of the 

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1 total price of electricity rather than the variable

2 cost -- rather, yes, the variable cost is just a

3 fundamental error in the way the analysis is done.

4 I just wanted to get it on the record. I

5 suspect if we took a vote in the room, I might be all

6 by myself.

7 MR. McMAHON: Glenn, I have seen your

8 letters, and I thank you for the comment.

9 Frankly, I think you're wrong, and I think a

10 response will come to you about that, but I do

11 appreciate the concern.

12 The reason -- it's a matter of perspective.

13 I think you're thinking from the perspective of the

14 utility and their costs, and we're thinking from the

15 perspective of the consumer. What matters to the

16 consumer is the retail price that they're going to pay,

17 and there are issues about how much that's going to

18 change under restructuring and -- and other things that

19 may come down closer to the margin.

20 MR. BROOKMAN: And noting that this is

21 important but not the focus of this discussion, we're

22 going to let you take that one off line, okay, when

23 this concludes.

24 Yes? Next question.

25 MR. KREBS: Mark Krebs again.

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1 total price of electricity rather than the variable 

2 cost -- rather, yes, the variable cost is just a 

3 fundamental error in the way the analysis is done. 

4 I just wanted to get it on the record. I 

5 suspect if we took a vote in the room, I might be all 

6 by myself. 

7 MR. McMAHON: Glenn, I have seen your 

8 letters, and I thank you for the comment. 

9 Frankly, I think you're wrong, and I think a 

10 response will come to you about that, but I do 

11 appreciate the concern. 

12 The reason -- it's a matter of perspective. 

13 I think you're thinking from the perspective of the 

14 utility and their costs, and we're thinking from the 

15 perspective of the consumer. What matters to the 

16 consumer is the retail price that they're going to pay, 

17 and there are issues about how much that's going to 

18 change under restructuring and -- and other things that 

19 may come down closer to the margin. 

20 MR. BROOKMAN: And noting that this is 

21 important but not the focus of this discussion, we're 

22 going to let you take that one off line, okay, when 

23 this concludes. 

24 

25 

Yes? Next question. 

MR. KREBS: Mark Krebs again. 

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1 Actually, I have two. First of all, when you

2 talk about the total cost, there ought to at least be a

3 variable to estimate the impacts of monetizing so4 called environmental externalities.

5 I know that's one that nobody really wants to

6 touch, but, you know, to not touch it, I think, is --

7 is a conscious decision.

8 Second of all, I would strongly suggest that

9 to use spread sheets unless you prove that they're

10 inadequacy rather than the traditional so-called black

11 box.

12 MR. McMAHON: If I can respond to -- I'm not

13 going to respond to the first part because that's not

14 my call. My understanding is that a decision has been

15 made not to monetize externalities, but I'll pass that

16 buck to DOE.

17 With regard to the second part, I'm not

18 suggesting that we abandon the more complex models.

19 I'm suggesting that we develop the spread sheets in

20 order to serve as a teaching tool and a way to get

21 input from a larger audience, and then we can decide

22 whether they are adequate, close enough, take account

23 of everything enough that we can abandon the complex

24 models. I think we need to make that decision later.

25 MR. BROOKMAN: Additional questions or

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1 Actually, I have two. First of all, when you 

2 talk about the total cost, there ought to at least be a 

3 variable to estimate the impacts of monetizing so4 called environmental externalities. 

5 I know that's one that nobody really wants to 

6 touch, but, you know, to not touch it, I think, is --

7 is a conscious decision. 

8 Second of all, I would strongly suggest that 

9 to use spread sheets unless you prove that they're 

10 inadequacy rather than the traditional so-called black 

11 box. 

12 MR. McMAHON: If I can respond to -- I'm not 

13 going to respond to the first part because that's not 

14 my call. My understanding is that a decision has been 

15 made not to monetize externalities, but I'll pass that 

16 buck to DOE. 

17 With regard to the second part, I'm not 

18 suggesting that we abandon the more complex models. 

19 I'm suggesting that we develop the spread sheets in 

20 order to serve as a teaching tool and a way to get 

21 input from a larger audience, and then we can decide 

22 whether they are adequate, close enough, take account 

23 of everything enough that we can abandon the complex 

24 models. I think we need to make that decision later. 

25 MR. BROOKMAN: Additional questions or 

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1 comments? Yes? Can you pass this over to Everett?

2 MR. SHOREY: Everett Shorey again.

3 On the modeling question, I think it's also

4 important to distinguish between when we're doing an

5 overall energy impact analysis and doing an impact

6 analysis on manufacturers because they may be two very

7 different things that have very different questions

8 involved, and at least it's hard for me to imagine how

9 to do an overall energy impact analysis without going

10 through a lot of the kinds of steps that Jim has

11 described.

12 But they may not necessarily be relevant or

13 important in -- in a manufacturer's impact analysis,

14 and part of what -- what we may want to do is to -- to

15 keep those decoupled. They can't -- as we said about a

16 number of other things, they can't diverge. You can't

17 use one set of assumptions in one place and another set

18 of assumptions someplace else.

19 But -- but you may not need the same tools

20 for -- for analyzing different questions because they

21 may be fundamentally different questions, and there may

22 be simpler ways to get at issues, and I think that's

23 really what Jim is talking about in terms of decoupling

24 or -- or breaking down into tractable problems.

25 MR. McMAHON: I agree that we need to make

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1 comments? Yes? Can you pass this over to Everett? 

2 MR. SHOREY: Everett Shorey again. 

3 On the modeling question, I think it's also 

4 important to distinguish between when we're doing an 

5 overall energy impact analysis and doing an impact 

6 analysis on manufacturers because they may be two very 

7 different things that have very different questions 

8 involved, and at least it's hard for me to imagine how 

9 to do an overall energy impact analysis without going 

10 through a lot of the kinds of steps that Jim has 

11 described. 

12 But they may not necessarily be relevant or 

13 important in -- in a manufacturer's impact analysis, 

14 and part of what -- what we may want to do is to -- to 

15 keep those decoupled. They can't -- as we said about a 

16 number of other things, they can't diverge. You can't 

17 use one set of assumptions in one place and another set 

18 of assumptions someplace else. 

19 But -- but you may not need the same tools 

20 for for analyzing different questions because they 

21 may be fundamentally different questions, and there may 

22 be simpler ways to get at issues, and I think that's 

23 really what Jim is talking about in terms of decoupling 

24 or -- or breaking down into tractable problems. 

25 MR. McMAHON: I agree that we need to make 

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1 the distinctions all the way through about what we

2 need.

3 For the manufacturer analysis, we need

4 shipments, okay, and I agree with your earlier comment

5 that a lot of the things will wash out; that is, if in

6 a particular year, the economy is down and shipments go

7 down or up a certain percentage, that's going to happen

8 in both the standards case and the base case, and what

9 we really care about is the difference between the two,

10 which isn't going to be affected so much.

11 However, the other side of that is the

12 revenues to the manufacturers will be determined by

13 absolute shipments, and, so, if there's a significant

14 effect going on for whatever reason, that's important

15 to bring into the manufacturer analysis.

16 MR. BROOKMAN: Additional questions?

17 Comments?

18 (No response)

19 MR. BROOKMAN: Did you conclude your

20 presentation?

21 MR. McMAHON: I have concluded my

22 presentation.

23 MR. BROOKMAN: Wow. And so terse.

24 Noting that Jim has concluded his

25 presentation, additional comments at this point? Yes,

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1 the distinctions all the way through about what we 

2 need. 

3 For the manufacturer analysis, we need 

4 shipments, okay, and I agree with your earlier comment 

5 that a lot of the things will wash out; that is, if in 

6 a particular year, the economy is down and shipments go 

7 down or up a certain percentage, that's going to happen 

8 in both the standards case and the base case, and what 

9 we really care about is the difference between the two, 

10 which isn't going to be affected so much. 

11 However, the other side of that is the 

12 revenues to the manufacturers will be determined by 

13 absolute shipments, and, so, if there's a significant 

14 effect going on for whatever reason, that's important 

15 to bring into the manufacturer analysis. 

16 MR. BROOKMAN: Additional questions? 

17 Comments? 

18 (No response) 

19 MR. BROOKMAN: Did you conclude your 

20 presentation? 

21 MR. McMAHON: I have concluded my 

22 presentation. 

23 MR. BROOKMAN: Wow. And so terse. 

24 Noting that Jim has concluded his 

25 presentation, additional comments at this point? Yes, 

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1 Dave?

2 MR. LEWIS: Could you refresh our -- our

3 minds as to how this particular segment is folded into

4 the overall decision process?

5 MR. BROOKMAN: We'll have Mike Rivest take

6 that one up first.

7 MR. RIVEST: I think it's a question of

8 consistency. We have to come up with the -- a shipment

9 forecast for the GRIM Model, and in calculating the

10 benefits of standards, it's important also to get -- to

11 have the forecast of what will be shipped.

12 In other words, what -- in absence of

13 standards, what is the base case? What products will

14 you be selling at what efficiency levels? That becomes

15 the base case, and with standards, assuming an increase

16 in price, what does economics have to say about what

17 will be the shipments based on standards?

18 So, for example, within the model, there are

19 elasticity values, which would consider that a 10-

20 percent increase in price of -- of a water heater would

21 result in a two-percent decrease in sales. That would

22 be taken into account in the REM model, for example.

23 So, from our prices that we determine for the

24 life cycle costs, we would take those -- okay. if

25 the -- if the new standard level is a 12 air

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1 Dave? 

2 MR. LEWIS: Could you refresh our -- our 

3 minds as to how this particular segment is folded into 

4 the overall decision process? 

5 MR. BROOKMAN: We'll have Mike Rivest take 

6 that one up first. 

7 MR. RIVEST: I think it's a question of 

8 consistency. We have to come up with the -- a shipment 

9 forecast for the GRIM Model, and in calculating the 

10 benefits of standards, it's important also to get -- to 

11 have the forecast of what will be shipped. 

12 In other words, what in absence of 

13 standards, what is the base case? What products will 

14 you be selling at what efficiency levels? That becomes 

15 the base case, and with standards, assuming an increase 

16 in price, what does economics have to say about what 

17 will be the shipments based on standards? 

18 So, for example, within the model, there are 

19 elasticity values, which would consider that a 10-

20 percent increase in price of -- of a water heater would 

21 result in a two-percent decrease in sales. That would 

22 be taken into account in the REM model, for example. 

23 So, from our prices that we determine for the 

24 life cycle costs, we would take those okay. If 

25 the -- if the new standard level is a 12 air 

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1 conditioner instead of a 10, will we sell fewer air

2 conditioners? And there would be a cost increase which

3 may or may not be passed on to consumers, and in the

4 assumption that it's passed on, that price increase may

5 result in few air conditioners being sold.

6 The net national -- the benefits -- the

7 National Benefits Model, the REM, the REEPs, the

8 Commend, would take that price increase with an

9 elasticity value and reduce the shipments, and, so,

10 that would give us one input to the GRIM shipments

11 inputs, for example. That would give us one of several

12 ways of forecasting shipments.

13 MR. BROOKMAN: List them again. What were

14 the other inputs to the GRIM Model?

15 MR. RIVEST: The prices, the quantities, and

16 the costs.

17 MR. BROOKMAN: Questions? That's the best

18 question. Did that answer your question?

19 MR. LEWIS: I'll come back to it.

20 MR. BROOKMAN: Okay. You seem satisfied for

21 the moment. Okay.

22 Additional questions at this point?

23 (No response)

24 MR. BROOKMAN: Okay. Jim, thank you for a

25 nice, clear presentation.

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1 conditioner instead of a 10, will we sell fewer air 

2 conditioners? And there would be a cost increase which 

3 mayor may not be passed on to consumers, and in the 

4 assumption that it's passed on, that price increase may 

5 result in few air conditioners being sold. 

6 The net national -- the benefits -- the 

7 National Benefits Model, the REM, the REEPs, the 

8 Commend, would take that price increase with an 

9 elasticity value and reduce the shipments, and, so, 

10 that would give us one input to the GRIM shipments 

11 inputs, for example. That would give us one of several 

12 ways of forecasting shipments. 

13 MR. BROOKMAN: List them again. What were 

14 the other inputs to the GRIM Model? 

15 MR. RIVEST: The prices, the quantities, and 

16 the costs. 

17 MR. BROOKMAN: Questions? That's the best 

18 question. Did that answer your question? 

19 MR. LEWIS: I'll come back to it. 

20 MR. BROOKMAN: Okay. You seem satisfied for 

21 the moment. Okay. 

22 Additional questions at this point? 

23 (No response) 

24 MR. BROOKMAN: Okay. Jim, thank you for a 

25 nice, clear presentation. 

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1 (Applause)

2 MR. BROOKMAN: As I understand it, we now

3 will have several models --

4 MR. RIVEST: I believe Steve Shankel will

5 give a short presentation.

6 MR. BROOKMAN: Oh, you're going to give an

7 additional one? Okay.

8 MR. SHANKEL: Maybe --

9 MR. BROOKMAN: By all means. I'm sorry. I

10 didn't note this on my agenda.

11 MR. SHANKEL: Maybe I can ask Steve Wade to

12 come up front from EIA.

13 MR. LEWIS: Break?

14 MR. BROOKMAN: As soon as Steve is finished,

15 and then we're going to -- and then we're going to come

16 back and those of you -- you can play with these models

17 and -- and the PCs that are up here. Laptops.

18 Steve, this is how long?

19 MR. SHANKEL: This is short.

20

21

22

MR. BROOKMAN: There's the microphone there.

(Pause)

MR. BROOKMAN: This is Steve Wade from EIA,

23 who is going to be our first presenter. He's got the

24 microphone.

25 MR. WADE: Yes. Maybe I'll spend just about

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1 (Applause) 

2 MR. BROOKMAN: As I understand it, we now 

3 will have several models 

4 MR. RIVEST: I believe Steve Shankel will 

5 give a short presentation. 

6 MR. BROOKMAN: Oh, you're going to give an 

7 additional one? Okay. 

8 MR. SHANKEL: Maybe--

9 MR. BROOKMAN: By all means. I'm sorry. I 

10 didn't note this on my agenda. 

11 MR. SHANKEL: Maybe I can ask Steve Wade to 

12 come up front from EIA. 

13 MR. LEWIS: Break? 

14 MR. BROOKMAN: As soon as Steve is finished, 

15 and then we're going to -- and then we're going to come 

16 back and those of you -- you can play with these models 

17 and -- and the PCs that are up here. Laptops. 

18 Steve, this is how long? 

19 MR. SHANKEL: This is short. 

20 MR. BROOKMAN: There's the microphone there. 

21 (Pause) 

22 MR. BROOKMAN: This is Steve Wade from EIA, 

23 who is going to be our first presenter. He's got the 

24 microphone. 

25 MR. WADE: Yes. Maybe I'll spend just about 

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1 five to 10 minutes giving you a quick overview of the

2 residential and commercial models in NEMS.

3 NEMS is a large model. I think it's up

4 around a 150,000 lines of FORTRAN code. So, it's got

5 some of the black box aspects big time. It's got

6 regional detail, and it runs on -- basically you need a

7 risk machine to run it these days. You can run some of

8 the individual modules on a personal computer, but

9 we're not producing them routinely like we used to.

10 So, right now, NEMS is not a widely-available model.

11 It does represent all the energy supply

12 conversion and consumption activities in the U.S. in an

13 integrated fashion. So, it determines prices and

14 quantities of energy consumption simultaneously as it

15 develops its forecasts.

16 It has a lot of technology data in it, both

17 on the supply and the demand side, and it has many

18 policy levels, and for the purpose of this discussion,

19 things pertaining to standards and, say, electric

20 utility deregulation would be relevant, and the

21 documentation is publicly available, but it's of the

22 500-page variety.

23 Here's a picture of -- this is just a real

24 rough overview of the sectors that NEMS considers, and

25 the buildings models are over with the demand

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1 five to 10 minutes giving you a quick overview of the 

2 residential and commercial models in NEMS. 

3 NEMS is a large model. I think it's up 

4 around a 150,000 lines of FORTRAN code. So, it's got 

5 some of the black box aspects big time. It's got 

6 regional detail, and it runs on -- basically you need a 

7 risk machine to run it these days. You can run some of 

8 the individual modules on a personal computer, but 

9 we're not producing them routinely like we used to. 

10 So, right now, NEMS is not a widely-available model. 

11 It does represent all the energy supply 

12 conversion and consumption activities in the u.S. in an 

13 integrated fashion. So, it determines prices and 

14 quantities of energy consumption simultaneously as it 

15 develops its forecasts. 

16 It has a lot of technology data in it, both 

17 on the supply and the demand side, and it has many 

18 policy levels, and for the purpose of this discussion, 

19 things pertaining to standards and, say, electric 

20 utility deregulation would be relevant, and the 

21 documentation is publicly available, but it's of the 

22 500-page variety. 

23 Here's a picture of -- this is just a real 

24 rough overview of the sectors that NEMS considers, and 

25 the buildings models are over with the demand 

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1 components on the right here. They receive

2 demographics, macro economic information, and prices

3 from the NEMS integrated module, and once they run

4 through their algorithms, they send back quantities of

5 energy consumption back to the integrated model as part

6 of the iterative solution for prices and quantities.

7 I -- I guess one of the primary questions to

8 deal with is, you know, why are there two buildings

9 modules in NEMS, and the reason is -- is that they're

10 different enough in -- the data that are available are

11 different enough that it makes sense to split buildings

12 out into residential buildings and commercial

13 buildings.

14 MR. BROOKMAN: Steve, pardon me for

15 interrupting.

16 MR. WADE: Yes.

17 MR. BROOKMAN: Your slides are not in the

18 packet.

19 MR. WADE: I'm sorry. They're -- they're

20 not.

21 MR. BROOKMAN: So, can you make copies

22 available either through you or through Michael

23 McCabe's shop or how -- what's the best way --

24 MR. WADE: Certainly. Yeah. I have some --

25 I have like two spares with me.

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1 components on the right here. They receive 

2 demographics, macro economic information, and prices 

3 from the NEMS integrated module, and once they run 

4 through their algorithms, they send back quantities of 

5 energy consumption back to the integrated model as part 

6 of the iterative solution for prices and quantities. 

7 I -- I guess one of the primary questions to 

8 deal with is, you know, why are there two buildings 

9 modules in NEMS, and the reason is -- is that they're 

10 different enough in -- the data that are available are 

11 different enough that it makes sense to split buildings 

12 out into residential buildings and commercial 

13 buildings. 

14 MR. BROOKMAN: Steve, pardon me for 

15 interrupting. 

16 MR. WADE: Yes. 

17 MR. BROOKMAN: Your slides are not in the 

18 packet. 

19 MR. WADE: I'm sorry. They're -- they're 

20 not. 

21 MR. BROOKMAN: So, can you make copies 

22 available either through you or through Michael 

23 McCabe's shop or how -- what's the best way --

24 MR. WADE: Certainly. Yeah. I have some --

25 I have like two spares with me. 

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1 MR. BROOKMAN: Okay.

2 MR. WADE: But they can serve as a basis for

3 making a copy.

4 MR. BROOKMAN: Anybody who wishes to have a

5 copy of this presentation can sign up with Sandy or

6 shall we just send it to everybody or how should we

7 work this? We'll bring it tomorrow. Okay. Great.

8 MR. WADE: Okay. So, first of all, the

9 buildings differ in size and complexity. Residential

10 buildings are more homogenous, and we've got single11 family, multi-family and mobile homes versus 11 types

12 of commercial buildings.

13 Residential heating and cooling loads are

14 more shell driven. In the commercial sector for

15 cooling, you've got to worry about internal loads.

16 Between the sectors, the factors affecting

17 the choice of equipment may vary. In the commercial

18 sector, you'll have investors. In the residential

19 sector, you'll have homeowners, builders, renters, all

20 making decisions about appliance efficiency and

21 purchase.

22 In the commercial sector, the complexity of

23 equipment that's available is greater. There's a wide

24 variety of capacities, and the costs of -- of equipment

25 tend to vary with capacity. That's a difficult issue

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1 MR. BROOKMAN: Okay. 

2 MR. WADE: But they can serve as a basis for 

3 making a copy. 

4 MR. BROOKMAN: Anybody who wishes to have a 

5 copy of this presentation can sign up with Sandy or 

6 shall we just send it to everybody or how should we 

7 work this? We'll bring it tomorrow. Okay. Great. 

8 MR. WADE: Okay. So, first of all, the 

9 buildings differ in size and complexity. Residential 

10 buildings are more homogenous, and we've got single11 family, multi-family and mobile homes versus 11 types 

12 of commercial buildings. 

13 Residential heating and cooling loads are 

14 more shell driven. In the commercial sector for 

15 cooling, you've got to worry about internal loads. 

16 Between the sectors, the factors affecting 

17 the choice of equipment may vary. In the commercial 

18 sector, you'll have investors. In the residential 

19 sector, you'll have homeowners, builders, renters, all 

20 making decisions about appliance efficiency and 

21 purchase. 

22 In the commercial sector, the complexity of 

23 equipment that's available is greater. There's a wide 

24 variety of capacities, and the costs of -- of equipment 

25 tend to vary with capacity. That's a difficult issue 

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1 for us to deal with actually.

2 Data availability. The residential model

3 actually uses historical shipment data that are gotten

4 from many of the associations represented here, track

5 over a period of time, and then retire on kind of a --

6 what is it -- first-in/first-out type of a basis, so

7 that the retiring equipment efficiency varies over time

8 in the model, based on this historical shipment

9 information.

10 In the commercial sector, that will happen,

11 also, but it -- we don't draw on the historical

12 shipment data. We -- we don't use it. We don't have

13 it. I think it's generally not available.

14 In terms of just the size of the problem,

15 given that there's more flavors of equipment and more

16 building types, computational limitations kind of drove

17 decisions on how the model would account for equipment.

18 In the residential model, we can just add it

19 up, and it directly will provide information like

20 shipment data. In the commercial model, the forecasts

21 are in terms of service demand. Thousands of BTUs of

22 service demand met by a particular technology. They're

23 not in terms of units, and that's a difference, and

24 that's something that would need to be worried about as

25 you get to GRIM, and I think Steve Shankel will follow

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1 for us to deal with actually. 

2 Data availability. The residential model 

3 actually uses historical shipment data that are gotten 

4 from many of the associations represented here, track 

5 over a period of time, and then retire on kind of a --

6 what is it -- first-in/first-out type of a basis, so 

7 that the retiring equipment efficiency varies over time 

8 in the model, based on this historical shipment 

9 information. 

10 In the commercial sector, that will happen, 

11 also, but it we donlt draw on the historical 

12 shipment data. We -- we donlt use it. We don1t have 

13 it. I think it1s generally not available. 

14 In terms of just the size of the problem, 

15 given that there1s more flavors of equipment and more 

16 building types, computational limitations kind of drove 

17 decisions on how the model would account for equipment. 

18 In the residential model, we can just add it 

19 up, and it directly will provide information like 

20 shipment data. In the commercial model, the forecasts 

21 are in terms of service demand. Thousands of BTUs of 

22 service demand met by a particular technology. Theylre 

23 not in terms of units, and that1s a difference, and 

24 that1s something that would need to be worried about as 

25 you get to GRIM, and I think Steve Shankel will follow 

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1 up with some of that in his application.

2 There might be an issue. Maybe GRIM could

3 accept numbers in service demands unit. So, -- or at

4 least convert it to capacity still without specific

5 dimensions of shipments.

6 In terms of the issues, they're going to be a

7 little different for residential and commercial.

8 There's a shipments versus service demand. The

9 residential model includes fuel switching costs on a

10 firm technology A to technology B basis.

11 The commercial model doesn't have that.

12 There are just too many technologies in the model to --

13 to track each one individually like that.

14 The electricity price for the commercial

15 sector is an average price, and it kind of ignores

16 the -- the -- the fact that demand charges are

17 important in some of the equipment purchased decisions.

18 Down the road, electric utility deregulation.

19 NEMS is doing an effort to model electricity prices by

20 time of day, and there's a load-shaped model inside of

21 NEMS that can pass, say, weighted average prices back

22 to the demand sectors for their use in equipment

23 purchase decisions.

24 So, we're expecting some richness of the

25 model in being able to analyze, you know, what might

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1 up with some of that in his application. 

2 There might be an issue. Maybe GRIM could 

3 accept numbers in service demands unit. So, -- or at 

4 least convert it to capacity still without specific 

5 dimensions of shipments. 

6 In terms of the issues, they're going to be a 

7 little different for residential and commercial. 

8 There's a shipments versus service demand. The 

9 residential model includes fuel switching costs on a 

10 firm technology A to technology B basis. 

11 The commercial model doesn't have that. 

12 There are just too many technologies in the model to --

13 to track each one individually like that. 

14 The electricity price for the commercial 

15 sector is an average price, and it kind of ignores 

16 the -- the -- the fact that demand charges are 

17 important in some of the equipment purchased decisions. 

18 Down the road, electric utility deregulation. 

19 NEMS is doing an effort to model electricity prices by 

20 time of day, and there's a load-shaped model inside of 

21 NEMS that can pass, say, weighted average prices back 

22 to the demand sectors for their use in equipment 

23 purchase decisions. 

24 So, we're expecting some richness of the 

25 model in being able to analyze, you know, what might 

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1 happen to purchasing behavior under deregulation, but

2 that's under development now.

3 About five more minutes? Okay. Just briefly

4 go through the two models individually. In the

5 residential model, equipment choices are made from a

6 menu of technologies that are available to serve a

7 given end use in a particular year. So, the -- to

8 serve heating demand, there will be gas furnaces.

9 There will be electric resistance. There will be heat

10 pumps. There will be ground source heat pumps, and

11 they will -- each technology will be -- will have a

12 window of availability associated with it.

13 Some of the technologies get phased out as

14 would be required by a standard. If it was a low15 efficiency technology, you could just terminate it in

16 1995 or whenever. Other technologies come in in the

17 future with different cost and performance information

18 that basically represents technological progress.

19 The end use. Each end use is served by

20 multiple technologies, and within a technology, several

21 efficiency levels are possible. Generally, there's two

22 to four in the residential model.

23 If you have a standard like I mentioned, you

24 can just remove the substandard equipment from the menu

25 by making it unavailable after a particular year.

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1 happen to purchasing behavior under deregulation, but 

2 that's under development now. 

3 About five more minutes? Okay. Just briefly 

4 go through the two models individually. In the 

5 residential model, equipment choices are made from a 

6 menu of technologies that are available to serve a 

7 given end use in a particular year. So, the -- to 

8 serve heating demand, there will be gas furnaces. 

9 There will be electric resistance. There will be heat 

10 pumps. There will be ground source heat pumps, and 

11 they will -- each technology will be -- will have a 

12 window of availability associated with it. 

13 Some of the technologies get phased out as 

14 would be required by a standard. If it was a low15 efficiency technology, you could just terminate it in 

16 1995 or whenever. Other technologies come in in the 

17 future with different cost and performance information 

18 that basically represents technological progress. 

19 The end use. Each end use is served by 

20 mUltiple technologies, and within a technology, several 

21 efficiency levels are possible. Generally, there's two 

22 to four in the residential model. 

23 If you have a standard like I mentioned, you 

24 can just remove the substandard equipment from the menu 

25 by making it unavailable after a particular year. 

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1 The technology data. A lot of it was

2 developed for us by ADL a couple of years ago. We try

3 to keep it updated. We haven't got to that stage with

4 most of the ADL data yet, but every year, we tend to

5 look at some piece of the model in terms of the

6 equipment cost and performance data and try to make

7 improvements.

8 In terms of the choices, the model runs by

9 census division and building type, and it considers

10 choices for new equipment versus replacement equipment,

11 and for replacement equipment, certain amount of the

12 purchases will be replaced with the same technology, be

13 at a different efficiency level, but same technology,

14 and another fraction of the purchases will be based on

15 potential fuel switching, and as I mentioned, the costs

16 of the fuel switching are considered.

17 Technology choices are modeled as a two-step

18 process. There's a fuel and general technology choice

19 that's done based on life cycle costs, and there's

20 another efficiency level choice that is done that

21 weights first cost and operating cost to the

22 computation.

23 The result is, is that the penetration of new

24 technologies is going to be dependent on cost and

25 performance of equipment. Each equipment category in

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1 The technology data. A lot of it was 

2 developed for us by ADL a couple of years ago. We try 

3 to keep it updated. We haven't got to that stage with 

4 most of the ADL data yet, but every year, we tend to 

5 look at some piece of the model in terms of the 

6 equipment cost and performance data and try to make 

7 improvements. 

8 In terms of the choices, the model runs by 

9 census division and building type, and it considers 

10 choices for new equipment versus replacement equipment, 

11 and for replacement equipment, certain amount of the 

12 purchases will be replaced with the same technology, be 

13 at a different efficiency level, but same technology, 

14 and another fraction of the purchases will be based on 

15 potential fuel switching, and as I mentioned, the costs 

16 of the fuel switching are considered. 

17 Technology choices are modeled as a two-step 

18 process. There's a fuel and general technology choice 

19 that's done based on life cycle costs, and there's 

20 another efficiency level choice that is done that 

21 weights first cost and operating cost to the 

22 computation. 

23 The result is, is that the penetration of new 

24 technologies is going to be dependent on cost and 

25 performance of equipment. Each equipment category in 

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1 NEMS is characterized by a hurdle rate, which varies

2 between 15 and a 150 percent, depending on equipment

3 type, and those are often called implicit discount

4 rates as opposed to financial discount rates, and they

5 have been set so that the model will simulate the most

6 recent shipment data that we have available when it is

7 available. So, those are -- those calibrate the model

8 to real world behavior.

9 Let's see. And when the equipment is

10 purchased, the market shares can vary by housing type

11 and census division. That's -- I guess I mentioned

12 that.

13 But choices do vary based on that because you

14 have different -- different insulation properties in

15 the different types of housing units. You have

16 different average sizes of units, which imply an

17 intensity of use of the equipment that varies. So, all

18 those factors kind of come into play.

19 Two more slides. I'll talk about the

20 commercial model briefly. Again, the choices are made

21 from a menu, and, by the way, we -- we have these data

22 available if anyone's interested in seeing what the

23 menus look like. We keep them in spread sheets, so

24 that they can be passed around.

25 For the commercial model, the menu has

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1 NEMS is characterized by a hurdle rate, which varies 

2 between 15 and a 150 percent, depending on equipment 

3 type, and those are often called implicit discount 

4 rates as opposed to financial discount rates, and they 

5 have been set so that the model will simulate the most 

6 recent shipment data that we have available when it is 

7 available. So, those are those calibrate the model 

8 to real world behavior. 

9 Let's see. And when the equipment is 

10 purchased, the market shares can vary by housing type 

11 and census division. That's -- I guess I mentioned 

12 that. 

13 But choices do vary based on that because you 

14 have different -- different insulation properties in 

15 the different types of housing units. You have 

16 different average sizes of units, which imply an 

17 intensity of use of the equipment that varies. So, all 

18 those factors kind of come into play. 

19 Two more slides. I'll talk about the 

20 commercial model briefly. Again, the choices are made 

21 from a menu, and, by the way, we we have these data 

22 available if anyone's interested in seeing what the 

23 menus look like. We keep them in spread sheets, so 

24 that they can be passed around. 

25 For the commercial model, the menu has 

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1 nomenclature of technologies and models. The

2 technology is a broad class of equipment, like a heat

3 pump or four-foot fluorescent lights or gas water

4 heaters, and a model is a specific version of the

5 technology with its own cost and performance data. So,

6 it could be just 11 different flavors of efficiency

7 with different costs would be one possibility.

8 We recently expanded it up to 11. It takes

9 more computer resources to do that, and I think the

10 current model would have trouble running in the -- on

11 the PC like the old one did with the same resources

12 available on a PC. So, you'd have to upgrade to really

13 port this down at this stage just because we've added

14 details mainly.

15 Same weight. Model standards and the

16 commercial model as a residential model. And

17 technologies change over time.

18 Equipment purchases are required for new

19 construction. Equipment retirement and also for

20 retrofitting. Replacement of economically-obsolete

21 equipment. That's different than the residential

22 model. We don't retrofit in residential, but in

23 commercial, for example, to model something like EPA's

24 green lights program, that has a major retrofitting

25 target to that program, and that's behavior that we --

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1 nomenclature of technologies and models. The 

2 technology is a broad class of equipment, like a heat 

3 pump or four-foot fluorescent lights or gas water 

4 heaters, and a model is a specific version of the 

5 technology with its own cost and performance data. So, 

6 it could be just 11 different flavors of efficiency 

7 with different costs would be one possibility. 

8 We recently expanded it up to 11. It takes 

9 more computer resources to do that, and I think the 

10 current model would have trouble running in the -- on 

11 the PC like the old one did with the same resources 

12 available on a pc. So, you'd have to upgrade to really 

13 port this down at this stage just because we've added 

14 details mainly. 

15 Same weight. Model standards and the 

16 commercial model as a residential model. And 

17 technologies change over time. 

18 Equipment purchases are required for new 

19 construction. Equipment retirement and also for 

20 retrofitting. Replacement of economically-obsolete 

21 equipment. That's different than the residential 

22 model. We don't retrofit in residential, but in 

23 commercial, for example, to model something like EPA's 

24 green lights program, that has a major retrofitting 

25 target to that program, and that's behavior that we 

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1 we do allow in the model.

2 The -- the choices among equipment types are

3 determined by minimizing annualized life cycle costs

4 within a decision set, and there's considerable

5 segmentation of the floor space which kind of keeps one

6 technology from taking over the forecast.

7 Segmentation is by census division, building

8 type. There is a menu of discount rates, some going up

9 very high so that really only the first costs of

10 equipment are considered in the purchase decision.

11 You've got the new replacement and retrofit decisions,

12 and restrictions on whether or not fuel switching is

13 permitted or whether or not technology switching is

14 permitted are also used.

15 That's just a real quick overview of kind of

16 some of the considerations in NEMS, and I think, like I

17 say, the -- the issues for the two models are a little

18 bit different in terms of the -- the subject of, you

19 know, obtaining shipment forecasts for the standards

20 program, and we'll have a real world example here.

21 MR. McCABE: Thank you, Steve.

22 I'd like to add -- this is Michael McCabe --

23 a few comments. Based on some of the questions which

24 have been made, comments made, I would like to

25 reiterate something for clarity purposes, since we've

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1 we do allow in the model. 

2 The -- the choices among equipment types are 

3 determined by minimizing annualized life cycle costs 

4 within a decision set, and there's considerable 

5 segmentation of the floor space which kind of keeps one 

6 technology from taking over the forecast. 

7 Segmentation is by census division, building 

8 type. There is a menu of discount rates, some going up 

9 very high so that really only the first costs of 

10 equipment are considered in the purchase decision. 

11 You've got the new replacement and retrofit decisions, 

12 and restrictions on whether or not fuel switching is 

13 permitted or whether or not technology switching is 

14 permitted are also used. 

15 That's just a real quick overview of kind of 

16 some of the considerations in NEMS, and I think, like I 

17 say, the -- the issues for the two models are a little 

18 bit different in terms of the -- the subject of, you 

19 know, obtaining shipment forecasts for the standards 

20 program, and we'll have a real world example here. 

21 MR. McCABE: Thank you, Steve. 

22 I'd like to add this is Michael McCabe --

23 a few comments. Based on some of the questions which 

24 have been made, comments made, I would like to 

25 reiterate something for clarity purposes, since we've 

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1 been talking about energy forecasting, and there have

2 been questions raised about that.

3 In the previous analyses, we had used the

4 manufacturer impact model to forecast shipments which

5 was then used -- that output was then used for the

6 residential energy model as well as for the

7 manufacturer impact calculation. Actually the

8 shipments forecasts and the impact calculation went on

9 together.

10 But now that we have committed to using a

11 cash flow analysis, the question is where to get the

12 shipments from, and since the shipments are used both

13 energy forecasting and manufacturer impacts, we felt

14 that it was important to add that on the agenda today

15 because if we're going to get forecasts somewhere to

16 drive a GRIM analysis, for example, DOE, speaking for

17 the department and for myself, if you'll recall that

18 the -- this morning, we looked at the GRIM with the

19 two-percent increase in shipments per year, that as a

20 default doesn't make a lot of sense because, as Jim had

21 pointed out, there are a lot of factors that can affect

22 shipments.

23 The GRIM allows you to go in and put in

24 shipments for the individual years, and we can do it in

25 a number of different ways. We have gone through some

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1 been talking about energy forecasting, and there have 

2 been questions raised about that. 

3 In the previous analyses, we had used the 

4 manufacturer impact model to forecast shipments which 

5 was then used -- that output was then used for the 

6 residential energy model as well as for the 

7 manufacturer impact calculation. Actually the 

8 shipments forecasts and the impact calculation went on 

9 together. 

10 But now that we have committed to using a 

11 cash flow analysis, the question is where to get the 

12 shipments from, and since the shipments are used both 

13 energy forecasting and manufacturer impacts, we felt 

14 that it was important to add that on the agenda today 

15 because if we're going to get forecasts somewhere to 

16 drive a GRIM analysis, for example, DOE, speaking for 

17 the department and for myself, if you'll recall that 

18 the -- this morning, we looked at the GRIM with the 

19 two-percent increase in shipments per year, that as a 

20 default doesn't make a lot of sense because, as Jim had 

21 pointed out, there are a lot of factors that can affect 

22 shipments. 

23 The GRIM allows you to go in and put in 

24 shipments for the individual years, and we can do it in 

25 a number of different ways. We have gone through some 

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1 of those here. There are other approaches for

2 estimating shipments, some including just getting

3 people to sit around a table and talk about them.

4 The purpose for this discussion was to

5 recognize that we have to get shipments for both energy

6 forecasting and manufacturer impact analysis, and get

7 some of your input and thoughts as to where should

8 those come from.

9 Mark Perlis?

10 MR. PERLIS: I wondered if I could ask Steve

11 a couple of questions about one of the slides you had

12 up there.

13 You said that in your model, you assume life

14 cycle costs in the analysis for, I presume, the demand,

15 the consumer demand in the residential model?

16 MR. WADE: That was the commercial model that

17 was doing the life cycle costs. Oh, I'm sorry.

18 MR. PERLIS: I think it's the residential

19 one.

20 MR. WADE: The first stage of the choice of

21 equipment, yes.

22 MR. PERLIS: And you've used 20 percent as

23 the discount rate that the consumers bring to bear.

24 MR. WADE: That's right, yes.

25 MR. PERLIS: That -- that's a very specific

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1 of those here. There are other approaches for 

2 estimating shipments, some including just getting 

3 people to sit around a table and talk about them. 

4 The purpose for this discussion was to 

5 recognize that we have to get shipments for both energy 

6 forecasting and manufacturer impact analysis, and get 

7 some of your input and thoughts as to where should 

8 those come from. 

9 Mark Perlis? 

10 MR. PERLIS: I wondered if I could ask Steve 

11 a couple of questions about one of the slides you had 

12 up there. 

13 You said that in your model, you assume life 

14 cycle costs in the analysis for, I presume, the demand, 

15 the consumer demand in the residential model? 

16 MR. WADE: That was the commercial model that 

17 was doing the life cycle costs. Oh, I'm sorry. 

18 MR. PERLIS: I think it's the residential 

19 one. 

20 MR. WADE: The first stage of the choice of 

21 equipment, yes. 

22 MR. PERLIS: And you've used 20 percent as 

23 the discount rate that the consumers bring to bear. 

24 

25 

MR. WADE: That's right, yes. 

MR. PERLIS: That -- that's a very specific 

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1 rate that's -- I wonder if you'd explain where that

2 came from.

3 MR. WADE: That came from some analysis that

4 we did where we did not have a rich enough data set to

5 separately enter first costs and operating costs. So,

6 we had to roll them together, and in that analysis, we

7 used 20 percent.

8 MR. PERLIS: And my next question is you --

9 just underneath that, you talked about hurdle rates

10 between 15 and a 150 --

11 MR. WADE: Exactly.

12 MR. PERLIS: -- percent. Who is hurdling,

13 and for what? I don't understand that.

14 MR. WADE: The -- I went pretty fast. The

15 hurdle rates are used to simulate the purchases of

16 different efficiency levels that actually have

17 occurred. So, for example, with refrigerators. To go

18 from a not-so-efficient refrigerator to a pretty

19 efficient refrigerator might only cost $50. Correct me

20 if I'm out of the ball park, but I think maybe around

21 that, and those efficient refrigerators -- that's a

22 pretty fast payback given the price of electricity, and

23 those refrigerators do not penetrate the market at a

24 high enough level to -- or because they don't take over

25 the market, that means consumers are using a discount

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1 rate that's -- I wonder if you'd explain where that 

2 came from. 

3 MR. WADE: That came from some analysis that 

4 we did where we did not have a rich enough data set to 

5 separately enter first costs and operating costs. So, 

6 we had to roll them together, and in that analysis, we 

7 used 20 percent. 

8 MR. PERLIS: And my next question is you --

9 just underneath that, you talked about hurdle rates 

10 between 15 and a 150 

11 MR. WADE: Exactly. 

12 MR. PERLIS: -- percent. Who is hurdling, 

13 and for what? I don't understand that. 

14 MR. WADE: The -- I went pretty fast. The 

15 hurdle rates are used to simulate the purchases of 

16 different efficiency levels that actually have 

17 occurred. So, for example, with refrigerators. To go 

18 from a not-so-efficient refrigerator to a pretty 

19 efficient refrigerator might only cost $50. Correct me 

20 if I'm out of the ball park, but I think maybe around 

21 that, and those efficient refrigerators -- that's a 

22 pretty fast payback given the price of electricity, and 

23 those refrigerators do not penetrate the market at a 

24 high enough level to -- or because they don't take over 

25 the market, that means consumers are using a discount 

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1 rate higher than just a financial rate to base their

2 decision on or they're looking at other

3 characteristics.

4 MR. PERLIS: So, you would characterize these

5 hurdle rates as the rates that consumers are looking at

6 in evaluating whether or not to move to different

7 levels of efficiency?

8 MR. WADE: Exactly.

9 MR. PERLIS: Okay. And, finally, you talked

10 about floor space market segmentation.

11 MR. WADE: Right.

12 MR. PERLIS: And you said that the reason

13 that you've done that is to prevent one technology from

14 dominating. That's very interesting given that the

15 whole focus of the standard-setting methodology is to

16 specify a single -- not necessarily a single technology

17 as you said it, but certainly a single technology level

18 as a minimum, and there may be technology levels above

19 the minimum, and there's -- how -- do you have any

20 thoughts as to how that analysis could take account of

21 segmentation that you so rightly include in your

22 Department of Energy model?

23 MR. WADE: I'm not sure I exactly understand

24 the last part of the question, but --

25 MR. PERLIS: Well, let me give you a concrete

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1 rate higher than just a financial rate to base their 

2 decision on or they're looking at other 

3 characteristics. 

4 MR. PERLIS: So, you would characterize these 

5 hurdle rates as the rates that consumers are looking at 

6 in evaluating whether or not to move to different 

7 levels of efficiency? 

8 MR. WADE: Exactly. 

9 MR. PERLIS: Okay. And, finally, you talked 

10 about floor space market segmentation. 

11 MR. WADE: Right. 

12 MR. PERLIS: And you said that the reason 

13 that you've done that is to prevent one technology from 

14 dominating. That's very interesting given that the 

15 whole focus of the standard-setting methodology is to 

16 specify a single -- not necessarily a single technology 

17 as you said it, but certainly a single technology level 

18 as a minimum, and there may be technology levels above 

19 the minimum, and there's -- how -- do you have any 

20 thoughts as to how that analysis could take account of 

21 segmentation that you so rightly include in your 

22 Department of Energy model? 

23 MR. WADE: I'm not sure I exactly understand 

24 the last part of the question, but --

25 MR. PERLIS: Well, let me give you a concrete 

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1 example.

2 MR. WADE: Okay.

3 MR. PERLIS: You say you have maybe nine or

4 11 building types.

5 MR. WADE: Right.

6 MR. PERLIS: And then within those buildings,

7 you want to segment the floor space.

8 MR. WADE: Exactly.

9 MR. PERLIS: So, you want to in effect

10 present the consumer with options because for each

11 building type and each segmented floor unit, there may

12 be a different value assigned energy efficiency. I

13 assume that's the reason why you're doing the

14 segmentation analysis.

15 MR. WADE: That is. There's a different

16 intensity of use for the various end uses that varies

17 by building type or by census division or climate zone.

18 So, the payback varies by those segments.

19 MR. PERLIS: I guess my -- my question is,

20 since you're able to do that at the level of trying to

21 forecast shipments, how can we bring that level of

22 detail to bear or should we try to, to bring that to

23 bear to do the very basic engineering analysis that is

24 the guts of at least half of the Department of Energy's

25 standard-setting?

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1 example. 

2 MR. WADE: Okay. 

3 MR. PERLIS: You say you have maybe nine or 

4 11 building types. 

5 MR. WADE: Right. 

6 MR. PERLIS: And then within those buildings, 

7 you want to segment the floor space. 

8 MR. WADE: Exactly. 

9 MR. PERLIS: So, you want to in effect 

10 present the consumer with options because for each 

11 building type and each segmented floor unit, there may 

12 be a different value assigned energy efficiency. I 

13 assume that's the reason why you're doing the 

14 segmentation analysis. 

15 MR. WADE: That is. There's a different 

16 intensity of use for the various end uses that varies 

17 by building type or by census division or climate zone. 

18 So, the payback varies by those segments. 

19 MR. PERLIS: I guess my -- my question is, 

20 since you're able to do that at the level of trying to 

21 forecast shipments, how can we bring that level of 

22 detail to bear or should we try to, to bring that to 

23 bear to do the very basic engineering analysis that is 

24 the guts of at least half of the Department of Energy's 

25 standard-setting? 

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1 MR. WADE: I don't think I can really answer

2 that question, but I -- I know I saw a presentation

3 that Jim McMahon had done. I -- on, I think it was,

4 air conditioner equipment or heat pumps, where a

5 geographic information system was incorporated in the

6 analysis to highlight for the -- on the consumer side,

7 not the manufacturing side, kind of the winners and

8 losers. Is that pretty accurate, Jim?

9 MR. McMAHON: Yes.

10 MR. WADE: For the manufacturing side, I mean

11 the segmentation will impact the shipment forecast, you

12 know. If you didn't have a segmented model, it would

13 be possible that kind of a middle line efficiency air

14 conditioner would be chosen a hundred percent of the

15 time by the model which would be above the proposed

16 standard.

17 So, without the segmentation, it would be,

18 you know, it would be difficult to use that model for

19 before and after shipments forecasts or something. So,

20 I don't think I'm getting to the direct meat of your

21 question, though.

22 Jim?

23 MR. BROOKMAN: Jim, can you respond to it?

24 MR. McMAHON: Mark, as you know, there's a

25 ballast workshop on the 18th, one week from today, and

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1 MR. WADE: I don't think I can really answer 

2 that question, but I -- I know I saw a presentation 

3 that Jim McMahon had done. I -- on, I think it was, 

4 air conditioner equipment or heat pumps, where a 

5 geographic information system was incorporated in the 

6 analysis to highlight for the on the consumer side, 

7 not the manufacturing side, kind of the winners and 

8 losers. Is that pretty accurate, Jim? 

9 MR. McMAHON: Yes. 

10 MR. WADE: For the manufacturing side, I mean 

11 the segmentation will impact the shipment forecast, you 

12 know. If you didn't have a segmented model, it would 

13 be possible that kind of a middle line efficiency air 

14 conditioner would be chosen a hundred percent of the 

15 time by the model which would be above the proposed 

16 standard. 

17 So, without the segmentation, it would be, 

18 you know, it would be difficult to use that model for 

19 before and after shipments forecasts or something. So, 

20 I don't think I'm getting to the direct meat of your 

21 question, though. 

22 Jim? 

23 MR. BROOKMAN: Jim, can you respond to it? 

24 MR. McMAHON: Mark, as you know, there's a 

25 ballast workshop on the 18th, one week from today, and 

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1 we'll be presenting a detailed variability analysis for

2 ballasts specifically.

3 MR. BROOKMAN: Additional questions? Yes, I

4 saw Glenn first.

5 MR. SCHLEEDE: A procedural question. Is --

6 it is the case that you have decided to use the NEMS

7 model for forecasting shipments? That's the first part

8 of it. And the second part of it is, if so, is this

9 the sole opportunity to ask questions about the NEMS

10 model and its appropriateness for this use?

11 MR. McCABE: This is not the only forum to

12 ask questions about models such as the NEMS that we

13 would be using since there will be a separate session

14 which we'll be looking at energy forecasting and other

15 economic issues. There will be the meeting -- let's

16 see. Today is Thursday. Over at AHAM, which is going

17 to be examining some of these same -- it's 7th and

18 Pennsylvania Avenue, 9th Floor, starting at what time?

19 8:30 in the morning. That will be another forum to

20 deal with specifically this issue and energy

21 forecasting.

22 MR. SHOREY: Hi. This is Everett Shorey.

23 I'd like to reiterate some comments I've made

24 in other forums. I think it's important to recognize

25 that in some of the energy forecasting models, we're

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1 we'll be presenting a detailed variability analysis for 

2 ballasts specifically. 

3 MR. BROOKMAN: Additional questions? Yes, I 

4 saw Glenn first. 

5 MR. SCHLEEDE: A procedural question. Is--

6 it is the case that you have decided to use the NEMS 

7 model for forecasting shipments? That's the first part 

8 of it. And the second part of it is, if so, is this 

9 the sole opportunity to ask questions about the NEMS 

10 model and its appropriateness for this use? 

11 MR. McCABE: This is not the only forum to 

12 ask questions about models such as the NEMS that we 

13 would be using since there will be a separate session 

14 which we'll be looking at energy forecasting and other 

15 economic issues. There will be the meeting -- let's 

16 see. Today is Thursday. Over at AHAM, which is going 

17 to be examining some of these same -- it's 7th and 

18 Pennsylvania Avenue, 9th Floor, starting at what time? 

19 8:30 in the morning. That will be another forum to 

20 deal with specifically this issue and energy 

21 forecasting. 

22 MR. SHOREY: Hi. This is Everett Shorey. 

23 I'd like to reiterate some comments I've made 

24 in other forums. I think it's important to recognize 

25 that in some of the energy forecasting models, we're 

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1 dealing with large numbers and many cells, and the

2 opportunity for getting to overall energy forecasting

3 accuracy can be high, even if we're off even reasonably

4 large amounts on any given cell because there's an

5 awful lot of cells, and they can -- and -- and in some

6 ways, they can offset each other.

7 If we try and use some of those same

8 techniques to actually forecast shipments, we -- we may

9 be in fact measuring our error, and, so, we need to be

10 very careful that we're not trying to use a tool that's

11 designed for -- for kind of big things to some ways to

12 look at little things because it may run us back into

13 some of the same questions that I've raised in the past

14 about are implicit discount rates or hurdle rates

15 really measuring consumer behavior or are we in fact by

16 having large discount rates just demonstrating that

17 economics are not what's driving consumer decisions,

18 and something else is going on.

19 So, we need to be careful about whether we're

20 using tools in fashions that they're designed for, and

21 again I'd like to reiterate that we may be better off

22 separating analysis, and we may have one tool that

23 works terrifically for doing national energy

24 forecasting, but it -- it may not be the best path to

25 do manufacture impact analysis or shipments from that

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1 dealing with large numbers and many cells, and the 

2 opportunity for getting to overall energy forecasting 

3 accuracy can be high, even if we're off even reasonably 

4 large amounts on any given cell because there's an 

5 awful lot of cells, and they can -- and -- and in some 

6 ways, they can offset each other. 

7 If we try and use some of those same 

8 techniques to actually forecast shipments, we -- we may 

9 be in fact measuring our error, and, so, we need to be 

10 very careful that we're not trying to use a tool that's 

11 designed for -- for kind of big things to some ways to 

12 look at little things because it may run us back into 

13 some of the same questions that I've raised in the past 

14 about are implicit discount rates or hurdle rates 

15 really measuring consumer behavior or are we in fact by 

16 having large discount rates just demonstrating that 

17 economics are not what's driving consumer decisions, 

18 and something else is going on. 

19 So, we need to be careful about whether we're 

20 using tools in fashions that they're designed for, and 

21 again I'd like to reiterate that we may be better off 

22 separating analysis, and we may have one tool that 

23 works terrifically for doing national energy 

24 forecasting, but it -- it may not be the best path to 

25 do manufacture impact analysis or shipments from that 

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1 standpoint.

2 MR. BROOKMAN: Final questions?

3 (No response)

4 MR. BROOKMAN: Thank you, Steve. Thanks very

5 much.

6 Let's take a break now. Yes, let's take a

7 15-minute break, and then we'll come back, and we'll

8 have a final presentation from Steve, and then we'll

9 have -- which one? REEPS is set to go, and also we'll

10 be able to play with -- the GRIM will be over here?

11 Okay.

12 We'll have several computers available to be

13 used. So, let's come back at 3:15 for a short

14 presentation, and then you get to play with the models.

15 (Whereupon, a recess was taken.)

16 MR. BROOKMAN: Our next and final presenter

17 for the day is Steve Shankel from PNNL to talk about

18 NEMS.

19 MR. SHANKEL: I just wanted to follow up

20 Steve Wade's discussion of NEMS. We actually used it

21 in sort of an impact assessment analysis, and I wanted

22 to illustrate how that -- how that was done, provide a

23 little -- a little more concreteness to how -- how this

24 applies.

25 Again, you know, the NEMS is just one of many

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1 standpoint. 

2 MR. BROOKMAN: Final questions? 

3 (No response) 

4 MR. BROOKMAN: Thank you, Steve. Thanks very 

5 much. 

6 Let's take a break now. Yes, let's take a 

7 15-minute break, and then we'll come back, and we'll 

8 have a final presentation from Steve, and then we'll 

9 have which one? REEPS is set to go, and also we'll 

10 be able to play with -- the GRIM will be over here? 

11 Okay. 

12 We'll have several computers available to be 

13 used. So, let's come back at 3:15 for a short 

14 presentation, and then you get to play with the models. 

15 (Whereupon, a recess was taken.) 

16 MR. BROOKMAN: Our next and final presenter 

17 for the day is Steve Shankel from PNNL to talk about 

18 NEMS. 

19 MR. SHANKEL: I just wanted to follow up 

20 Steve Wade's discussion of NEMS. We actually used it 

21 in sort of an impact assessment analysis, and I wanted 

22 to illustrate how that -- how that was done, provide a 

23 little -- a little more concreteness to how -- how this 

24 applies. 

25 Again, you know, the NEMS is just one of many 

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1 models. It's -- it's been -- it's been lumped into the

2 black box category, and the documentation is hundreds

3 of pages long. So, I guess that's part of how you

4 define the color of the box.

5 We used it -- the equipment -- the commercial

6 equipment standards process that's dictated by the

7 Energy Policy Act requires DOE to support ASHRAE and

8 its efforts to set voluntary standards for commercial

9 equipment, and ASHRAE issued a draft standard 90.1

10 and -- for public comment, and DOE provided public

11 comment to that draft report.

12 As part of the public comment, we used NEMS,

13 the commercial model, on one of the proposed water

14 heater standards to illustrate to ASHRAE how DOE may do

15 some analysis in hte standard-setting process,

16 recognizing it's one of many models, etc.

17 What I'm going to talk about today is I'm

18 going to go through pretty briefly how we did that,

19 ending up with how we -- how we translate the NEMS

20 outputs into shipments.

21 The NEMS does not put -- does not out -- the

22 commercial model does not output shipments. It outputs

23 something called service demand, and the purpose of our

24 analysis was not to derive shipments. We didn't carry

25 it through to the manufacturer impact assessment, but

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1 models. It's -- it's been -- it's been lumped into the 

2 black box category, and the documentation is hundreds 

3 of pages long. So, I guess that's part of how you 

4 define the color of the box. 

5 We used it -- the equipment -- the commercial 

6 equipment standards process that's dictated by the 

7 Energy Policy Act requires DOE to support ASHRAE and 

8 its efforts to set voluntary standards for commercial 

9 equipment, and ASHRAE issued a draft standard 90.1 

10 and -- for public comment, and DOE provided public 

11 comment to that draft report. 

12 As part of the public comment, we used NEMS, 

13 the commercial model, on one of the proposed water 

14 heater standards to illustrate to ASHRAE how DOE may do 

15 some analysis in hte standard-setting process, 

16 recognizing it's one of many models, etc. 

17 What I'm going to talk about today is I'm 

18 going to go through pretty briefly how we did that, 

19 ending up with how we -- how we translate the NEMS 

20 outputs into shipments. 

21 The NEMS does not put -- does not out -- the 

22 commercial model does not output shipments. It outputs 

23 something called service demand, and the purpose of our 

24 analysis was not to derive shipments. We didn't carry 

25 it through to the manufacturer impact assessment, but 

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1 what you heard -- the context that these models have

2 been discussed in is providing shipments to GRIM. NEMS

3 is capable of doing that.

4 We start with the annual energy outlook

5 baseline inputs. We used the last PC model version,

6 which is from the actually 1995 version of NEMS, but we

7 used the '96 inputs to it.

8 We applied it to the potential water heater

9 standards, and I just want to -- I just want to note

10 that we got extensive help from EIA, and we couldn't

11 have done i t wi t hout -- thank you.

12 The first step is to generate the baseline

13 data, and again we started with the AEO '96, but then

14 we needed to modify the technology description, so that

15 it matched up with the ASHRAE description, and then

16 after we did that, we needed to then calibrate it so we

17 were still with AEO '96 baseline.

18 What we ended up then -- what we end up with

19 then is a -- is a baseline to use for the standards

20 process with an emphasis being on being able to clearly

21 describe how it related to the '96 AEO, as sort of an

22 anchor.

23 Once you've got the baseline data in there,

24 you then model the impact of standards, and NEMS has a

25 policy handle in there that lets you do that. You --

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1 what you heard the context that these models have 

2 been discussed in is providing shipments to GRIM. NEMS 

3 is capable of doing that. 

4 We start with the annual energy outlook 

5 baseline inputs. We used the last PC model version, 

6 which is from the actually 1995 version of NEMS, but we 

7 used the '96 inputs to it. 

8 We applied it to the potential water heater 

9 standards, and I just want to -- I just want to note 

10 that we got extensive help from EIA, and we couldn't 

11 have done it without -- thank you. 

12 The first step is to generate the baseline 

13 data, and again we started with the AEO '96, but then 

14 we needed to modify the technology description, so that 

15 it matched up with the ASHRAE description, and then 

16 after we did that, we needed to then calibrate it so we 

17 were still with AEO '96 baseline. 

18 What we ended up then -- what we end up with 

19 then is a is a baseline to use for the standards 

20 process with an emphasis being on being able to clearly 

21 describe how it related to the '96 AEO, as sort of an 

22 anchor. 

23 Once you've got the baseline data in there, 

24 you then model the impact of standards, and NEMS has a 

25 policy handle in there that lets you do that. You--

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1 you simply go in and make all equipment -- all the

2 affected equipment with efficiency below your proposed

3 standard unavailable as of the year of the standard.

4 Every piece of equipment has a last year of

5 availability as part of its descriptor. We -- we ran a

6 number of cases, each one with different standards.

7 You then -- you run the baseline, and you run

8 -- and you run the standards case, and what you get out

9 is service demand. So, it has to get fed into a post10 processor, unless you're interested in service demand.

11 The service demand is then -- is in trillions

12 of BTU per year by technology, by region, and that is

13 converted into the capacity number using efficiencies

14 for each of the pieces of equipment. That's a required

15 capacity. So, that's sort of a capacity if you

16 perfectly load match.

17 We then took the capacity factors which are a

18 HEMS input and used them to generate sort of the actual

19 capacity that we would assume would be purchased to

20 meet the service demand. You then have to translate

21 that into shipments, and the only way to do that is

22 with some information on the average passage per

23 equipment. So, we used an average -- excuse me. We

24 didn't do this, but if we had done it, we talked about

25 doing it, we were going to use an average number.

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1 you simply go in and make all equipment -- all the 

2 affected equipment with efficiency below your proposed 

3 standard unavailable as of the year of the standard. 

4 Every piece of equipment has a last year of 

5 availability as part of its descriptor. We -- we ran a 

6 number of cases, each one with different standards. 

7 You then you run the baseline, and you run 

8 and you run the standards case, and what you get out 

9 is service demand. So, it has to get fed into a post10 processor, unless you're interested in service demand. 

11 The service demand is then -- is in trillions 

12 of BTU per year by technology, by region, and that is 

13 converted into the capacity number using efficiencies 

14 for each of the pieces of equipment. That's a required 

15 capacity. So, that's sort of a capacity if you 

16 perfectly load match. 

17 We then took the capacity factors which are a 

18 HEMS input and used them to generate sort of the actual 

19 capacity that we would assume would be purchased to 

20 meet the service demand. You then have to translate 

21 that into shipments, and the only way to do that is 

22 with some information on the average passage per 

23 equipment. So, we used an average -- excuse me. We 

24 didn't do this, but if we had done it, we talked about 

25 doing it, we were going to use an average number. 

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1 You could also use a distribution. You'd

2 still end up using an average and then taking your

3 distribution and distributing it. I don't know if that

4 makes any sense at all.

5 A couple of issues. The standards are

6 written in terms of specific equipment size categories.

7 There are standard for specific size of -- specific

8 range o f water heater capacities.

9 NEMS doesn't do things explicitly in terms of

10 equipment size. It does everything on a per unit of

11 service demand level. So, it essentially assumes this

12 infinit ely-variable capacity.

13 So, you have to -- it's a little tricky then

14 to go in and -- and translate standards into -- into

15 the technology description of t he NEMS. What we did is

16 set up as -- you heard about how you can have 11

17 different models of equipment. We added size

18 descriptors to that. It's imperfect, but it's one way

19 to do i t .

20 Competition between size categories within a

21 technology type is difficult to model. Actually,

22 that's not quite right. The model allows perfect

23 competi tion between size categories. The way we did

24 it, if you have each size category as a different

25 model, a different model of the technology, they're all

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1 You could also use a distribution. You'd 

2 still end up using an average and then taking your 

3 distribution and distributing it. I don't know if that 

4 makes any sense at all. 

5 A couple of issues. The standards are 

6 written in terms of specific equipment size categories. 

7 There are standard for specific size of -- specific 

8 range of water heater capacities. 

9 NEMS doesn't do things explicitly in terms of 

10 equipment size. It does everything on a per unit of 

11 service demand level. So, it essentially assumes this 

12 infinitely-variable capacity. 

13 So, you have to -- it's a little tricky then 

14 to go in and -- and translate standards into -- into 

15 the technology description of the NEMS. What we did is 

16 set up as -- you heard about how you can have 11 

17 different models of equipment. We added size 

18 descriptors to that. It's imperfect, but it's one way 

19 to do it. 

20 Competition between size categories within a 

21 technology type is difficult to model. Actually, 

22 that's not quite right. The model allows perfect 

23 competition between size categories. The way we did 

24 it, if you have each size category as a different 

25 model, a different model of the technology, they're all 

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1 available for competition.

2 To the extent that you believe that's

3 unrealistic, you have to try to eliminate, say, big

4 pieces of equipment from competing in small spaces. As

5 far as NEMS is concerned, each one is competing for a

6 specific unit, a small unit of service demand. So, the

7 biggest units can compete for any -- any end use.

8 The only way to adjust that is you can switch

9 off specific building types, but this is here as a --

10 as an issue that makes this a little tricky.

11 And, finally, as another issue, working

12 against us in our effort or against us in -- in the

13 efforts to develop very simple models, even these very

14 complex models don't entirely model the kinds of things

15 that determine consumer choice. Availability of fuel

16 types is an issue. Within these models, all fuel types

17 are available and can be -- can be selected.

18 Although the current availability of fuel

19 type is reflected in your baseline description, in your

20 beginning year description, the -- the model uses a

21 single melded rate for electricity. I believe my --

22 and we don't -- demand charges may also be a factor in

23 there, and it doesn't allow for one-time -- actually, I

24 may be wrong on this last one. One-time cost of fuel

25 switching. I believe there is a factor for fuel

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1 available for competition. 

2 To the extent that you believe that's 

3 unrealistic t you have to try to eliminate t saYt big 

4 pieces of equipment from competing in small spaces. As 

5 far as NEMS is concerned t each one is competing for a 

6 specific unitt a small unit of service demand. SOt the 

7 biggest units can compete for any -- any end use. 

8 The only way to adjust that is you can switch 

9 off specific building types t but this is here as a --

10 as an issue that makes this a little tricky. 

11 And t finallYt as another issue t working 

12 against us in our effort or against us in -- in the 

13 efforts to develop very simple models t even these very 

14 complex models don't entirely model the kinds of things 

15 that determine consumer choice. Availability of fuel 

16 types is an issue. Within these models t all fuel types 

17 are available and can be -- can be selected. 

18 Although the current availability of fuel 

19 type is reflected in your baseline description t in your 

20 beginning year description t the -- the model uses a 

21 single melded rate for electricity. I believe my 

22 and we don't -- demand charges may also be a factor in 

23 there t and it doesn't allow for one-time -- actuallYt I 

24 may be wrong on this last one. One-time cost of fuel 

25 switching. I believe there is a factor for fuel 

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1 switching in there.

2 That concludes my presentation.

3 MR. BROOKMAN: Questions for S teve?

4 (No response)

5 MR. BROOKMAN: Is it -- did you get from this

6 presentation how his -- how this fits? Charlie, you

7 got it at least. Anybody else? Yes?

8 MR. RIVEST: It sounds like it doesn't fit

9 very we ll .

10 MR. BROOKMAN: Okay.

11 MR. RIVEST: It sounds like it doesn't fit

12 very well .

13 MR. SHANKEL: Yeah. There's a lot of models

14 being considered for how you get shipments. This is an

15 example of one of them.

16 MR. BROOKMAN: Any additional questions?

17 Yes?

18 MS. KLUMPP: Liz Klumpp, Washington.

19 Just trying to put things into perspective,

20 where does it come into play if ever the added benefits

21 to certain products that might drive sales?

22 MR. SHANKEL: You mean like through -- like

23 in-door ice dispensing, that kind of thing, in a

24 refrigerator?

25 MS. KLUMPP: Well, I was thinking of

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1 switching in there. 

2 That concludes my presentation. 

3 MR. BROOKMAN: Questions for Steve? 

4 (No response) 

5 MR. BROOKMAN: Is it -- did you get from this 

6 presentation how his -- how this fits? Charlie, you 

7 got it at least. Anybody else? Yes? 

8 MR. RIVEST: It sounds like it doesn't fit 

9 very well. 

10 MR. BROOKMAN: Okay. 

11 MR. RIVEST: It sounds like it doesn't fit 

12 very well. 

13 MR. SHANKEL: Yeah. There's a lot of models 

14 being considered for how you get shipments. This is an 

15 example of one of them. 

16 MR. BROOKMAN: Any additional questions? 

17 Yes? 

18 MS. KLUMPP: Liz Klumpp, Washington. 

19 Just trying to put things into perspective, 

20 where does it come into play if ever the added benefits 

21 to certain products that might drive sales? 

22 MR. SHANKEL: You mean like through 

23 in-door ice dispensing, that kind of thing, in a 

24 refrigerator? 

25 MS. KLUMPP: Well, I was thinking of 

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like 
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1 something a little more subtle to the eye, such as we

2 have a lot of communities who are planning on fully

3 promoting something like an efficient clothes washer

4 because of their sewage treatment problems or they're

5 on septic and clay and they're just really anxious

6 about the water-saving opportunities.

7 So, does this ever -- does that kind of

8 component --

9 MR. SHANKEL: Only indirectly. Something

10 like NEMS --

11 MR. BROOKMAN: Mike, Steve.

12 MR. SHANKEL: With something like NEMS, you

13 have a maintenance cost as part of your description of

14 your technology. So, you might be able to put some of

15 the non-energy costs in there. If you have something

16 that is not -- not explicitly a cost, if you have a

17 benefit that you can't explicitly recognize as a cost,

18 you need to incorporate that in some way other than

19 through one of these models.

20 I don't think any of them could handle that.

21 Jim has a comment here.

22 MS. KLUMPP: If you can quantify it, is that

23 something DOE will quantify as part of a process?

24 MR. SHANKEL: I'll let DOE answer.

25 MR. BROOKMAN: I think Steve --

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1 something a little more subtle to the eye, such as we 

2 have a lot of communities who are planning on fully 

3 promoting something like an efficient clothes washer 

4 because of their sewage treatment problems or they're 

5 on septic and clay and they're just really anxious 

6 about the water-saving opportunities. 

7 So, does this ever -- does that kind of 

8 component 

9 MR. SHANKEL: Only indirectly. Something 

10 like NEMS 

11 MR. BROOKMAN: Mike, Steve. 

12 MR. SHANKEL: With something like NEMS, you 

13 have a maintenance cost as part of your description of 

14 your technology. So, you might be able to put some of 

15 the non-energy costs in there. If you have something 

16 that is not -- not explicitly a cost, if you have a 

17 benefit that you can't explicitly recognize as a cost, 

18 you need to incorporate that in some way other than 

19 through one of these models. 

20 I don't think any of them could handle that. 

21 Jim has a comment here. 

22 MS. KLUMPP: If you can quantify it, is that 

23 something DOE will quantify as part of a process? 

24 

25 

MR. SHANKEL: I'll let DOE answer. 

MR. BROOKMAN: I think Steve 

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1 MR. McMAHON: I think Steve over-stated his

2 case a little bit. In REEPS or REM, you can account

3 for attributes and put them in an equation with

4 whatever weight, and you can solve for the wage

5 empirically. So, if, you know, the -- if you can

6 somehow put in a quantitative way whatever units,

7 doesn't have to be dollars, what the benefit of this

8 is, whether it's gallons of water or whatever it is,

9 then you can solve for a parameter and use it in the

10 future.

11 In REM, we do use water costs, but we don't

12 have any quantification of the value of reducing water

13 consumption other than that, but it can be done in

14 these models.

15 MR. BROOKMAN: Michael?

16 MR. McCABE: I don't have anything to add to

17 that. We did do it for -- as Jim said, for some of the

18 laundry -- for the clothes washers, some previous

19 analyses. There are other attributes which may not be

20 as quantifiable, and then that would be appropriate as

21 just to identify, and those attributes may be both

22 positive and negative, and they would be identified and

23 carried along as separate factors and considered with

24 the rest of the results.

25 MR. BROOKMAN: Additional questions or

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1 MR. McMAHON: I think Steve over-stated his 

2 case a little bit. In REEPS or REM, you can account 

3 for attributes and put them in an equation with 

4 whatever weight, and you can solve for the wage 

5 empirically. So, if, you know, the -- if you can 

6 somehow put in a quantitative way whatever units, 

7 doesn't have to be dollars, what the benefit of this 

8 is, whether it's gallons of water or whatever it is, 

9 then you can solve for a parameter and use it in the 

10 future. 

11 In REM, we do use water costs, but we don't 

12 have any quantification of the value of reducing water 

13 consumption other than that, but it can be done in 

14 these models. 

15 MR. BROOKMAN: Michael? 

16 MR. McCABE: I don't have anything to add to 

17 that. We did do it for -- as Jim said, for some of the 

18 laundry -- for the clothes washers, some previous 

19 analyses. There are other attributes which may not be 

20 as quantifiable, and then that would be appropriate as 

21 just to identify, and those attributes may be both 

22 positive and negative, and they would be identified and 

23 carried along as separate factors and considered with 

24 the rest of the results. 

25 MR. BROOKMAN: Additional questions or 

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1 comments at this point?

2 (No response)

3 MR. BROOKMAN: Thank you, Steve, and thanks.

4 We didn't recognize the other presenters this

5 afternoon. Thank you.

6 (Applause)

7 MR. BROOKMAN: Explain how these machines are

8 set up. We have several of them. How are they going

9 to be deployed around this room?

10 (Whereupon, at 3:37 p.m., the meeting was

11 adjourned into the optional hands-on computer training

12 on the models, to be reconvened tomorrow morning,

13 Wednesday, March 12th, 1997, at 8:30 a.m.)

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1 comments at this point? 

2 (No response) 

3 MR. BROOKMAN: Thank you, Steve, and thanks. 

4 We didn't recognize the other presenters this 

5 afternoon. Thank you. 

6 (Applause) 

7 MR. BROOKMAN: Explain how these machines are 

8 set up. We have several of them. How are they going 

9 to be deployed around this room? 

10 (Whereupon, at 3:37 p.m., the meeting was 

11 adjourned into the optional hands-on computer training 

12 on the models, to be reconvened tomorrow morning, 

13 Wednesday, March 12th, 1997, at 8:30 a.m.) 

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REPORTER'S CERTIFICATE

This is to certify that the attached

proceedings before: DOE

In the Matter of: MANUFACTURES IMPACT ANALYSI

WORKSHOP

were held as herein appears and that this is the

original transcript thereof for the file of the

Department, Commission, Administrative Law Judge

or the Agency.

Official Reporter.

Dated: 3/11/97

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REPORTER'S CERTIFICATE 

This is to certify that the attached . 

proceedings before: DOE 

In the Matter of: tL~NUFACTURES IMPACT ANALYSI

'WORKSHOP 

were held as herein appears and that this is the 

original transcript thereof for the file of the 

Department, Commission, Administrative Law Judge 

or the Agency. 

Official Reporter. 

20 Da ted: 3/11/97 

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