CHAPTER 12. MANUFACTURER IMPACT ANALYSIS 

TABLE OF CONTENTS 

12.1 INTRODUCTION ......................................................................................................... 12-1
 

12.2 METHODOLOGY ........................................................................................................ 12-1
 

12.2.1 Phase I: Industry Profile.................................................................................. 12-1
 

12.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide......................... 12-2
 

12.2.2.1 Industry Cash-Flow Analysis............................................................... 12-2
 

12.2.2.2 Interview Guide ................................................................................... 12-2
 

12.2.3 Phase III: Sub-Group Impact Analysis ........................................................... 12-2
 

12.2.3.1 Manufacturer Interviews...................................................................... 12-3
 

12.2.3.2 Revised Industry Cash-Flow Analysis................................................. 12-3
 

12.2.3.3 Manufacturer Sub-Group Analysis...................................................... 12-3
 

12.2.3.4 Small-Business Manufacturer Sub-Group ........................................... 12-4
 

12.2.3.5 Manufacturing Capacity Impact .......................................................... 12-4
 

12.2.3.6 Employment Impact............................................................................. 12-4
 

12.2.3.7 Cumulative Regulatory Burden ........................................................... 12-5
 

12.3 MANUFACTURING IMPACT ANALYSIS KEY ISSUES ........................................ 12-5
 

12.3.1 Maintaining Product Availability and Features .............................................. 12-5
 

12.3.2 Significant Capital Conversion Costs ............................................................. 12-5
 

12.3.3 Substitutes....................................................................................................... 12-6
 

12.3.4 Narrow Focus of the Rulemaking................................................................... 12-6
 

12.3.5 National Energy Savings As a Result of the rulemaking................................ 12-6
 

12.3.6 Use of Alternative Metals ............................................................................... 12-6
 

12.3.7 Enforcement of Standards............................................................................... 12-7
 

12.4 GRIM INPUTS AND ASSUMPTIONS........................................................................ 12-7
 

12.4.1 Overview of the GRIM ................................................................................... 12-7
 

12.4.2 Sources of GRIM Inputs ................................................................................. 12-8
 

12.4.2.1 Corporate Annual Reports ................................................................... 12-8
 

12.4.2.2 Standard and Poor Credit Ratings........................................................ 12-8
 

12.4.2.3 Shipments Model ................................................................................. 12-8
 

12.4.2.4 Engineering Analysis........................................................................... 12-8
 

12.4.2.5 Manufacturer Interviews...................................................................... 12-9
 

12.4.3 Financial Parameters....................................................................................... 12-9
 

12.4.4 Corporate Discount Rate............................................................................... 12-10
 

12.4.5 Trial Standard Levels.................................................................................... 12-12
 

12.4.6 Shipments...................................................................................................... 12-13
 

12.4.7 Shipments and Scenarios .............................................................................. 12-14
 

12.4.8 Production Costs ........................................................................................... 12-15
 

12.4.9 Conversion Costs .......................................................................................... 12-16
 

12.4.9.1 Capital Conversion Costs................................................................... 12-16
 

12.4.9.2 Equipment Conversion Costs............................................................. 12-19
 

12.4.10 Markup Scenarios ......................................................................................... 12-20
 

12.4.10.1 Preservation-of-Return-on-Invested-Capital Scenario..................... 12-20
 

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12.4.10.2 Preservation-of-Operating Profit Scenario ...................................... 12-21
 

12.5 INDUSTRY FINANCIAL IMPACTS ........................................................................ 12-21
 

12.5.1 Impacts on Industry Net Present Value ........................................................ 12-21
 

12.5.2 Impacts on Annual Cash Flow...................................................................... 12-24
 

12.6 OTHER IMPACTS...................................................................................................... 12-28
 

12.6.1 Employment.................................................................................................. 12-28
 

12.6.2 Production Capacity...................................................................................... 12-29
 

12.6.3 Exports .......................................................................................................... 12-30
 

12.6.4 Cumulative Regulatory Burden .................................................................... 12-30
 

12.6.4.1 Federal Regulations on SEMs and Other Equipment Produced by the 

Same Manufacturers ......................................................................... 12-31
 

12.6.4.2 Restriction of Hazardous Substances Directive................................. 12-32
 

12.6.4.3 Registration, Evaluation and Authorization of Chemical substances 12-32
 

12.6.4.4 Trade Group Regulations................................................................... 12-32
 

12.6.4.5 Other Regulations .............................................................................. 12-32
 

12.7 CONCLUSIONS.......................................................................................................... 12-32
 

LIST OF TABLES 

Table 12.4.1 GRIM Financial Parameters ............................................................................... 12-10
 

Table 12.4.4 Baseline Efficiency Levels and Trial Standard Levels for Polyphase 1 HP, 4 Pole 

Table 12.4.5 Baseline Efficiency Levels and Trial Standard Levels for Capacitor-Start, 

Table 12.4.6 Baseline Efficiency Levels and Trial Standard Levels for Capacitor-Start, 

Table 12.4.7 Base Case Total Industry Shipments by Motor Type for 2015 (Reference Economic 

Table 12.4.8 Distribution of Shipments in the Base Case for Polyphase 1 HP, 4 Pole Small 

Table 12.4.9 Distribution of Shipments in the Base Case for Capacitor-Start, Induction-Run 1⁄2 

Table 12.4.10 Distribution of Shipments in the Base Case for Capacitor-Start, Capacitor-Run 3⁄4 

Table 12.4.11 Production Cost Breakdown for Polyphase 1 HP, 4 Pole Small Electric Motor 

Table 12.4.12 Production Cost Breakdown for Capacitor-Start, Induction-Run 1⁄2 HP, 4 Pole 

Table 12.4.13 Production Cost Breakdown for Capacitor-Start, Capacitor-Run 3⁄4 HP, 4 Pole 

Table 12.4.14 Polyphase Weighted Total Capital Conversion Costs for Typical Manufacturer by
 

Table 12.4.15 Capacitor-Start, Induction-Run Weighted Total Capital Conversion Costs for 

Table 12.4.2 Cost of Equity Calculation.................................................................................. 12-11
 

Table 12.4.3 Cost of Debt Calculation..................................................................................... 12-12
 

Small Electric Motor ..................................................................................................... 12-12
 

Induction-Run 1⁄2 HP, 4 Pole Small Electric Motor....................................................... 12-12
 

Capacitor-Run 3⁄4 HP, 4 Pole Small Electric Motor ...................................................... 12-13
 

Growth, No Elasticity, Baseline Marketshare Model) .................................................. 12-13
 

Electric Motor................................................................................................................ 12-14
 

HP, 4 Pole Small Electric Motor................................................................................... 12-14
 

HP, 4 Pole Small Electric Motor................................................................................... 12-14
 

(2009$) .......................................................................................................................... 12-15
 

Small Electric Motor (2009$)........................................................................................ 12-16
 

Small Electric Motor (2009$)........................................................................................ 12-16
 

TSL................................................................................................................................ 12-17
 

Typical Manufacturer by TSL....................................................................................... 12-18
 

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Table 12.4.16 Capacitor-Start, Capacitor-Run Weighted Total Capital Conversion Costs for 

Typical Manufacturer by TSL....................................................................................... 12-18
 

Table 12.4.17 Industry-Wide Capital Conversion Costs by Trial Standard Level (2008$ millions)
 

Table 12.4.18 Industry-Wide Equipment Conversion Costs by Trial Standard Level (2008$ 

Table 12.4.19 Preservation-of-Return-on-Invested-Capital Markup for Polyphase Small Electric 

Table 12.4.20 Preservation-of-Return-on-Invested-Capital Markup for all Single Phase Motors
 

....................................................................................................................................... 12-19
 

millions)......................................................................................................................... 12-20
 

Motors ........................................................................................................................... 12-21
 

....................................................................................................................................... 12-21
 

Table 12.4.21 Preservation-of-Operating Profit Markup for Polyphase Small Electric Motors . 12­

21
 

Table 12.4.22 Preservation-of-Operating Profit Markup for all Single Phase Motors............ 12-21
 

Table 12.5.1 Change in Industry Net Present Value for Polyphase SEMs (Preservation of Return 

on Invested Capital Markup Scenario).......................................................................... 12-22
 

Table 12.5.2 Change in Industry Net Present Value for Polyphase SEMs (Preservation of 

Table 12.5.3 Change in Industry Net Present Value for Capacitor-Start SEMs (Preservation of 

Table 12.5.4 Change in Industry Net Present Value for Capacitor-Start SEMs (Preservation of 

Table 12.5.5 Annual Industry Net Cash Flows for Polyphase Motors (Preservation-of-Return-onTable 12.5.6 Annual Industry Net Cash Flows for Polyphase Motors (Preservation-of-Operating
 

Table 12.5.7 Annual Industry Net Cash Flows for Capacitor Start Motors (Preservation-ofTable 12.5.8 Annual Industry Net Cash Flows for Capacitor Start Motors (Preservation-ofOperating Profit Markup Scenario)............................................................................... 12-23
 

Return on Invested Capital Markup Scenario) .............................................................. 12-23
 

Operating Profit Markup Scenario)............................................................................... 12-24
 

Invested-Capital Markup Scenario)............................................................................... 12-25
 

Profit Markup Scenario)................................................................................................ 12-25
 

Return-on-Invested-Capital Markup Scenario)............................................................. 12-27
 

Operating Profit Markup Scenario)............................................................................... 12-27
 

Table 12.6.1 Other DOE Actions Affecting the SEM Industry............................................... 12-31
 

LIST OF FIGURES 

Figure 12.4.1 Using the GRIM to Calculate Cash Flow............................................................ 12-7
 

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CHAPTER 12. MANUFACTURER IMPACT ANALYSIS 

12.1 INTRODUCTION 

In determining whether a standard is economically justified, the Secretary of Energy is 

required to consider "the economic impact of the standard on the manufacturers and on the 

consumers of the equipment subject to such a standard.” The legislation also calls for an 

assessment of the impact of any lessening of competition as determined in writing by the 

Attorney General. The U.S. Department of Energy (DOE) conducted a manufacturer impact 

analysis (MIA) to estimate the financial impact of higher efficiency standards on manufacturers 

of small electric motors (SEM) and to assess the impact of such standards on employment and 

manufacturing capacity. The MIA has both quantitative and qualitative aspects. 

The quantitative portion of the MIA primarily relies on the Government Regulatory 

Impact Model (GRIM), an industry cash-flow model adapted for this rulemaking. GRIM inputs 

are industry cost structure, shipments, and pricing strategies. The GRIM’s key output is industry 

net present value (INPV). The model estimates the financial impact of higher efficiency 

standards by comparing changes in INPV between a base case and various trial standard levels 

(TSLs). 

The qualitative portion of the MIA addresses factors such as equipment characteristics, 

characteristics of particular firms, and market and equipment trends, and includes an assessment 

of the impacts of standards on sub-groups of manufacturers. 

12.2 METHODOLOGY 

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

preparation of an industry characterization including data on market share, sales volumes and 

trends, pricing, employment, and financial structure. Phase II, Industry Cash-Flow Analysis and 

Interview Guide, focused on the industry as a whole. In this phase, DOE used the GRIM to 

prepare an industry cash-flow analysis. For the quantitative portion of the MIA analysis, DOE 

analyzed the same 72 product classes used in the national impact analysis (NIA) and the lifecycle cost (LCC) analysis. In this phase DOE also used publicly available information developed 

in Phase I to adapt the GRIM’s structure to facilitate analysis of new SEM standards. In Phase 

III, Sub-Group Impact Analysis, DOE conducted interviews with several manufacturers 

comprising the majority of the SEM industry. During these interviews, DOE discussed financial 

topics specific to each company and obtained each manufacturer’s view of the industry as a 

whole. The interviews provided valuable information that DOE used to evaluate the impacts of a 

new standard on manufacturer cash flows, manufacturing capacities, and employment levels. The 

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

for the MIA. 

12.2.1 Phase I: Industry Profile 

In Phase I of the MIA, DOE prepared a profile of the SEM industry that built on the 

market and technology assessments prepared for this rulemaking (chapter 3 of this TSD). Before 

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initiating the detailed impact studies, DOE collected information on the past and present 

structure and market characteristics of the SEM industry. This included estimated market shares 

of SEM manufacturers, corporate operating ratios, wages, employment, and production cost 

ratios. The industry profile included a top-down cost analysis of the SEM manufacturing industry 

that DOE used to derive cost and financial inputs for the GRIM (e.g., revenues; material; labor; 

overhead; depreciation; sales, general, and administration expenses (SG&A); and research and 

development (R&D) expenses). DOE used additional sources of information to further calibrate 

its characterization of the industry, including company Securities and Exchange Commission 

(SEC) 10–K reports, Standard & Poor’s (S&P) stock reports, and corporate annual reports. DOE 

also relied on information from its engineering analysis, LCC analysis, NIA, and analysis of 

markups to characterize the SEM manufacturing industry. 

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

In Phase II, DOE performed a preliminary industry cash-flow analysis and prepared 

written guidelines for interviewing manufacturers. 

12.2.2.1 Industry Cash-Flow Analysis 

The industry cash-flow analysis focused on the financial impacts of new standards on the 

SEM industry as a whole. New energy conservation standards can affect SEM manufacturers in 

three distinct ways: (1) require additional investment, (2) raise production costs, and (3) affect 

revenues through variations in prices and shipments. The analytical tool DOE uses for 

calculating the financial impacts of new energy conservation standards on manufacturers is the 

GRIM. DOE performed a cash-flow analysis using the GRIM on the SEM industry to quantify 

these impacts. 

12.2.2.2 Interview Guide 

During Phase III of the MIA, DOE conducted interviews with manufacturers to gather 

information on the effects of new energy conservation standards on revenues and finances, direct 

employment, capital assets, and industry competitiveness. Before the interviews, DOE 

distributed an interview guide to help identify the impacts of new energy conservation standards 

on individual manufacturers, sub-groups of manufacturers and customers. Manufacturers and 

customers received the guide before the interviews to allow them to prepare their responses in 

advance. The interview guide led interviewers through a series of questions on current 

organizational characteristics, industry infrastructure, manufacturer cash flow, competitive 

impacts, employment impacts, and manufacturing capacity impacts. The interview guides used to 

conduct the manufacturer and customer interviews are found in Appendix 12A of this TSD. 

12.2.3 Phase III: Sub-Group Impact Analysis 

Many of the same companies that participated in the MIA interviews also participated in 

interviews for the engineering analysis. However, the MIA interviews broadened the discussion 

from primarily technology-related issues to business-related topics. The objectives were to obtain 

feedback from industry on the GRIM’s assumptions and to isolate key issues and concerns. DOE 

defined two distinctive sub-groups that could be affected by the new energy conservation 

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standards: major manufacturers and small businesses. The following sections summarize the 

methodology and findings of this assessment. 

12.2.3.1 Manufacturer Interviews 

DOE supplemented the information gathered in Phase I and the cash-flow analysis 

performed in Phase II with information gathered during interviews with manufacturers during 

Phase III. The interview process has a key role in the manufacturer impact analyses since it 

provides an opportunity for interested parties to express their views privately on important 

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

DOE’s contractor contacted companies from its database of manufacturers, which 

provided names of manufacturers across the SEM industry. DOE’s contractor interviewed all 

relevant companies interested in participating, subsidiaries and independent firms. DOE 

scheduled interviews well in advance in order to provide every opportunity for key individuals to 

be available for comment. Although a written response to the questionnaire was acceptable, DOE 

prefers interactive interviews because they help clarify responses and provide the opportunity to 

identify additional issues. 

DOE’s contractor conducted detailed interviews with all manufacturers, who agreed to 

participate to gain insight into the range of potential impacts and how these impacts vary with 

each TSL. During the interviews, DOE’s contractor solicited information on the possible impacts 

of energy conservation standards on sales, direct employment, capital assets, and industry 

competitiveness. Both qualitative and quantitative information are valuable to the interview 

process. DOE’s contractor then used the information gathered during manufacturer interviews to 

tailor the GRIM to incorporate unique financial characteristics from each product class. 

12.2.3.2 Revised Industry Cash-Flow Analysis 

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

figures from the GRIM for review and evaluation. During the interviews, DOE requested 

comments on the values DOE selected for the parameters. Upon completion of the interviews, 

DOE revised its industry cash-flow model where applicable. 

12.2.3.3 Manufacturer Sub-Group Analysis 

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

for assessing differential impacts among sub-groups of manufacturers. Smaller manufacturers, 

niche players, or manufacturers exhibiting a cost structure that differs significantly from the 

industry average could be more negatively affected. Ideally, DOE would consider the impact on 

every manufacturer individually; however, it typically uses the results of the industry 

characterization to group manufacturers exhibiting similar characteristics. During the interviews, 

DOE discussed the potential sub-groups and sub-group members identified for the analysis. DOE 

looked to the manufacturers and other stakeholders to suggest what sub-groups or characteristics 

are most appropriate for the analysis. 

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12.2.3.4 Small-Business Manufacturer Sub-Group 

DOE used the small business size standards published on August 18, 2008, as amended, 

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

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

American Industry Classification System (NAICS) code lists the size standards for various 

industries. SEM manufacturing is classified under NAICS 335312 (motor and generator 

manufacturing). To be categorized as a small business, a SEM manufacturer and its affiliates 

may employ a maximum of 1,000 employees. 

DOE reviewed NEMA’s listing of SEM members and surveyed the industry to develop a 

list of every manufacturer. DOE then examined publicly available data and contacted 

manufacturers, when needed, to determine if they meet the SBA’s definition of a small business 

manufacturer and if their manufacturing facilities are located in the United States. Based on this 

analysis, DOE estimates that there are no small SEM manufacturers that make equipment that 

are covered by this rulemaking. 

Therefore, since DOE has not indentified any SEM small business manufacturer, DOE 

believes the GRIM analysis, which models each product class separately and aggregates the 

results to produce an industry-wide impact, is representative of the manufacturers that would be 

affected by standards. 

12.2.3.5 Manufacturing Capacity Impact 

One of the significant outcomes of new energy conservation standards could be the 

obsolescence of existing manufacturing assets, including tooling and investment. The 

manufacturer interview guide helped identify impacts on manufacturing capacity, specifically 

capacity utilization and plant location decisions in the United States and North America with and 

without an energy conservation standard; the ability of manufacturers to upgrade or remodel 

existing facilities to accommodate the new requirements due to new energy conservation 

standards; the nature and value of stranded assets, if any; and estimates for any one-time 

restructuring and other charges, where applicable. 

12.2.3.6 Employment Impact 

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

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

affected, DOE used the GRIM to calculate employment impacts at each TSL. During interviews, 

DOE explored current employment trends in the SEM industry. In addition, DOE solicited 

manufacture views on changes in employment patterns that may result from more stringent 

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

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

future employment levels with and without new energy conservation standards, and differences 

in workforce skills and issues related to employee retraining. 

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12.2.3.7 Cumulative Regulatory Burden 

DOE seeks to mitigate the overlapping effects on manufacturers of new energy 

conservation standards and other regulatory actions affecting the same equipment. DOE analyzed 

and considered the impact on manufacturers of multiple equipment-specific regulatory actions. 

Based on its own research and discussions with manufacturers, DOE identified several 

regulations relevant to the SEM industry, including the Restriction of Hazardous Substance 

Directive (RoHS) and the Registration, Evaluation and Authorization of Chemical substances 

(REACH), and energy conservation standards for other equipment made by SEM manufacturers. 

12.3 MANUFACTURING IMPACT ANALYSIS KEY ISSUES 

The first question each of the MIA interview guides asks is the following: “What are the 

key issues for your company regarding energy conservation standards for commercial 

refrigeration equipment and this rulemaking?” This open question initiated dialogue with 

manufacturers, prompting them to identify key points that DOE could explore during the 

interview. This section describes the issues that the manufacturers raised most oftena

. 

12.3.1 Maintaining Product Availability and Features 

Manufacturers expressed concern about the impact on typical motor characteristics that 

may result after the adoption of new energy conservation standards. Specifically, manufacturers 

were concerned that standards-compliant small electric motors might require larger housing 

diameters and shaft lengths. Manufacturers were also greatly concerned that larger dimensions 

could eliminate the ability to retrofit newer, potentially larger motors into existing applications. 

However, manufacturers are concerned that their sales could be impacted if larger motors 

required end-users to modify their existing applications. If existing motor sizes were increased, 

end users could choose to use other horsepower motors or a different motor category that is not 

covered by today’s rulemaking rather than modify the application to allow installation of the 

standards-compliant small electric motor. Manufacturers were also concerned that energy 

conservation standards could consolidate horsepower ratings by eliminating some of today’s 

standard ratings from the market. 

12.3.2 Significant Capital Conversion Costs 

Manufacturers expressed concern over the potentially large conversion costs required to 

manufacturer standards-compliant small electric motors. Large manufacturers that produce the 

vast majority of motors covered by this rulemaking typically also manufacturer many other 

categories of motors. The majority of manufacturers interviewed indicated that the proportion of 

covered small electric motors represents a small share of the manufacturer’s overall business. 

The increased stringency at each standard level will require manufacturers to increase the 

amount of capital conversion costs, potentially necessitating an investment in new lamination 

dies, winding tooling, testing equipment, and even re-allotting factory floor space. According to 

the majority of manufacturers, if the standard forces a substantial increase in motor dimensions 

or redesign costs, manufacturers could simply exit the small electric motors market rather than 

a

 Manufacturers indicated that the risks associated with these issues generally increase with increasing TSL. 

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develop standards-compliant motors. Manufacturers indicated that the resources for 

manufacturing standard-compliant motors would be taken away from other motor technologies 

that could potentially provide greater energy savings, such as variable speed motors. 

12.3.3 Substitutes 

 Manufacturers expressed concerns that standard-compliant motor prices would be 

greater due to more costly components and to compensate the company for the required capital 

investment. Manufacturers stated that because the small electric motor market is highly price 

sensitive, higher selling prices could push customers towards other technologies (e.g., electronic 

commutated (ECM) motors). Manufacturers believed that the economics for customers with 

equipment that use motors sparingly could not justify using the more-efficient, standardscompliant motors covered by this rulemaking because the energy savings would not compensate 

for the higher first costs of these motors. 

12.3.4 Narrow Focus of the Rulemaking 

Manufacturers were concerned that the market covered by this proposed rulemaking is 

extremely narrow and only applies to a small number of motors. As a result, many of the 

manufacturers indicated that since the motors affected by this rule make up such a small 

percentage of total sales, they would simply exit the market if efficiency standards became too 

stringent. 

12.3.5 National Energy Savings As a Result of the rulemaking 

A number of manufacturers argued that there was no payback period in regards to 

national energy savings. The manufacturers said that the annual usage of its motors was in the 

hundreds of hours per year, not thousands. Thus, even a significant increase in efficiency would 

not result in material national energy savings. As a result, several manufacturers urged DOE to 

examine system efficiencies rather than specific component efficiencies. 

12.3.6 Use of Alternative Metals 

All interviewed manufacturers expressed concerned about the use of copper and exotic 

steels in redesigning their motors. According to manufacturers, copper rotor designs would 

require new specialized tooling that manufacturers currently do not employ. Some manufacturers 

reported the need for significant changes to their plants if copper rotors are required to meet 

standards, including the use of special smelting and casting operations. Also, manufacturers 

indicated that the use of copper in rotors would require a significant R&D effort because of their 

lack of experience with the materials and determining how to optimize manufacturing these 

types of rotors in high volumes. Manufacturers specifically referenced the lack of availability 

and unproven nature of exotic steels like Hiperco as variables that could reduce energy use. 

Finally, all interviewed manufacturers were concerned that the extremely higher prices of motors 

that use these metals could force significant conversion costs that would not be recouped if 

higher price points led to a decline in sales. Manufacturers reported that most likely they would 

exit the market if exotic steels were required to meet the energy conservation standard. 

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12.3.7 Enforcement of Standards 

Manufacturers expressed concern about the feasibility of enforcing an energy 

conservation standard, particularly for motors embedded in other equipment. This concern was a 

particular concern for domestic manufacturers that indicated foreign companies could potentially 

import non-compliant motors as a component in other non-regulated equipment and put U.S. 

manufacturers at a competitive disadvantage. 

12.4 GRIM INPUTS AND ASSUMPTIONS 

The GRIM serves as the main tool for assessing the impact on the SEM industry due to 

the imposition of new efficiency standards. DOE relied on several sources to obtain inputs for 

the GRIM. Data and assumptions from these sources are then fed into an accounting model that 

details the cash flow on a base case basis, as well as calculates the impacts on manufacturers due 

to new energy conservation standards. 

12.4.1 Overview of the GRIM 

The basic structure of the GRIM, illustrated in Figure 12.4.1, is a standard annual cashflow analysis that uses manufacturer prices, manufacturing costs, shipments, and industry 

financial information as inputs. The GRIM estimates the effects of regulatory conditions caused 

by changes in costs, investments, and associated margins. The GRIM spreadsheet uses several 

inputs to arrive at a series of annual cash flows, beginning with the base year of the analysis, 

2010, and continuing to 2044. The model calculates the INPV by summing the stream of annual 

discounted cash flows during this period. 

Figure 12.4.1 Using the GRIM to Calculate Cash Flow 

The GRIM projected cash flows using standard accounting principles. The model 

compared changes in INPV between the baseline equipment information (the base-case scenario) 

and different TSLs (the standards-case scenario). The difference in INPV between the base case 

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

conservation standard on manufacturers. Appendix 12B provides more technical details and user 

information for the GRIM. 

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12.4.2 Sources of GRIM Inputs 

The GRIM used several different sources for data inputs to determine cash flows for the 

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

shipments model, the engineering analysis, and manufacturer interviews. 

12.4.2.1 Corporate Annual Reports 

Corporate annual reports to the SEC (SEC 10-Ks) provided many of the financial inputs 

to the GRIM.1 These reports exist for publicly held companies and are freely available to the 

public. The SEC 10-Ks provide consistent financial data for the consolidated corporation but do 

not provide detailed financial information for the company’s SEM lines. Some SEC 10-Ks are 

therefore more relevant than others to the SEM industry analysis, depending on the prominence 

that business has in the company’s overall operations. In determining financial parameters for the 

industry, DOE weighted corporate financial information contained in the SEC 10-Ks by each 

company’s market share in the SEM industry to arrive at industry-weighted averages. DOE used 

corporate annual reports to derive the following GRIM inputs: 

• tax rate 

• working capital 

• SG&A expenses 

• research and development (R&D) expenses 

• depreciation 

• capital expenditures 

• net property, plant, and equipment (PPE) 

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

operating profit margin against the industry-weighted average. 

12.4.2.2 Standard and Poor Credit Ratings 

S&P provides independent credit ratings, research, and financial information. DOE relied 

on S&P reports to determine the industry’s average cost of debt for the cost of capital 

calculation. 

12.4.2.3 Shipments Model 

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

national impact analysis. Chapter 10 of the TSD is exclusively dedicated to describing the 

methodology and analytical model DOE used to forecast shipments. 

12.4.2.4 Engineering Analysis 

DOE conducted the engineering analysis using a modified design-option approach where 

DOE employed a technical expert with motor design software to develop motor designs at 

several efficiency levels for each analyzed product class. Based on these simulated designs and 

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manufacturer and component supplier data, DOE calculated manufacturing costs and selling 

prices associated with each efficiency level. 

12.4.2.5 Manufacturer Interviews 

Key topics discussed during the interviews and reflected in the GRIM include 

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

•	 Equipment conversion costs (one-time investments in research, equipment development, 

testing, and marketing); 

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

assets; 

•	 Equipment cost structure (the portion of manufacturer production costs related to 

materials, labor, overhead, and depreciation costs); 

•	 Projected total shipment and shipment distribution mix; 

•	 Estimated profit margins characteristic of the industry; and 

•	 Engineering analysis information. 

12.4.3 Financial Parameters 

For the preliminary analysis, DOE developed financial estimates of the SEM industry by 

examining several major SEM manufacturers’ financial information from annual reports and 

SEC 10-K reports. Each company DOE analyzed is a subsidiary of a more diversified parent 

company that manufactures equipment other than SEM. Because the SEC 10-K reports did not 

provide financial information at the subsidiary level, the financial parameters DOE calculated 

represented averages of the parent companies applied over the entire range of their equipment 

offerings; these parameters did not necessarily represent the SEM industry alone. 

DOE presented these values to manufacturers during the interviews for comment. While 

most manufacturers were unable to provide estimates for the SEM industry, they were able to 

provide their own financial parameters. Using these values, DOE calibrated its original estimates 

to develop financial parameters that it considers representative of the SEM industry. An 

aggregation of the MIA interview responses yielded the market-share-weighted financial 

parameters shown in Table 12.4.1. These aggregated values were the financial parameter inputs 

DOE used in the GRIM analysis for the NOPR. 

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Table 12.4.1 GRIM Financial Parameters 

Parameter Industry Weighted 

Average (%) 

Tax Rate 

(% of Taxable Income) 32.0 

Working Capital 

(% of Revenues) 16.0 

SG&A 

(% of Revenues) 18.4 

R&D 

(% of Revenues) 2.1 

Depreciation 

(% of Revenues) 3.0 

Capital Expenditures 

(% of Revenues) 3.2 

Net Property, Plant, and Equipment 

(% of Revenues) 18.4 

12.4.4 Corporate Discount Rate 

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

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

and equity, the industry WACC is the total cost of debt and equity weighted by the composite 

companies’ respective proportions of debt and equity in the capital structure of the industry. 

DOE made its initial estimate of the WACC for both the SEM industries using publicly available 

information of the four companies used to derive the financial parameters. As described below, 

DOE revised its estimate of the discount rate after independently researching the industry 

WACC. 

DOE made its initial estimate of the SEM WACC using the following formula: 

WACC = After-Tax Cost of Debt x (Debt Ratio) + Cost of Equity x (Equity Ratio) 

The cost of equity is the rate of return that equity investors (including, potentially, the 

company) expect to earn on a company’s stock. These expectations are reflected in the market 

price of the company’s stock. The capital asset pricing model (CAPM) provides one widely used 

means to estimate the cost of equity. According to the CAPM, the cost of equity (expected 

return) is: 

Cost of Equity = Riskless Rate of Return + β x Risk Premium 

where: 

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

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

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

rate. 

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EERE-2007-BT-STD-0007 COMMENT 33
 

 

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

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

S&P 500 market index. A Beta lower than one means the stock is less volatile than the 

market index. 

DOE initially determined that the industry average cost of equity for the SEM industry is 

16.3 percent, as calculated in Table 12.4.2. 

Table 12.4.2 Cost of Equity Calculation 

Parameter 

IndustryWeighted 

Average (%) 

(1) Average Beta 1.17 

(2) Yield on 10 Year TBill (1991-2008) 5.52 

(3) Market Risk Premium 

(1926-1999) 9.20 

Cost of Equity 

(2)+((1)*(3)) 16.3 

Equity/Total Capital 64.9 

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

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

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

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

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

the relevant spread to the risk-free rate. 

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

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

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

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

return over the period of 1991 to 2008. 

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

bonds for all of the public manufacturers. To this, DOE added the industry-weighted average 

spread to the average T-Bill yield over the same period. Since proceeds from debt issuance are 

tax deductible, DOE adjusted the gross cost of debt by the industry average tax rate to determine 

the net cost of debt for the industry. Table 12.4.3 presents the derivation of the cost of debt. Also 

shown is the capital structure of the industry, i.e. the debt ratio (debt/total capital). 

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Table 12.4.3 Cost of Debt Calculation 

Parameter 

IndustryWeighted 

Average (%) 

S&P Bond Rating -­

(1) Yield on 10 year T-Bill 

(1991-2008) 5.52 

(2) Gross Cost of Debt 8.0 

(3) Tax Rate 32.0 

Net Cost of Debt (2)x((1)­

(3)) 5.44 

Debt/Total Capital 35.1 

Using the publicly available information above, DOE initially estimated the SEM 

industry’s WACC to be approximately 12.5 percent. Subtracting an inflation rate of 2.82 percent 

between 1991 and 2008, the inflation adjusted WACC was 9.68 percent. 

12.4.5 Trial Standard Levels 

DOE developed seven TSLs for polyphase motors and twelve TSLs for CSIR and CSCR 

motors that include combinations of energy efficiency levels representing comparable stringency 

for SEM product classes. Table 12.4.4, Table 12.4.5, and Table 12.4.6 present the efficiency 

levels DOE used in the GRIM for three representative motors. Chapter 10 of the TSD discusses 

in further detail all TSLs for each product class in further detail. 

Table 12.4.4 Baseline Efficiency Levels and Trial Standard Levels for Polyphase 1 HP, 4 

Pole Small Electric Motor 

Motor Category 

Trial Standard Levels for SEM Product classes Analyzed 

(kWh/day) 

Baseline 1 2 3 4 5 6 7 

Polyphase Motor 

Category 77.2% 78.7% 80.0% 81.6% 82.5% 85.2% 86.4% 88.3% 

Table 12.4.5 Baseline Efficiency Levels and Trial Standard Levels for Capacitor-Start, 

Induction-Run 1⁄2 HP, 4 Pole Small Electric Motor 

Motor Category 

Trial Standard Levels for SEM Product classes Analyzed 

(kWh/day) 

Baseline 1 2 3 4 5 6 7 8 

Capacitor-Start, 

Induction-Run 

Motor Category 

57.7% 68.5% 68.5% 71.2% 73.0% 73.0% 77.0% 77.0% 77.0% 

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Table 12.4.6 Baseline Efficiency Levels and Trial Standard Levels for Capacitor-Start, 

Capacitor-Run 3⁄4 HP, 4 Pole Small Electric Motor 

Motor Category 

Trial Standard Levels for SEM Product classes Analyzed 

(kWh/day) 

Baseline 1 2 3 4 5 6 7 8 

Capacitor-Start, 

Capacitor-Run 

Motor Category 

71.0% 78.3% 80.3% 80.3% 81.6% 80.3% 87.3% 80.3% 85.4% 

12.4.6 Shipments 

The GRIM estimated yearly revenues using the shipment forecasts and average efficiency 

levels from the shipments model used for the NIA (chapter 10 of this TSD). The shipment 

analysis is a key driver of manufacturer finances because changes in the efficiency mix at the 

various trial standard levels are tied to shipments. Further explanation of assumptions and 

calculations of total shipments can be found in chapter 10 of this TSD. Total shipments 

forecasted in the shipment analysis for all efficiency levels in 2015 are shown in Table 12.4.7 

and discussed below. 

Table 12.4.7 Base Case Total Industry Shipments by Motor Type for 2015 (Reference 

Economic Growth, No Elasticity, Baseline Marketshare Model) 

Motor Category 

Estimated Total 

Industry 

Shipments 

(Number of Units) 

Polyphase Small Electric 

Motor 815,475 

Capacitor-Start, InductionRun Small Electric Motor 3,362,362 

Capacitor-Start, CapacitorRun Small Electric Motor 176,966 

DOE assumed a roll-up of efficiency distribution in the standards year followed by a 

gradual improvement in efficiency, which mimics the growth in efficiency observed in historical 

data (parallel growth trend). Under the parallel growth trend, the equipment mix moves to higher 

efficiency levels until the maximum efficiency level is reached. In its engineering analysis, DOE 

analyzed one representative combination of horsepower (hp) and number of poles for each SEM 

motor category (e.g. Polyphase, CSIR, or CSCR) and extrapolated the results to other 

horsepowers, and number of poles. The shipments distribution by TSL estimated in the NES for 

these product classes in 2015 for these three representative motors is found in Table 12.4.8, 

Table 12.4.9, and Table 12.4.10. 

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Table 12.4.8 Distribution of Shipments in the Base Case for Polyphase 1 HP, 4 Pole Small 

Electric Motor 

TSL 

(kWh/day) 

Baseline 

(77.15) 

TSL 1 

(78.7) 

TSL 2 

(80.0) 

TSL 3 

(81.6) 

TSL 4 

(82.5) 

TSL 5 

(85.2) 

TSL 6 

(86.4) 

TSL 7 

(88.3) 

Polyphase 82.0 4.0 4.0 4.0 6.0 0.0 0.0 0.0 

Table 12.4.9 Distribution of Shipments in the Base Case for Capacitor-Start, InductionRun 1⁄2 HP, 4 Pole Small Electric Motor 

TSL 

(kWh/day) 

Baseline 

(57.7) 

TSL 1 

(68.5) 

TSL 2 

(68.5) 

TSL 3 

(71.2) 

TSL 4 

(73.0) 

TSL 5 

(73.0) 

TSL 6 

(77.0) 

TSL 7 

(77.0) 

TSL 8 

(77.0) 

CSIR 40.0 2.0 2.0 1.0 0.0 0.0 0.0 0.0 0.0 

Table 12.4.10 Distribution of Shipments in the Base Case for Capacitor-Start, CapacitorRun 3⁄4 HP, 4 Pole Small Electric Motor 

TSL 

(kWh/day) 

Baseline 

(71.0) 

TSL 1 

(78.3) 

TSL 2 

(80.3) 

TSL 3 

(80.3) 

TSL 4 

(81.6) 

TSL 5 

(80.3) 

TSL 6 

(87.3) 

TSL 7 

(80.3) 

TSL 8 

(85.4) 

CSCR 67.0 2.0 2.0 2.0 11.0 2.0 0.0 2.0 0.0 

12.4.7 Shipments and Scenarios 

In the SEM GRIM, DOE modeled two shipment scenarios that consider the impacts of 

changes in relative prices on consumer demand for each equipment in addition to a scenario 

without these considerations. As described in the purchase price, operating cost, and household 

income impacts found in the shipments model in chapter 10, these shipment scenarios estimate 

how the combined effects of increases in purchase price and decreases in operating costs due to 

new energy conservation standards affect shipments. DOE calculated the relative price elasticity 

of demand over time to determine how shipments would likely change after a standard sets a 

higher initial purchase price and lower operating costs. The SEM GRIM models shipments under 

the “-0.50”, “-0.25”, and “no elasticity” price elasticity scenarios. The effects from increasing 

equipment purchase prices offset the effects from decreased operating costs, resulting in a net 

decrease in shipments. See chapter 10 for more details on the shipment scenarios. 

DOE also modeled four economic growth scenarios that consider the impacts of changes 

in the overall U.S economy; the Reference case, the High Economic Growth case, the Low 

Economic Growth case, and a No Economic Growth case. DOE only presents results using the 

Reference case economic growth scenario. However, the option of economic growth is left as an 

option for the user to select in the GRIM. It is also possible for the user to combine the price 

elasticity scenario with an economic scenario and market share scenario in the small motors 

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

Additionally, DOE modeled three market share scenarios that considers the relationship 

between CSIR and CSCR motors; the Baseline case, the Low CSCR case, and the High CSCR 

case. DOE only presents results using the Baseline case market share scenario. However, the 

option of market share is left as an option for the user to select in the GRIM. It is also possible 

for the user to combine both the price elasticity scenario and economic growth scenario with a 

market share scenario in the small motors GRIM. See chapter 10 for more details on the 

economic growth shipment scenarios. 

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12.4.8 Production Costs 

For the engineering analysis, DOE examined three specific product classes at each 

analyzed efficiency level and created a bill of materials to determine the manufacturing 

production costs (MPCs) of these three product classes. For each product class and efficiency 

level, DOE analyzed the production costs for motor designs used in space constrained and nonspace constrained applications. The production costs varied between space constrained and nonspace constrained designs by number of laminations, grade of steel used, rotor design, and other 

design pathways that are fully described in the engineering analysis (chapter 5). In addition, 

DOE consulted an industry expert to determine total labor hours required per motor, as well as 

associated overhead. 

In the engineering analysis, DOE analyzes both space constrained and non-space 

constrained motor designs. However, for the MIA DOE used the weighted average MPCs of 

each product class at each efficiency level. Space constrained motor MPCs were given a 20­

percent weight while non-space constrained were given 80-percent. DOE applied an estimated 

manufacturer markup to the weighted MPCs to derive the manufacturer selling prices (MSPs). 

Using a scaling formula, DOE determined the MSPs for all product classes. For more discussion 

on the scaling, see the life-cycle cost (LCC) analysis in chapter 8 of the TSD. By dividing the 

scaled MSPs for all other product classes by the manufacturer markup, DOE calculated the 

MPCs for all other product classes. The engineering derived weighted MPCs as well as the 

weighted MPCs derived from the scaled MSPs are used in the GRIM. Different sets of markup 

scenarios are applied to determine pricing strategies used by manufacturers. 

The GRIM included the proportion of costs devoted to labor, materials, depreciation, and 

overhead that make up the weighted MPC of the equipment. DOE used the same breakdown 

used for the engineering analysis, except depreciation is broken out of overhead. See chapter 5 of 

the TSD for more information on the cost breakdown. Table 12.4.11, Table 12.4.12, and Table 

12.4.13 provide the production cost assumptions at the various TSLs used in the GRIM for the 

product classes analyzed in the engineering analysis. 

Table 12.4.11 Production Cost Breakdown for Polyphase 1 HP, 4 Pole Small Electric Motor 

(2009$) 

TSL Efficiency 

(kWh/day) Labor Material Overhead Depreciation MPC MSP 

Baseline 77.2 $13.96 $43.29 $7.13 $2.89 $67.28 $97.74 

TSL 1 78.7 $14.83 $45.98 $7.58 $3.07 $71.45 $103.81 

TSL 2 80.0 $15.29 $47.40 $7.81 $3.16 $73.66 $107.01 

TSL 3 81.6 $16.13 $50.00 $8.24 $3.33 $77.70 $112.88 

TSL 4 82.5 $16.72 $51.83 $8.54 $3.46 $80.54 $117.01 

TSL 5 85.2 $23.81 $73.82 $12.16 $4.92 $114.71 $166.66 

TSL 6 86.4 $27.86 $86.38 $14.23 $5.76 $134.24 $195.02 

TSL 7 88.3 $87.69 $271.86 $44.79 $18.13 $422.47 $613.78 

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Table 12.4.12 Production Cost Breakdown for Capacitor-Start, Induction-Run 1⁄2 HP, 4 

Pole Small Electric Motor (2009$) 

TSL Efficiency 

(kWh/day) Labor Material Overhead Depreciation MPC MSP 

Baseline 57.7 $12.16 $41.17 $6.64 $2.69 $62.66 $91.04 

TSL 1 68.5 $14.52 $49.14 $7.93 $3.21 $74.80 $108.67 

TSL 2 68.5 $14.52 $49.14 $7.93 $3.21 $74.80 $108.67 

TSL 3 71.2 $15.90 $53.80 $8.68 $3.51 $81.89 $118.98 

TSL 4 73.0 $19.00 $64.29 $10.38 $4.20 $97.87 $142.18 

TSL 5 73.0 $19.00 $64.29 $10.38 $4.20 $97.87 $142.18 

TSL 6 77.0 $48.29 $163.43 $26.38 $10.68 $248.77 $361.42 

TSL 7 77.0 $48.29 $163.43 $26.38 $10.68 $248.77 $361.42 

TSL 8 77.0 $48.29 $163.43 $26.38 $10.68 $248.77 $361.42 

Table 12.4.13 Production Cost Breakdown for Capacitor-Start, Capacitor-Run 3⁄4 HP, 4 

Pole Small Electric Motor (2009$) 

TSL Efficiency 

(kWh/day) Labor Material Overhead Depreciation MPC MSP 

Baseline 71.0 $12.16 $52.75 $8.09 $3.27 $76.28 $110.82 

TSL 1 78.3 $14.28 $61.94 $9.50 $3.84 $89.57 $130.12 

TSL 2 80.3 $14.85 $64.39 $9.87 $4.00 $93.10 $135.27 

TSL 3 80.3 $14.85 $64.39 $9.87 $4.00 $93.10 $135.27 

TSL 4 81.6 $15.58 $67.57 $10.36 $4.19 $97.69 $141.93 

TSL 5 80.3 $14.85 $64.39 $9.87 $4.00 $93.10 $135.27 

TSL 6 87.3 $70.08 $303.94 $46.60 $18.86 $439.48 $638.50 

TSL 7 80.3 $14.85 $64.39 $9.87 $4.00 $93.10 $135.27 

TSL 8 85.4 $20.56 $89.15 $13.67 $5.53 $128.90 $187.27 

12.4.9 Conversion Costs 

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

conversion costs to bring their production facilities and equipment designs in compliance with 

the new regulation. For the MIA, DOE classified these one-time conversion costs into three 

major groups. Equipment conversion costs are one-time investments in research, development, 

testing, and marketing focused on making equipment designs comply with the new energy 

conservation standard. Capital conversion costs are one-time investments in property, plant, and 

equipment to adapt or change existing production facilities so that new equipment designs can be 

fabricated and assembled under the new regulation. Stranded assets are equipment or tooling that 

become obsolete as a result of new regulation. During interviews, DOE asked manufacturers to 

discuss the impacts of new energy conservation standard on their current assets. In general, 

manufacturers reported that although some redesigns could potentially make some tooling 

inapplicable for covered SEMs, this tooling would still be applicable to other types of motors 

that the manufacturer currently produces and not merely scrapped. 

12.4.9.1 Capital Conversion Costs 

To calculate the industry-wide capital conversion costs, DOE used a combination of 

estimates provided by manufacturers and an estimated tooling cost at each incremental efficiency 

level for a typical manufacturer. As part of the tooling cost estimates, DOE examined the tooling 

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EERE-2007-BT-STD-0007 COMMENT 33
requirements necessary for space constrained and non-space constrained designs. For space 

constrained designs, total tooling at each efficiency level was given a 20-percent weight while 

non-space constrained total tooling was weighted by 80-percent. The sum of the weighted space 

constrained and non-space constrained estimates were used to calculate the industry-wide tooling 

cost for each design at each efficiency level. 

Because DOE did not receive specific feedback from all manufacturers, DOE estimated 

the total capital conversion cost for a typical manufacturer based on the engineering designs 

developed for the analysis, DOE’s estimated tooling cost for each separate design at each 

efficiency level, and information provided by industry experts. DOE used these sources to 

estimate the required tooling costs for each of the three representative motor designs for both 

space constrained and non-spaced constrained designs. For each of these designs, DOE estimated 

the tooling costs for: (1) rotor redesigns to use copper (if applicable); (2) grade of steel including 

the use of exotic steels; (3) increases in stack length; (4) necessary rewiring; (5) replacement of 

end rings; and (6) total number of laminations and the required increases in stack length over 

baseline designs. For rotor redesigns to use copper, DOE estimated the costs to purchase new 

presses, new end rings, and additional tooling. For changes to the grade of steel, DOE estimated 

the costs for punch press dyes. For increases in stack length, DOE estimated the costs of 

switching more production equipment to accommodate a higher volume of larger sized SEM. For 

necessary rewiring, DOE estimates the cost of crimp tools. For replacement of end rings, DOE 

estimated the tooling changes for different dimensional changes to the end rings. For increases in 

laminations, DOE estimated the purchase of presses and tooling for winding machinery. Table 

12.4.17, Table 12.4.17, and Table 12.4.17 show the estimated space constrained, non-space 

constrained, and weighted total tooling cost at each TSL for a typical manufacturer. 

Table 12.4.14 Polyphase Weighted Total Capital Conversion Costs for Typical 

Manufacturer by TSL 

TSL 

Tooling Cost Estimate by Motor Category 

Space 

Constrained 

Changes 

Space 

Constrained 

Costs 

Non-Space 

Constrained Changes 

Non-Space 

Constrained Costs 

Weighted 

Average 

(20/80) 

Baseline - $ 0 - $ 0 $ 0 

TSL 1 Small lamination 

increase $ 137,300 Small lamination 

increase $ 137,300 $ 137,300 

TSL 2 Small lamination 

increase $ 231,100 Small lamination 

increase $ 231,100 $ 231,100 

TSL 3 Small lamination 

increase $ 262,300 Small lamination 

increase $ 262,300 $ 262,300 

TSL 4 20% lamination 

increase $ 304,000 20% lamination 

increase $ 304,000 $ 304,000 

TSL 5 Steel Grade, 115% 

lamination increase $ 1,881,000 48% lamination 

increase $ 659,700 $ 904,000 

TSL 6 

Copper, Steel 

Grade, 114% 

lamination increase 

$ 2,981,000 

Copper, 100% 

lamination increase $ 1,335,500 $ 1,664,700 

TSL 7 

Copper, Exotic 

Steel, 400% 

lamination increase 

$ 8,244,000 

Copper, Steel Grade, 

229% lamination 

increase 

$ 4,450,100 $ 5,208,900 

* Estimates rounded to the nearest hundred 

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EERE-2007-BT-STD-0007 COMMENT 33
Table 12.4.15 Capacitor-Start, Induction-Run Weighted Total Capital Conversion Costs 

for Typical Manufacturer by TSL 

TSL 

Tooling Cost Estimate by Motor Category 

Space Constrained 

Changes 

Space 

Constrained 

Costs 

Non-Space 

Constrained 

Changes 

Non-Space 

Constrained 

Costs 

Weighted 

Average (20/80) 

Baseline - $ 0 - $ 0 $ 0 

TSL 1 33% lamination 

increase $ 418,200 61% lamination 

increase $ 765,400 $ 695,900 

TSL 2 33% lamination 

increase $ 418,200 61% lamination 

increase $ 765,400 $ 695,900 

TSL 3 Copper, 33% 

lamination increase $ 1,572,200 122% lamination 

increase $ 1,559,300 $ 1,561,900 

TSL 4 

Copper, Steel 

Grade, 139% 

lamination increase 

$3,291,600 

82% lamination 

increase $ 1,055,800 $ 1,503,000 

TSL 5 

Copper, Steel 

Grade, 139% 

lamination increase 

$3,291,600 

82% lamination 

increase $ 1,055,800 $ 1,503,000 

TSL 6 

Copper, Exotic 

Steel, 456% 

lamination increase 

8,939,900 

Copper, 122% 

lamination increase $ 2,713,300 $ 3,958,600 

TSL 7 

Copper, Exotic 

Steel, 456% 

lamination increase 

8,939,900 

Copper, 122% 

lamination increase $ 2,713,300 $ 3,958,600 

TSL 8 

Copper, Exotic 

Steel, 456% 

lamination increase 

8,939,900 

Copper, 122% 

lamination increase $ 2,713,300 $ 3,958,600 

* Estimates rounded to the nearest hundred 

Table 12.4.16 Capacitor-Start, Capacitor-Run Weighted Total Capital Conversion Costs 

for Typical Manufacturer by TSL 

TSL 

Tooling Cost Estimate by Motor Category 

Space Constrained 

Changes 

Space 

Constrained 

Costs 

Non-Space 

Constrained 

Changes 

Non-Space 

Constrained 

Costs 

Weighted 

Average (20/80) 

Baseline - $ 0 - $ 0 $ 0 

TSL 1 Small stack increase $126,500 37% laminations 

increase $ 459,800 $ 393,200 

TSL 2 15% laminations 

increase $ 189,000 53% laminations 

increase $ 752,200 $ 639,500 

TSL 3 15% laminations 

increase $ 189,000 53% laminations 

increase $ 752,200 $ 639,500 

TSL 4 20% laminations 

increase $ 251,500 Copper, 50% 

laminations increase $ 1,810,500 $ 1,498,700 

TSL 5 15% laminations 

increase $ 189,000 53% laminations 

increase $ 752,200 $ 639,500 

TSL 6 

Cooper, Exotic 

Steel, 400% 

laminations increase 

$ 8,191,500 

Copper, Steel Grade, 

258% laminations 

increase 

$ 4,804,300 $ 5,481,700 

TSL 7 15% laminations 

increase $ 189,000 53% laminations 

increase $ 752,200 $ 639,500 

TSL 8 Copper, Steel 

Grade, 115% $ 2,939,000 Copper, 58% 

laminations increase $ 1,914,700 $ 2,119,500 

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EERE-2007-BT-STD-0007 COMMENT 33
 

 

laminations increase 

* Estimates rounded to the nearest hundred 

In addition to estimating the total tooling cost per typical manufacturer, DOE asked 

manufacturers during interviews to estimate the capital conversion costs they would incur due to 

new energy conservation standards. Not all manufacturers were able to provide estimates for 

each TSL. However, DOE used the costs manufacturers provided along with input from industry 

experts to calibrate final conversion cost figures. For manufacturers that did not provide 

estimates, DOE used its space constrained and non-space constrained estimate for the tooling 

costs for that manufacturer. DOE weighed manufacturer responses and its estimate of the 

conversion costs for a typical manufacturer based on their respective market shares to develop 

estimates for the capital conversion costs for the entire SEM industry at each TSL. Table 12.4.17 

summarizes the industry-wide capital conversion estimates used for the cash flow analysis. 

Table 12.4.17 Industry-Wide Capital Conversion Costs by Trial Standard Level (2008$ 

millions) 

TSL 

Total Capital Conversion Cost by Motor Category 

(2008$ millions) 

Polyphase CSIR CSCR 

Baseline $ 0 $ 0 $ 0 

TSL 1 $ 0.41 $ 7.56 $ 1.18 

TSL 2 $ 0.69 $ 7.56 $ 2.21 

TSL 3 $ 0.79 $ 10.15 $ 2.21 

TSL 4 $ 0.91 $ 10.15 $ 4.78 

TSL 5 $ 4.04 $ 10.15 $ 2.21 

TSL 6 $ 6.32 $ 27.48 $ 26.87 

TSL 7 $ 27.09 $ 27.48 $ 2.21 

TSL 8 - $ 27.48 $ 6.65 

12.4.9.2 Equipment Conversion Costs 

Equipment conversion costs include R&D, certification and testing, marketing, and other 

costs required to bring more efficient equipment onto the market. DOE estimated total equipment 

conversion for a typical manufacturer using the cost of engineering time and product 

development resources for each of the three representative motor design at each incremental 

efficiency level. DOE estimated the engineering hours necessary for each design by assigning 

each a cost based on the complexity of the required redesigns. The engineering times required to 

use copper and exotic steels in motor designs were given additional weight due to the lack of 

experience using the material within the industry. 

In addition to estimating the total equipment conversion cost per typical manufacturer, 

DOE asked manufacturers during interviews to estimate the equipment conversion costs they 

would incur due to new energy conservation standards. Not all manufacturers were able to 

provide estimates for each TSL. DOE used the costs manufacturers provided in conjunction with 

input from industry experts to calibrate its final equipment conversion costs. For manufacturers 

that did not provide estimates, the estimated typical manufacturer equipment conversion costs 

were used. DOE weighed manufacturer responses based on their respective market shares to 

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EERE-2007-BT-STD-0007 COMMENT 33
 

develop estimates for the equipment conversion costs of the entire SEM industry at each TSL. 

Table 12.4.18 summarizes the total equipment conversion estimates for the industry each motor 

category. 

Table 12.4.18 Industry-Wide Equipment Conversion Costs by Trial Standard Level (2008$ 

millions) 

TSL 

Total Equipment Conversion Cost by Motor 

Category (2008$ millions) 

Polyphase CSIR CSCR 

Baseline $ 0 $ 0 $ 0 

TSL 1 $ 0.94 $ 7.76 $ 0.41 

TSL 2 $ 0.94 $ 7.76 $ 0.41 

TSL 3 $ 0.94 $ 11.75 $ 0.41 

TSL 4 $ 0.94 $ 11.75 $ 0.62 

TSL 5 $ 1.88 $ 11.75 $ 0.41 

TSL 6 $ 2.84 $ 15.63 $ 0.82 

TSL 7 $ 3.78 $ 15.63 $ 0.41 

TSL 8 - $ 15.63 $ 0.62 

12.4.10 Markup Scenarios 

To understand how baseline and more-efficient equipment are differentiated, DOE 

reviewed manufacturer catalogs and utilized information gathered from manufacturers. To 

estimate the manufacturer price of the equipment sold, DOE applied markups to the production 

costs. For the analysis, DOE considered different markup scenarios based on manufacturer input 

for SEMs. Scenarios were used to bound the range of expected equipment prices following new 

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

characterized the prevailing markup conditions and described the range of market responses 

manufacturers expect as a result of new energy conservation standards. 

After discussions with manufacturers and market research, DOE modeled two markup 

scenarios: The preservation-of-return-on-invested-capital scenario and the preservation-ofoperating profit scenario. 

12.4.10.1 Preservation-of-Return-on-Invested-Capital Scenario 

Under the preservation-of-return-on-invested-capital scenario, DOE applied a markup at 

each TSL that sets manufacturers return on invested capital in the standards case to the same 

level as in the base case. Return on invested capital is the ratio of net operating profits (after 

taxes) to invested capital. As invested capital increases, net operating profits proportionately 

increase. 

During interviews, manufacturers expressed a range of opinions on how selling prices 

would be impacted by new energy conservation standards. While some manufacturers stated it 

has been difficult passing along any increase in material or component costs on to customers, 

others stated that that these cost increases have had a minimal affect on their margins. Due to the 

uncertainty in how market prices will response to standards, DOE assumes that this scenario 

represents a high bound to manufacturer selling prices after a new energy conservation standard. 

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Table 12.4.19 Preservation-of-Return-on-Invested-Capital Markup for Polyphase Small 

Electric Motors 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 

1.453 1.450 1.450 1.446 1.444 1.429 1.426 1.398 

Table 12.4.20 Preservation-of-Return-on-Invested-Capital Markup for all Single Phase 

Motors 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 

1.453 1.454 1.455 1.450 1.438 1.436 1.401 1.487 1.449 

12.4.10.2 Preservation-of-Operating Profit Scenario 

Operating profit is defined as earnings before interest and taxes. The implicit assumption 

behind this markup scenario is that the industry can maintain its operating profit (in absolute 

dollars) after the standard. The industry would do so by passing through its increased costs to 

customers without increasing its operating profits in absolute dollars. DOE implemented this 

scenario in the GRIM by setting the markups for each TSL to yield approximately the same 

operating profit in the standards cases the year after the effective date (2016) as is yielded in the 

base case. For this scenario, the financial metrics of return on sales (percent) and return on 

invested capital (ROIC) decline with increasing TSL, indicating reduced industry profitability. 

DOE assumes that this scenario represents a low bound to manufacturer selling prices after a 

new energy conservation standard. The markups under this scenario are summarized in Table 

12.4.21 and Table 12.4.22 for the representative motors. 

Table 12.4.21 Preservation-of-Operating Profit Markup for Polyphase Small Electric 

Motors 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 

1.453 1.442 1.438 1.430 1.426 1.378 1.361 1.296 

Table 12.4.22 Preservation-of-Operating Profit Markup for all Single Phase Motors 

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 

1.453 1.430 1.430 1.417 1.395 1.395 1.315 1.417 1.381 

12.5 INDUSTRY FINANCIAL IMPACTS 

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

financial impacts on the SEM industry due to new energy conservation standards. The main 

results of the MIA are also reported in this section and consist of two key financial metrics: 

INPV and annual cash flows. During interviews, the majority of manufacturers generally agreed 

with the assumed markup of 1.45. With that figure fixed, the GRIM was calibrated to produce 

the same EBIT by adjusting the amounts for R&D and SG&A expenses. 

12.5.1 Impacts on Industry Net Present Value 

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

standards) to that of each TSL. The difference in INPV is an estimate of the economic impacts 

that implementing that particular TSL would have on the entire industry. For the SEM industry, 

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EERE-2007-BT-STD-0007 COMMENT 33
 

 

 

 

DOE examined two markup scenarios as described in the markup section above. Table 12.5.1 

and Table 12.5.2 provide the INPV estimates for the SEM industry for polyphase motors under 

the different scenarios, while Table 12.5.3 and Table 12.5.4 provide the INPV estimates for the 

SEM industry for capacitor start motors under the different scenarios. The INPV figures are 

calculated separately for Polyphase motors and Capacitor Start motors. The two Capacitor Start 

motor categories are combined for this analysis as they can potentially be used interchangeably 

for many functions. 

Table 12.5.1 Change in Industry Net Present Value for Polyphase SEMs (Preservation of 

Return on Invested Capital Markup Scenario) 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 

INPV (2008$ 

millions) 64 65 65 66 67 75 80 149 

Change in INPV 

(2008$ 

millions) - 0.52 1.11 1.83 2.41 10.85 15.94 85.23 

(%) - 0.80 1.74 2.86 3.76 16.91 24.84 132.87 

New Energy Conservation 

Standards Equipment 

Conversion Costs 

(2008$ 

millions) - 0.9 0.9 0.9 0.9 1.9 2.8 3.8 

New Energy Conservation 

Standards Capital 

Conversion Costs 

(2008$ 

millions) - 0.4 0.7 0.8 0.9 4.0 6.3 27.1 

Total Investment Required (2008$ 

millions) - 1.4 1.6 1.7 1.9 5.9 9.2 30.9 

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Table 12.5.2 Change in Industry Net Present Value for Polyphase SEMs (Preservation of 

Operating Profit Markup Scenario) 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 

INPV (2008$ 

millions) 64 63 63 62 62 55 51 4 

Change in INPV 

(2008$ 

millions) - (1.14) (1.56) (2.01) (2.39) (8.83) (13.09) (59.74) 

(%) - (1.78) (2.42) (3.14) (3.73) (13.76) (20.41) (93.14) 

New Energy Conservation 

Standards Equipment 

Conversion Costs 

(2008$ 

millions) - 0.9 0.9 0.9 0.9 1.9 2.8 3.8 

New Energy Conservation 

Standards Capital 

Conversion Costs 

(2008$ 

millions) - 0.4 0.7 0.8 0.9 4.0 6.3 27.1 

Total Investment Required (2008$ 

millions) - 1.4 1.6 1.7 1.9 5.9 9.2 30.9 

Table 12.5.3 Change in Industry Net Present Value for Capacitor-Start SEMs 

(Preservation of Return on Invested Capital Markup Scenario) 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 8 

INPV (2008$ 

millions) 279 290 291 297 310 307 467 309 336 

Change in INPV 

(2008$ 

millions) - 11.21 12.22 18.03 31.21 27.96 187.88 29.80 56.70 

(%) - 4.02 4.38 6.47 11.19 10.03 67.39 10.69 20.34 

New Energy Conservation 

Standards Equipment 

Conversion Costs 

(2008$ 

millions) - 8.2 8.2 12.2 12.4 12.2 16.5 16.0 16.3 

New Energy Conservation 

Standards Capital 

Conversion Costs 

(2008$ 

millions) - 8.7 9.8 12.4 14.9 12.4 54.4 29.7 34.1 

Total Investment Required (2008$ 

millions) - 16.9 17.9 24.5 27.3 24.5 70.8 45.7 50.4 

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Table 12.5.4 Change in Industry Net Present Value for Capacitor-Start SEMs 

(Preservation of Operating Profit Markup Scenario) 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 8 

INPV (2008$ 

millions) 279 264 263 256 247 250 141 243 226 

Change in INPV 

(2008$ 

millions) - (14.87) (15.64) (22.87) (31.57) (29.01) (137.53) (35.84) (53.30) 

(%) - (5.33) (5.61) (8.20) (11.32) (10.41) (49.33) (12.86) (19.12) 

New Energy 

Conservation 

Standards 

Equipment 

Conversion Costs 

(2008$ 

millions) - 8.2 8.2 12.2 12.4 12.2 16.5 16.0 16.3 

New Energy 

Conservation 

Standards Capital 

Conversion Costs 

(2008$ 

millions) - 8.7 9.8 12.4 14.9 12.4 54.4 29.7 34.1 

Total Investment 

Required 

(2008$ 

millions) - 16.9 17.9 24.5 27.3 24.5 70.8 45.7 50.4 

12.5.2 Impacts on Annual Cash Flow 

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

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

financial situation. For example, a large investment over a period of one or two years could strain 

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

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

can have long-term effects that the INPV cannot capture. To get an idea of the behavior of 

annual net cash flows, DOE presents the annual net or free cash flows from 2008 through 2044 

for the different TSL levels. Table 12.5.5 and Table 12.5.6 present the annual net cash flows for 

the base case and each of the eight polyphase motor TSLs, while Table 12.5.7 and Table 12.5.8 

present the annual net cash flows for the base case and each of the eight CSIR and CSCR TSLs 

for the SEM industry assuming the different markups scenarios. 

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EERE-2007-BT-STD-0007 COMMENT 33
 

 

Table 12.5.5 Annual Industry Net Cash Flows for Polyphase Motors (Preservation-ofReturn-on-Invested-Capital Markup Scenario) 

Table 12.5.6 Annual Industry Net Cash Flows for Polyphase Motors (Preservation-ofOperating Profit Markup Scenario) 

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EERE-2007-BT-STD-0007 COMMENT 33
 

Prior to the effective date of the amended energy conservation standard for polyphase 

motors, cash flows are driven by the level of capital investments and equipment conversion costs 

and the proportion of these investments spent every year. After the standard announcement date, 

industry cash flows begin to decline as companies use their financial resources to prepare for the 

new standard. The more stringent the energy conservation standard, the greater the impact on 

industry cash flows in the years running up to the effective date, as capital expenditures and 

equipment development costs depress cash flows from operations. Free cash flow begins to 

improve during the year the new energy conservation standard becomes effective. In this year, 

manufacturers write down the part of the value of existing tooling, equipment, and intellectual 

property whose value is impacted by the new efficiency standard. This one time write down acts 

as a tax shield that increases the cash flow from operations for this one year only. In the years 

following the standard, the impact on cash flow depends on the operating revenue. 

Higher polyphase TSLs have a positive impact on cash flows relative to the base case 

under the preservation of return on invested capital markup scenario because manufacturers are 

able to pass along some costs to customers. Under this scenario, free cash flow is restored to 

baseline level or greater for all TSLs the year the standard becomes effective. Prior to 2015, 

higher TSLs have a greater cash outlay on the industry’s cash position because the investment in 

new equipment, however, after 2015 the industry is able to obtain higher prices improve revenue 

brought in by standards compliant equipment and increase operating cash flows. Under this 

scenario, the higher the TSL, the higher industry cash flows will be. 

Unlike the preservation of return on invested capital markup scenario, the preservation of 

operating profit markup scenario indicates higher polyphase TSLs will have a negative impact on 

free cash flow relative to the base case prior to the standards year of 2015. In this scenario, 

higher TSLs squeeze the gross margin percentages as higher incremental price increases of 

standards compliant equipment lead to a greater proportion of those costs not being recouped, 

eroding operating cash flow. 

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Table 12.5.7 Annual Industry Net Cash Flows for Capacitor Start Motors (Preservation-ofReturn-on-Invested-Capital Markup Scenario) 

Table 12.5.8 Annual Industry Net Cash Flows for Capacitor Start Motors (Preservation-ofOperating Profit Markup Scenario) 

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Prior to the effective date of the amended energy conservation standard for capacitor start 

motors, cash flows are driven by the level of capital investments and equipment conversion costs 

and the proportion of these investments spent every year. After the standard announcement date, 

industry cash flows begin to decline as companies use their financial resources to prepare for the 

new standard. The more stringent the energy conservation standard, the greater the impact on 

industry cash flows in the years running up to the effective date, as capital expenditures and 

equipment development costs depress cash flows from operations. Free cash flow begins to 

improve during the year the new energy conservation standard becomes effective. In this year, 

manufacturers write down the part of the value of existing tooling, equipment, and intellectual 

property whose value is impacted by the new efficiency standard. This one time write down acts 

as a tax shield that increases the cash flow from operations for this one year only. In the years 

following the standard, the impact on cash flow depends on the operating revenue. 

Higher capacitor start TSLs have a positive impact on cash flows relative to the base case 

under the preservation of return on invested capital markup scenario because manufacturers are 

able to pass along some costs to customers. Under this scenario, free cash flow is restored to 

baseline level or greater for all TSLs the year the standard becomes effective. Prior to 2015, 

higher TSLs have a greater cash outlay on the industry’s cash position because the investment in 

new equipment, however, after 2015 the industry is able to obtain higher prices improve revenue 

brought in by standards compliant equipment and increase operating cash flows. Under this 

scenario, the higher the TSL, the higher industry cash flows will be. 

Unlike the preservation of return on invested capital markup scenario, the preservation of 

operating profit markup scenario indicates higher TSLs will have a negative impact on free cash 

flow relative to the base case prior to the standards year of 2015. In this scenario, higher TSLs 

squeeze the gross margin percentages as higher incremental price increases of standards 

compliant equipment lead to a greater proportion of those costs not being recouped, eroding 

operating cash flow. 

12.6 OTHER IMPACTS 

12.6.1 Employment 

To quantitatively assess the impacts of energy conservation standards on SEM 

manufacturing employment, DOE used the SEM GRIM to estimate the domestic labor 

expenditures and number of employees. Higher TSLs should not alter employment at the plant 

level. During interviews with manufacturers, DOE learned that many facilities produced many 

other products other than SEMs. DOE’s figures assume that even if some manufacturers existed 

the market, these employees would still be retained. 

 DOE used statistical data from the U.S. Census Bureau’s 2006 Annual Survey of 

Manufacturers (2006 ASM), the results of the product price determination, and interviews with 

manufacturers to estimate the inputs necessary to calculate industry-wide labor expenditures and 

employment levels. DOE multiplied the labor percentage of COGS by the total annual COGS for 

the industry to calculate the total labor expenditure. DOE estimates that approximately 60 

percent of SEMs are manufactured and sold in the U.S. DOE multiplied the total annual labor 

expenditures in the SEM GRIM by the percentage of U.S. production for domestic consumption 

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to calculate domestic labor expenditures for SEM production labor. The domestic annual labor 

expenditures in the SEM GRIM were converted to a domestic production employment level by 

dividing domestic production labor expenditures by the annual payment per production worker 

(production worker hours times the labor rate found in the 2006 ASM). The number of nonproduction employees was calculated by multiplying the number of production workers by the 

ratio of non-production workers to production workers calculated using the employment data in 

the 2006 ASM. 

The SEM GRIM calculates that the SEM industry’s domestic labor expenditure for 

production labor in 2012 is approximately $11.4 million. Domestic labor expenditures on 

production labor is calculated by multiplying total COGS in 2012 times the production labor 

percentage of COGS times the percentage of U.S production. Using the $16.47 wage rate and 

1,981 production hours per year per employee found in the 2006 ASM, the SEM GRIM 

estimates that there are approximately 350 U.S. production workers in the SEM industry. In 

addition, DOE estimates that there are approximately 132 non-production employees in the U.S. 

support SEM production.b

 As previously stated, employment levels are not expected to change 

because the overall scale of the facility and labor requirement does not change with higher 

efficacy levels. 

The employment impacts calculated by DOE are independent of the employment impacts from 

the broader U.S. economy, which are documented in chapter 15 of the TSD. The employment 

impacts also do not account for the possible relocation of domestic jobs to lower-labor-cost 

countries because the potential relocation of U.S. jobs is uncertain and highly speculative. 

12.6.2 Production Capacity 

New energy conservation standards will not significantly affect the production capacity 

of small electric motor manufacturers. For manufacturers, any necessary redesign will not 

change the fundamental assembly of the products. Most manufacturers reported that current 

production equipment has the ability to produce motors designed to reach efficiency level 4 with 

only minor modifications needed. Therefore, in the long-term there should be no capacity 

constraints. Manufacturers indicated that producing more efficient small electric motors would 

b As defined in the 2006 ASM, production workers number include “workers (up through the line-supervisor 

level) engaged in fabricating, processing, assembling, inspecting, receiving, storing, handling, packing, 

warehousing, shipping (but not delivering), maintenance, repair, janitorial and guard services, product 

development, auxiliary production for plant's own use (e.g., power plant), recordkeeping, and other services 

closely associated with these production operations at the establishment covered by the report. Employees 

above the working-supervisor level are excluded from this item.” Non-production workers are defined as 

“employees of the manufacturing establishment including those engaged in factory supervision above the linesupervisor level. It includes sales (including driver-salespersons), sales delivery (highway truck drivers and 

their helpers), advertising, credit, collection, installation and servicing of own products, clerical and routine 

office functions, executive, purchasing, financing, legal, personnel (including cafeteria, medical, etc.), 

professional, and technical employees. Also included are employees on the payroll of the manufacturing 

establishment engaged in the construction of major additions or alterations utilized as a separate work force.” 

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not be technically difficult and that they would not need to build new facilities to accommodate 

the manufacturing of a more efficient motor. 

However, short-term capacity could be negatively affected if manufacturers significantly 

increase the number of laminations for each motor. This increase would likely necessitate the 

purchase of new stamping tooling and could create a bottleneck until the new tooling is 

purchased. Most manufacturers indicated that this bottleneck would be at least partially offset by 

current excess capacity. The real risk is that standards could cause manufacturers to eliminate 

some motor categories, and reduce overall production. 

12.6.3 Exports 

SEM exports comprise a small fraction of SEM sales for most manufacturers. A minority 

of manufactures sell more internationally than domestically, but these companies typically 

import SEMs from overseas. Manufacturers interviewed estimate that exports account for 10 

to15 percent of total sales. The majority of exports are sold to Mexico and Asian countries. 

Most manufacturers interviewed stated that they do not expect much change to their 

export strategies following standards. Regardless of standards, some manufacturers indicated that 

they expect an increase in exports going forward. Once the U.S. standard takes effect, SEM 

manufacturers would still be able to produce and export units that do not meet DOE’s efficiency 

standard, since the standard only applies to equipment for use in the United States. 

Manufacturers informed DOE that a large percent of the domestic market is imported. In 

turn, the manufacturers were concerned about the enforcement of energy conservation standards 

if legislation is enacted. 

12.6.4 Cumulative Regulatory Burden 

While any one regulation may not impose a significant burden on manufacturers, the 

combined effects of several impending regulations may have serious consequences for some 

manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single 

regulation may overlook this cumulative regulatory burden. For the cumulative regulatory 

burden analysis, DOE describes other significant equipment-specific regulations that could affect 

SEM manufactures or their parent company that will take effect three years before or three years 

after the effective date of the new energy conservation standards for the covered equipment.c 

Companies that produce a wider range of regulated equipment may be faced with more 

capital and equipment development expenditures than their competitors. Regulatory burdens can 

prompt companies to exit the market or reduce their equipment offerings, possibly reducing 

competition. Smaller companies may be especially affected since they have lower sales volumes 

over which to amortize the costs of meeting new regulations. A proposed standard is not 

economically justified if it contributes to an unacceptable level of cumulative regulatory burden. 

c

 The effective date for SEMs is three years from the date of publication of the final rule (approximately January 

2015). 

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EERE-2007-BT-STD-0007 COMMENT 33
 

 

 

 

 

In addition to the energy conservation regulations on SEMs, several other Federal 

regulations and pending regulations apply to this equipment and other equipment produced by 

the same manufacturers. DOE recognizes that each regulation can significantly impact 

manufacturers’ financial operations. The following sections provide a qualitative discussion of 

some of these regulations and standards. 

12.6.4.1 Federal Regulations on SEMs and Other Equipment Produced by the 

Same Manufacturers 

Besides the energy conservation regulations on SEMs, several other Federal regulations 

and pending regulations apply to other equipment produced by the same manufacturers. DOE 

recognizes that each regulation can significantly impact manufacturers’ financial operations. 

Multiple regulations affecting the same manufacturer can quickly strain manufacturers’ profits 

and possibly cause an exit from the market. Table 12.6.1 lists the Federal regulations that could 

also affect manufacturers of the SEM industry in the three years leading up to and the three years 

preceding the effective date of the amended energy conservation standards for this equipment. It 

must be noted that the amount of cumulative burden on any particular firm is extremely variable 

since the product scope of each company is different. Table 12.6.1 also provides the timetables 

for these regulations. 

Table 12.6.1 Other DOE Actions Affecting the SEM Industry 

Regulation Approximate Effective 

Date* 

Number of Impacted 

Companies from the 

MTA 

Estimated Total 

Conversion Costs** 

Distribution 

Transformers 2007 3 $13.5M (2007$)d 

Power Supplies 2011* 1 N/A† 

Water Heaters 2015* 1 N/A† 

Ceiling Fans 2007-2009* 1 N/A† 

*The dates listed are an approximation. The exact dates are pending final DOE action 

** Total conversion costs include both capital and equipment conversion costs. 

† For energy conservation standards for ongoing rulemakings that are awaiting DOE final action, DOE does not 

have finalized estimated total industry conversion costs. 

Additional investments necessary to meet these potential standards could have significant 

impacts on manufacturers of the covered equipment. However, DOE has limited data on the 

importance of these other regulated products for manufacturers of SEMs. Differences in market 

shares and manufacturing processes of other regulated products for each manufacture could 

cause varying degrees of burdens on these manufactures. Therefore, DOE only estimated the cost 

of compliance to meet other energy conservation standards for regulated products if DOE had 

published a final rule. 

d

 Estimated industry conversion costs were published in the TSD for the October 2007 PTAC and PTHP final rule. 

73 FR 58772. The TSD for the 2007 PTAC and PTHP final rule can be found at: 

http://www1.eere.energy.gov/buildings/appliance_standards/commercial/pdfs/distribution_transformers_fr_101207. 

pdf 

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EERE-2007-BT-STD-0007 COMMENT 33
 

12.6.4.2 Restriction of Hazardous Substances Directive 

The Restriction of Hazardous Substance Directive2 (RoHS) will have some global impact 

on manufacturing of electrical and electronic equipment. Under the directive, all manufacturers 

are banned from placing on the European Union market new electrical and electronic equipment 

containing more than agreed levels of lead, cadmium, mercury, hexavalent chromium, 

polybrominated biphenyl, and polybrominated diphenyl ether flame retardants. Though not all 

manufacturers export SEMs to the European Union, manufacturers stated this directive could 

potentially impact their business. Although there is no Federal regulation on RoHS, California 

has passed SB 20: Electronic Waste Recycling Act of 2003. Under this law, California limits the 

amount of hazardous substances included in the RoHS directive that can be sold in California. 

However, manufacturers do not anticipate RoHS will significantly affect the SEM industry as a 

whole. 

12.6.4.3 Registration, Evaluation and Authorization of Chemical substances 

Registration, Evaluation and Authorization of Chemical substances (REACH), is a 

European Community Regulation enacted on June 1, 2007 REACH requires manufacturers and 

importers demonstrate that they have identified and managed risks linked to the substances they 

manufacture and market. Companies are required to gather information on the properties of their 

chemical substances, which will allow their safe handling, and to register the information in a 

central database run by the European Chemicals Agency (ECHA). The Regulation also calls for 

the progressive substitution of the most dangerous chemicals when suitable alternatives have 

been identified. One manufacturer mentioned concern that new energy conservation standards 

would require added cost and time burdens with respect to REACH compliance. 

12.6.4.4 Trade Group Regulations 

The National Electrical Manufacturers Association (NEMA) and the International 

Electrotechnical Commission (ICS) both have optional standards that have impacted how 

manufacturers have designed SEMs. NEMA established a level of “premium” motors that 

achieve certain efficiency levels depending on product class. The IEC specified electrical (IEC 

34) and mechanical (IEC 72) specifications in motors. If new regulations are enacted, this could 

impact both NEMA and IEC SEM designs. 

12.6.4.5 Other Regulations 

Some manufacturers expressed their opinion that the Canadian Standards Association 

(CSA) will likely adopt DOE’s efficiency levels following the issuance of the final rule in 2010. 

12.7 CONCLUSIONS 

The following section summarizes the different impacts for the two scenarios DOE 

believes are most likely to capture the range of impacts on SEM manufacturers as a result of new 

energy conservation standards. DOE also notes that while these two scenarios bound the range of 

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EERE-2007-BT-STD-0007 COMMENT 33
most plausible impacts on manufacturers, there potentially could be circumstances which cause 

manufacturers to experience impacts outside of this range. 

To assess the higher end of the range of potential impacts on the SEM industry, DOE 

considered a scenario in which the industry return on invested capital in the base case is 

preserved in the standards case (i.e., the markup is adjusted at each TSL). Thus, a manufacturer 

is able to pass on any additional costs due to standards at the same level as they have historically 

and maintain the ratio between net operating profits after taxes (NOPAT) and working capital. 

To assess the lower end of the range of potential impacts for the SEM industry, DOE 

considered the scenario reflecting the preservation of operating profit markup. Besides the 

impact of shipments on the INPV, this case assumed that the industry can maintain its operating 

profit (EBIT) after the standard effective date. The industry would do so by passing through its 

increased costs to customers without passing through R&D and SG&A in the year standards 

become effective. 

Polyphase Small Electric Motors 

DOE estimated the impacts on INPV at TSL 1 to range from $0.52 million to -$1.14 

million, or a change in INPV of 0.80 percent to -1.78 percent. At this level industry cash flow 

decreases by approximately 9.1 percent, to $4.68 million, compared to the base-case value of 

$5.15 million in the year leading up to the energy conservation standards. TSL 1 represents an 

efficiency increase of 2-percent over the baseline for polyphase motors. The majority of 

manufacturers have motors that meet this efficiency. All manufacturers that were interviewed 

stated that their existing motor designs allow for simple modifications that would require minor 

capital and equipment conversion costs to reach TSL 1. A possible modification analyzed in the 

engineering analysis is a roughly 7-percent increase in number of laminations within both space 

constrained and non-space constrained motors. Manufacturers indicated that modifications like 

an increase in laminations could be made within existing baseline motor designs without 

significantly altering their size. In addition, these minor design changes will not raise the 

production costs beyond the cost of most motors sold today, resulting in minimal impacts on 

industry value. 

DOE estimated the impacts in INPV at TSL 2 to range from $1.11 million to -$1.56 

million, or a change in INPV of 1.74 percent to -2.42 percent. At this level industry cash flow 

decreases by approximately 11.53 percent, to $4.55 million, compared to the base-case value of 

$5.15 million in the year leading up to the energy conservation standards. TSL 2 represents an 

efficiency increase of 4-percent over the baseline for polyphase motors. Similar to TSL 1, at TSL 

2 manufacturers stated that their existing motor designs allows for simple modifications that 

would entail only minor capital and equipment conversion costs. A possible modification 

analyzed in the engineering analysis increases the number of laminations by approximately 15­

percent from the baseline within both space constrained and non-spaced constrained motors. 

Manufacturers indicated that these modifications could be made within baseline motor designs 

without significantly changing their size. At TSL 2, the production costs of standards compliant 

motors do not increase enough to significantly affect INPV. 

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At TSL 3, DOE estimated the impacts in INPV to range from $1.83 million to -$2.01 

million, or a change in INPV of 2.86 percent to -3.14 percent. At this level industry cash flow 

decreases by approximately 12.35 percent, to $4.51 million, compared to the base-case value of 

$5.15 million in the year leading up to the energy conservation standards. TSL 3 represents an 

efficiency increase of 6-percent over the baseline for polyphase motors. Similar to TSL 1 and 

TSL 2, at TSL 3 manufacturers stated that their existing motor designs would still allow for 

simple modifications that would not require significant capital and equipment conversion costs. 

In the engineering analysis, standards compliant motors that meet the efficiency requirements at 

TSL 3 have 17-percent more laminations than the baseline design within both space constrained 

and non-spaced constrained motors. These changes do not result in significant impacts on INPV. 

At TSL 4, DOE estimated the impacts in INPV to range from $2.41 million to -$2.39 

million, or a change in INPV of 3.76 percent to -3.73 percent. At this level industry cash flow 

decreases by approximately 13.44 percent, to $4.46 million, compared to the base-case value of 

$5.15 million in the year leading up to the energy conservation standards. TSL 4 represents an 

efficiency increase of 7-percent over the baseline for polyphase motors. Most manufacturers that 

were interviewed are able to reach this level without significant redesigns. At TSL 4, a possible 

design pathway for manufacturers could be to increase the number of laminations by 

approximately 20 percent over the baseline designs within space constrained and non-space 

constrained motors. However, manufacturers reported that TSL 4 would be the highest efficiency 

level achievable before required efficiencies could significantly change motor designs and 

production equipment. However, past TSL 4 the size of the motors may need to be significantly 

modified. 

At TSL 5, DOE estimated the impacts in INPV to range from $10.85 million to -$8.83 

million, or a change in INPV of 16.91 percent to -13.76 percent. At this level industry cash flow 

decreases by approximately 46.20 percent, to $2.77 million, compared to the base-case value of 

$5.15 million in the year leading up to the energy conservation standards. TSL 5 represents an 

efficiency increase of 10-percent over the baseline for polyphase motors. TSL 5 is equivalent to 

the current NEMA premium level that manufacturers produce for medium-sized electric motors. 

Although some manufacturers reported having existing small electric motors that reach TSL 5, 

the designs necessary are more complex than their cost optimized designs at lower TSLs. A 

possible redesign for non-space constrained motors would include adding up to 49 percent more 

laminations relative to the baseline motor design and improving the grade of steel. For space 

constrained motors, redesigns could require up to 114 percent more laminations of a thinner and 

higher grade of steel. Manufacturers are concerned that redesigns at TSL 5 could possibly 

increase the size of the motors if they do not currently have motors that reach the NEMA 

premium efficiency levels. A shift to larger motors could be detrimental to sales due to the 

inability of OEMs to use standards- compliant motors as direct replacements in some 

applications. According to manufacturers, at TSL 5 the industry would incur significantly higher 

capital and equipment conversion costs in comparison to the lower efficiency levels analyzed. 

DOE estimates that the capital and equipment conversion costs required to make the redesigns at 

TSL 5 would be approximately four times the amount required to meet TSL 1. At TSL 5 

manufacturers would also be required to shift their entire production of baseline motors to higher 

priced and higher efficiency motors, making their current cost-optimized designs obsolete. These 

higher production costs could have a greater impact on the industry value if operating profit does 

not increase. Manufacturers indicated that setting energy conservation standards at TSL 5 could 

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cause some manufacturers to consider exiting the small electric motor market because of the lack 

of resources, potentially unjustifiable investments for a small segment of their business, and the 

possibility of lower revenues if OEMs will not accept large motors. 

At TSL 6, DOE estimated the impacts in INPV to range from $15.94 million to -$13.09 

million, or a change in INPV of 24.84 percent to -20.41 percent. At this level industry cash flow 

decreases by approximately 71.78 percent, to $1.45 million, compared to the base-case value of 

$5.15 million in the year leading up to the energy conservation standards. TSL 6 represents an 

efficiency increase of 12-percent over the baseline for polyphase motors. Currently, no small 

electric motors are rated above the equivalent to the NEMA premium standard (TSL 5). Possible 

redesigns for space constrained motors at TSL 6 include the use of copper rotors and a 114­

percent increase in the number of laminations of a thinner and higher grade of steel. These 

changes would cause manufacturers to incur significant capital and equipment conversion costs 

to redesign their space constrained motors due to the lack of experience in using copper. 

According to manufacturers, copper tooling is significantly costlier and not currently used by any 

manufacturers for the production of small electric motors. If copper rotor designs are required, 

manufacturers with in-house die-casting capabilities will need completely new machinery to 

process copper. Manufacturers that outsource rotor production would pay higher prices for their 

rotor designs. In both cases, TSL 6 results in significant equipment conversion costs to modify 

current manufacturing processes in addition to redesigning motors to use copper in the 

applications of general purpose small electric motors. Largely due to the significant changes to 

space constrained motors, at TSL 6 DOE estimates that manufacturers would incur close to six 

times the total conversion costs required at TSL 1 (a total of approximately $9.2 million). 

However, for non-space constrained motors, manufacturers are able to redesign their existing 

motors without the use of copper rotors by using twice the number of laminations that are 

contained in the baseline design. Therefore, for non-space constrained motors the impacts at TSL 

6 are significantly less because manufacturers can maintain existing manufacturing processes 

without the potentially significant changes associated with copper rotors. At TSL 6 the impacts 

for non-space constrained motors are mainly due to higher motor costs and the possible decrease 

in profitability if manufacturers are unable to fully pass through their higher production costs. 

At TSL 7, DOE estimated the impacts in INPV to range from $85.23 million to -$59.74 

million, or a change in INPV of 132.87 percent to -93.14 percent. At this level industry cash flow 

decreases by approximately 258.82 percent, to -$8.18 million, compared to the base-case value 

of $5.15 million in the year leading up to the energy conservation standards. TSL 7 represents an 

efficiency increase of 14-percent over the baseline for polyphase motors. Currently, the market 

does not have any motors that reach TSL 7. In addition to possibly using copper rotors, at TSL 7 

space constrained motor designs could also require exotic steels. There is some uncertainty about 

the magnitude of the impacts on the industry of using Hiperco steel. Manufacturers were unsure 

about the required conversion costs to reach TSL 7 because of the unproven properties and 

applicability of the technology in the general purpose motors covered by this rulemaking. 

Significant R&D for both manufacturing processes and motor redesigns would be necessary to 

understand the applications of exotic steels to general purpose small electric motors. According 

to manufacturers, requiring this technology could possibly cause some competitors to exit the 

small electric motor market. If manufacturers’ concerns of having to use both copper rotors and 

new steels materialize, manufactures could be significantly impacted. For non-space constrained 

motors, DOE estimates that manufacturers would require the use of copper rotors but not exotic 

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steels. If manufacturers are required to redesign non-spaced constrained motors with copper, the 

total conversion for the industry increases greatly because all motors require substantially 

different production equipment. Finally, the production costs of motors that meet TSL 7 could be 

up to 18 times higher than the production costs of baseline motors. The cost to manufacture 

standards-compliant motors could have a significant impact on the industry if operating profit 

does not increase with production costs. 

CSIR and CSCR Small Electric Motors 

At TSL 1, DOE estimated the impacts in INPV to range from $11.21 million to -$14.87 

million, or a change in INPV of 4.02 percent to -5.33 percent. At this level, industry cash flow 

decreases by approximately 28.51 percent, to $15.99 million, compared to the base-case value of 

$22.34 million in the year leading up to the energy conservation standards. TSL 1 represents an 

efficiency increase of 19-percent over the baseline for CSIR motors and 10-percent over the 

baseline for CSCR motors. At TSL 1 for CSIR motors, DOE estimates manufactures would need 

to increase the number of laminations for space constrained motors by approximately 33-percent 

and use a thinner and higher grade of steel. For non-space constrained CSIR motors, 

manufactures could increase laminations by approximately 61-percent with the use of a thinner 

grade steel. For space constrained CSCR motors, manufacturers could increase laminations by 

ten percent and use a higher grade of steel. For non-space constrained CSCR motors, 

manufactures could increase laminations by approximately 37 percent. For both CSIR and CSCR 

motors, the additional stack length needed to reach TSL 1 is still within the tolerances of many 

manufacturers existing motors. DOE estimates that the these changes would cause the industry to 

incur capital and equipment conversion costs of approximately $17 million to reach TSL 1. . 

TSL 1 would increase production costs, but the cost increases are not enough to severely affect 

INPV under the scenarios analyzed. 

At TSL 2, DOE estimated the impacts in INPV to range from $12.22 million to -$15.64 

million, or a change in INPV of 4.38 percent to -5.61 percent. At this level industry cash flow 

decreases by approximately 30.58 percent, to $15.53 million, compared to the base-case value of 

$22.34 million in the year leading up to the energy conservation standards. TSL 2 represents an 

efficiency increase of 19-percent over the baseline for CSIR motors and 13-percent over the 

baseline for CSCR motors. For CSIR motors, the same changes to meet TSL 1 are necessary for 

TSL 2. For CSCR motors, TSL 2 represents what manufacturers would consider a NEMA 

Premium equivalent efficiency level. The changes required for CSCR motors cause 

manufacturers to incur additional capital conversion costs to accommodate the required increase 

in laminations. Imposing standards would increase production costs for both CSIR and CSCR 

motors, but the cost increases for both types of motors are not enough to severely affect INPV. 

At TSL 3, DOE estimated the impacts in INPV to range from $18.03 million to -$22.87 

million, or a change in INPV of 6.47 percent to -8.20 percent. At this level, industry cash flow 

decreases by approximately 41.16 percent, to $13.17 million, compared to the base-case value of 

$22.34 million in the year leading up to the energy conservation standards. TSL 3 represents an 

efficiency increase of 23-percent over the baseline for CSIR motors and 13-percent over the 

baseline for CSCR motors. At TSL 3, space constrained CSIR motors could possibly require 

redesigns that use copper rotors. Using copper rotors for space constrained CSIR motors could 

cause manufacturers to incur approximately $25 million in capital and equipment conversion 

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costs, largely to purchase the equipment necessary to produce these redesigned motors. As with 

polyphase motors, manufacturers reported that copper tooling is significantly costlier and not 

currently used by the industry for the production of small electric motors. Similarly, in-house 

die-casting capabilities would need completely new machinery to process copper and the 

alternative of outsourcing rotor production would greatly increase material costs.. For non-space 

constrained CSIR motors, manufacturers could redesign motors increasing the number of 

laminations without the use of copper rotors, resulting in significantly smaller impacts . At TSL 

3 the impacts for non-space constrained motors are mainly due to higher motor material costs 

and a possible decline in profit margins. TSL 3 represents what manufacturers would consider a 

NEMA Premium equivalent efficiency level for CSCR motors. The required efficiencies for 

space constrained CSCR motors could possibly be met by manufacturers by increasing the 

number of laminations by 15-percent and using higher steel grades. The required efficiencies for 

non-spaced constrained CSCR motors could possibly be met by increasing the number of 

laminations by 53-percent. Because the redesigns for CSCR motors are less substantial, the 

impacts at TSL 3 are driven largely by the required CSIR efficiencies. . 

At TSL 4, DOE estimated the impacts in INPV to range from $31.21 million to -$31.57 

million, or a change in INPV of 11.19 percent to -11.32 percent. At this level industry cash flow 

decreases by approximately 46.63 percent, to $11.94 million, compared to the base-case value of 

$22.34 million in the year leading up to the energy conservation standards. TSL 4 represents an 

efficiency increase of 27-percent over the baseline for CSIR motors and 15-percent over the 

baseline for CSCR motors. TSL 4 currently represents a NEMA premium equivalent level for 

CSIR motors. Possible redesigns for both CSIR and CSCR motors to meet TSL 4 involve both 

increasing the number of laminations as well as using higher grades of steel. For space 

constrained CSIR motors, redesigns could possibly require the use of copper rotors. Because of 

these redesigns, standards-compliant motors at TSL 4 have significantly higher costs than 

manufacturers’ baseline motors. These changes increase the engineering and capital resources 

that must be employed, especially for CSCR motors. The negative impacts at TSL 4 are driven 

by the conversion costs that potentially require some single-phase motors to use copper rotors, 

and the higher production costs of standards-compliant motors. 

At TSL 5, DOE estimated the impacts in INPV to range from $27.96 million to -$29.01 

million, or a change in INPV of 10.03 percent to -10.41 percent. At this level industry cash flow 

decreases by approximately 41.16 percent, to $13.17 million, compared to the base-case value of 

$22.34 million in the year leading up to the energy conservation standards. TSL 5 represents an 

efficiency increase of 27-percent over the baseline for CSIR motors and 13-percent over the 

baseline for CSCR motors. TSL 5 represents NEMA premium equivalent efficiency levels for 

both CSIR and CSCR motors. At TSL 5 space constrained CSIR motors could require the use of 

copper rotors. The required efficiencies for non-space constrained CSIR motors could possibly 

be met by manufacturers by increasing the number of laminations by 82-percent and using a 

higher grade of steel. The required efficiencies for space constrained CSCR motors could 

possibly be met by manufacturers by increasing the number of laminations by 15-percent and 

using higher steel grades. The required efficiencies for non-spaced constrained CSCR motors 

could possibly be met by increasing the number of laminations by 53-percent. Although 

manufacturers reported that meeting TSL 5 is feasible, the production costs of motors at TSL 5 

increase substantially and require approximately $25 million in total capital and equipment 

conversion costs. The negative impacts at TSL 5 are driven by these conversion costs that 

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potentially require some CSIR motors to use copper rotors, and the impacts on profitability if the 

higher production costs of standards-compliant motors cannot be fully passed through to 

customers.. 

At TSL 6, DOE estimated the impacts in INPV to range from $187.88 million to ­

$137.53 million, or a change in INPV of 67.39 percent to -49.33 percent. At this level, industry 

cash flow decreases by approximately 131.38 percent, to -$7.02 million, compared to the basecase value of $22.34 million in the year leading up to the energy conservation standards. TSL 6 

represents an efficiency increase of 33-percent over the baseline for CSIR motors and 23-percent 

over the baseline for CSCR motors. Currently, the market does not have any CSIR and CSCR 

motors that reach TSL 6. TSL 6 represents the max-tech level for both CSIR and CSCR motors. 

In addition to the possibility of using copper rotors for both CSIR and CSCR motors, at TSL 6 

space constrained motor designs could require exotic steels. There is a great deal of uncertainty 

about the impact of Hiperco steel on the industry, primarily due to uncertainty about capital 

conversion costs required to use a new, exotic steel. Significant R&D in manufacturing processes 

would be necessary to understand the applications of exotic steels in general purpose small 

electric motors. Because all space constrained motors could require copper rotors and exotic steel 

and all non-spaced constrained motors could require copper rotors, the capital conversion costs 

are a significant driver of INPV at TSL 6. Finally, the production costs of motors that meet TSL 

6 can be as high as 13 times the production cost of baseline motors, which impact profitability if 

the higher production costs cannot be fully passed through to OEMs. Manufacturers indicated 

that the potentially large impacts on the industry at TSL 6 could force some manufacturers to exit 

the small electric motor market because of the lack of resources and unjustifiable investment for 

a small segment of their total business. 

At TSL 7, DOE estimated the impacts in INPV to range from $29.80 million to -$35.84 

million, or a change in INPV of 10.69 percent to -12.86 percent. At this level, industry cash flow 

decreases by approximately 81.21 percent, to $4.20 million, compared to the base-case value of 

$22.34 million in the year leading up to the energy conservation standards. TSL 7 represents an 

efficiency increase of 33-percent over the baseline for CSIR motors and 13-percent over the 

baseline for CSCR motors. TSL 7 corresponds to the NEMA premium equivalent efficiency for 

CSCR motors. The required efficiencies for space constrained CSCR motors could possibly be 

met by manufacturers by increasing the number of laminations by 15-percent and using higher 

steel grades. The required efficiencies for non-spaced constrained CSCR motors could possibly 

be met by increasing the number of laminations by 53-percent. Consequently, the industry is not 

severely impacted by the CSCR efficiency requirements at TSL 7 because these design changes 

could be met with relatively minor changes to baseline designs. However, there are no CSIR 

motors currently on the market that reach TSL 7 (the max-tech level for CSIR). At TSL 7 space 

constrained CSIR redesigns could require the use of both copper rotors and exotic steels while 

non-space constrained CSIR motors could require only copper rotors. Manufacturers continue to 

have the same concerns about copper rotors and exotic steels for CSIR motors as with other 

efficiency levels that may require these technologies. The impacts on INPV for non-spaced 

constrained CSIR motors are significantly less because of exclusion of exotic steels in motor 

redesigns. The INPV impacts for all single-phase motors at TSL 7 are less severe than at TSL 6 

due to a change in balance of shipments between CSIR and CSCR motors. At TSL 7, the high 

cost of CSIR motors would likely cause customers to migrate to CSCR motors. For the analysis, 

DOE assumes that manufacturers would invest in the alternative technologies for CSIR motors 

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regardless of the modeled migration to CSCR motors. The industry is impacted by the high 

conversion costs for CSIR motors even though these are a small portion of total shipments after 

standards. However, because the total volume of single-phase motors does not decline with the 

shift from CSIR to CSCR motors, the higher revenues from standards-compliant CSCR mitigate 

the significant redesign costs for CSIR motors. 

At TSL 8, DOE estimated the impacts in INPV to range from $56.70 million to -$53.30 

million, or a change in INPV of 20.34 percent to -19.12 percent. At this level, industry cash flow 

decreases by approximately 90.42 percent, to $2.14 million, compared to the base-case value of 

$22.34 million in the year leading up to the energy conservation standards. TSL 8 represents an 

efficiency increase of 33-percent over the baseline for CSIR motors and 20-percent over the 

baseline for CSCR motors. As with TSL 7, CSIR motors are at the max-tech level at TSL 8. 

However, the impacts on INPV are worse at TSL 7 because the efficiency requirements for 

CSCR motors increase. At TSL 8, both space constrained and non-space constrained CSCR 

motors could require the use of copper, which increases the total conversion costs for the 

industry. Manufacturers continue to share the same concerns about the copper and exotic steel 

investments for CSCR and CSIR motors as at TSL 6 and TSL 7. Like TSL 7, TSL 8 causes a 

migration of CSIR motors to CSCR motors. DOE assumed that manufacturers would incur the 

required conversion costs for both CSCR and CSIR motors, despite the low market share of 

CSIR motors after the effective date of the energy conservation standards. After standards, the 

shift to CSCR motors increases total industry revenue and helps to mitigate the significant capital 

conversion costs necessary for CSIR motors to use both copper and exotic metals. 

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REFERENCES 

1

 Securities and Exchange Commission, Annual 10-K Reports, Various Years, 

Washington D.C., www.sec.gov. 

2

 Further information about RoHS can be found at 

http://eur-lex.europa.eu/LexUriServ/site/en/oj/2003/l_037/l_03720030213en00190023.pdf. 

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