CHAPTER 13. MANUFACTURER IMPACT ANALYSIS 

TABLE OF CONTENTS 

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

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

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

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

13.2.2.1 Industry Cash-Flow Analysis............................................................... 13-2
 

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

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

13.2.3.1 Manufacturer Interviews...................................................................... 13-3
 

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

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

13.2.3.4 Small-Business Manufacturer Sub-Group ...........................................13-4
 

13.2.3.5 Manufacturing Capacity Impact .......................................................... 13-5
 

13.2.3.6 Employment Impact............................................................................. 13-5
 

13.2.3.7 Cumulative Regulatory Burden ........................................................... 13-5
 

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

13.3.1 Equipment Class Separation ..............................................................................13-6
 

13.3.2 Reduced Cleaning Performance and Consumer Dissatisfaction for Top-Loading 

Washers.......................................................................................................................... 13-6
 

13.3.3 Test Procedure Implications ..............................................................................13-6
 

13.4 GRIM INPUTS AND ASSUMPTIONS........................................................................ 13-7
 

13.4.1 Overview of the GRIM ...................................................................................... 13-7
 

13.4.2 Sources for GRIM Inputs...................................................................................13-8
 

13.4.2.1 Corporate Annual Reports ................................................................... 13-8
 

13.4.2.2 Standard & Poor Credit Ratings .......................................................... 13-8
 

13.4.2.3 Dun & Bradstreet Reports.................................................................... 13-8
 

13.4.2.4 Shipment Model................................................................................... 13-9
 

13.4.2.5 Engineering Analysis........................................................................... 13-9
 

13.4.2.6 Manufacturer Interviews......................................................................13-9
 

13.4.3 Financial Parameters.......................................................................................... 13-9
 

13.4.4 Corporate Discount Rate.................................................................................. 13-10
 

13.4.5 Trial Standard Levels....................................................................................... 13-12
 

13.4.6 NES-Shipments Forecast ................................................................................. 13-12
 

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

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

13.4.6.3 Price Elasticity of Demand Shipments Scenario ............................... 13-14
 

13.4.6.4 Economic Growth Shipments Scenario .............................................13-14
 

13.4.6.5 Shipment Sensitivity Scenario ........................................................... 13-15
 

13.4.7 Production Costs .............................................................................................. 13-15
 

13.4.8 Conversion Costs............................................................................................. 13-16
 

13.4.8.1 Capital Conversion Costs................................................................... 13-16
 

13.4.8.2 Equipment Conversion Costs............................................................. 13-17
 

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EERE-2006-STD-0127 COMMENT 69.1
13.4.9 Markups ........................................................................................................... 13-17
 

13.4.10 Federal Production Tax Credits..................................................................13-18
 

13.5 COMMERCIAL CLOTHES WASHER INDUSTRY FINANCIAL IMPACTS ....... 13-18
 

13.5.1 Impacts on Industry Net Present Value ........................................................... 13-18
 

13.5.2 Impacts on Annual Cash Flow.........................................................................13-20
 

13.6 IMPACTS ON THE LOW-VOLUME COMMERCIAL CLOTHES WASHER
 

MANUFACTURER ................................................................................................................ 13-24
 

13.6.1 Introduction...................................................................................................... 13-24
 

13.6.2 Low-Volume Manufacturer Competitiveness..................................................13-25
 

13.6.3 Effects of a Transition to Front-Loading Platforms.........................................13-25
 

13.6.4 Fixed Cost Impacts on a Low-Volume Manufacturer ..................................... 13-26
 

13.6.5 Financial Position of the LVM ........................................................................13-29
 

13.6.6 Additional Impacts on the Low-Volume Manufacturer................................... 13-30
 

13.6.7 Consequences of Higher Energy Conservation Standards on the LVM.......... 13-31
 

13.7 OTHER IMPACTS......................................................................................................13-32
 

13.7.1 Employment..................................................................................................... 13-32
 

13.7.1.1 Methodology...................................................................................... 13-32
 

13.7.1.2 Results................................................................................................ 13-34
 

13.7.2 Production Capacity......................................................................................... 13-37
 

13.7.3 Cumulative Regulatory Burden ....................................................................... 13-38
 

13.7.3.1 Additional Federal Energy Conservation Standards.......................... 13-38
 

13.7.3.2 State Energy and Water Conservation Standards .............................. 13-40
 

13.7.3.3 International Energy Conservation Standards ................................... 13-42
 

13.7.3.4 International Test Procedures ............................................................ 13-42
 

13.8 CONCLUSIONS.......................................................................................................... 13-42
 

LIST OF TABLES 

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

Data ..................................................................................................................13-10
 

Table 13.4.6 Base-Case Distribution of Efficiencies for Top-Loading Commercial Clothes 

Table 13.4.7 Base-Case Distribution of Efficiencies for Front-Loading Commercial Clothes 

Table 13.4.8 Distribution of Top-Loading Commercial Clothes Washer Shipments in the 

Table 13.4.9 Distribution of Front-Loading Commercial Clothes Washer Shipments in the 

Table 13.4.10 Base-Case Production Costs (2008$) used in the GRIM for Top-Loading 

Table 13.4.2 Cost of Equity Calculation.................................................................................. 13-11
 

Table 13.4.3 Cost of Debt Calculation..................................................................................... 13-12
 

Table 13.4.4 Commercial Clothes Washer Baseline Efficiency Levels and TSLs..................13-12
 

Table 13.4.5 Total NES-Shipments Forecast in 2013.............................................................. 13-13
 

Washers in 2013 Estimated in the NES ........................................................... 13-13
 

Washers in 2013 Estimated in the NES ........................................................... 13-13
 

Standards Case in 2013 – Roll-Up Scenario.................................................... 13-14
 

Standards Case in 2013 – Roll-Up Scenario.................................................... 13-14
 

Commercial Clothes Washers.......................................................................... 13-15
 

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Table 13.4.11 Base-Case Production Costs (2008$) used in the GRIM for Front-Loading 

Commercial Clothes Washers.......................................................................... 13-15
 

Table 13.4.12 Capital Conversion Costs for Commercial Clothes Washers by TSL.............. 13-16
 

Table 13.4.13 Equipment Conversion Costs for Commercial Clothes Washers by TSL........13-17
 

Table 13.5.1 Changes in Industry Net Present Value for Top-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Base-Case 

Shipments) ....................................................................................................... 13-19
 

Table 13.5.2 Changes in Industry Net Present Value for Top-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of 

Demand Shipments)......................................................................................... 13-19
 

Table 13.5.3 Changes in Industry Net Present Value for Front-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Base-Case 

Shipments) ....................................................................................................... 13-19
 

Table 13.5.4 Changes in Industry Net Present Value for Front-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of 

Demand Shipments)......................................................................................... 13-19
 

Table 13.5.5 Changes in Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup 

– Base-Case Shipments) .................................................................................. 13-20
 

Table 13.5.6 Changes in Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup 

– Price Elasticity of Demand Shipments) ........................................................ 13-20
 

Table 13.6.1 DOE Estimate of LVM Clothes Washer Sales and Unit Shipments in 2006 ..... 13-25
 

Table 13.6.2 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 100,000 

units Per Year................................................................................................... 13-27
 

Table 13.6.3 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 1,500,000 

Table 13.6.4 Depreciation Lifetime Assumptions for a Low- and High-Volume Manufacturer .....
 

units Per Year................................................................................................... 13-27
 

.......................................................................................................................... 13-27
 

Table 13.6.5 Per Unit Depreciation Costs for a Low- and High-Volume Manufacturer.........13-28
 

..........................................................................................................................13-28
 

Table 13.6.6 Per-Unit Impacts of a $10 Million R&D Expense at Various Equipment Lifetimes
 

Table 13.6.7 Total Per-Unit Profit for an LVM after Depreciation and R&D Disadvantage.. 13-29
 

Table 13.6.8 Comparison of the LVM’s 2008 Financials with DOE’s Green-Field Assumptions
 

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

..........................................................................................................................13-34
 

Table 13.7.1 Commercial Clothes Washer Industry Estimated Employment Impacts in 2013 .......
 

Table 13.7.2 Other DOE Energy Conservation Standards Affecting the CCW Industry........13-39
 

Table 13.7.3 State Commercial Clothes Washer Regulations Similar to EPACT 2005.......... 13-40
 

Table 13.7.4 California State Energy and Water Conservation Standards for Commercial Clothes 

Washers............................................................................................................13-41
 

Table 13.7.5 California Water Conservation Standards for Residential Clothes Washers...... 13-41
 

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EERE-2006-STD-0127 COMMENT 69.1
LIST OF FIGURES 

Figure 13.4.1 Using the GRIM to Calculate Cash Flow............................................................ 13-7
 

Figure 13.5.1 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Base-Case Shipments) 13-21
 

Figure 13.5.2 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand 

Shipments) ....................................................................................................... 13-21
 

Figure 13.5.3 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Base-Case Shipments) 13-22
 

Figure 13.5.4 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand 

Shipments) ....................................................................................................... 13-22
 

Figure 13.5.5 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Base-Case 

Shipments) ....................................................................................................... 13-23
 

Figure 13.5.6 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of 

Demand Shipments)......................................................................................... 13-23
 

Figure 13.7.1 Commercial Clothes Washer Industry Cost Structure....................................... 13-33
 

Figure 13.7.2 Total Commercial Clothes Washer Industry Domestic Employment by Year . 13-35
 

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EERE-2006-STD-0127 COMMENT 69.1
 

CHAPTER 13. MANUFACTURER IMPACT ANALYSIS 

13.1 INTRODUCTION 

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

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

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

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

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

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

commercial clothes washers (CCW), and to assess the impact of such standards on employment 

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

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

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

include information on industry cost structure, shipments, and pricing strategies. The GRIM’s 

key output is the industry net present value (INPV). The model estimates the financial impact of 

higher energy conservation standards by comparing changes in INPV between a base case and 

the various trial standard levels (TSLs) in the standards case. The qualitative part of the MIA 

addresses factors such as equipment characteristics, characteristics of particular manufacturers, 

and market and equipment trends. It also assesses the impact of standards on subgroups of 

manufacturers. 

13.2 METHODOLOGY 

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

preparing an industry characterization for the CCW industry, including data on market share, 

sales volumes and trends, pricing, employment, and financial structure. Phase II, “Industry Cash 

Flow,” focused on the CCW industry individually. 

Using publicly available information developed in Phase I, DOE adapted the GRIM’s 

generic structure to facilitate analysis of amended standards for CCWs. 

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

approximately 100 percent of CCW sales. This group included a range of manufacturers with 

varying capabilities to provide a representative cross-section of the industries. During these 

interviews, DOE discussed financial topics specific to each manufacturer and obtained each 

manufacturer’s view of the industry as a whole. The interviews provided valuable information 

that DOE used to evaluate the impacts of amended energy conservation standards on 

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

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

which it based the MIA. 

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13.2.1 Phase I: Industry Profile 

In Phase I of the MIA, DOE prepared a profile of the CCW industries that built upon the 

market and technology assessment prepared for this rulemaking (see chapter 3 of this Technical 

Support Document (TSD)). Before initiating the detailed impact studies, DOE collected 

qualitative and quantitative financial information and past and present market data. This included 

estimated market shares, corporate operating ratios, wages, employment, and production cost 

ratios for several home appliance manufacturers. The industry profile included a top-down cost 

analysis of CCW manufacturers that DOE used to derive cost and preliminary financial inputs 

for the GRIMs (e.g., revenues; material; labor; overhead; depreciation; selling, general and 

administrative expenses (SG&A); and research and development (R&D) expenses). 

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

CCW industry, including U.S. Securities and Exchange Commission (SEC) 10–K and 10–Q 

reports, Standard & Poor’s (S&P) stock reports, corporate annual reports, and U.S. Census 

Bureau’s 2006 Annual Survey of Manufactures (2006 ASM). In addition, DOE relied on 

information from its engineering analysis, life-cycle cost analysis, and analysis of markups to 

determine product prices to characterize these industries. DOE also interviewed three 

manufacturers of CCWs that collectively represent approximately 100 percent of U.S. CCW 

sales. These preliminary interviews were designed to solicit key concerns, industry structure, and 

other data points for the subsequent analysis. 

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

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

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

on the CCW industry. Amended standards can affect manufacturers in three distinct ways: (1) 

require additional investment, (2) raise production costs, and (3) impact revenues through higher 

prices and possibly lower shipments. The analytical tool DOE uses for calculating the financial 

impacts of amended energy conservation standards on manufacturers is the GRIM. DOE 

performed a cash flow analysis for the CCW industry to quantify these impacts. 

13.2.2.1 Industry Cash-Flow Analysis 

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

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

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

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

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

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

public financial reports and interviews with manufacturers. DOE’s shipments analysis, presented 

in chapter 10 of this TSD, provided the basis for the shipments projection under each TSL in the 

GRIM. The financial parameters were developed using publicly available data of manufacturers 

of equipment covered by this rulemaking. These parameters were revised with information 

submitted confidentially during manufacturer interviews. The results of the GRIM are compared 

against base case projections equivalent to current Federal energy conservation standard levels 

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EERE-2006-STD-0127 COMMENT 69.1
 

for CCWs. The financial impact of amended energy conservation standards is the difference 

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

13.2.2.2 Interview Guide 

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

gather information on the effects of amended energy conservation standards on revenues and 

finances, direct employment, capital assets, and on industry competitiveness. Prior to the 

interviews, DOE distributed a standard interview guide that provided a starting point to identify 

relevant issues and help identify the impacts of amended energy conservation standards on 

individual manufacturers or sub-groups of manufacturers. The interview guide covered current 

organizational characteristics, industry infrastructure, manufacturer cash-flow analysis, a 

competitive impacts assessment, an employment impacts assessment, and a manufacturing 

capacity impacts assessment. 

13.2.3 Phase III: Sub-Group Analysis 

During the course of the MIA, DOE interviewed manufacturers representing 

approximately 100 percent of CCWs sales. Many of these same companies also participated in 

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

from primarily technology-related issues to include business-related topics. One objective was to 

obtain feedback from industry on the approaches used in the GRIM and to isolate key issues and 

concerns. During interviews, DOE defined one CCW manufacturer sub-group that could be 

differentially impacted by amended energy conservation standards. Due to one manufacturer’s 

focus on the laundry business, its lower total shipment volume, and lower revenues compared to 

its competitors, this manufacturer was identified as a “Low-Volume Manufacturer” (LVM). The 

following sections summarize the methodology and findings of this assessment. 

13.2.3.1 Manufacturer Interviews 

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

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

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

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

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

DOE used these interviews to tailor the GRIM to incorporate unique financial 

characteristics for each sub-group. DOE contacted companies from its database of 

manufacturers, which provided a representation of the CCW industry. Interviews were scheduled 

well in advance in order to provide every opportunity for key individuals to be available for 

comment. Although a written response to the questionnaire was acceptable, DOE preferred an 

interactive interview process because it helped clarify responses and provide the opportunity to 

identify additional issues. 

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EERE-2006-STD-0127 COMMENT 69.1
DOE conducted detailed interviews with all manufacturers that agreed to participate to 

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

resulting qualitative and quantitative information are valuable inputs for the GRIMs. 

13.2.3.2 Revised Industry Cash-Flow Analysis 

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

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

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

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

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

found in section 13.4.3 of this chapter. 

13.2.3.3 Manufacturer Sub-Group Analysis 

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

for assessing differential impacts among sub-groups of manufacturers. Low-volume 

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

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

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

characterization to group manufacturers exhibiting similar characteristics. During the interview 

process, DOE discussed the potential sub-groups and sub-group members that have been 

identified for the analysis. DOE looked to the manufacturers and other interested parties to 

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

13.2.3.4 Small-Business Manufacturer Sub-Group 

DOE used the small business size standards published on August, 22 2008, as amended, 

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

required to comply with the rule. 13 CFR Part 121. The size standards are listed by North 

American Industry Classification System (NAICS) code and industry description. DOE used the 

SBA limits and NAICS classifications to determine if any small businesses would be affected by 

this rulemaking. The SBA bases its small business definition on the total number of employees 

for a business, its subsidiaries, and its parent companies. Whenever an aggregated business entity 

has fewer than the listed number of employees, it is considered a small business. CCWs are 

classified under NAICS 333312, for which an entity is considered a small business if the total 

employment is less than 500. Because most CCW manufacturers also manufacture residential 

laundry equipment, DOE also determined if any CCW manufacturer was considered a small 

business for its residential products. Residential washers are classified under NAICS 335224, for 

which a manufacturer is considered a small business if it has fewer than 1,000 employees. 

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

directory to identify manufacturers of CCWs. DOE also asked interested parties and AHAM 

representatives within the CCW industry if they were aware of any other small business 

manufacturers. DOE then consulted publicly available data, purchased company reports from 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

vendors including Dun & Bradstreet (D&B), and contacted manufacturers, where needed, to 

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

their manufacturing facilities located within the United States. 

DOE could not identify any small CCW manufacturers. However, one category-focused 

manufacturer of laundry equipment has significant CCW market share, features much smaller 

revenues than its diversified competitors, but is not a small business per the definition of the 

SBA for either residential or commercial laundry equipment. DOE subsequently assigned this 

manufacturer its own sub-category, the LVM, to evaluate the disproportionate impacts of any 

CCW rulemaking on this manufacturer. The impacts on this sub-group are found in section 13.6. 

13.2.3.5 Manufacturing Capacity Impact 

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

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

The manufacturer interview guide has a series of questions to help identify impacts on 

manufacturing capacity, specifically capacity utilization and plant location decisions in the 

United States and North America with and without a standard; the ability of manufacturers to 

upgrade or remodel existing facilities to accommodate the new requirements due to an amended 

energy conservation standard; the nature and value of stranded assets, if any; and estimates for 

any one-time restructuring and other charges, where applicable. 

13.2.3.6 Employment Impact 

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

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

affected, the interviews explored current employment trends in the CCW industry. In addition, 

the interviews solicited manufactures’ 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 amended energy conservation 

standards, and differences in workforce skills and issues related to the retraining of employees. 

13.2.3.7 Cumulative Regulatory Burden 

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

amended energy conservation standards and other regulatory actions affecting the same 

equipment. DOE analyzed and considered the impact on manufacturers of multiple, productspecific regulatory actions. Based on its own research and discussions with manufacturers, DOE 

identified several regulations relevant to CCW manufacturers including: Federal energy 

conservation standards for other products and equipment manufactured by CCW manufacturers, 

and other environmental regulations. 

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EERE-2006-STD-0127 COMMENT 69.1
 

13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES 

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

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

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

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

CCW manufacturers. Manufacturers indicated that, for the most part, the risks associated with 

these issues increase with more stringent TSLs. 

13.3.1 Equipment Class Separation 

All interviewed manufacturers stated that the CCWs should be separated into two 

equipment classes: top-loading washers and front-loading washers. All manufacturers stated that 

the mode of access and the orientation of the wash basket inside the washer have unique utilities 

for end-users and therefore should be subject to separate energy conservation standards. 

13.3.2 Reduced Cleaning Performance and Consumer Dissatisfaction for Top-Loading 

Washers 

All manufacturers stated that the implementation of design options due to the 

conformance to energy conservation standards for top-loading CCW can potentially cause 

reduction in the cleaning performance and hence consumer dissatisfaction. All manufacturers 

stated that consumer satisfaction is of high priority and that disruptions can be detrimental to 

their market share. 

All manufacturers stated that overloading the washers is common practice for consumers 

and that some technologies found in residential washers are inapplicable because of that. Another 

consideration is cycle length, which owners and end-users prefer to be as short as possible.a 

According to all manufacturers, cycle time is critical for both consumers and customers. For 

customers, the longer the cycle, the less time there is available for consumers to use washers, and 

the smaller number of consumers equate to decreased revenues for CCW owners. For consumers, 

the longer the cycle time, the less practical or desirable it is to use the machines. 

13.3.3 Test Procedure Implications 

One manufacturer stated that using the residential clothes washer test procedure for 

CCWs is inappropriate due to the very different usage patterns for residential versus commercial 

clothes washers. All manufacturers agree that most, if not all, CCW cycles will feature full loads 

unlike the residential test procedure, which assumes a mix of load sizes. Features such as loadsize switches and adaptive fill that boost test results per the current test procedure (which 

assumes variable load sizes) are thus unlikely to have any noticeable impact on actual CCW enduse energy consumption. While one manufacturer supported the continued use of the residential 

a

 In stock configuration, CCWs typically run on a 26-minute cycle. Higher efficiency residential clothes washers 

can run for more than an hour per cycle. 

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EERE-2006-STD-0127 COMMENT 69.1
 

clothes washer test procedure in the absence of better data, another manufacturer expressed 

support for a test procedure change which would change the test procedure load size to be 100 

percent full for every wash. According to multiple manufacturers, R&D dollars should be 

focused on improvements that represent concrete energy savings and not on technology that 

provide efficiency credits per the test procedure, but which provide no energy savings under 

actual operating conditions. 

13.4 GRIM INPUTS AND ASSUMPTIONS 

The GRIM serves as the main tool for assessing the impacts on the CCW industry due to 

amended energy conservation standards. DOE relies 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 baseline basis, as well as calculates the impacts on manufacturers due 

to energy conservation standards. 

13.4.1 Overview of the GRIM 

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

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

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

investments, and shipments. The GRIM spreadsheet uses a number of inputs to arrive at a series 

of annual cash flows, beginning with the base year of the analysis, 2009, and continuing 

explicitly through 2043. The model calculates the INPV by summing the stream of annual 

discounted cash flows during this period.1 

Figure 13.4.1 Using the GRIM to Calculate Cash Flow 

The GRIM projects cash flows using standard accounting principles and compares 

changes in INPV between the base-case scenario and the standards-case scenario, evaluating 

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

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

amended energy conservation standards on manufacturers. Appendix 13B provides more 

technical details and user information for the GRIM. 

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13.4.2 Sources for GRIM Inputs 

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

the industry, including corporate annual reports, company profiles, U.S. Census data, credit 

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

13.4.2.1 Corporate Annual Reports 

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

GRIM.2

 These reports exist for publicly held companies and are freely available to the general 

public. DOE developed average financial inputs to the GRIM by examining the annual SEC 10-

K reports filed by publicly traded manufacturers primarily engaged in appliance manufacturing 

and whose combined product range includes commercial clothes washers. Because these 

companies are typically diversified, producing a range of different appliances, an industry 

average was assumed by DOE to be representative for the manufacture of each type of appliance. 

Since these companies do not provide detailed information about their individual product lines, 

DOE had to use the financial information for the entire companies to represent the financial 

parameters in the CCW GRIM. In determining financial parameters for the industries, DOE 

weighted corporate financial information contained in the SEC 10-K reports by each company’s 

estimated market share to arrive at industry-weighted averages. DOE used corporate annual 

reports to derive the following GRIM inputs: 

• Tax rate; 

• Working capital; 

• SG&A; 

• R&D expenses; 

• Depreciation; 

• Capital expenditures; and 

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

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

operating profit margin against the industry-weighted average. 

13.4.2.2 Standard & Poor Credit Ratings 

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

reports are available for a nominal fee. DOE relied on S&P reports to determine the industry’s 

average cost of debt for the cost of capital calculation. 

13.4.2.3 Dun & Bradstreet Reports 

D&B provides independent research regarding company cash flows, revenues, 

employees, and credit-worthiness. Besides conducting manufacturer interviews, DOE used D&B 

reports to profile several manufacturers which could potentially be small businesses. 

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13.4.2.4 Shipment Model 

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

national impact analysis (NIA). The model relied on historical shipments data for CCWs from 

AHAM for the analysis. Chapter 10 of this TSD describes the methodology and analytical model 

DOE used to forecast shipments. 

13.4.2.5 Engineering Analysis 

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

manufacturer interviews to develop manufacturing cost estimates for CCWs. The analysis 

provided labor, materials, and overhead production costs which are representative of the CCW 

industry. The input costs used for CCWs were obtained from information submitted by AHAM 

and from manufacturer interviews. 

13.4.2.6 Manufacturer Interviews 

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

representing approximately 100 percent of the CCWs industry. During these discussions, DOE 

obtained information, which it used to determine and verify GRIM input assumptions for the 

industry. 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, product 

development, testing, and marketing); 

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

assets; 

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

materials, labor, overhead, and depreciation costs; 

•	 Projected total shipment and shipment distribution mix; and 

•	 Engineering analysis-estimated manufacturer production costs. 

13.4.3 Financial Parameters 

Table 13.4.1 provides financial parameters for three public companies engaged in 

manufacturing and selling CCWs. The values listed are averages over an 8-year period (1999– 

2006). 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

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

Financial Data 

Parameter 

IndustryWeighted 

Average 

Manufacturer 

A B C 

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

Working Capital (% of Revenue) 2.9 9.6 5.6 2.0 

SG&A (% of Revenue) 12.5 12.7 12.3 13.2 

R&D (% of Revenues) 2.2 2.3 2.0 2.4 

Depreciation (% of Revenues) 3.4 3.9 3.4 3.3 

Capital Expenditures (% of Revenues) 3.5 1.9 3.4 3.6 

Net Property, Plant, and Equipment 

(% of Revenues) 19.9 17.3 21.6 19.4 

These companies constitute a significant portion of the CCW industry. For other 

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

parameters. The values used in the GRIMs, therefore, represent the industry’s weighted-average 

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

interviews, CCW manufacturers were asked to review the parameters listed in Table 13.4.1 and 

comment on how the parameters related to their specific industry. Where applicable, the 

parameters were then adjusted for the GRIM. 

13.4.4 Corporate Discount Rate 

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

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

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

capital structure of the industry.1

 DOE estimated the WACC for the CCW industry based on 

several representative companies, 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-2006-STD-0127 COMMENT 69.1
 

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

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

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

stock is less volatile than the market index. 

DOE determined that the industry average cost of equity for the CCW industry is 17.9 

percent as calculated in Table 13.4.2. 

Table 13.4.2 Cost of Equity Calculation 

Industry- Manufacturer 

Parameter Weighted 

Average (%) A B C 

(1) Average Beta 

(2002–2006 year) 1.31 1.0* 1.77 1.17 

(2) Yield on 10-Year T-Bill 

(1990–2006) 5.9 - - -

(3) Market Risk Premium 

(1926–1999) 9.2 - - -

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

Equity/Total Capital 37.2 23.7 -49.8 64.6 

* Estimated Beta 

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

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

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

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

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

adding the relevant spread to the risk-free rate. 

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

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

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

rate is estimated to be approximately 6 percent, which is the average 10-year Treasury bond 

return over the period of 1990 to 2006. 

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

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

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

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

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

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

ratio (debt/total capital). 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

Table 13.4.3 Cost of Debt Calculation 

Parameter 

IndustryWeighted 

Average (%) 

Manufacturer 

A B C 

S&P Bond Rating -- B- BBB BBB 

(1) Yield on 10-Year T-Bill 

(1990–2002) 

5.9 - - -

(2) Gross Cost of Debt 8.2 13.9 8.1 8.1 

(3) Tax Rate 34 6.6 34.1 34.5 

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

(3)) 5.4 - - -

Debt/Total Capital 62.8 76.3 149.8 35.4 

DOE estimated CCW industry’s WACC to be approximately 10.1 percent. Subtracting an 

inflation rate of 2.9 percent between 1990 and 2006, the inflation adjusted WACC, and the 

corporate discount rate used in the GRIM, is 7.2 percent. 

13.4.5 Trial Standard Levels 

DOE developed TSLs for CCWs. Chapter 9 of the TSD describes the methodology DOE 

used to determine each TSL for the GRIM. The efficiency levels used in the GRIMs are 

presented in Table 13.4.4. 

Table 13.4.4 Commercial Clothes Washer Baseline Efficiency Levels and TSLs 

Equipment Class Efficiency Metric Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Top-Loading MEF 1.26 1.42 1.42 1.60 1.60 1.60 

WF 9.5 9.5 9.5 8.5 8.5 8.5 

Front-Loading MEF 1.72 1.80 2.00 2.00 2.20 2.35 

WF 8.0 7.5 5.5 5.5 5.1 4.4 

13.4.6 NES-Shipments Forecast 

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

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

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

national energy savings (NES) shipments forecasts from 2009 to 2043. Further explanation of 

approaches and calculations of total shipments can be found in the shipment analysis section of 

this TSD (chapter 10). Total shipments forecasted in the shipment analysis for all efficiency 

levels in 2013 are shown in Table 13.4.5 and are further detailed below. 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

Table 13.4.5 Total NES-Shipments Forecast in 2013 

Equipment Class Total Industry Shipments* 

Top-Loading Commercial Clothes Washers 125,700 

Front-Loading Commercial Clothes Washers 55,700 

* Estimates rounded to the nearest hundred 

13.4.6.1 Base-Case Shipments Forecast 

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

level. Table 13.4.6 through Table 13.4.7 show the base-case distributions of shipments by TSL 

estimated in the NES for various equipment classes for 2013. 

Table 13.4.6 Base-Case Distribution of Efficiencies for Top-Loading Commercial Clothes 

Washers in 2013 Estimated in the NES 

Shipments 

Efficiency Level 

(MEF/WF) 

Baseline 

1.26/9.5 

TSL 1, 2 

1.42/9.5 

TSL 3, 4, 5 

1.60/8.5 

Baseline 

1.26/9.5 64.8% 33.8% 1.4% 

Table 13.4.7 Base-Case Distribution of Efficiencies for Front-Loading Commercial Clothes 

Washers in 2013 Estimated in the NES 

Shipments 

Efficiency Level 

(MEF/WF) 

Baseline 

1.72/8.0 

TSL 1 

1.80/7.5 

TSL 2, 3 

2.00/5.5 

TSL 4 

2.20/5.1 

TSL 5 

2.35/4.4 

Baseline 

1.72/8.0 3.5% 0.0% 73.7% 22.8% 0.0% 

13.4.6.2 Standards-Case Shipments Forecast 

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

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

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

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

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

independent of the standard level. Table 13.4.8 through Table 13.4.9 show the distributions of 

efficiencies for the various equipment classes in 2013 under the roll-up scenario. 

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EERE-2006-STD-0127 COMMENT 69.1
 

Table 13.4.8 Distribution of Top-Loading Commercial Clothes Washer Shipments in the 

Standards Case in 2013 – Roll-Up Scenario 

TSL 

(MEF/WF) 

Baseline 

1.26/9.5 

TSL 1, 2 

1.42/9.5 

TSL 3, 4, 5 

1.60/8.5 

Baseline 

1.26/9.5 64.8% 33.8% 1.4% 

TSL 1 

1.42/9.5 98.6% 1.4% 

TSL 2 

1.60/8.5 100.0% 

Table 13.4.9 Distribution of Front-Loading Commercial Clothes Washer Shipments in the 

Standards Case in 2013 – Roll-Up Scenario 

TSL 

(MEF/WF) 

Baseline 

1.72/8.0 

TSL 1 

1.80/7.5 

TSL 2, 3 

2.00/5.5 

TSL 4 

2.20/5.1 

TSL 5 

2.35/4.4 

Baseline 

1.72/8.0 3.5% 0.0% 73.7% 22.8 0.0% 

TSL 1 

1.80/7.5 3.5% 73.7% 22.8% 0.0% 

TSL 2, 3 

2.00/5.5 77.2% 22.8% 0.0% 

TSL 4 

2.20/5.1 100.0% 0.0% 

TSL 5 

2.35/4.4 100.0% 

13.4.6.3 Price Elasticity of Demand Shipments Scenario 

In the CCW GRIM, DOE modeled a shipment scenario that considers the impacts of 

changes in relative prices on consumer demand. As described in the purchase price, operating 

cost, and household income impacts sections found in the shipments model in chapter 10 of this 

TSD, the price elasticity of demand shipment scenario estimates how the combined effects of 

increases in purchase price and decreases in operating costs due to amended energy conservation 

standards affect shipments. DOE estimated the relative price elasticity of demand over time to 

determine how shipments would likely change after a standard sets a higher initial purchase price 

and lower operating costs. For shipments under the “price elasticity scenario,” the effects from 

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

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

13.4.6.4 Economic Growth Shipments Scenario 

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

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

Information Administration’s (EIA) 2009 Annual Energy Outlook Report (AEO 2009) for the 

period 1990–2030. AEO 2009 provides three scenarios: the Reference case, the High Economic 

Growth case, and the Low Economic Growth case. DOE does not present the GRIM results for 

the economic growth shipment scenarios. However, these scenarios are provided as an option for 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

 

 

 

 

 

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

scenario with an economic scenario in the GRIM. See chapter 10 for more details on the 

economic growth shipment scenarios. 

13.4.6.5 Shipment Sensitivity Scenario 

In the GRIM, DOE modeled a sensitivity case that considers an alternative split of CCW 

shipments among laundromats, multi-family housing, and on-premises laundry applications. See 

appendix 11C for a description of how DOE modeled the shipment sensitivity scenario and the 

impacts on INPV in the sensitivity case. 

13.4.7 Production Costs 

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

engineering analysis (chapter 5 of this TSD), equipment that is more efficient usually costs more 

to produce than baseline equipment. For the MIA, DOE used the manufacturing production costs 

(MPCs) derived in the engineering analysis. The costs of CCWs were calculated using data 

supplied by AHAM and interviews with manufacturers. The GRIM included the proportion of 

costs devoted to labor, materials, overhead, and depreciation that make up the full cost of 

production or MPCs. DOE estimated the proportion of costs associated with each cost category 

by using information provided by AHAM3

 and U.S. Census Bureau’s Current Industry Reports 

(CIR)

4

 and 2006 ASM for CCWs (see section 13.7.1.1 for derivation of the industry cost 

structure). Table 13.4.10 through Table 13.4.11 provide the MPC results used in the GRIM for 

CCWs. 

Table 13.4.10 Base-Case Production Costs (2008$) used in the GRIM for Top-Loading 

Commercial Clothes Washers 

TSL 

 (MEF/WF) 

Labor Material Overhead Depreciation MPC 

Baseline (1.26/9.5) $33.76 $228.47 $21.39 $12.69 $296.30 

TSL 1, 2 (1.42/9.5) $42.60 $288.29 $26.99 $16.02 $373.90 

TSL 3, 4, 5 (1.60/8.5) $49,14 $332.54 $31.13 $18.48 $431.29 

Table 13.4.11 Base-Case Production Costs (2008$) used in the GRIM for Front-Loading 

Commercial Clothes Washers 

TSL 

 (MEF/WF) 

Labor Material Overhead Depreciation MPC 

Baseline (1.72/8.0) $69.62 $471.11 $44.11 $26.18 $611.12 

TSL 1 (1.80/7.5) $69.62 $471.11 $44.11 $26.18 $611.12 

TSL 2, 3 (2.00/5.5) $71.24 $482.07 $45.13 $26.78 $625.23 

TSL 4 (2.20/5.1) $74.10 $501.45 $46.95 $27.86 $650.36 

TSL 5 (2.35/4.4) $77.16 $522.12 $48.88 $29.01 $677.18 

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EERE-2006-STD-0127 COMMENT 69.1
 

13.4.8 Conversion Costs 

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

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

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

into two major groups: capital conversion costs and equipment conversion costs. 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. Equipment conversion costs are one-time investments in research, 

development, testing, and marketing focused on making equipment designs comply with 

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

inputs DOE used in the GRIM. 

13.4.8.1 Capital Conversion Costs 

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

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

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

the greater the proportion of the equipment on the market that will require a redesign. 

DOE used a platform approach to estimate the capital conversion costs for top-loading 

and front-loading CCWs. DOE used conversations with industry experts and equipment catalogs 

to estimate the number of platforms at each TSL that would require tooling changes to 

accommodate newly redesigned washers. Manufacturers that did not produce any equipment that 

met or exceeded a given TSL are expected to make substantial tooling changes, either through 

modifying existing tooling or ordering new sets. For equipment that almost met or which 

exceeded the efficiency requirements of a given TSL, DOE lowered the cost of the tooling 

changes because such washers are not expected to be significantly redesigned, nor would 

substantial changes to manufacturing assets be required. Table 13.4.12 summarizes the 

breakdown of conversion capital expenditure by TSL for the CCW industry. 

Table 13.4.12 Capital Conversion Costs for Commercial Clothes Washers by TSL 

TSL 

Total Industry Conversion Capital 

Costs (2008$ million) by Equipment Class 

Top-Loading CCWs Front-Loading CCWs 

Baseline $0 $0 

TSL 1 $0 $0 

TSL 2 $0 $0.6 

TSL 3 $1.0 $0.6 

TSL 4 $1.0 $1.4 

TSL 5 $1.0 $4.1 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

13.4.8.2 Equipment Conversion Costs 

DOE conducted interviews with manufacturers to better understand the product 

development process that manufacturers typically go through before they release new or 

improved equipment. The magnitude of the required investments varies by manufacturer and the 

TSL analyzed. For example, multiple manufacturers estimated that the time and resources spent 

on R&D, testing, and certification of equipment would depend significantly on the design path 

chosen to achieve higher efficiency, the energy conservation standard that would have to be met, 

capital resources, and other considerations. 

DOE also used a platform approach to estimate the equipment conversion costs for toploading and front-loading CCWs. DOE used conversations with industry experts and equipment 

catalogs to estimate the number platforms at each TSL that would require a redesign to meet new 

energy conservation standards. Manufacturers that did not produce any equipment platforms that 

met or exceeded a given TSL were expected to redesign, test, and certify a new equipment 

platform. For equipment that almost met or which exceeded the efficiency requirements of a 

given TSL, DOE lowered the cost of the product development costs as such washers are not 

expected to be significantly redesigned. Table 13.4.13 summarizes the breakdown of equipment 

conversion costs by TSL for the CCW industry. 

Table 13.4.13 Equipment Conversion Costs for Commercial Clothes Washers by TSL 

TSL 

Total Industry Equipment Conversion 

Costs (2008$ million) by Equipment Class 

Top-Loading CCWs Front-Loading CCWs 

Baseline $0 $0 

TSL 1 $0 $0 

TSL 2 $0 $3.1 

TSL 3 $15.6 $3.1 

TSL 4 $15.6 $7.0 

TSL 5 $15.6 $20.3 

13.4.9 Markups 

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

reviewed manufacturer catalogs and utilized information gathered from manufacturers. To 

estimate the prices at which manufacturers sell their equipment, DOE applied markups to the 

production costs it had developed earlier. 

DOE applied a single uniform “gross margin percentage” markup to manufacturing 

production costs across all efficiency levels. As production costs increase by efficiency level, 

this scenario implies that the absolute dollar markup will increase also. DOE used a non13-17 

EERE-2006-STD-0127 COMMENT 69.1
production cost markup of 1.26, which includes SG&A expenses; R&D expenses; interest; and 

profit. This markup is consistent with the one DOE assumed in the base case for the GRIM. 

13.4.10 Federal Production Tax Credits 

In the GRIM, DOE includes a scenario that allows the user to include the estimates of the 

benefit of the Federal production tax credits found in title I section 1334 (c)(1)(B) of the Energy 

Policy Act of 2005 (EPACT 2005) and updated by Energy Improvement and Extension Act of 

2008 (Public Law 110-343). See appendix 13C for a description of how DOE estimated the 

Federal production tax credits and its impacts on INPV results. 

13.5 COMMERCIAL CLOTHES WASHER INDUSTRY FINANCIAL IMPACTS 

Using the inputs described in the previous sections, the GRIM produced indicators of 

financial impacts on the CCW industry. The following sections detail additional inputs and 

assumptions relating only to CCWs, including the MIA results for two key financial metrics: 

INPV, and annual cash flows. 

13.5.1 Impacts on Industry Net Present Value 

As previously stated, the INPV measures the industry value and is used in the MIA to 

compare the economic impacts of different TSLs. For the CCW industry, the GRIM estimated 

cash flows between 2009 and 2043, consistent with the forecast period used in the NIA (chapter 

11). 

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

standards) to that of each TSL in the standards case. The difference between the base-case INPV 

and a standards-case INPV is an estimate of the economic impacts that implementing that 

particular TSL would have on the entire industry. For the CCW industry, DOE examined a 

scenario where manufacturers will be able maintain gross margins as a percentage of revenues 

and unit shipments will not be impacted regardless of new energy conservation standards. DOE 

also considered a scenario where manufacturers will maintain their gross margin as a percentage 

of revenues, but total industry shipments will decrease yearly due the combined effects of 

increases in purchase price and decreases in operating costs due to amended energy conservation 

standards. These scenarios were chosen because all CCW manufacturers that were interviewed 

expressed little concern about preserving gross margin after the effective date of the standard, 

regardless of efficiency level. Rather, manufacturers were concerned about the potential of 

increased selling prices to shrink the size of the CCW market and the potentially large 

investments necessary to meet standards. The price-elasticity scenario takes both of these 

concerns into consideration. Table 13.5.1 through Table 13.5.6 provide the INPV estimates for 

the CCW industry under these two scenarios. 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

 

 

Table 13.5.1 Changes in Industry Net Present Value for Top-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments) 

Preservation of Gross Margin Percentage Markup with Base-Case Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 33 37 37 29 29 29 

Change in INPV 

(2008 $ 

millions) - 4.0 4.0 (4.0) (4.0) (4.0) 

(%) - 11.15 11.15 -10.91 -10.91 -10.91 

Table 13.5.2 Changes in Industry Net Present Value for Top-Loading Commercial Clothes 

Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand 

Shipments) 

Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand 

Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 33 36 36 27 27 27 

Change in INPV 

(2008 $ 

millions) - 3 3 (6) (6) (6) 

(%) - 8.40% 8.40% -17.61% -17.61% -17.61% 

Table 13.5.3 Changes in Industry Net Present Value for Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case 

Shipments) 

Preservation of Gross Margin Percentage Markup with Base-Case Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 29 29 26 26 24 12 

Change in 

INPV 

(2008 $ 

millions) - 0 (2) (2) (5) (17) 

(%) - 0.00 -8.01 -8.01 -15.83 -58.61 

Table 13.5.4 Changes in Industry Net Present Value for Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of 

Demand Shipments) 

Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand 

Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 29 29 26 26 24 11 

Change in 

INPV 

(2008 $ 

millions) - 0 (2) (2) (5) (17) 

(%) - 0.00% -8.02% -8.02% -

16.39% -59.97% 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

Table 13.5.5 Changes in Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – BaseCase Shipments) 

Preservation of Gross Margin Percentage Markup with Base-Case Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 62 65 63 57 54 41 

Change in INPV 

(2008 $ 

millions) - 4 1 (5) (8) (20) 

(%) - 5.97 2.24 -7.81 -12.73 -33.09 

Table 13.5.6 Changes in Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price 

Elasticity of Demand Shipments) 

Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand 

Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 62 64 62 55 51 39 

Change in INPV 

(2008 $ 

millions) - 3 0 (7) (10) (23) 

(%) - 4.50% 0.76% -11.39% -16.57% -37.30% 

13.5.2 Impacts on Annual Cash Flow 

To get an idea of the behavior of annual net cash flows, DOE reports the annual net or 

free cash flows from 2009 through 2043 for the different TSL levels. Figure 13.5.1 through 

Figure 13.5.6 present the annual net cash flows for the base case and each of the five TSLs for 

the CCW industry assuming the different shipments scenarios. 

13-20 

EERE-2006-STD-0127 COMMENT 69.1
 

Figure 13.5.1 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Base-Case Shipments) 

Figure 13.5.2 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand 

Shipments) 

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EERE-2006-STD-0127 COMMENT 69.1
Figure 13.5.3 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Base-Case Shipments) 

Figure 13.5.4 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers 

(Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand 

Shipments) 

13-22 

EERE-2006-STD-0127 COMMENT 69.1
 

Figure 13.5.5 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case 

Shipments) 

Figure 13.5.6 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of 

Demand Shipments) 

13-23 

EERE-2006-STD-0127 COMMENT 69.1
Prior to the effective date of an amended energy conservation standard, cash flows are 

driven by the level of capital 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 manufacturers use their financial resources to prepare for the new standard. Because 

higher TSLs require more expensive redesigns and tooling to accommodate newly redesigned 

washers, more stringent energy conservation standards have a greater impact on industry cash 

flows in the years prior to the effective date for both top-loading and front-loading washers. 

While the impact on cash flows from the necessary investments does not appear 

prohibitively burdensome in the previous graphs, standards do greatly alter the industry cash 

flows. For top-loading washers, the maximum technologically feasible (max-tech) efficiency 

reduces cash flow by 272 percent compared to the base case in the year prior to the effective date 

of the standard. For front-loading washers, the max-tech efficiency reduces cash flow by 481 

percent compared to the base case in the year prior to the effective date of the standard. Based on 

conversations with manufacturers, DOE modeled that redesigned washers would be based on 

existing washers, and hence no capital assets would be stranded due to standards. Consequently, 

there is no one-time injection of cash in the year of the standards from an asset write-down. In 

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

Companies receive positive cash flows from operating profit after taxes. However, since higher 

TSLs do not have a significant impact on net profit, standards do not significantly alter cash flow 

in the years after the effective date of the standard. 

13.6	 IMPACTS ON THE LOW-VOLUME COMMERCIAL CLOTHES WASHER 

MANUFACTURER 

13.6.1 Introduction 

The U.S. CCW market has three principal manufacturers. While two of them are welldiversified appliance manufacturers, the third is an LVM. In addition to being focused 

exclusively on laundry equipment, the LVM historically derived over 85 percent of its clothes 

washer revenues from sales to commercial market segments. Prior to 1999, the LVM 

manufactured over 300,000 residential washers and 100,000 CCWs annually. Due to a 

restructuring of its business, the LVM was contractually barred from manufacturing residential 

clothes washers from 1999 until 2004. While its subsequent SEC 10-K filings show significant 

growth in the residential market segment, Table 13.6.1 shows commercial sales still comprise the 

overwhelming majority of its clothes washer shipments. As a result, the LVM will be affected 

disproportionately by any changes to the CCW energy conservation standards compared to its 

larger competitors, which are more diversified and for whom CCW sales amount to less than 2 

percent of their total clothes washer sales. Appendix 13A of today’s TSD further details the 

importance of the CCW business to the LVM. 

13-24 

EERE-2006-STD-0127 COMMENT 69.1
 

Table 13.6.1 DOE Estimate of LVM Clothes Washer Sales and Unit Shipments in 2006 

Market 

Segment 

Equipment 

Class 

Estimated 

Revenue 

($MM) 

Percentage Revenue of 

Clothes Washer 

Business 

Unit Shipment 

Volume by Sales 

Channel 

Commercial Top-Loading $42.5 59.9% 81,502

 Front-Loading $19.2 27.0% 22,234 

Residential Top-Loading $8.7 12.3% 19,586

 Front-Loading $0.6 0.8% 707 

Total Clothes Washer Shipments 124,028 

13.6.2 Low-Volume Manufacturer Competitiveness 

The financial reasons that LVM has been able to stay competitive in the commercial 

laundry business range from its well-depreciated machinery and legacy design to its successful 

customer and service networks. The LVM does not currently face a significant, inherent 

disadvantage in top-loading washers because these washers are based on legacy platforms for 

models originally produced at much higher volumes. Decades of production experience at higher 

volumes and a legacy design that has evolved gradually translates into lower per-unit R&D 

expenses. As a result, the LVM’s depreciation cost for top-loading washers is in line with those 

of manufacturers which produce at higher volumes. Finally, the large installed base of toploading machines and stock of repair parts ensure a large market for replacement machines. The 

LVM sells its products to route operators and distributors who sell laundry services to end-users 

and who typically service the machines. Route operators’ and distributors’ large inventory of 

service parts and repair knowledge represent a significant switching cost, discouraging customers 

from adopting competing platforms when a washer is replaced. A market disruption, such as the 

wholesale adoption of front-loading CCWs, could place the LVM at risk of losing market share. 

13.6.3 Effects of a Transition to Front-Loading Platforms 

In comments submitted in response to the advance notice of proposed rulemaking 

(ANOPR), the LVM stated that its most efficient top-loading washer reaches an MEF of 1.50. 

However, this washer uses a “partial drain” rinse which has not been fully embraced by the 

market. Consequently, the LVM stated that any standard above a 1.42 MEF (TSL 3 through TSL 

5) would require it to only manufacture front-loading washers. The LVM also stated that toploading CCWs with an MEF greater than 1.42 would have to be based on non-traditional 

technologies (technologies that do not use a traditional agitator). The LVM stated that these nontraditional washers employ technologies that are proprietary and which would require an 

unjustifiable investment for the LVM to develop due to the size of the CCW market. Finally, the 

LVM stated that there have been issues with the performance of these products which have 

caused consumers to reject them. 

DOE based the efficiency levels for top-loading washers on existing CCWs. Since the 

ANOPR, the LVM has introduced more efficient top-loading CCWs. The LVM currently 

markets a top-loading CCW with an efficiency rating of 1.55 MEF/8.6 WF. This efficiency is 

very close to the top-loading energy conservation standards at TSL3 through TSL 5 (1.6 

MEF/8.5 WF). DOE notes that the max-tech CCW on the market appears to meet the TSL 3 

13-25 

EERE-2006-STD-0127 COMMENT 69.1
energy conservation standards without the use of proprietary technologies, which suggests that 

modifications to the LVM’s most efficient top-loading CCW could be made to meet TSL 3 

through TSL 5. If the entire industry transitioned to only front-loading CCWs due to poor rinse 

or wash quality, the LVM would be placed in disadvantaged situation. While the current product 

offerings of the LVM and its competitors make it less likely that the industry will be forced to 

produce exclusively front-loading CCWs at any TSL, DOE is sensitive to consumer utility issues 

for higher efficiency top-loading CCWs, as consumers may have concerns about rinse or wash 

quality, for example. 

 Though the LVM has current equipment that nearly meets the max-tech top-loading 

efficiency, the effects of a transition to front-loading CCWs could have significant implications 

for the LVM. Were the LVM to transition to only offering front-loading washers, the LVM 

would have to make significant investments in capital and engineering to redesign its frontloading machines to lower cost and to expand production. Depending on CCW unit demand, the 

LVM’s competitors may or may not need to undertake similar line expansions of their combined 

residential and commercial clothes washer fabrication and assembly lines if they also 

transitioned to only offering front-loading CCWs. The need for an expansion would depend on 

the amount of spare capacity that their current manufacturing facilities have. For example, the 

LVM’s principal competitor ships about 7.5 million clothes washers domestically per year, so its 

share of the U.S. CCW market represents approximately 1.5 percent of its total domestic clothes 

washer shipments. 

Assuming that this larger competitor produces 70 percent top-loading and 30 percent 

front-loading clothes washers, a marginal transfer of 100,000 CCWs to the front-loading 

manufacturing line would represent approximately a 5-percent front-loading manufacturing line 

expansion. By comparison, the LVM would have to more than double its front-loading clothes 

washer production to reach the same volumes. Furthermore, unlike the LVM, these larger 

competitors can base their front-loading CCW designs on high-volume residential platforms that 

have already benefited from years of refinement, cost reduction efforts, and production at high 

volumes. 

13.6.4 Fixed Cost Impacts on a Low-Volume Manufacturer 

In order to determine how a lower production volume can disproportionately affect a 

manufacturer, DOE determined the costs needed to build a “green-field” manufacturing facility 

to produce a new line of front-loading CCWs. To represent a manufacturer with low production 

volume, DOE determined the upfront capital and engineering costs to build a facility to produce 

100,000 units annually. For a manufacturer with a high production volume (1.5 million units 

annually), DOE assumed that the same line would be used to build both residential and 

commercial clothes washers, allowing the upfront and depreciation costs to be spread over the 

entire production volume. DOE used information provided by manufacturers, AHAM, and 

industry experts to estimate the total costs of a green-field manufacturing facility. Table 13.6.2 

and Table 13.6.3 show the upfront costs to build the facility for the manufacturers with low and 

high production volumes. 

13-26 

EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

Table 13.6.2 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 

100,000 units Per Year. 

Total 

Equipment 

Investment 

($MM) 

Total 

Conveyer 

Investment 

($MM) 

Total 

Tooling 

Investment 

($MM) 

Total 

Building 

Cost ($MM) 

Total Capital 

Investment 

($MM) 

Manufacturer with 

Low Production 

Volume 

$13.53 $1.51 $17.65 $21.43 $54.12 

Table 13.6.3 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 

1,500,000 units Per Year. 

Total 

Equipment 

Investment 

($MM) 

Total 

Conveyer 

Investment 

($MM) 

Total 

Tooling 

Investment 

($MM) 

Total 

Building 

Cost ($MM) 

Total Capital 

Investment 

($MM) 

Manufacturer with 

High Production 

Volume 

$76.6 $10.4 $39.6 $100 $226.8 

After determining the total costs needed to design a new line of equipment and build a 

new facility, DOE depreciated the equipment, tooling, and building to examine how these 

upfront costs would impact the cost of each unit for a low- and high-volume manufacturer. In 

order to determine the depreciation costs, DOE estimated depreciation over the useful lives of 

the equipment, building, and tooling using the straight line method. The assumptions used for the 

lifetime of the equipment, building, and tooling for a low- and high-volume production facility 

are shown in Table 13.6.4. 

Table 13.6.4 Depreciation Lifetime Assumptions for a Low- and High-Volume 

Manufacturer 

Average 

Equipment 

Life 

(Years) 

Average 

Tooling 

Life 

(Years) 

Building 

Life 

(Years) 

Average Plant 

Depreciation 

Life 

(Years) 

Manufacturer with Low 

Production Volume 

(100,000 units per year) 

10.17 7.53 25 15.2 

Manufacturer with High 

Production Volume 

(1,500,000 units per year) 

10.77 2.99 25 15.69 

Table 13.6.5 shows depreciation expenses per unit for a low- and high-volume 

manufacturer, as well as the cost disadvantage for an LVM. If a redesigned front-loading washer 

were built in a low volume, green-field manufacturing facility, an LVM would incur a significant 

depreciation cost disadvantage. In comparison to a manufacturer with a high production volume, 

DOE estimated that this disadvantage would be approximately $40.07 per unit. 

13-27 

EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

 

Table 13.6.5 Per Unit Depreciation Costs for a Low- and High-Volume Manufacturer 

Equipment Building Tooling 

Total 

Depreciation 

Cost Per Unit 

Manufacturer with Low 

Production Volume 

(100,000 units per year) 

$17.56 $11.97 $32.79 $62.32 

Manufacturer with High 

Production Volume 

(1,500,000 units per year) 

$6.27 $3.91 $12.07 $22.25 

Low Volume Per Unit 

Disadvantage $11.29 $8.06 $20.72 $40.07

 In addition to a depreciation cost disadvantage, a low-volume manufacturer would also 

incur a per-unit R&D cost disadvantage. To quantify the R&D cost disadvantage, DOE assumed 

that both types of manufacturers would have the same engineering costs to design a new line of 

front-loading washers. Based on information provided by manufacturers and industry experts, 

DOE estimated it would cost $10 million to redesign a front-loading washer from the ground up. 

If the equipment lifetime is assumed to be 7 years, an LVM would incur a R&D cost 

disadvantage of approximately $13.33 per unit. The impacts at other equipment lifetimes are 

shown in Table 13.6.6. 

Table 13.6.6 Per-Unit Impacts of a $10 Million R&D Expense at Various Equipment 

Lifetimes 

Equipment Lifetime (years) 

7 10 20 

Low-Volume Per-Unit R&D

 (100,000 units per year) $14.29 $10 $5 

High-Volume Per-Unit R&D 

(1,500,000 units per year) $0.95 $.67 $0.33 

Low-Volume Per-Unit 

Disadvantage $13.33 9.33 $4.67 

In summary, if a new standard forces an LVM to invest in a green-field manufacturing 

facility to make front-loading units, the LVM would incur a combined depreciation and R&D 

cost disadvantage of $53.40, $49.40, or $44.74 per unit, depending on the assumed equipment 

lifetime. Based on a review of SEC 10-K forms and data provided by industry, DOE estimates 

that the earnings before interest and taxes for a front-loading washer is $47 per unit under present 

market conditions. 

The per-unit cost impacts of R&D and capital investments suggest that an LVM would 

most likely not invest in such an extensive project. It would not be economically justified to 

make the necessary investment for the green-field manufacturing plant because the depreciation 

and R&D cost disadvantages after the investment are severe enough to completely erode profits, 

assuming that front-loading CCWs remain as profitable as they have been traditionally. 

Manufacturers have stated that if the CCW industry were to transition to front-loading CCWs, 

commoditization and lower prices are likely to follow. Either effect would put even greater 

pressure on earnings before interest, taxes, and amortization (EBITA) per unit. Table 13.6.7 

summarizes the estimated profit per unit after the disadvantage from depreciation and R&D 

13-28 

EERE-2006-STD-0127 COMMENT 69.1
 

 

expenses that a manufacturer with low production volume will incur at various equipment 

lifetimes. 

Table 13.6.7 Total Per-Unit Profit for an LVM after Depreciation and R&D Disadvantage 

Equipment Lifetime (Years) 

5 7 10 20 

Estimated Industry 

Average Profit 

from Front-loading 

Washer 

$47.00 

Low-Volume PerUnit Profit after 

Depreciation and 

R&D Cost 

Disadvantage 

-$11.73 -$6.40 -$3.60 $2.27 

Based on this analysis, it is likely that any standard that necessitates a departure from 

current designs would have substantial negative impacts on a LVM and could cause it to cease 

the production of CCWs. 

13.6.5 Financial Position of the LVM 

If the LVM in the CCW industry were required to build the green-field site described in 

13.6.4 to comply with a front-loading standard, the investments would represent a significant 

hardship. The LVM would devote almost all of its planned R&D expenses to the project and 

would have to spend approximately 6 times the planned annual capital expenses. Table 13.6.8 

below compares the LVM’s 2008 expenditures on capital and R&D with the amounts DOE 

assumed would be needed to build a green-field facility for a new line of front-loading washers. 

Even though the necessary R&D expenses are lower than capital, R&D will have a significant 

impact on the profitability of the company the years in which they are incurred. R&D costs 

cannot be amortized so every additional dollar spent on R&D directly lowers profit. 

Table 13.6.8 Comparison of the LVM’s 2008 Financials with DOE’s Green-Field 

Assumptions 

LVM’s 2008 

Expense* 

DOE’s 

Expected 

Expense for a 

Green-Field 

site 

DOE’s 

Expected 

Expense as a 

Percentage of 

the LVM’s 2008 

Expense 

DOE’s 

Expected 

Expense as a 

Percentage of 

the LVM’s 2008 

Operating 

Income 

DOE’s 

Expected 

Expense as a 

Percentage of 

the LVM’s 

2008 Net 

Income 

Capital 

Expenditures 

$8.8 Million $54.12 Million 615% 103% 348% 

R&D 

Expenditures 

$11.3 Million $10.0 Million 89% 19% 64% 

*Source: LVM 2008 SEC Form 10-K 

The current financial position of the LVM makes these one-time expenses even more 

costly. Its indebtedness and current schedule of payments may make it more difficult to raise the 

additional capital needed to make the necessary changes to accommodate an exclusively front13-29 

EERE-2006-STD-0127 COMMENT 69.1
 

loading line, as the firm is highly leveraged. According to the LVM’s 2008 SEC Form 10-K filed 

on December 31, 2008, the LVM had $310.7 million of long-term debt and capital lease 

obligation or 4.3 times the adjusted EBITA. The report also stated that the indebtedness has the 

potential to put the LVM at a disadvantage compared to other manufacturers that do not carry 

significant long-term liabilities. The debt can also affect current operations by requiring a 

substantial portion of the cash flow from operations to make payments on the debt, reducing the 

available cash to fund working capital, capital expenditures, acquisitions, R&D, and planned 

expansion into consumer laundry. Due to this highly leveraged financial structure, interest 

represents a significant expense. The interest expense was almost double the net income, or 

$30.7 million in 2008. 

Due to the current structure of the LVM’s debt, it is unlikely that current credit lines 

could pay for the up-front costs of constructing a new front-loading manufacturing facility. The 

LVM’s 2008 10-K report stated that because of the covenants on the principal line of credit, only 

an additional $16.2 million could be borrowed. The LVM would likely have to seek a new line 

of credit to finance the changes needed to build a green-field facility and design a new line of 

washers. This would further increase the interest expense and strain the availability of cash for 

working capital, capital expenditures, and R&D. Finally, the timing of these expenditures would 

come at a particularly bad time for the LVM. According to its 2008 SEC 10-K report, in 2012, 

the LVM has $156.7 million of its long-term debt due. Because it will most likely be refinancing 

a large portion of its debt at that time, it is likely that the credit and interest terms will be more 

stringent. 

13.6.6 Additional Impacts on the Low-Volume Manufacturer 

The lower overall production volumes make it likely that the LVM will continue to face 

higher purchased parts costs and lower productivity, putting more upward pressure on 

manufacturing cost. The LVM is not projected to be able to produce CCWs at a scale that would 

allow it to overcome these disadvantages since it would have to increase its production volume 

by multiples to do so. As mentioned above, the LVM expects commoditization and lower profits 

if the CCW market were to transition to exclusively front-loading CCWs. The LVM noted that 

baseline top-loading CCWs have a long history of price competition and commoditization. 

Should the CCW market shift to exclusive use of front-loading CCWs due to concerns about the 

wash quality of top-loading CCWs, a similar commoditization is likely to occur for front-loading 

CCWs, causing margin pressure. 

Thus, on top of a line expansion to cover the two-fold increase front-loading CCW 

demand (if demand is not impacted), expected margin pressure would require a redesign of the 

current front-loading CCWs to be more cost competitive. Given the high costs of such a 

redesign, the required manufacturing investments, the low expected returns, and the probable 

cost disadvantages discussed in section 13.6.4, the LVM has stated that it would most likely exit 

the CCW industry under such circumstances. Even if the LVM decided to stay in the CCW 

market, it could be capacity-constrained due to the investment and line expansion requirements, 

and, hence, its market share could shrink as competitors supply what the LVM cannot. 

13-30 

EERE-2006-STD-0127 COMMENT 69.1
 

As previously stated, the well-depreciated machinery and legacy top-loading design helps 

mitigate a natural cost disadvantage in depreciation and R&D that would be incurred if the LVM 

had to shift a significant proportion of its production to front-loading washers. In addition, the 

LVM maintains a competitive advantage through its successful customer and service network. 

Lastly, a market disruption, such as a rapid transition to front-loading CCWs would put the LVM 

at a greater disadvantage than its competitors since the LVM doesn’t have the scale to quickly 

deliver cost-effective front-loading clothes washers for the CCW market. 

13.6.7 Consequences of Higher Energy Conservation Standards on the LVM 

Due to its manufacturing scale and focus on the CCW industry, any energy conservation 

standard affecting the CCW industry will impact the LVM disproportionately compared to its 

more diversified competitors that derive less than 2 percent of their revenues from the CCW 

market. The LVM has stated that any large-scale investments without adequate returns would 

likely force it to exit the residential-style CCW business, which would cause it material harm and 

damage CCW-market competition. As shown in section 13.6.4, an investment of that scale will 

still put the firm at a depreciation and R&D cost disadvantage that significantly erodes profits. A 

wholesale plant refit could become sufficiently expensive as to justify the construction of a new 

facility or to outsource production entirely. 

The LVM stated that its U.S. facility would no longer be viable if washer production 

ceased. The domestic washer production (both residential and commercial) equates to 

approximately 22 percent of the LVM’s total revenue. However, the roughly 150,000 total 

annual clothes washer shipments are vital to the facility as they give the facility minimum 

manufacturing scale: To remain competitive with larger companies, the LVM must spread its 

overhead, equipment, tooling, raw material, and purchased parts purchases over as large a 

volume as possible. Though extractors and tumbler dryers are important to overall revenue at the 

facility, the higher volume of the washer lines is critical to reducing overhead. In addition, the 

LVM believes that it has remained successful by offering a complete line of commercial laundry 

equipment. It expects that the volume of all other equipment would fall if it no longer offered the 

most basic laundry equipment. The volume of dryers would be especially impacted because 

many clothes washer sales are coupled with clothes dryer sales in both the residential and 

commercial segments. 

 Based on the CCW revenues reported in appendix 13A and using the employment 

assumptions in section 13.7.1, DOE estimates there are approximately 150 production workers at 

the LVM manufacturing products directly covered by this rulemaking. In addition, DOE 

estimates that there are 20 non-production employees attributable to CCWs at the facility. The 

domestic facility also manufactures residential top- and front-loading washers, standard dryers, 

washer-extractors, and tumbler dryers. If the LVM decided to no longer produce any soft-mount 

washers or standard dryers at the facility because it could not sell dryers without selling washers, 

approximately 292 production and 40 non-production jobs would be lost. Including all 

production workers involved in covered and non-covered products, the closure of the LVM 

domestic manufacturing plant equates to a loss of approximately 600 factory employees. 

13-31 

EERE-2006-STD-0127 COMMENT 69.1
13.7 OTHER IMPACTS 

13.7.1 Employment 

13.7.1.1 Methodology 

To quantitatively assess the impacts of energy conservation standards on CCW 

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

and number of employees in the base case and at each TSL from 2009 through 2043 for CCW 

industry. DOE used statistical data from the 2006 ASM and 2006 CIR, the results of the 

engineering analysis, and interviews with manufacturers to estimate the inputs necessary to 

calculate industry-wide labor expenditures and domestic employment levels. 

DOE constructed the industry cost structure using publicly available information from the 

2006 ASM and SEC 10-K reports filed by publicly owned manufacturers. The labor percentage 

of the industry cost structure is calculated by dividing total production worker wages by the total 

value of shipments. For CCWs, DOE used the industry cost structure for household laundry 

equipment manufacturing (NAICS 335224) because it most closely aligns with the cost structure 

of the CCW industry. CCW manufacturing is classified under NAICS 333312, but the 2006 ASM 

only provides data for the higher-level NAICS 33331 (commercial and service industry 

machinery manufacturing). The data for this broad code does not provide the level of detail 

necessary for calculating employment in the smaller CCW industry. 

The labor percentage and other components of the industry cost structure for CCWs are 

shown in Figure 13.7.1 below. 

13-32 

EERE-2006-STD-0127 COMMENT 69.1
 

Income from 

Labor (production 

workers), 9.0% 

R&D, 2.2% 

SG&A, 12.5% 

Materials, 61.2% 

Overhead, 5.7% 

Depreciation, 3.4% 

Operations, 5.9% 

Figure 13.7.1 Commercial Clothes Washer Industry Cost Structure 

To determine the total annual labor expenditure on production labor, the value of 

production labor in the industry cost structure was converted to a percentage of the cost of goods 

sold (COGS). In the GRIMs, the labor expenditures in each year are calculated by multiplying 

the COGS or MPCs by the labor percentage of COGS. As a result, higher TSLs have greater 

direct labor costs because more efficient equipment has higher MPCs. 

To calculate the annual domestic labor expenditures, DOE used the 2006 CIR to estimate 

the percentage of domestic production in each industry. Census data was not available for CCW 

production; therefore, DOE used the residential clothes washer domestic production percentage 

(approximately 81 percent) to estimate the domestic production percentage for CCWs. 

Manufacturer interviews confirmed that the domestic production of CCWs closely mirrors that 

for residential clothes washers. 

DOE multiplied the total annual labor expenditures in the GRIM by the percentage of 

U.S. production for domestic consumption to calculate domestic labor expenditures for 

production labor in each industry. The domestic annual labor expenditures in the GRIMs were 

converted to domestic production employment levels by dividing production labor expenditures 

by the annual payment per production worker (production worker hours times the labor rate 

13-33 

EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

 

found in the 2006 ASM).b

 The number of non-production employees was calculated by 

multiplying the number of production workers by the ratio of non-production workers to 

production workers calculated using the employment data in the 2006 ASM. 

The domestic annual labor expenditures and employment levels were calculated for the 

base case and at each TSL. The impacts on domestic employment due to standards can be 

assessed by comparing the employment results in the base case to the results at each TSL. In all 

GRIMs, the employment results represent U.S. production workers that are impacted by this 

rulemaking. U.S. workers involved in manufacturing or supporting equipment for export would 

not be impacted and are not included in the analysis of the labor impacts. 

13.7.1.2 Results 

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

workers in 2013 is approximately $7 million (total COGS in 2013 times the production labor 

percentage of COGS times the percentage of U.S production). Using the $19.75 wage rate and 

1,890 production hours per year per employee found in the 2006 ASM, the GRIM estimates there 

are approximately 188 U.S. production employees involved in manufacturing CCW products 

covered by this rulemaking. The employment spreadsheet of the GRIM shows the annual 

employment impacts in further detail. 

Table 13.7.1 illustrates the impact of amended energy conservation standards on 

employment levels at each TSL for the CCW industry, as calculated by the GRIM. 

Table 13.7.1 Commercial Clothes Washer Industry Estimated Employment Impacts in 

2013 

Trial Standard Level Base 

Case TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Total Number of Domestic CCW 

Production Employees in 2013 188 204 204 222 224 228 

Change in Total Number of Domestic 

CCW Production Employees in 2013 

Due to Standards 

- 16 16 33 36 40 

Total Number of Domestic CCW NonProduction Employees in 2013 26 28 28 30 31 31 

Figure 13.7.2 shows annual domestic employment levels for each TSL calculated by the 

GRIM. 

b 2006 ASM labor rates and production hours per year per employee are very similar to figures reported in the 

engineering analysis. DOE used 2006 ASM figures to ensure that a consistent set of publicly available data is used 

for the manufacturing employment analysis. 

13-34 

EERE-2006-STD-0127 COMMENT 69.1
 

0 

50 

100 

150 

200 

250 

300 

350 

Total Domestic Employment (# of workers)

Year

Total Domestic Direct Employment

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Energy Conservation 

Standards Effective Date 

January 2013 

Figure 13.7.2 Total Commercial Clothes Washer Industry Domestic Employment by Year 

Because employment expenditures are assumed to be a fixed percentage of COGS, and 

the MPCs increase with more efficient equipment, the GRIM predicts an increase in employment 

after amended standards become effective. As discussed in manufacturing interviews, there are a 

variety of manufacturers with different capabilities. Since two out of the three manufacturers are 

large, diversified manufacturers that treat CCWs as an extension of their residential washer lines, 

the domestic employment in the GRIM would only include those production workers involved in 

making CCWs for U.S. consumption. The third manufacturer is an LVM with the majority of its 

production focused on CCWs and other commercial laundry equipment rather than residential 

clothes washers. The domestic employment figures in the GRIM would only include those 

production workers directly involved in CCW manufacturing. 

Due to the uncertainty in the business decisions of where to manufacture washers after 

amended standards become effective, DOE presents a range of potential employment impacts if 

the potential for relocation is considered. If all manufacturers do not change sourcing and 

production facility locations in response to amended energy conservation standards, such 

standards have the potential to increase the number of U.S. production workers as shown in 

Table 13.4.1. Conversely, amended standards could result in the loss of 188 production jobs if all 

U.S. manufacturers source standards-compliant CCWs or shift U.S. production abroad. 

At each TSL, manufacturers face different pressures that could impact their employment 

decisions. Currently, all top-loading CCWs are produced in the United States, whereas frontloading CCWs are produced both domestically and abroad. At TSL 1 and TSL 2, the GRIM 

predicts that there will be positive direct employment impacts. Efficiency improvements are 

likely to require an increase in the labor content of top-loading CCWs. All manufacturers already 

make top-loading CCWs that either meet or exceed the efficiency requirements of TSL 1 and 

TSL 2. Similarly, two of the three CCW manufacturers have existing front-loading CCWs that 

meet the efficiency levels of TSL 1, whereas the remaining CCW manufacturer would have to 

13-35 

EERE-2006-STD-0127 COMMENT 69.1
modify a front-loading CCW at TSL 2. Although there are capital and conversion costs 

associated with the modifications for one of the manufacturers, it is likely that the higher labor 

content needed for the more efficient CCWs would increase employment, as predicted in the 

GRIM. Manufacturers stated they are not likely to relocate production at either TSL 1 or TSL 2. 

Manufacturers have stated that they are not likely to relocate production because capital and 

conversion investments at these TSLs are small. 

At TSL 3 and higher (for which the efficiency levels for top-loading CCWs remain the 

same), two CCW manufacturers would have to update a top-loading CCW platform to meet the 

energy conservation standards. DOE research suggests that the revised max-tech level for toploading CCWs should be attainable using existing CCW platforms that nearly meet the max-tech 

level. While several manufacturers currently market top-loading CCWs at or near the max-tech 

efficiency level, multiple manufacturers have stated that the technologies used to achieve these 

efficiency levels are not embraced by all customers. 

Two out of three CCW manufacturers currently produce front-loading CCWs at the 

energy conservation standards at TSL 3. The remaining manufacturer would have to modify an 

existing platform or source a different one to meet these energy conservation standards. Though 

there are capital and conversion costs associated with the modifications for one of the 

manufacturers, it is likely that the higher labor content needed for the more efficient washers 

would increase employment, as predicted in the GRIM. 

Two of the three major CCW manufacturers currently produce a front-loading CCW that 

can meet the energy conservation standards of TSL 4. The remaining manufacturer would have 

to modify an existing residential front-loading clothes washer platform it already sources, or find 

a new supplier for its front-loading CCWs. 

Only one major CCW manufacturer currently makes a front-loading CCW which meets 

the energy conservation standards at TSL 5. The remaining two manufacturers would have to 

develop new CCW platforms, modify existing ones, or source them from other manufacturers. 

Any TSL above TSL 3 is likely to impact manufacturers significantly, since these TSLs 

require manufacturers to update two product platforms (i.e. front-loading and top-loading) rather 

than just one. For example, the LVM is unlikely to be able to afford two concurrent equipment 

development cycles, since doing so would require more manpower, investment, etc. than the 

LVM has funds for. Thus, such a scenario could cause the LVM to abandon one or both of its 

CCW platforms, causing it material harm and potentially having an adverse impact on the 

competitiveness of the CCW industry. 

Because CCW production is treated as an extension of residential washer production, it is 

difficult to estimate the number of domestic manufacturing jobs that would be eliminated if 

either high-volume manufacturer decreased CCW production at TSL 4 through TSL 5. The 

severity of the impact would depend upon how much domestic production remained after the 

amended standards became effective. 

Finally, the LVM’s sourcing decision will have a large impact on the employment 

impacts for the industry. The LVM stated that standards could force it to exit the CCW industry 

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EERE-2006-STD-0127 COMMENT 69.1
 

if the necessary investments could not be justified. The LVM also stated that it cannot 

manufacture top-loading CCWs above TSL 2. The LVM’s most efficient top-loading CCW 

nearly meets the max-tech level. However, the LVM has stated that it would not manufacture a 

top-loading CCW higher than 1.42 MEF, and would likely exit the CCW market if higher 

standards were adopted. 

Using the employment assumptions and the revenues reported in appendix 13A, DOE 

estimates that if the LVM exited the CCW market in response to standards, it would directly 

impact 150 production workers. However, the LVM also stated that its U.S. facility would no 

longer be viable if residential and commercial washer production ceased. Washer sales are vital 

to the facility because they add substantial scale for spreading overhead, lead to coupled dryer 

sales, and allow them to offer a full range of laundry equipment to their customers. If all 

residential and commercial soft mount washers and standard dryers production ceased at the 

facility, approximately 292 production jobs would be lost. If the entire facility were closed, 

approximately 600 employees would be impacted. The employment impacts for the LVM are 

discussed individually in section 13.6.7. 

13.7.2 Production Capacity 

According to the majority of CCW manufacturers, amended energy conservation 

standards could potentially impact manufacturers’ production capacity depending on the 

efficiency level required. Necessary redesigns of front-loading and top-loading CCWs would not 

change the fundamental assembly of the equipment or cause a drastic increase in the volume 

requirements of either front-loading or top-loading CCW. Thus, DOE believes manufacturers 

will be able to maintain manufacturing capacity levels and continue to meet market demand 

under amended energy conservation standards. 

However, a very high energy conservation standard for top-loading CCWs could cause a 

manufacturer to abandon further manufacture of top-loading CCWs after the effective date (if 

end-users reject the wash performance of higher efficiency top-loading CCWs due to concerns 

about wash quality, for example). Instead of manufacturing top-loading CCWs, the 

manufacturers could elect to switch their entire production over to front-loading CCWs. Since 

top-loading and front-loading clothes washers share few, if any parts, are built on completely 

separate assembly lines, and are built at very different production volumes, a manufacturer may 

not be able to make a platform switch from top-loading to front-loading CCWs without 

significant impacts on equipment development and capital expenses, along with capacity 

constraints. 

For example, multiple manufacturers stated during interviews that front-loading CCWs 

represent a relatively small segment of their total production volumes. Thus, their front-loading 

production capacity may need to be substantially expanded to meet the demand that their topproduction lines used to meet. This expansion could possibly affect capacity until new 

production lines come on-line to service demand. In addition, manufacturers stated that the 

higher prices of front-loading washers could lead to a decrease in shipments. This could lead to a 

permanently lower production capacity as machines are repaired and the equipment lifetime of 

existing washers is extended. 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

13.7.3 Cumulative Regulatory Burden 

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

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

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

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

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

CCW manufacturers that will take effect 3 years before or 3 years after the effective date of any 

amended energy conservation standards for these products.c 

Companies which produce a wide range of regulated products and equipment may be 

faced with more capital and equipment development expenditures than competitors with a 

narrower scope of products. Regulatory burdens can prompt companies to exit the market or 

reduce their equipment offerings, potentially reducing competition. Smaller companies can be 

disproportionately impacted by regulatory costs, since such companies have lower sales volumes 

over which they can amortize the costs of meeting new regulations. DOE considers that a 

standard is not economically justified if it contributes to an unacceptable level of cumulative 

regulatory burden. 

In addition to the energy conservation regulations for CCWs, several other Federal 

regulations and pending regulations apply to these products and other equipment produced by the 

same manufacturers. DOE recognizes that each regulation can significantly impact 

manufacturers’ financial operations. Multiple regulations affecting the same manufacturer can 

quickly strain manufacturers’ profits and possibly cause an exit from the market. The following 

sections provide a qualitative discussion of some of these regulations and standards. 

13.7.3.1 Additional Federal Energy Conservation Standards 

Table 13.7.2 lists the Federal regulations that could also affect manufacturers of CCWs in 

the 3 years before and the 3 years after the effective date of any amended energy conservation 

standards for this equipment. It must be noted that while the list of products is long, the 

cumulative burden on any particular firm is variable, since the range of products and equipment 

for each company is different. 

c

 The effective date for any amended CCW energy conservation standards is approximately 3 years from the date of 

publication of the final rule. 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

 

 

 

 

 

 

 

Table 13.7.2 Other DOE Energy Conservation Standards Affecting the CCW Industry 

Regulation 

Approximate Effective 

Date* 

Number of Impacted 

Companies from the 

Market & Technology 

Assessment 

Estimated Total 

Conversion 

Expenses** 

Residential Clothes 

Washers 2015* 6 N/A† 

Residential Refrigerators 

and Freezers 2014* 5 N/A† 

Dishwashers 2012 4 N/A† 

Packaged Terminal Air 

Conditioners and Heat 

Pumps 

2012 4 $17.3(2007$)d 

Room Air Conditioners 2014* 3 N/A† 

Cooking Products 2012 3 $22.6(2006$)e 

Battery Chargers 2014* 2 N/A† 

Dehumidifiers 2012 2 N/A† 

Residential Furnaces 2015 2 $97 (2006$)f 

External Power Supplies 2014* 2 N/A† 

Residential Fluorescent 

and Incandescent Lamps 2012* 1 $351.1 (2008$)g 

Residential Water 

Heaters 2015* 1 N/A† 

Commercial Beverage 

Vending Machines 2012* 1 N/A† 

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

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

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

have finalized estimated total industry conversion expense. For minimum performance requirements prescribed by 

EPACT 2005, DOE did not estimate total industry conversion expenses because an MIA was not completed as part 

of a rulemaking. 42 U.S.C. 6291-6317. For minimum performance requirements prescribed by EISA 2007, DOE did 

not estimate total industry conversion expenses because an MIA was not completed as part of a rulemaking. Pub. L. 

110-140. 

d

 Estimated industry conversion expenses were published in the TSD for the October 2008 packaged terminal air – 

conditioners and heat pumps final rule. 73 FR 58808. The TSD for the 2008 PTAC and PTHP final rule can be 

found at: http://www1.eere.energy.gov/buildings/appliance_standards/commercial/ptacs_pthps_final_rule.html e

 Estimated industry conversion expenses were published in the TSD for the April 2009 cooking products final rule. 

74 FR 16072. The TSD for the 2009 cooking products final rule can be found at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/cooking_products.html

f

 Estimated industry conversion expenses were published in the TSD for the November 2007 residential furnace 

final rule. 72 FR 65136. The TSD for the 2007 residential furnace final rule can be found at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnace_boiler_fr.html g

 Estimated industry conversion expenses were published in the TSD for the July 2009 general service fluorescent 

lamps and incandescent reflector lamps final rule. 74 FR 34080. The TSD for the 2009 general service fluorescent 

lamps and incandescent reflector lamps final rule can be found at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/incandescent_lamps_standards_final_rule_ts 

d.html 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

 

 

 

 

 

Additional investments necessary to meet these potential energy conservation standards 

could have significant impacts on manufacturers of the covered products and equipment. 

However, DOE has limited data on the importance of these other regulated products for 

manufacturers of CCWs. Differences in market shares and manufacturing processes of other 

regulated products and equipment for each manufacturer could cause varying degrees of burdens 

on these manufacturers. Therefore, DOE only estimated the cost of compliance to meet other 

energy conservation standards for regulated products and equipment if DOE had published a 

final rule. 

While any company that manufactures products covered in pending rulemakings has the 

potential to incur overlapping investments to comply with other standards, manufacturers of 

CCWs could be greatly impacted by the upcoming rule covering residential clothes washers. 

Manufacturers of CCWs typically manufacture much of this equipment on the same assembly 

lines as their residential clothes washers. Any changes that are needed to comply with this rule 

would have potential interactions with the production of residential washers. Depending on the 

standard levels that are adopted for residential washers, the production lines for both products 

may have to be significantly altered. 

13.7.3.2 State Energy and Water Conservation Standards 

In addition to Federal regulations, CCW manufacturers are also subject to State energy 

and water conservation standards. CCWs are covered by the State standards listed in Table 

13.7.3. 

Table 13.7.3 State Commercial Clothes Washer Regulations Similar to EPACT 2005 

State Effective Date Difference from EPACT 2005 

Arizona MEF and WF: 1/1/08 Standards effective one year later than EPACT 2005 

California MEF: 1/1/05 WF: 1/1/07 MEF standard effective two years earlier than EPACT 2005 

Connecticut MEF and WF: 7/1/06 Standards effective six months earlier than EPACT 2005 

Maryland MEF and WF: 3/1/07 Standards effective two months later than EPACT 2005 

New Jersey MEF: 1/1/07 WF: 1/1/10 Water factor standard effective three years later than EPACT 

2005 

Oregon MEF and WF: 1/1/08 Standards effective one year later than EPACT 2005 

Rhode Island MEF and WF: 1/1/07 Identical to EPACT 2005 

Washington MEF - For Sale: 1/1/07 MEF – 

Installation: 1/1/08 Does not address water factor 

As presented in the table above, the State of California mandates energy and water 

conservation standards for commercial front-loading and commercial top-loading automatic 

clothes washers. Table 13.7.4 provides the State’s CCW energy conservation standards, which 

are dependent on clothes container capacity, and the water conservation standards, which became 

effective two years after the MEF standards. 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

Table 13.7.4 California State Energy and Water Conservation Standards for Commercial 

Clothes Washers 

Clothes Washer 

Classification 

Clothes Container 

Compartment 

Capacity (cu. ft.) 

Minimum MEF 

Effective January 

1, 2005 

Maximum Water 

Factor Effective 

January 1, 2007 

Front-loading < 3.5 1.26 9.5 

Top-loading 

< 1.6 

≥ 1.6 and < 4.0 

0.65 

1.26 

9.5 

9.5 

In addition to the efficiency standards discussed above, the State of California requires 

that commercial top-loading semi-automatic clothes washers and commercial suds-saving 

clothes washers manufactured on or after January 1, 2005 have an unheated rinse water option. 

Additionally, California issued minimum water conservation standards for residential 

clothes washers. While this does not directly affect equipment covered by the rulemakings, DOE 

is aware that this standard may have impacts on manufacturers of CCWs and other household 

appliances. Although Federal standards exist for the energy consumption of residential clothes 

washers, no such standard exists for the water efficiency. On September 16, 2005, the California 

Energy Commission (CEC) issued a petition for an exemption from Federal preemption to seek 

to apply its own State regulation. DOE accepted written comments regarding this California 

petition until April 7, 2006. Table 13.7.5 provides the State’s proposed residential clothes washer 

water conservation standards and their respective effective dates. 

Table 13.7.5 California Water Conservation Standards for Residential Clothes Washers 

Clothes Washer Maximum Water Factor (gallons/cu. ft.) 

Classification Effective January 1, 2007 Effective January 1, 2010 

Top-loading 8.5 6.0 

Front-loading 8.5 6.0 

On December 28, 2006, DOE issued a decision denying the California petition. 71 FR 

78157. The denial of the petition was based on three factors. First, DOE determined that it does 

not have the statutory authority to prescribe a rule for California that would become effective by 

January 1, 2007, the first of two compliance dates contained in title 20, section 1605.2(p)(1) of 

the California Code of Regulations. Second, DOE ruled that CEC had not established by a 

preponderance of the evidence that the State of California has unusual and compelling water 

interests, a condition required by the Energy and Policy Conservation Act for DOE to grant 

California a waiver from Federal preemption. 42 USC 6297(d)(1)(B). Finally, a preponderance 

of evidence showed that the California regulation would likely result in the unavailability of a 

class of residential clothes washers, specifically top-loader machines, in California. The State 

submitted to DOE a request for reconsideration.5

 On October 28, 2009, the Ninth Circuit Court 

issued a decision reversing DOE’s denial of the CEC petition for exemption from existing energy 

efficiency standards for RCWs and remanding the petition for further review.6 

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EERE-2006-STD-0127 COMMENT 69.1
13.7.3.3 International Energy Conservation Standards 

DOE is not aware of any foreign energy conservation standards covering CCWs. 

However, several foreign energy conservation standards cover residential clothes washers, and 

DOE understands that this rulemaking may still impact some North American manufacturers in 

the home appliance industry. 

The Canadian government regulates the efficiency of residential clothes washers. This 

standard applies to standard or compact electrically operated household clothes washers that are 

top- or front-loaded, and that have an internal control system that regulates the water temperature 

without the need for user intervention subsequent to initiation of machine operation. The current 

standards went into effect January 1, 2007, with increases in the standards for some equipment 

classes compared to the previous standards which had been in effect since January 1, 2004. 

Mexico mandates energy conservation standards for residential clothes washers sold in 

the country. The standard does not apply to clothes washers that do not use electricity or are used 

for commercial or industrial applications. 

13.7.3.4 International Test Procedures 

Currently, manufacturers of CCWs are principally impacted by foreign regulation due to 

the need to use a separate test procedure for foreign markets. Depending on the country where 

the regulation is from, manufacturers must use a separate test procedure for exported equipment. 

For example, CCWs are subject to a different test procedure when shipped to Australia. 

Manufacturers often have to contract foreign laboratories to conduct tests at the foreign 

locations. 

13.8 CONCLUSIONS 

The following section summarizes the different impacts for the scenarios DOE believes 

are most likely to capture the range of impacts on CCW manufacturers as a result of amended 

energy conservation standards. DOE also notes that while these scenarios bound the range of 

most plausible impacts on manufacturers, there potentially could be circumstances which cause 

manufacturers to experience impacts outside of this range. 

The major source of uncertainty voiced by CCW manufacturers during the interviews is 

the impact of higher energy conservation standards on the number of CCWs sold. Future 

equipment sales are particularly important, considering the high capital costs (particularly design 

costs) compared to the small volume of equipment sold. In light of the concern over future 

shipments, DOE modeled two MIA scenarios, based on two shipment projections from the NIA. 

To assess the lower end of the range of potential impacts for the CCW industry, DOE 

considered a scenario wherein unit shipments will not be impacted regardless of amended energy 

conservation standards – this scenario is called the base-case shipments scenario. To assess the 

higher end of the range of potential impacts for the CCW industry, DOE considered a scenario in 

which total industry shipments would decrease due the combined effects of increases in purchase 

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EERE-2006-STD-0127 COMMENT 69.1
 

price and decreases in operating costs due to amended energy conservation standards – this 

scenario is called the price elasticity of demand scenario. In both scenarios it is assumed that 

manufacturers will be able maintain the same gross margins (as a percentage of revenues) that 

are currently obtained in the base case. 

At TSL 1, the impact on INPV and cash flow varies depending on the manufacturers’ 

ability to maintain revenues as shipments decrease due to the price elasticity. DOE estimated the 

impacts in INPV at TSL 1 to range from positive $3.7 million to positive $2.8 million, or a 

change in INPV of 5.97 percent to 4.50 percent. At this level, the industry cash flow does not 

decrease from the base-case value of $3.8 million in the year leading up to the standards. Since 

all manufacturers currently make or source top-loading and front-loading CCWs that meet 

efficiency levels above this level, DOE assumed that there would be no equipment or capital 

conversion costs. 

At TSL 2, DOE estimated the impacts in INPV to range from positive $1.4 million to 

positive $0.5 million, or a change in INPV of 2.24 percent to 0.76 percent. At this level, the 

industry cash flow decreases by approximately 27.7 percent, to $2.8 million, compared to the 

base-case value of $3.8 million in the year leading up to the standards. Since all manufacturers of 

top-loading washers already sell equipment that exceeds the efficiency requirements at this TSL, 

DOE assumed that there would be no equipment or capital conversion costs for top-loading 

washers at this TSL. Over 95 percent of all currently sold front-loading CCW SKUs have 

efficiency levels that achieve or exceed this level, and all manufacturers sell front-loading 

washers that achieve or exceed this level. Accordingly, DOE estimated that the industry would 

incur relatively small equipment and capital conversion costs at this TSL. 

At TSL 3, DOE estimated the impacts in INPV to range from negative $4.8 million to 

negative $7.0 million, or a change in INPV of -7.81 percent to -11.39 percent. At this level, the 

industry cash flow decreases by approximately 158 percent, to -$2.2 million, compared to the 

base-case value of $3.8 million in the year leading up to the standards. Only one manufacturer 

currently markets a single top-loading CCW SKU at this TSL. DOE estimates that at least one 

manufacturer will need to redesign and retool a line of top-loading CCWs to meet the max-tech 

efficiency requirements of TSL 3. For top-loading CCWs, multiple manufacturers stated that 

customers could see a reduction in wash quality or reject new designs based on a perceived 

reduction in wash quality or rinse performance at TSL 3. Over 95 percent of currently sold frontloading CCW SKUs have efficiency ratings that meet or exceed this level. Hence, DOE 

estimated relatively small equipment and capital conversion costs for these washers. 

At TSL 4, DOE estimated the impacts in INPV at TSL 4 to range from negative $7.8 

million to negative $10.2 million, or a change in INPV of -12.73 percent to -16.57 percent. At 

this level, the industry cash flow decreases by approximately 206 percent, to -$4.1 million, 

compared to the base-case value of $3.8 million in the year leading up to the standards. As with 

TSL 3, the top-loading standard remains at max-tech at TSL 4, and the impacts previously stated 

for this equipment class remain. Currently, 77 percent of front-loading washers shipped do not 

meet TSL 4, resulting in multiple manufacturers having to redesign existing front-loading 

equipment to conform cost-effectively to the standard. The $8.4 million in equipment and capital 

conversion costs estimated for this TSL to redesign and retool for the front-loading standard, 

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EERE-2006-STD-0127 COMMENT 69.1
 

while not appearing substantial on a nominal basis, are significant for manufacturers due to low 

volumes of front-loading CCWs. Adjusting for shipment volumes, investing $8.4 million in 

front-loading CCWs is equivalent to investing over $18.5 million in top-loading CCWs. These 

investment costs are also high compared to the industry value of $29 million for front-loading 

CCWs. Consequently, it could be difficult for manufacturers to justify the investments necessary 

to reach TSL 4 for front-loading CCWs. 

At TSL 5, DOE estimated the impacts in INPV to range from negative $20.4 million to 

negative $23.0 million, or a change in INPV of -33.09 percent to -37.30 percent. At this level, 

the industry cash flow decreases by approximately 371 percent, to -$10.3 million, compared to 

the base-case value of $3.8 million in the year leading up to the standards. The top-loading 

standard remains at max-tech at TSL 5. DOE estimates for TSL 5 that manufacturers would have 

to invest $24.4 million in front-loading CCWs in an industry valued at $29 million. It likely 

would be difficult for manufacturers to justify the investments necessary to reach max-tech for 

both top-loading and front-loading washers. 

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EERE-2006-STD-0127 COMMENT 69.1
 

 

 

 

 

 

REFERENCES 

1	 McKinsey & Company, Inc. Valuation: Measuring and Managing the Value of 

Companies, 3rd Edition, Copeland, Koller, Murrin. New York: John Wiley & Sons, 2000. 

2	 U.S. Securities and Exchange Commission, Annual 10-K Reports, Various Years, 

Washington D.C., available online at: www.sec.gov. 

3 Association of Home Appliance Manufacturers. AHAM 2005 Fact Book, 2005. Washington, 

DC. 

4	 “Table 2 – Quantity and Value of Shipments of Refrigeration, Air-Conditioning, and 

Warm Air Heating Equipment: 2005 and 2004.” 2000 - 2005 Current Industrial Reports 

(CIR). U.S. Census Bureau, July 2006. 

5	 DOE Docket No. EE-RM-PET-100, submitted by the California Energy Commission 

January 29, 2007. 

6	 California Energy Commission versus DOE, Case No. 07-71576 (October 28, 2009). 

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EERE-2006-STD-0127 COMMENT 69.1