8-i 

CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES 

TABLE OF CONTENTS 

8.1 INTRODUCTION ........................................................................................................... 8-3 

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analyses.............. 8-3 

8.1.2 Overview of Life-Cycle Cost and Payback Period Analyses Inputs.................. 8-4 

8.2 LIFE-CYCLE COST Analysis INPUTS ......................................................................... 8-7 

8.2.1 Definition............................................................................................................ 8-7 

8.2.2 Total Installed Cost Inputs ................................................................................. 8-7 

8.2.3 Operating Cost Inputs....................................................................................... 8-13 

8.3 PAYBACK PERIOD INPUTS...................................................................................... 8-22 

8.3.1 Definition.......................................................................................................... 8-22 

8.3.2 Inputs ................................................................................................................ 8-22 

8.4 RESULTS USING TARIFF-BASED ELECTRICITY PRICES .................................. 8-23 

8.4.1 Life-Cycle Cost Results.................................................................................... 8-23 

8.4.2 Payback Period Results .................................................................................... 8-26 

8.4.3 Rebuttable Presumption Payback Period ......................................................... 8-30 

8.5 LCC SENSITIVITY STUDIES..................................................................................... 8-31 

8.5.1 Sensitivity to Fuel Price Escalation Rate Scenarios......................................... 8-31 

8.6 DETAILED RESULTS ................................................................................................. 8-32 

REFERENCES .......................................................................................................................... 8-33 

LIST OF TABLES 

Table 8.1.1 Business or Building Types Used in the LCC and PBP Analyses....................... 8-4 

Table 8.1.2 Summary Information for the Determination of LCC and PBP Inputs ............... 8-6 

Table 8.2.1 Equipment Evaluated for the BVM Life-Cycle Cost and Payback Analyses...... 8-8 

Table 8.2.2 Baseline Manufacturer Prices per Unit................................................................ 8-8 

Table 8.2.3 Standard-Level Manufacturer Price Increases (Price Increases Relative to 

the Price of Baseline Efficiency Equipment at Level 1)...................................... 8-9 

Table 8.2.4 Overall Baseline Markups by Distribution Channel and Overall WeightedAverage, Including the Weighted Average Sales Tax, for Manufacturing 

Facilities............................................................................................................. 8-10 

Table 8.2.5 Overall Incremental Markups by Distribution Channel and Overall 

Weighted-Average, Including the Weighted Average Sales Tax, for 

Manufacturing Facilities .................................................................................... 8-10 

Table 8.2.6 Installation Costs for Baseline BVM equipment ............................................... 8-11 

Table 8.2.7 Installation Cost Indices (National Value = 1.000) ........................................... 8-11 

Table 8.2.8 Costs and Markups for Determination of Weighted-Average Total 

Installed Costs (B-L-IO )1.................................................................................. 8-12 

Table 8.2.9 Weighted-Average Equipment Price, Installation Cost, and Total Installed 

Costs for B-L-IO, at U.S. Average Prices (2007$)............................................ 8-13 

EERE-2006-STD-0125 COMMENT 22
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Table 8.2.10 Estimated Commercial and Industrial Electricity Prices by State (2006 

cents/kWh) ......................................................................................................... 8-15 

Table 8.2.11 Derived Average Electricity Price Paid by Business Type, 2003...................... 8-16 

Table 8.2.12 Components of Maintenance Cost for BVMs (2007$)...................................... 8-19 

Table 8.2.13 Statistics on Nominal Weighted Average Cost of Capital Used in the 

Discount Rate Analysis...................................................................................... 8-21 

Table 8.4.1 Distribution of Life-Cycle Cost Savings from a Baseline Level (Level 1) 

for B-L-IO Equipment Class by Efficiency Level............................................. 8-26 

Table 8.4.2 Average Life-Cycle Cost Savings from a Baseline Level (Level 1) by 

Efficiency Level and Equipment Class.............................................................. 8-26 

Table 8.4.3 Summary of PBP Results for B-L-IO Equipment Class.................................... 8-29 

Table 8.4.4 National Average Payback Periods by Efficiency Level and Equipment 

Class................................................................................................................... 8-30 

Table 8.4.5 Rebuttable Presumption Payback Periods by Efficiency Level and 

Equipment Class ................................................................................................ 8-31 

Table 8.5.1 Average Life-Cycle Cost Savings from a Baseline Level (Level 1) by 

Efficiency Level and Equipment Class – EIA Low Growth Scenario............... 8-31 

Table 8.5.2 Average Life-Cycle Cost Savings from a Baseline Level (Level 1) by 

Efficiency Level and Equipment Class – EIA High Growth Scenario.............. 8-32 

LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for the Determination of LCC and PBP ....................... 8-6 

Figure 8.2.1 Cumulative Probability Distribution Showing the Electricity Prices Paid 

by BVM users (2007$)....................................................................................... 8-16 

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2042 .................................... 8-17 

Figure 8.4.1 Effect of the Change in Efficiency Level on Life-Cycle Cost for B-L-IO 

Equipment Class in Manufacturing Facilities (2007$) at Average U.S. 

Conditions (Level 1 is the Baseline Efficiency Level). ..................................... 8-24 

Figure 8.4.2 B-L-IO Equipment Class, Level 4 Efficiency: .................................................. 8-25 

Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for B-L-IO 

Equipment Class, in Manufacturing Facilities at Average U.S. Conditions 

(Level 1 is the Baseline Level). ......................................................................... 8-28 

Figure 8.4.4 B-L-IO Equipment Class Level 4 Efficiency: Cumulative Chart of PBP ........ 8-29 

EERE-2006-STD-0125 COMMENT 22
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CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES 

8.1 INTRODUCTION 

This chapter describes the methodology for analyzing the economic impacts of possible 

energy efficiency standards being developed for beverage vending machines (BVM) on 

individual customers. The effect of standards on individual customers usually includes a 

reduction in operating cost and an increase in purchase cost. This chapter describes two metrics 

used in the analysis to determine the economic impact of standards on individual commercial 

customers: 

• Life-cycle cost (LCC) is the total customer cost over the life of an appliance or equipment, 

including purchase costs and operating costs (which in turn include maintenance, repair, and 

energy costs). Future operating costs are discounted to the time of purchase, and summed 

over the lifetime of the appliance or equipment. 

• Payback period (PBP) measures the amount of time it takes customers to recover the 

assumed higher purchase price of more energy-efficient equipment through reduced 

operating costs. In the calculation of PBP, future costs are not discounted. 

Inputs to the LCC and PBP analyses of the BVM equipment are discussed in section 8.2 

and section 8.3, respectively. Results for each metric are presented in section 8.4.1 and section 

8.4.2, respectively. Key variables and calculations are presented for each metric. The 

calculations discussed here were performed with a series of Microsoft Excelspreadsheets that are 

accessible over the Internet 

(http://www.eere.energy.gov/buildings/appliance_standards/commercial/beverage_vending_mac

hine.html). 

Details of and instructions for using the spreadsheets are discussed in appendix E. 

A more complete set of results of the analyses is presented in appendix F. 

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analyses 

Recognizing that each commercial building that uses BVM equipment is unique, the U.S. 

Department of Energy (DOE) analyzed variability and uncertainty by performing the LCC and 

PBP calculations detailed here for seven types of businesses, six of which with their own 

prototype building. 

The first prototype building is a manufacturing facility. The second prototype building is 

an “office/healthcare” building, which includes a large number of firms engaged in financial and 

other services, headquarters functions, medical and dental offices, outpatient care, nursing 

homes, long-term care, and assisted care facilities, and hospitals. A third prototype building is 

called “retail” and includes most types of retail stores of all types as well as food and beverage 

service facilities. The fourth prototype building is called “schools” and applies to primary and 

secondary schools, colleges and universities, and large group housing facilities owned by state 

governments, such as prisons. The fifth prototype building is called “federal” and applies to all 

federal buildings, including military bases, offices, and housing facilities. The sixth prototype is 

called “other” and includes facilities such as hotels and motels, warehouses, airports, sporting 

EERE-2006-STD-0125 COMMENT 22
8-4 

arenas, movie theaters, exhibition halls, and other miscellaneous facilities. Finally, the seventh 

type of business, comprising 95 percent of the BVM market, is a local bottler or vending 

machine service company that typically leases space in any one of the six types of buildings, 

provides vending services, and splits the profits with the owner of the host site through a contract 

that splits the annual coin box receipts (see Table 8.1.1). 

Table 8.1.1 Business or Building Types Used in the LCC and PBP Analyses 

Business or Building Type Applicable to related businesses 

Manufacturing Facility Factories, industrial manufacturing 

Office/Healthcare Firms engaged in financial and other services, headquarters functions, medical 

and dental offices, outpatient care, nursing homes, long-term care, assisted care 

facilities and hospitals 

Retail Retail stores of all types, and food and beverage service facilities 

Schools Primary and secondary schools, colleges and universities and large group housing 

facilities owned by state governments, e.g., prisons. 

Federal All federal buildings, including military bases, offices and housing facilities 

Other Hotels and motels, warehouses, airports, sporting arenas, movie theaters, 

exhibition halls, and other miscellaneous facilities 

Local Bottlers and Vending 

Machine Operators 

Beverage bottling companies, vend operators, vending machine service 

companies 

Vending companies do not typically pay the electricity bill associated with their vending 

machines, but some portion of that bill may be shared with the site owner through the coin box 

contract. One BVM or BVM unit may serve a motel/hotel, an office building, a break room in a 

factory, a convenience store with gas pumps, or a hospital. BVMs may be located either inside 

the building, or in some cases outside, frequently in a vestibule or a sheltered location. Aside 

from energy, the most important factors influencing LCC and PBP analysis are related to the 

State within the United States to which each BVM unit is shipped. These factors include energy 

prices, installation cost, markup, and sales tax. The LCC analysis presented here used the 

predicted energy consumption based on the engineering analysis and reviewed in chapter 7, 

Building Energy Use Characterization. Energy consumption of BVMs located in outdoor 

settings in this approach is sensitive to climate, so energy use varies by geographical location. 

At the national level, the spreadsheets explicitly modeled both the uncertainty and the variability 

in the model’s inputs using probability distributions based on the shipment of BVM equipment to 

different states. 

The LCC and PBP results are displayed as distributions of impacts compared to the 

baseline efficiency level. Results are presented at the end of this chapter. A variety of graphic 

displays can be created to illustrate the implications of the analysis. Examples of graphic 

displays are (1) a cumulative probability distribution showing the percentage of BVM equipment 

in U.S. commercial buildings that would experience a net savings, and (2) a frequency chart 

depicting variation in life-cycle cost for each BVM efficiency level considered. 

8.1.2 Overview of Life-Cycle Cost and Payback Period Analyses Inputs 

The LCC is the total customer cost over the life of the equipment, including purchase cost 

and operating cost (including energy cost). Future operating costs are discounted to the time of 

purchase and summed over the lifetime of the equipment. The PBP is the increase in purchase 

EERE-2006-STD-0125 COMMENT 22
8-5 

cost of higher efficiency equipment divided by the decrease in annual operating cost (due to the 

lower energy consumption) of the equipment. Inputs to the LCC and PBP analyses are 

categorized as follows: (1) inputs for establishing the purchase cost, otherwise known as the 

total installed cost, and (2) inputs for calculating the operating cost (i.e., energy, maintenance, 

and repair costs). 

The primary inputs for establishing the total installed cost are: 

• Baseline manufacturer price: The price charged by the manufacturer to either a wholesaler 

or customer for equipment meeting existing minimum efficiency (or baseline) standards. 

The manufacturer price includes a markup that converts the cost to manufacture to a 

manufacturer price. (see chapter 5 of the TSD) 

• Standard-level manufacturer price increases: The incremental change in manufacturer price 

associated with producing equipment at each of the proposed higher standard levels. 

• Markups and sales tax: The markups and sales tax associated with converting the 

manufacturer price to a customer price. 

• Installation price: The cost to the customer of installing the equipment. The installation 

price represents all costs required to install the equipment but does not include the marked-up 

customer equipment price. The installation price includes labor, overhead, and any 

miscellaneous materials and parts. Thus, the total installed cost equals the customer 

equipment price plus the installation price. 

The primary inputs for calculating the operating cost are: 

• Equipment energy consumption: The equipment energy consumption is the site energy use 

associated with the use of the BVM equipment. Although there are potentially some 

interactive effects on the overall heating and cooling of the building, for purposes of the 

Advance Notice of Proposed Rulemaking (ANOPR), the LCC analysis includes only the use 

of electricity by the equipment itself. This approach is consistent with most other DOE 

equipment efficiency rulemakings. 

• Electricity prices: Electricity prices used in the analysis are the price per kilowatt-hour 

($/kWh) paid by each customer. Electricity prices are determined using average commercial 

and industrial electricity prices in each State, as determined from Energy Information 

Administration (EIA) data for 2006 (EIA 2007a).1 The two types of buildings that use 

industrial electricity pay the average industrial price. The 2006 average commercial prices 

were modified to reflect the fact that the four types of buildings pay commercial prices and 

use BVM equipment pay prices that, on average, are either slightly higher or lower than the 

average commercial prices based on the 2003 Commercial Building Energy Consumption 

Survey (CBECS)2 data (EIA 2007b).3

• Electricity price trends: The EIA’s Annual Energy Outlook 2007 (AEO 2007) (EIA 2007c)4

is used to forecast electricity prices into the future. For the results presented in this chapter, 

DOE used the AEO 2007 reference case to forecast future electricity prices. 

• Maintenance costs: The labor and material costs associated with maintaining the operation 

of the equipment (e.g., cleaning heat exchanger coils, checking refrigerant charge levels). 

EERE-2006-STD-0125 COMMENT 22
8-6 

• Repair costs: The labor and material costs associated with repairing or replacing components 

that have failed. 

• Lifetime: The age at which the BVM or BVM equipment is retired from service. 

• Discount rate: The rate at which future costs are discounted to establish their present value. 

Figure 8.1.1 graphically depicts the relationships between the installed cost and operating 

cost inputs for the calculation of the LCC and PBP. Table 8.1.2 summarizes the values for the 

various inputs to the calculation of the LCC and PBP. As noted earlier, most of the inputs are 

characterized by probability distributions that capture variability of the input variables. The 

values provided in Table 8.1.2 are the weighted-average values from the distributions used to 

characterize the inputs. Also listed in Table 8.1.2 are chapters in the TSD where more detailed 

information on the input variables can be found. 

Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes

Annual Maintenance

Electricity 

Consumption Electricity 

Consumption

Manufacturer Base 

Price

Total Installed Cost 

(Std i –Base)

Manufacturer Base 

Price

Contractor Markups

Markups

Wholesaler/ 

Distributor Markup

Electricity Prices

National Account 

Markup

Equipment Prices

Sales Tax

Manufacturer Base 

Price

Installation Costs

Manufacturer Std 1 

Base Price

Manufacturer Std 1 

Base Price

Manufacturer Price

Standard i= 1...n

Electricity 

Consumption Annual Energy Costs

Annual Maintenance

Repair Costs

Annual Operating 

Cost (Std i - Base)

Payback 

Period

Discount Rate

Lifetimes

Lifetime 

Operating 

Cost (Std 

i – Base)

Lifecycle 

Cost

Annual Maintenance 

Costs

Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes

Annual Maintenance

Electricity 

Consumption Electricity 

Consumption

Manufacturer Base 

Price

Total Installed Cost 

(Std i –Base)

Manufacturer Base 

Price

Contractor Markups

Markups

Wholesaler/ 

Distributor Markup

Electricity Prices

National Account 

Markup

Equipment Prices

Sales Tax

Manufacturer Base 

Price

Installation Costs

Manufacturer Std 1 

Base Price

Manufacturer Std 1 

Base Price

Manufacturer Price

Standard i= 1...n

Electricity 

Consumption Annual Energy Costs

Annual Maintenance

Repair Costs

Annual Operating 

Cost (Std i - Base)

Payback 

Period

Discount Rate

Lifetimes

Lifetime 

Operating 

Cost (Std 

i – Base)

Lifecycle 

Cost

Annual Maintenance 

Costs

Figure 8.1.1 Flow Diagram of Inputs for the Determination of LCC and PBP 

Table 8.1.2 Summary Information for the Determination of LCC and PBP Inputs 

Factor Weighted Average Value TSD Reference Section 

Total Installed Cost Primary Inputs 

Baseline manufacturer price Varies with equipment class Chapter 5 

Standard-level manufacturer 

price increases 

Varies with equipment class and efficiency level Chapter 5 

Markups and sales tax Varies with distribution channel and location Chapter 6 

Installation price Varies with location Chapter 8 

Operating Cost Primary Inputs 

Equipment energy consumption Varies with equipment class, efficiency level, and 

location 

Chapter 7 

Electricity prices Vary with location, business/building type Chapter 8 

Electricity price trends Vary with price scenario Chapter 8 

Maintenance costs Varies with equipment class Chapter 8 

Repair costs Varies with equipment class Chapter 8 

Lifetime Assumed to be 14 years Chapters 3, 8 

Discount rate Varies with type of business Chapter 8 

EERE-2006-STD-0125 COMMENT 22
8-7 

All of the inputs depicted in Figure 8.1.1 and summarized in Table 8.1.2 are discussed in 

section 8.2 and section 8.3. 

8.2 LIFE-CYCLE COST ANALYSIS INPUTS 

8.2.1 Definition 

Life-cycle cost is defined by the following equation: 

∑=

+= +

N

t

t

t OCICLCC r

1

1/( ) Eq. 8.1

where: 

LCC = life-cycle cost ($), 

IC = total installed cost ($), 

∑ = sum over the lifetime, from year 1 to year N, where N = lifetime of equipment 

(years), 

OC = operating cost ($), 

r = discount rate, and 

t = year for which operating cost is being determined. 

Because DOE gathered most of its data for the LCC analysis in 2007, DOE expresses all 

the costs in 2007$. Total installed cost, operating cost, lifetime, and discount rate are discussed 

in the following sections. 

8.2.2 Total Installed Cost Inputs 

The total installed cost to the customer is defined by the following equation: 

= EQPIC + INST Eq. 8.2

where: 

EQP = equipment price (i.e., customer price for the equipment only), expressed in 

dollars, and 

INST = installation cost or the customer price to install equipment (i.e., the cost for labor 

and materials), also expressed in dollars. 

The equipment price is based on how the customer purchases the equipment. As 

discussed in chapter 6, markups for equipment price determination, DOE defined three types of 

distribution channels to describe how the equipment passes from the manufacturer to the 

customer: (1) the manufacturer sells the equipment to a wholesaler, who in turn, sells it to the 

vending machine operator; (2) the manufacturer sells the equipment to a wholesaler/distributor, 

who sells to a site owner, (3) the manufacturer sells the equipment to the local vending machine 

operator through a national account. The remainder of this section provides information about 

the variables DOE used to calculate the total installed cost for BVM equipment. Inputs for the 

determination of total installed cost are shown below: 

EERE-2006-STD-0125 COMMENT 22
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• Baseline manufacturer price ($) (section 8.2.2.1) 

• Standard-level manufacturer price increases ($) (section 8.2.2.2) 

• Overall markup (section 8.2.2.3) 

• Installation cost ($) (section 8.2.2.4) 

• Weighted-average total installed cost ($) (section 8.2.2.5) 

8.2.2.1 Baseline Manufacturer Price 

The baseline manufacturer price is the price charged by manufacturers to either a 

wholesaler/distributor or very large customer for equipment meeting existing minimum 

efficiency (or baseline) standards. The manufacturer price includes a markup that converts the 

cost to manufacture (i.e., the manufacturing cost) to a manufacturer price. Refer to chapter 5, 

engineering analysis, for details. The LCC and PBP analyses have been carried out on a set of 

three sizes each of two equipment classes identified in chapter 5. The set of six equipment 

scenarios evaluated is given in Table 8.2.1. 

Table 8.2.1 Equipment Evaluated for the BVM Life-Cycle Cost and Payback Analyses 

Description Symbol 

Class A, Large, Indoor Only A-L-IN 

Class A, Medium, Indoor Only A-M-IN 

Class A, Small, Indoor Only A-S-IN 

Class B, Large, Indoor/Outdoor B-L-IO 

Class B, Medium, Indoor/Outdoor B-M-IO 

Class B, Small, Indoor/Outdoor B-S-IO 

DOE developed the manufacturer selling prices for the baseline efficiency equipment as a 

part of the engineering analysis, which are shown in Table 8.2.2. 

Table 8.2.2 Baseline Manufacturer Prices per Unit 

Equipment Class Baseline Manufacturer Price (2007$) 

A-L-IN $1,290 

A-M-IN $1,244 

A-S-IN $1,065 

B-L-IO $1,740 

B-M-IO $1,583 

B-S-IO $1,254 

8.2.2.2 Standard-Level Manufacturer Price Increases 

The standard-level manufacturer price increase is the change in manufacturer price 

associated with producing equipment at proposed higher efficiency levels. DOE developed 

manufacturer price increases associated with increases in equipment efficiency levels through a 

design-option analysis. Refer to chapter 5, engineering analysis, for details. Manufacturer price 

increases as a function of equipment efficiency were developed for the three sizes each of two 

equipment classes. Nine efficiency levels selected in the energy use characterization analysis 

(chapter 7 of the TSD) (Levels 0 though 8) were used in the LCC and PBP analyses. Most of the 

analysis presumes at least ENERGY STAR Tier 1 efficiency level (Level 1) equipment being 

EERE-2006-STD-0125 COMMENT 22
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available in the market. The highest efficiency level (Level 8) is considered the maximum 

technologically achievable efficiency level. Table 8.2.3 summarizes the estimated manufacturer 

price increases for BVM efficiency levels considered in the LCC and PBP analyses. 

Table 8.2.3 Standard-Level Manufacturer Price Increases (Price Increases Relative to 

the Price of Baseline Efficiency Equipment at Level 1) 

Equipment Type Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

B-L-IO $16 $36 $60 $87 $98 $257 $864 

B-M-IO $16 $36 $60 $87 $98 $231 $787 

B-S-IO $16 $33 $55 $78 $89 $206 $636 

A-L-IN $16 $35 $61 $138 $187 $197 $838 

A-M-IN $16 $35 $61 $138 $186 $196 $773 

A-S-IN $16 $37 $60 $137 $181 $191 $656 

8.2.2.3 Overall Markup 

For a given distribution channel, the overall markup is the value determined by 

multiplying all the associated retail markups and the applicable sales tax. Because there are 

baseline and incremental markups associated with the wholesaler and mechanical contractor, the 

overall markup is also divided into a baseline markup (i.e., a markup used to convert the baseline 

manufacturer price into a customer price) and an incremental markup (i.e., a markup used to 

convert a standard-level manufacturer price increase due to an efficiency increase into an 

incremental customer price). 

As discussed in chapter 6, markups for equipment price determination, overall markups 

are based on one of three assumed distribution channels. 

Based on available industry data, it appears that 27 percent of equipment purchased is by 

vending machine operators directly from wholesaler/distributors, 5 percent is by site owners 

from wholesaler/distributors, and 68 percent is by bottlers/distributors directly from the 

manufacturers. DOE’s understanding is that most existing equipment replacements are done as a 

result of obsolescence or failure after two rounds of machine refurbishment. With three 

distribution channels, there are a total of six overall baseline and incremental markups possible. 

All six sets of overall markups and their associated components are presented in Table 8.2.4 and 

Table 8.2.5 for the baseline and incremental markups, respectively, for manufacturing facilities. 

Similar tables were calculated for the six other business types. 

Based on the percentages of the market attributed to each of the three distribution 

channels, weighted-average overall markups are also presented in Table 8.2.4 and Table 8.2.5. 

The overall weighted-average baseline markup for manufacturing facilities equals 1.226, while 

the overall weighted-average incremental markup equals 1.137. See chapter 6 for details. 

EERE-2006-STD-0125 COMMENT 22
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Table 8.2.4 Overall Baseline Markups by Distribution Channel and Overall WeightedAverage, Including the Weighted Average Sales Tax, for Manufacturing 

Facilities 

Wholesaler 

to Vending 

Machine 

Operator 

Wholesaler to Site 

Owner 

Manufactu

rer Direct 

Overall 

Weighted 

Average

Distributor(s)

Markup 

1.460 1.460 1.000 1.147 

Sales Tax 1.068 1.068 1.068 1.068 

Total Markup 1.560 1.560 1.068 1.226 

Table 8.2.5 Overall Incremental Markups by Distribution Channel and Overall 

Weighted-Average, Including the Weighted Average Sales Tax, for 

Manufacturing Facilities 

Wholesaler 

to Vending 

Machine 

Operator 

Wholesaler to Site 

Owner 

Manufactu

rer Direct 

Overall 

Weighted 

Average

Distributor(s)

Markup 

1.200 1.200 1.000 1.064 

Sales Tax 1.068 1.068 1.068 1.07 

Total Markup 1.282 1.282 1.068 1.137 

8.2.2.4 Installation Cost 

The installation cost is the price to the customer of labor and materials (other than the 

actual equipment) needed to install the BVM equipment. 

Labor rates vary significantly from region to region of the country and the U.S. Bureau of 

Labor Statistics (BLS) provides the necessary information to capture this regional variability.5 

BLS provides median wage rates for installation, maintenance, and repair occupations that reflect 

the labor rates for each state in the United States and allow the computation of state labor cost 

indices relative to the national average for these occupations. These cost indices were 

incorporated into the analysis to capture variation in installation cost, depending on the location 

of the customer. 

Since data were not available to indicate how installation costs actually vary with BVM 

or BVM equipment class or efficiency, DOE considered two scenarios: (1) installation costs 

varied in direct proportion to the cost of the equipment, or (2) installation costs remained flat 

(not varying with cost of the equipment). All baseline equipment, however, in a given 

equipment class, are assumed to have the same baseline installation costs. 

Table 8.2.6 summarizes the nationally representative person-hours and labor rates 

associated with the installation of BVM equipment as presented in Foster-Miller Inc. (2002).6 In 

Table 8.2.6, both bare installation costs (i.e., costs before overhead and profit (O&P)) and 

installation costs including O&P are provided. DOE decided that the installation costs that 

include O&P represent the installation costs for baseline equipment. The installation costs are 

EERE-2006-STD-0125 COMMENT 22
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assumed to remain fixed regardless of efficiency level (a “flat” installation cost scenario). 

However, the LCC spreadsheet allows for an alternative scenario: that the installation cost 

increase with higher efficiency levels. This alternative was implemented in the LCC spreadsheet 

by providing for an installation price that varies in proportion to increased manufacturer cost 

above the baseline efficiency level. DOE did not, however, find a basis for the latter assumption. 

The basis for the installation costs are 2002 labor costs (adjusted to 2006 dollars) for 

installation of mercantile equipment. Daily rates were for a two-person installation crew, 

requiring one hour (including service call driving time) on average to set up a BVM. 

Table 8.2.6 Installation Costs for Baseline BVM equipment 

Equipment Labor Base Costs (2007$) 

Class Person-Hours Labor Rate Cost 

All BVMs 2. 0 (1 hr x 2 workers) $35.84/hr $71.68 

Table 8.2.7 summarizes the cost indices for installations in each of the 50 States, plus the 

District of Columbia, used to vary the nationally representative installation costs in Table 8.2.6. 

Table 8.2.7 Installation Cost Indices (National Value = 1.000) 

State Index State Index State Index 

Alabama 0.901 Kentucky 0.924 North Dakota 0.953 

Alaska 1.299 Louisiana 0.879 Ohio 1.005 

Arizona 0.966 Maine 0.365 Oklahoma 0.924 

Arkansas 0.849 Maryland 1.064 Oregon 1.041 

California 1.106 Massachusetts 1.157 Pennsylvania 0.992 

Colorado 1.054 Michigan 1.138 Rhode Island 1.021 

Connecticut 1.149 Minnesota 1.107 South Carolina 0.918 

Delaware 1.026 Mississippi 0.827 South Dakota 0.878 

Dist. of Columbia 1.133 Missouri 0.973 Tennessee 0.913 

Florida 0.900 Montana 0.923 Texas 0.890 

Georgia 0.979 Nebraska 0.939 Utah 1.000 

Hawaii 1.108 Nevada 1.087 Vermont 0.950 

Idaho 0.925 New Hampshire 1.018 Virginia 1.001 

Illinois 1.102 New Jersey 1.153 Washington 1.148 

Indiana 0.999 New Mexico 0.879 West Virginia 0.845 

Iowa 0.940 New York 1.079 Wisconsin 1.037 

Kansas 0.970 North Carolina 0.952 Wyoming 1.054 

8.2.2.5 Weighted-Average Total Installed Cost 

As presented in Eq.8.2, the total installed cost is the sum of the equipment price and the 

installation cost. DOE derived the customer equipment price for any given standard level by 

multiplying the baseline manufacturer price by the baseline markup and adding to it the product 

of the incremental manufacturer price and the incremental markup. Because manufacturer 

prices, markups, and the sales tax all can take on a variety of values, depending on location, the 

resulting total installed cost for a particular efficiency level will not be a single-point value, but 

rather a distribution of values. 

EERE-2006-STD-0125 COMMENT 22
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As an example, the weighted average costs for the B-L-IO equipment are presented for 

the baseline level at national average markup rates and national average installation costs. This 

section also describes the corresponding incremental values to provide an indication of the 

increase in the total installed cost of the higher efficiency equipment. 

The derivation of the total installed cost is relatively straightforward. The baseline 

manufacturer price and the standard-level manufacturer price increases are the starting points for 

determining the total installed cost (values are taken directly from Table 8.2.2 and Table 8.2.3). 

The baseline and incremental markups, the sales tax, and installation costs are used to convert 

the manufacturer prices into total installed costs for BVM equipment where the incremental 

installation costs are held flat. Table 8.2.8 summarizes the weighted average or mean costs and 

markups necessary for determining the weighted-average baseline and incremental installed 

costs. 

Table 8.2.8 Costs and Markups for Determination of Weighted-Average Total Installed 

Costs (B-L-IO )1

Variable Weighted Average or Mean Value 

Baseline Manufacturer Price $1,485.93 

Manufacturer Price Increase (Efficiency Level 4) $60.99 

Overall Baseline Markup 1.226 

Overall Incremental Markup 1.137 

Installation Cost–Baseline $71.68 

Installation Cost Factor –Incremental 1.002 

1

 Incremental installation costs held flat

2

 National incremental cost index on a population-weighted national basis is equal to 1.00.

To illustrate the derivation of the weighted-average total installed cost shown in 

Table 8.2.9, DOE presents the calculation below for the baseline efficiency and higher efficiency 

(Level 4) BVM. For baseline product, the calculation of the total installed cost at national 

average conditions is as follows: 

ICBASE BVM = EQPBASE- BVM +INSTBASE- BVM Eq. 8.3

= MFGBASE- BVM • MU BASE- BVM + INST BASE-BVM 

= $1,485.93 • (1.226) + $71.68 

=$1,821.75 + $71.68 

= $1,893 

where: 

IC = total installed cost, expressed in dollars 

EQP = equipment price, expressed in dollars 

INST = installation cost or the customer price to install equipment, expressed in dollars, 

MFG = manufacturer price, expressed in dollars 

MU = markup. 

In this specific example, MFG is the national average baseline manufacturer price for the 

BVM equipment class and MU is the overall baseline markup. The calculation of the higher 

efficiency (Level 4) total installed cost includes the use of a manufacturer price adder. In 

addition, DOE derived an incremental markup. 

EERE-2006-STD-0125 COMMENT 22
8-13 

Based on incremental equipment price changes, the derivation of the Level 4 total 

installed cost is based on determining the change in equipment price over the baseline equipment 

price. The manufacturer price increment for higher efficiency equipment is multiplied by the 

incremental markup. 

DOE calculated the Level 4 total installed cost (IC BVM LEVEL4) as follows: 

IC BVM LEVEL4 = EQP BVM LEVEL4 +∆EQP BVM LEVEL4 + INST BVM LEVEL4•(MFG BVM LEVEL4/MFG BASE 

BVM ) Eq. 8.4

= MFG BASE BVM •MU BASE BVM + ∆MFG BVM LEVEL4 

•MU BVM LEVEL4 + INST• ISTINDEX 

= $1,485.93 • (1.226) + $60.99 • (1.137) + $71.68 • (1.00) 

 = $1,963 

where: 

IC = total installed cost, expressed in dollars 

EQP = equipment price, expressed in dollars 

INST = installation cost or the customer price to install equipment, expressed in dollars 

MFG = manufacturer price, expressed in dollars 

MU = markup 

INST = installation cost or the customer price to install equipment, expressed in dollars, 

ISTINDEX = location dependent, but approximately 1.0 at a national average 

Table 8.2.9 presents the weighted-average equipment price, installation costs, and total 

installed costs for the BVM equipment class at the baseline level and each proposed higher 

efficiency level. 

Table 8.2.9 Weighted-Average Equipment Price, Installation Cost, and Total Installed 

Costs for B-L-IO, at U.S. Average Prices (2007$) 

Efficiency Level

Equipment

Price

Installation

Cost

Total Installed

Cost

Level 0 (Market Baseline) $1,808 $72 $1,880 

1 $1,821 $72 $1,893 

2 $1,840 $72 $1,911 

3 $1,861 $72 $1,933 

4 $1,891 $72 $1,962 

5 $1,978 $72 $2,050 

6 $2,033 $72 $2,105 

7 $2,045 $72 $2,117 

8 $2,773 $72 $2,845 

8.2.3 Operating Cost Inputs 

After the LCC analysis was performed, DOE generated a distribution of LCC differences 

(i.e., the LCC difference between the baseline efficiency equipment and equipment with a higher 

efficiency level) to determine the mean LCC difference, as well as the percentage of customers 

analyzed that had LCC savings associated with more energy-efficient equipment. 

EERE-2006-STD-0125 COMMENT 22
8-14 

DOE defined the operating cost by the following equation: 

OC = EC+ RC+ MC Eq. 8.5

where: 

OC = operating cost, expressed in dollars 

EC = energy cost associated with operating the equipment, expressed in dollars 

RC = repair cost associated with component failure, expressed in dollars 

MC = service cost for maintaining equipment operation, expressed in dollars. 

The remainder of this section provides information about the variables that DOE used to 

calculate the operating cost for BVM equipment. The inputs for calculating the operating costs 

are listed below: 

• Electricity price ($) (section 8.2.3.1) 

• Electricity price trend (section 8.2.3.2) 

• Repair cost ($) (section 8.2.3.3) 

• Maintenance cost ($) (section 8.2.3.4) 

• Lifetime (years) (section 8.2.3.5) 

• Discount rate (%) (section 8.2.3.6) 

• Effective date of the standard (section 8.2.3.7) 

The lifetime, discount rate, and effective date of the efficiency standard are required for 

determining the operating cost and for establishing the operating cost present value. The 

electricity consumption for the baseline efficiency and higher efficiency levels (efficiency levels 

1, 2, etc.) is used to determine the operating costs of the equipment. 

8.2.3.1 Electricity Price Analysis 

This section describes the electricity price (cents/kWh) analysis used to develop the 

energy portion of the annual operating costs (price times electricity consumption) for BVM 

equipment in the hotel/motel sector. 

Because of the wide variation in electricity consumption patterns, wholesale costs, and 

retail rates across the country, it is important to consider regional differences in electricity prices. 

For this reason, DOE divided the continental United States into the 50 states and the District of 

Columbia. DOE used reported average commercial electricity prices (which apply to 4 of the 6 

business types) and lower industrial electricity prices (which are assumed to apply to the 

manufacturing plants and federal facilities) the state level from the EIA publication State Energy 

Consumption, Price, and Expenditure Estimates (SEDS). The latest available prices from this 

source are for the calendar year 2006. 

Table 8.2.10 provides data on the state electricity prices. 

EERE-2006-STD-0125 COMMENT 22
8-15 

Table 8.2.10 Estimated Commercial and Industrial Electricity Prices by State 

(2006 cents/kWh) 

State 

Commercial 

Electricity 

Price 

Industrial

Electricity 

Price State 

Commercial 

Electricity 

Price 

Industrial

Electricity 

Price State 

Commercial 

Electricity 

Price 

Industrial

Electricity 

Price 

Alabama 8.12 4.90 Kentucky 6.48 4.11 North Dakota 6.30 4.24 

Alaska 11.75 11.94 Louisiana 8.97 6.89 Ohio 8.48 5.52 

Arizona 7.89 5.80 Maine 12.39 8.90 Oklahoma 7.25 5.42 

Arkansas 6.80 5.27 Maryland 10.29 10.50 Oregon 6.99 4.55 

California 13.13 9.46 Massachusetts 15.82 11.38 Pennsylvania 8.86 6.51 

Colorado 7.48 5.93 Michigan 8.75 6.24 Rhode Island 13.52 12.04 

Connecticut 13.82 11.96 Minnesota 7.03 5.23 South Carolina 7.65 4.76 

Delaware 10.89 4.98 Mississippi 9.05 5.87 South Dakota 6.44 4.89 

Dist. of Col. 10.97 8.61 Missouri 6.11 4.61 Tennessee 8.00 5.34 

Florida 9.86 7.63 Montana 7.51 4.91 Texas 9.73 7.77 

Georgia 7.90 5.36 Nebraska 6.20 4.51 Utah 6.15 4.24 

Hawaii 21.43 17.96 Nevada 10.11 7.82 Vermont 11.70 8.34 

Idaho 5.12 3.64 New Hampshire 13.79 12.15 Virginia 6.18 4.70 

Illinois 7.99 4.70 New Jersey 11.84 9.33 Washington 6.55 4.51 

Indiana 7.22 4.96 New Mexico 7.65 5.54 West Virginia 5.58 3.70 

Iowa 7.32 4.87 New York 13.59 8.62 Wisconsin 8.41 5.88 

Kansas 6.89 5.19 North Carolina 7.17 5.24 Wyoming 6.25 4.05 

Furthermore, DOE recognized that different kinds of businesses typically use electricity 

in different amounts at different times of the day, week, and year, and therefore face different 

effective prices. To make this adjustment, DOE used the Commercial Building Energy 

Consumption Survey (CBECS) data set (2003)2 to identify the average prices paid by the four 

kinds of commercial businesses in this analysis compared with the average prices paid by all 

commercial customers. The manufacturing and federal facilities are assumed to pay the average 

industrial price. The ratio of prices paid by the four types of commercial buildings was used to 

increase or decrease the average commercial electricity prices as shown in Eq. 8.6. 

EPRICECOM BLD I STATE 2006 = EPRICE COM STATE 2006 • (EPRICE BLDG I US 2003/EPRICE COM US 2003) 

Eq. 8.6

where: 

EPRICECOM BLD I STATE 2007 = average commercial sector electricity price paid by business 

type I in a specific state in 2006. 

EPRICE COM STATE 2006 = average commercial sector electricity price in a specific state in 

2006 

EPRICE BLDG I US 2003 = national average commercial sector electricity price paid by 

business type I in 2003 CBECS 

EPRICE COM US 2003 = national average commercial sector electricity price in 2003 

CBECS 

Table 8.2.11 shows the derivation of the EPRICE ratios from CBECS in 2003. 

EERE-2006-STD-0125 COMMENT 22
8-16 

Table 8.2.11 Derived Average Electricity Price Paid by Business Type, 2003 

Business Type 

Manufacturing 

(Use Industrial) 

Office 

and 

Health 

Care Retail School 

Military 

(Use 

Industrial) Other 

All 

Commercial 

Buildings 

Electricity Price 

(cents/kWh) 

6.4 7.7 8.5 7.4 6.1 7.9 7.9 

Ratio of Electricity 

Price to Average 

Price for all 

Commercial 

Buildings 

NA (see text) 0.975 1.074 0.937 NA (see 

text) 

0.996 1.000 

Source: CBECS 2003

Once the building types have prices adjusted, the resulting estimated prices paid are the 

electricity prices used in the analysis. To obtain a weighted average national price, the prices 

paid by each building in each state are weighted by the estimated sales of BVM equipment in 

each state to each prototype building type (Automatic Merchandiser, 2006).7 The state/building 

type weights are the probabilities that a given BVM or BVM equipment shipped will be operated 

with a given price. For evaluation purposes, the prices and weights can be depicted as a 

cumulative probability distribution. The effective prices range from approximately 5 cents per 

kWh to approximately 16 cents per kWh. 

Figure 8.2.1 shows the electricity prices paid by BVM users. 

Figure 8.2.1 Cumulative Probability Distribution Showing the Electricity Prices Paid by 

BVM users (2007$) 

EERE-2006-STD-0125 COMMENT 22
8-17 

8.2.3.2 Electricity Price Trend 

The electricity price trend provides the relative change in electricity prices for future 

years out to the year 2030. Estimating future electricity prices is difficult, especially considering 

that there are efforts in many States throughout the country to restructure the electricity supply 

industry. 

DOE applies a projected trend in national average electricity prices to each customer’s 

energy prices. Of the following four scenarios, the LCC analysis uses the AEO 2007 reference 

price scenario: 

1. Constant energy prices at 2007 values (Constant at 1.0 in Figure 8.2.2) 

2. AEO 2007, High Economic Growth (“High Growth” in Figure 8.2.2) 

3. AEO 2007, Reference Case (“AEO 2007” in Figure 8.2.2) 

4. AEO 2007, Low Economic Growth (“Low Growth” in Figure 8.2.2) 

Figure 8.2.2 shows the trends for the three AEO 2007 commercial price projections where 

prices are assumed to change. A similar set of trends is used for industrial energy prices. DOE 

extrapolated the values in later years (i.e., after 2030) from their relative sources because AEO 

2007 does not forecast beyond 2030. To arrive at values for these later years, DOE used the 

price trend from 2020 to 2030 of the forecast to establish prices in the years 2030 to 2042. This 

method of extrapolation is in line with methods currently used by the EIA to forecast fuel prices 

for the Federal Energy Management Program. 

Commercial Electricity Price Projections

0.80

0.85

0.90

0.95

1.00

1.05

2000 2010 2020 2030 2040

Year

Index (2007=1.00)

High Growth

AEO 2007

Low Growth

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2042 

EERE-2006-STD-0125 COMMENT 22
8-18 

The default electricity price trend scenario used in the LCC analysis is the trend from the 

AEO 2007 Reference Case, which is the middle line in Figure 8.2.2. Spreadsheets used in 

calculating the LCC have the capability to analyze the other electricity price trend scenarios, 

namely, the AEO 2007 High Growth and the AEO 2007 Low Growth price trends and constant 

energy prices. 

8.2.3.3 Repair Cost

The repair cost is the cost to the consumer for replacing or repairing components in the 

BVM equipment that have failed. DOE based the annualized repair cost for baseline efficiency 

equipment (i.e., the cost the customer pays annually for repairing the equipment) on the 

following expression: 

RC= k • EQP/LIFE Eq 8.7

where: 

RC = repair cost, expressed in dollars 

k = fraction of the equipment price (a value of 0.5 was assumed) 

EQP = equipment price (customer price for the equipment only) expressed in dollars 

LIFE = average lifetime of the equipment in years (a value of 14.0 years was assumed). 

Because data were not available to indicate how repair costs vary with equipment 

efficiency, DOE considered two scenarios: (1) repair costs that varied in direct proportion with 

the manufacturer price of the equipment and (2) repair costs that were kept constant (i.e., did not 

increase with efficiency). 

DOE used repair costs that increase with manufacturer price (the first scenario above) as 

the default annualized repair cost scenario in the LCC and PBP analysis because higher 

efficiency equipment will have costlier components. Spreadsheets can be used to calculate LCC 

and PBP based on the second scenario as well. 

8.2.3.4 Maintenance Cost 

The maintenance cost is the cost to the consumer of maintaining equipment operation. 

The maintenance cost is not the cost associated with the replacement or repair of components 

that have failed (as discussed above). Rather, it is the cost associated with general maintenance 

(e.g., checking and maintaining refrigerant charge levels, cleaning heat exchanger coils). 

Virtually no data are available on annual maintenance cost per unit. DOE estimated 

annualized maintenance costs for BVM equipment from data in the same source as installation 

costs (Foster-Miller, Inc. 2002).6 Foster-Miller provides estimates on the person-hours required 

for routine preventive maintenance of BVMs and the labor rates associated with the type of crew 

required for routine preventive maintenance of the equipment. The preventative cost was 

calculated by multiplying the estimated number of person-hours by the corresponding labor rate, 

adjusted for the regional cost index in Table 8.2.12. The cost for preventative maintenance 

activities has been assumed to be the same for all BVM equipment classes. 

EERE-2006-STD-0125 COMMENT 22
8-19 

In addition to routine maintenance, industry contacts say that most BVMs are fully 

refurbished about every 3 to 5 years at a cost of about $927. DOE calculated the annual cost 

associated with refurbishment by assuming that two refurbishments happened in years 4 and 8 

and then annualized the present value of the cost using the discount rate that applied to the 

business that is assumed to own the equipment. 

Table 8.2.12 Components of Maintenance Cost for BVMs (2007$) 

Basic Annual Maintenance Cost (2007$)

2002 Cost Adjusted to 2007 Value Basis 

$30.625 $31.37 Preventative Maintenance, from Foster-Miller, Inc. 

(2002) Adjusted to 2007$, and adjusted for regional labor 

costs 

Refurbishment (2007$)

Cost to 

Refurbish 

Present 

Value Annualized Basis 

$927.00 $1,383.634 $134.06 $927 for complete refurbishment, 3 to 5-yr intervals, two 

per machine (assume years 5 and 10), annualized over a 

14-year average lifetime 

Total $165.44 Sum of Basic Maintenance and Annualized 

Refurbishment Cost 

The two components of maintenance are added together to produce an overall annual 

maintenance cost of $165.44. Because data were not available to indicate how maintenance 

costs vary with equipment efficiency, DOE decided to use preventative maintenance costs that 

remain constant as equipment efficiency increases. 

8.2.3.5 Lifetime 

DOE defined lifetime as the age when a BVM unit is retired from service. DOE based 

the lifetime on discussions with industry experts, who conclude that a typical lifetime of 

14-15 years is appropriate for BVM equipment. BVM equipment are refurbished on a three to 

five year cycle and are replaced after two rounds of refurbishment, by which time they are 

obsolete or physically worn out. There is a used-equipment market for these products. DOE 

understands, however, that the salvage value to the original purchaser is very low and thus this 

has not been taken into account in the LCC analysis. 

8.2.3.6 Discount Rate 

The discount rate is the rate at which future expenditures are discounted to establish their 

present value. DOE derived the discount rates for the LCC analysis by estimating the cost of 

capital for companies that purchase BVM equipment. The cost of capital is commonly used to 

estimate the present value of cash flows to be derived from a typical company project or 

investment. Most companies use both debt and equity capital to fund investments, so their cost 

of capital is the weighted average of the cost to the company of equity and debt financing. 

DOE estimated the cost of equity financing by using the Capital Asset Pricing Model 

(CAPM). The CAPM, among the most widely used models to estimate the cost of equity 

financing, assumes that the cost of equity is proportional to the amount of systematic risk 

EERE-2006-STD-0125 COMMENT 22
8-20 

associated with a company. The cost of equity financing tends to be high when a company faces 

a large degree of systematic risk and it tends to be low when the company faces a small degree of 

systematic risk. 

DOE determined the cost of equity financing by using several variables, including the 

risk coefficient of a company (β -beta), the expected return on “risk free” assets (Rf), and the 

additional return expected on assets facing average market risk, also known as the equity risk 

premium or ERP. The risk coefficient of a company (β) indicates the degree of risk associated 

with a given firm relative to the level of risk (or price variability) in the overall stock market. 

Risk coefficients usually vary between 0.5 and 2.0. A company with a risk coefficient of 

0.5 faces half the risk of other stocks in the market; a company with a risk coefficient of 2.0 

faces twice the overall stock market risk. 

The following equation gives the cost of equity financing for a particular company: 

ke = Rf + (β • ERP) Eq. 8.8

where: 

ke = the cost of equity for a company, expressed as a percentage 

Rf = the expected return of the risk free asset, expressed as a percentage 

β =the risk coefficient, 

ERP = the expected equity risk premium, expressed as a percentage. 

DOE defined the risk free rate (Rf) as the yield in January 2007 on long-term government 

bonds. DOE used a rate (ke) that varies with the ERP, based on data from the Damodaran Online 

site.8

 

The cost of debt financing is the yield or interest rate paid on money borrowed by a 

company (for example, by selling bonds). As defined here, the cost of debt includes 

compensation for default risk (the risk that a firm will go bankrupt) and excludes deductions for 

taxes. DOE estimated the cost of debt for companies by adding a risk adjustment factor to the 

current yield on long term corporate bonds (the risk free rate). It used this procedure to estimate 

current (and future) company costs to obtain debt financing. It based the adjustment factor on 

indicators of company risk, such as credit rating or variability of stock returns. 

The weighted average cost of capital (WACC) of a company is the weighted average cost 

of debt and equity financing: 

kr = (ke• we+ kd• wd)/(1+r) Eq. 8.9

where: 

kr = the (real) weighted average cost of capital, expressed as a percentage 

ke = the expected rate of return on equity, expressed as a percentage 

kd = the expected rate of return on debt, expressed as a percentage 

we = the proportion of equity financing in total annual financing 

wd = the proportion of debt financing in total annual financing, and 

r = the expected inflation rate 

The weighted average cost of capital is a real rate, because it excludes anticipated future 

inflation in the expected returns from stocks and bonds. DOE calculated expected inflation (2.2 

EERE-2006-STD-0125 COMMENT 22
8-21 

percent) from the average of the projected change in gross domestic product (GDP) prices in the 

Economic Report of the President (February 2007).9

To estimate the WACC of BVM equipment purchasers, DOE used a sample of 

companies involved in the seven types of business drawn from a database of 7,687 U.S. 

companies given on the Damodaran Online website. This database includes most of the 

publicly-traded companies in the United States. 

Table 8.2.13 reports summary statistics of the sample of companies in the six ownership 

categories, according to their type of activity. DOE sought financial information for all of the 

firms in the full sample involved in the seven types of business. This resulted in a sample of 

about 6,661 firms. In cases where one or more of the variables needed to estimate the discount 

rate was missing or could not be obtained, DOE discarded the firm from the analysis. Overall, it 

discarded about 36 percent of the firms in the full database for this reason, resulting in a final 

count of 4,240 firms. 

Table 8.2.13 Statistics on Nominal Weighted Average Cost of Capital Used in the Discount 

Rate Analysis 

Business Type 

Number of 

Firms Used 

for Analysis 

Calculated Nominal Weighted 

Average Cost of Capital (Mean 

Discount Rate) (%) 

Range of 

Values 

(%) 

Standard 

Deviation 

(%) 

Inflation-adjusted 

Weighted Average 

Cost of Capital 

Bottlers and 

Distributors 

11 7.28 5.10-9.43 1.25 4.97% 

Manufacturers 1,966 8.24 3.35-16.75 1.85 5.91% 

Office and 

Health Care 

1,820 7.27 3.07-15.96 1.86 4.96% 

Retail Trade 261 8.18 3.67-11.59 1.38 5.85% 

Schools, 

Colleges, etc. 

4.40% * 2.15% 

Military 5.09%** 2.83% 

Other 182 8.20% 4.23-12.07 1.36 5.15% 

Source: Pacific Northwest National Laboratory (PNNL) calculations applied to firms sampled from the Damodaran 

Online website. 

*Tax-exempt rate from Yahoo Finance Bonds Center, http://finance.yahoo.com/bonds/composite_bond_rates. 

Accessed 5-23-2007. 

**Federal borrowing rate: from U.S. Treasury, Office of Debt Management, 

http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/ Accessed 5-23-2007 

For each company in the sample, DOE derived the cost of debt, percent debt financing, 

and systematic company risk from information provided at the Damodaran Online website. 

DOE estimated the cost of debt financing from the long-term government bond rate 

(4.39 percent) and the standard deviation of the company’s stock price. Table 8.2.13 shows the 

weighted average values for the cost of debt, range of values, and standard deviation of weighted 

average cost of capital for each category of the sample companies. Individual credit-worthiness 

varies considerably, and some franchisees have access to the financial resources of the 

franchising corporation. Adjusting the cost of capital for expected inflation provides the 

estimates of the real discount rate by ownership category shown in the final column of 

Table 8.2.13. 

EERE-2006-STD-0125 COMMENT 22
8-22 

8.2.3.7 Effective Date of Standard 

The effective date is the future date when a new standard is implemented. Pursuant to 

42 U.S.C. 6313(a)(6)(c), the effective date of any new energy efficiency standard for BVM 

equipment will be three years after the final rule is published. DOE calculated the LCC for all 

customers as if they each would purchase a new BVM or BVM unit in the year the standard 

takes effect. Consistent with its published regulatory agenda, DOE assumed that the final rule 

would be issued in 2009 and that, therefore, the new standards would take effect in 2012 and 

used these dates in the ANOPR analyses. It based the cost of the equipment on this year; 

however, all dollar values are expressed in 2007$. Annual energy prices are considered for the 

life of the BVM equipment. 

8.3 PAYBACK PERIOD INPUTS 

8.3.1 Definition 

The payback period is the amount of time it takes the customer to recover the assumed 

higher purchase cost of more energy-efficient equipment as a result of lower operating costs. 

Numerically, the PBP is the ratio of the increase in purchase cost (i.e., from a less efficient 

design to a more efficient design) to the decrease in annual operating expenditures. This type of 

calculation is known as a “simple” payback period, because is does not take into account changes 

in operating cost over time or the time value of money—that is, the calculation is done at an 

effective discount rate of 0 percent. 

The equation for PBP is: 

PBP =∆IC/∆OC Eq. 8.8

where: 

PBC = payback period in years 

∆ IC = difference in the total installed cost between the more efficient standard level 

equipment (efficiency levels 2,3, etc.) and the baseline efficiency equipment, and 

∆OC = difference in annual operating costs. 

Payback periods are expressed in years. Payback periods less than the life of the 

equipment mean that the increased total installed cost of the more efficient equipment is 

recovered in reduced operating costs. 

8.3.2 Inputs 

The data inputs to PBP are the total installed cost of the equipment to the customer for 

each efficiency level and the annual (first year) operating costs for each efficiency level. The 

inputs to the total installed cost are the equipment price and the installation cost. The inputs to 

the operating costs are the annual energy cost, the annual repair cost, and the annual maintenance 

cost. The PBP uses the same inputs as the LCC analysis described in section 8.2, except that 

electricity price trends and discount rates are not required. Since the PBP is a “simple” 

(undiscounted) payback, the required electricity cost is only for the year in which a new efficient 

EERE-2006-STD-0125 COMMENT 22
8-23 

standard is to take effect—in this case, the year 2012. The electricity price used in the PBP 

calculation was the price projected for 2012, expressed in 2007$, but not discounted to 2007. 

Discount rates are not used in the PBP calculation. 

8.4 RESULTS USING TARIFF-BASED ELECTRICITY PRICES 

8.4.1 Life-Cycle Cost Results 

This section presents LCC results for the selected efficiency levels and for B-L-IO as an 

sample equipment class. A variety of graphic displays can be created to illustrate the 

implications of the analysis. Examples of graphic displays are (1) a cumulative probability 

distribution showing the percentage of BVM equipment in U.S. commercial buildings that would 

experience a net savings, and (2) a frequency chart depicting variation in life-cycle cost for each 

BVM efficiency level considered. The detailed results for all others sizes and equipment classes 

are presented in Appendix F. The results presented here are based on annual operating costs 

calculated from average annual electricity prices developed for each business type. Section 8.2 

presents the electricity price inputs as well as all other LCC inputs. 

Because the values of most inputs are uncertain in this analysis, DOE represents them as 

a distribution of values rather than a single point-value. Thus, DOE represents the LCC results 

as a distribution of values. Before proceeding with the presentation of the distribution of LCC 

results, DOE presents average values for total installed costs, annual operating costs, and LCC to 

show how these costs vary with efficiency for each of the BVM equipment classes. 

8.4.1.1 LCC Breakdown Based on Average Input Values 

For the B-L-IO equipment class, Figure 8.4.1 and Figures F.2.13 in Appendix F show 

how, on an average basis, the LCC varies with efficiency levels. Figures F.2.1 through F.2.21 

pertain to each equipment class. 

DOE divided the figures for total installed cost into equipment price and installation cost. 

It divided the figures for annual operating cost into annual electricity, repair, and maintenance 

costs. It divided the figures for LCC into total installed cost and lifetime operating cost. 

Although these figures are based on mean or average values rather than results from the Monte 

Carlo simulation analysis, they demonstrate how the various inputs impact LCC. In view of the 

total installed cost results for the equipment classes, the equipment price is the largest contributor 

to increased total cost since the installation cost remains relatively constant across the efficiency 

levels. 

Annual electricity cost is the largest contributor to the overall operating cost at any 

efficiency level. As efficiency increases, electricity cost decreases. 

The LCC results reveal that as efficiency increases, the lifetime operating cost has 

slightly more of an impact on the LCC than the total installed cost. In other words, the decrease 

in lifetime operating costs offsets the increase in total installed cost that occurs with increased 

equipment efficiency. As a result, the LCC at most efficiency levels is lower than that for the 

baseline level (Level 1). 

EERE-2006-STD-0125 COMMENT 22
8-24 

LCC as a function of Efficiency Level

6125 6124

6036 5975 5996 6020 6031

7228

5000

5500

6000

6500

7000

7500

Level 1

(Energy

Star Tier

1)

Level 2 Level 3

(Energy

Star Tier

2)

Level 4 Level 5 Level 6 Level 7 Level 8

(Max

Tech)

Efficiency Level

Life Cycle Cost

Life Cycle Cost

Equipment=B-L-Indoor-Outdoor, Fuel Price=AEO 2007 - Reference Case, Start 

Year= 2012

Figure 8.4.1 Effect of the Change in Efficiency Level on Life-Cycle Cost for B-L-IO 

Equipment Class (2007$) at Average U.S. Conditions (Level 1 is the Baseline 

Efficiency Level).

Again, the results shown in Figures 8.4.1 and F.2.1 through F.2.21 are based on average 

input values rather than input distributions. Thus, one can observe how the various inputs impact 

LCC and, in turn, how the resulting LCC changes with efficiency for this example. Conclusions, 

however, should be drawn from the distribution of LCC results presented in section 8.4.1.2. 

8.4.1.2 Differences in LCC between Baseline and Standard-Level Equipment 

DOE’s first step in developing LCC results was to establish the baseline LCC for each of 

the equipment classes. The baseline efficiency level for the ANOPR analysis is the ENERGY 

STAR Tier 1 level. 

This section presents the differences in the LCC of standard-level equipment relative to 

the baseline efficiency equipment. The LCC differences are depicted as a distribution of values. 

DOE presents the results in a cumulative chart showing the cumulative distribution of LCC 

differences along with the corresponding probability of occurrence for each proposed efficiency 

level. In each chart, DOE provides the LCC difference along with the percent of the population 

for which the LCC will decrease. In this analysis, the population is the number of BVM units in 

the six building types featured in the analysis (manufacturing facilities; health care facilities and 

office buildings; retail outlets; schools, colleges, and other public institutions; military facilities; 

and “other” (e.g., hotels and motels, arts and entertainment, and miscellaneous buildings such as 

warehouses). 

EERE-2006-STD-0125 COMMENT 22
8-25 

Figure 8.4.2 presents the LCC results for the case of Efficiency Level 4 in the B-L-IO 

BVM equipment class. Additional cases are shown as Figures F.2.2 through F.2.22 in Appendix 

F. In Figure 8.4.2, the 50% line shows the median change in LCC (a savings of $350 in this 

example). Half of the purchasers of this BVM unit would save more than $350 while half would 

save less than $350. The “0” horizontal line is the minimum savings value, which in this 

example is $16 due to the increased efficiency level (Level 4) equipment costing more than the 

baseline efficiency (Level 1) equipment. The maximum LCC savings is $1,513. 

Figure 8.4.2 B-L-IO Equipment Class, Level 4 Efficiency: Cumulative Chart of LCC 

Savings 

Appendix F contains the cumulative charts for all the efficiency levels considered for all 

BVM equipment classes. These are Figures F.2.2 through F.2.22 in Appendix F. These charts 

provide more complete information, but DOE provides a summary of the change in LCC from 

the baseline by percentile groupings (i.e., of the distribution of results) for each of the equipment 

classes in Table 8.4.1. Table 8.4.1 also shows the mean LCC savings and the percent of 

equipment with LCC savings for each efficiency level. 

As an example of how to interpret the information in Table 8.4.1, here is a review of the 

results for the BVM equipment class. The Level 4 efficiency level in Table 8.4.1 (row 4) shows 

that the change in LCC (zero percentile column) is a minimum savings of $16. For 90 percent of 

the cases studied (90th percentile), the change in LCC is a reduction of $663 or less. The largest 

reduction in LCC is $1,513 (100th percentile). The mean change in LCC is a net savings of $351. 

The last column shows that 100 percent of the sample has LCC savings (i.e., reductions in LCC 

greater than zero). 

Table 8.4.2 provides the national average life cycle cost savings calculated for each 

efficiency level when compared to the baseline (Level 1) for all equipment classes. Review of 

Table 8.4.2 shows that every efficiency level analyzed generated national average life cycle cost 

savings compared with the baseline. 

EERE-2006-STD-0125 COMMENT 22
8-26 

Table 8.4.1 Distribution of Life-Cycle Cost Savings from a Baseline Level (Level 1) for BL-IO Equipment Class by Efficiency Level 

Decrease in LCC from Baseline Efficiency (Level 1) Shown by Percentiles of the 

Distribution of Results (2007$) 

Mean 

Savings

Percent 

of Units 

with 

LCC 

Savings

Efficiency 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 

Level 2 $31 $117 $148 $170 $194 $216 $242 $269 $302 $387 $803 $234 100% 

Level 3 $30 $150 $195 $229 $263 $296 $333 $372 $423 $541 $1,196 $322 100% 

Level 4 $16 $163 $221 $263 $308 $351 $396 $445 $513 $663 $1,513 $383 100% 

Level 5 -$66 $93 $161 $214 $270 $323 $373 $442 $520 $710 $1,744 $362 99% 

Level 6 -$120 $45 $115 $177 $235 $295 $354 $424 $510 $717 $1,895 $338 95% 

Level 7 -$133 $31 $101 $163 $224 $284 $345 $415 $501 $711 $1,905 $327 93% 

Level 8 -$1,359 -$1,149 -$1,076 -$1,008 -$947 -$915 -$864 -$792 -$709 -$513 $598 -$870 1% 

Table 8.4.2 Average Life-Cycle Cost Savings from a Baseline Level (Level 1) by 

Efficiency Level and Equipment Class 

Equipment National Average LCC Savings (2007$) 

Class Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

A-L-IN NA $145 $254 $339 $363 $359 $181 -$792 

A-M-IN NA $141 $237 $318 $334 $328 $175 -$739 

A-S-IN NA $136 $233 $309 $317 $310 $159 -$590 

B-L-IO NA $234 $322 $383 $362 $338 $327 -$870 

B-M-IO NA $235 $306 $361 $338 $306 $294 -$798 

B-S-IO NA $233 $290 $310 $279 $240 $225 -$702 

 Percent of Units with Positive LCC Savings 

 Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

A-L-IN NA 100% 100% 100% 99% 99% 77% 1% 

A-M-IN NA 100% 100% 100% 99% 99% 79% 1% 

A-S-IN NA 100% 100% 100% 99% 99% 77% 1% 

B-L-IO NA 100% 100% 100% 99% 95% 93% 1% 

B-M-IO NA 100% 100% 100% 99% 93% 91% 1% 

B-S-IO NA 100% 100% 100% 95% 89% 85% 1% 

Figure F.2.1 through Figure F.2.22 in Appendix F graphically depict the LCC results. 

The first figure for each equipment class shows the mean LCCs, while the second figure shows 

the percentage of equipment at each efficiency level with reduced LCCs. 

8.4.2 Payback Period Results 

This section presents PBP results for the efficiency improvement levels specified in the 

engineering analysis (chapter 5) and also presented in section 8.2.2.2, standard-level 

manufacturer price increases. The results presented here are based on annual operating costs 

calculated from state average commercial electricity prices. Section 8.2 describes the tariffbased electricity price inputs as well as all other PBP inputs. Similar to LCC, the analysis 

provides an estimate of the simple payback period at different ranges of energy prices, sales 

taxes, and installation costs that prevail across the country for each efficiency level and each 

EERE-2006-STD-0125 COMMENT 22
8-27 

business type. 

Payback Period as a function of Efficiency Level

0.8 1.2 1.7 3.5 4.6 4.8

76.6

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

Level 2 Level 3

(Energy Star

Tier 2)

Level 4 Level 5 Level 6 Level 7 Level 8 (Max

Tech)

Efficiency Level

Payback Period (Years)

Payback

Equipment=B-L-Indoor-Outdoor, Fuel Price=AEO 2007 - Reference Case, Start 

Year= 2012

Figure 8.4.3 shows the effect on payback period as the level of efficiency changes for 

B-L-IO equipment class at U.S. national average energy prices, sales taxes, and installation costs. 

EERE-2006-STD-0125 COMMENT 22
8-28 

Payback Period as a function of Efficiency Level

0.8 1.2 1.7 3.5 4.6 4.8

76.6

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

Level 2 Level 3

(Energy Star

Tier 2)

Level 4 Level 5 Level 6 Level 7 Level 8 (Max

Tech)

Efficiency Level

Payback Period (Years)

Payback

Equipment=B-L-Indoor-Outdoor, Fuel Price=AEO 2007 - Reference Case, Start 

Year= 2012

Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for B-L-IO 

Equipment Class at Average U.S. Conditions (Level 1 is the Baseline Level). 

Similar to the LCC differences, DOE depicted PBP results as a distribution of values. 

Thus, it presents the results as a cumulative probability chart showing the distribution of PBPs 

with the corresponding cumulative probability of occurrence. Each chart provides the mean 

PBP. 

Figure 8.4.4 is an example of a cumulative probability chart showing the distribution of 

payback periods for the increased efficiency levels for the BVM equipment class. Appendix F 

contains the frequency charts for all the efficiency levels considered for all beverage vending 

machines in this analysis. In 

Figure 8.4.4, the y-axis shows cumulative percent of all BVM equipment (“Probability” 

at left y-axis). The x-axis is the PBP of a higher efficiency level (in this example, Level 4) 

relative to the baseline efficiency level (Level 1). In 

Figure 8.4.4, a Level 4 efficiency level provides BVM equipment with a median PBP of 

about 1.6 years, a mean payback period of about 1.7 years, and a payback period range from just 

about 0.5 years to approximately 4.1 years. (Note that these cannot be read with precision from 

the chart; rather, the analysis output data provides these values in a statistical summary.) 

EERE-2006-STD-0125 COMMENT 22
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Figure 8.4.4 B-L-IO Equipment Class Level 4 Efficiency: Cumulative Chart of PBP 

Table 8.4.3 summarizes the PBP results for the B-L-IO equipment class. Results are 

summarized for PBP by percentile groupings (i.e., percentile of the distribution of results). The 

chart also shows the mean PBP for each efficiency level. Paybacks greater than 100 years were 

set to be 100 years (as can be seen for the efficiency level 8 in Table 8.4.3). 

Table 8.4.3 Summary of PBP Results for B-L-IO Equipment Class 

Payback Period in Years Shown by Percentiles of the Distribution of Results Mean

Efficiency 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 

Level 2 0.3 0.5 0.6 0.6 0.7 0.8 0.8 0.9 1.0 1.2 1.8 0.8 

Level 3 0.4 0.7 0.8 1.0 1.1 1.2 1.2 1.4 1.6 1.9 2.8 1.2 

Level 4 0.5 1.0 1.2 1.3 1.5 1.6 1.7 1.9 2.3 2.7 4.1 1.7 

Level 5 1.0 1.9 2.3 2.6 2.9 3.3 3.4 3.9 4.7 5.7 9.6 3.5 

Level 6 1.2 2.3 2.8 3.3 3.8 4.1 4.4 5.0 6.1 7.6 13.9 4.6 

Level 7 1.3 2.5 3.0 3.5 4.0 4.4 4.6 5.3 6.5 8.1 15.1 4.8 

Level 8 7.6 21.6 36.0 58.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 76.6 

Table 8.4.4 provides the national average payback calculated for each efficiency level 

when compared to the baseline (Level 1) for all equipment classes. Table 8.4.4 also shows the 

percentage of units reporting payback periods of less than 3 years. The results of the analysis 

show that payback period for purchases of higher efficiency levels (with respect to purchase of 

baseline units) was less than 4 years for any of the efficiency levels considered for any 

equipment class. The Level 5 and 6 columns of Table 8.4.4 show the highest efficiency levels 

that provide for a national average payback of less than 3 years, as well as the levels of highest 

efficiency level that provides a payback of less than 3 years to at least 50 percent of units 

shipped. 

EERE-2006-STD-0125 COMMENT 22
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Table 8.4.4 National Average Payback Periods by Efficiency Level and Equipment Class 

Equipment National Average Payback Period (Years) 

Class Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

A-L-IN NA 1.2 1.6 1.9 2.4 2.7 7.4 64.0 

A-M-IN NA 1.3 1.6 2.0 2.6 2.9 7.2 67.5 

A-S-IN NA 1.3 1.5 1.9 2.5 2.8 7.4 66.3 

B-L-IO NA 0.8 1.2 1.7 3.5 4.6 4.8 76.6 

B-M-IO NA 0.8 1.3 1.8 3.7 4.9 5.2 76.0 

B-S-IO NA 0.8 1.4 2.0 4.3 5.7 6.1 78.1 

 Percent of Units with Payback Period less than 3 Years 

 Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

A-L-IN 0% 100% 99% 91% 79% 71% 1% 0% 

A-M-IN 0% 100% 99% 89% 73% 65% 1% 0% 

A-S-IN 0% 100% 99% 91% 77% 67% 3% 0% 

B-L-IO 0% 100% 100% 95% 43% 23% 21% 0% 

B-M-IO 0% 100% 100% 91% 39% 21% 19% 0% 

B-S-IO 0% 100% 99% 85% 25% 17% 13% 0% 

8.4.3 Rebuttable Presumption Payback Period 

Sections 325(o)(2)(B)(iii) and 345(e)(1)(A) of EPCA (42 U.S.C. 6295(o)(2)(B)(iii) and 

42 U.S.C. 6316(e)(1)(A)), establish a rebuttable presumption for beverage vending machines. 

The rebuttable presumption states that a standard is economically justified if the Secretary finds 

that “the additional cost to the consumer of purchasing a product complying with an energy 

conservation standard level will be less than three times the value of the energy ... savings 

during the first year that the consumer will receive as a result of the standard, as calculated under 

the applicable test procedure ...” This rebuttable-presumption test is an alternative path to 

establishing economic justification. 

To evaluate the rebuttable presumption, DOE estimated the additional cost of purchasing 

more efficient, standard-compliant equipment, and compared this cost to the value of the energy 

saved during the first year of operation of the equipment. DOE interprets that the increased cost 

of purchasing standard-compliant equipment includes the cost of installing the equipment for use 

by the purchaser. DOE calculated the rebuttable presumption payback period (RPBP), or the 

ratio of the value of the increased installed price above the baseline efficiency level to the first 

year’s energy cost savings. When this payback period is less than three years, the rebuttable 

presumption is satisfied; when this payback period is equal to or more than three years, the 

rebuttable presumption is not satisfied. Note that this payback period calculation does not 

include other components to the annual operating cost of the equipment (i.e. maintenance costs 

and repair costs). The rebuttable presumption payback periods calculated can thus be different 

from the payback periods calculated in section 8.4.2. 

DOE calculated the rebuttable presumption payback periods for the distribution of 

installed costs and energy prices discussed in section 8.2.2.4 and section 8.2.3.1 representative of 

the same four types of businesses and all 50 States. The baseline efficiency level for the 

rebuttable presumption calculation is the Level 1 baseline efficiency. The rebuttable 

presumption payback period was calculated for each higher efficiency level within each 

equipment class. 

EERE-2006-STD-0125 COMMENT 22
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Table 8.4.5 shows the nationally-averaged rebuttable presumption payback periods 

calculated for all equipment classes and efficiency levels. The highest efficiency level with a 

rebuttable presumption payback period of less than three years is also shown for each equipment 

class. 

Table 8.4.5 Rebuttable Presumption Payback Periods by Efficiency Level and 

Equipment Class 

Rebuttable Presumption Payback Period (Years) 

Equipment 

Type 

Level 

1 

Level 

2 

Level 

3 

Level 

4 

Level 

5 

Level 

6 

Level 

7 

Level 

8 

Highest Level 

with PBP < 3 

years 

B-L-IO NA 0.8 1.1 1.5 2.8 3.4 3.5 14.5 Level 5 

B-M-IO NA 0.8 1.2 1.6 2.8 3.5 3.6 14.1 Level 5 

B-S-IO NA 0.8 1.3 1.7 3.1 3.7 3.9 13.1 Level 4 

A-L-IN NA 1.2 1.4 1.7 2.1 2.3 5.2 16.1 Level 6 

A-M-IN NA 1.2 1.5 1.8 2.2 2.4 5.0 15.6 Level 6 

A-S-IN NA 1.2 1.4 1.7 2.1 2.3 4.7 13.4 Level 6 

8.5 LCC SENSITIVITY STUDIES 

Sensitivity analyses were conducted to evaluate how the LCC and PBP results change 

with changes in fuel price escalation rate scenarios. 

8.5.1 Sensitivity to Fuel Price Escalation Rate Scenarios 

Sensitivity to fuel price escalation rate was examined using the escalation rates provided in 

the AEO 2007 high growth and low growth scenarios. 

Table 8.5. and Table 8.5. examine the national average LCC savings for the AEO 2007

low growth scenario and AEO 2007 high growth scenarios, respectively. For the low growth 

scenario, while the average LCC savings is reduced for all efficiency levels above the baseline 

when compared with the reference case (see Table 8.4.2), there are no changes in the level 

showing the highest LCC savings when compared with the results using AEO 2007 reference 

case. For the high growth scenario the average LCC savings is increased for all efficiency levels 

above the baseline when compared with the reference case. Payback period is calculated based 

on first year energy savings and thus is insensitive to fuel escalation rate scenario. 

Table 8.5.1 Average Life-Cycle Cost Savings from a Baseline Level (Level 1) by 

Efficiency Level and Equipment Class – AEO 2007 Low Growth Scenario 

Equipment National Average LCC Savings (2007$) 

Class Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

A-L-IN NA $135 $235 $313 $333 $328 $144 -$832 

A-M-IN NA $131 $219 $293 $305 $299 $140 -$776 

A-S-IN NA $126 $215 $284 $290 $282 $127 -$625 

B-L-IO NA $218 $299 $353 $325 $297 $285 -$913 

B-M-IO NA $219 $284 $333 $302 $266 $253 -$839 

B-S-IO NA $217 $268 $284 $246 $204 $189 -$740 

 Percent of Units with Positive LCC Savings 

EERE-2006-STD-0125 COMMENT 22
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 Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

A-L-IN 0% 100% 100% 100% 99% 99% 71% 1% 

A-M-IN 0% 100% 100% 100% 99% 99% 73% 1% 

A-S-IN 0% 100% 100% 100% 99% 99% 73% 1% 

B-L-IO 0% 100% 100% 100% 99% 93% 91% 1% 

B-M-IO 0% 100% 100% 100% 97% 91% 87% 1% 

B-S-IO 0% 100% 100% 99% 93% 85% 81% 1% 

Table 8.5.2 Average Life-Cycle Cost Savings from a Baseline Level (Level 1) by 

Efficiency Level and Equipment Class – AEO 2007 High Growth Scenario 

Equipment National Average LCC Savings (2007$) 

Class Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

A-L-IN NA $153 $268 $359 $386 $383 $209 -$762 

A-M-IN NA $149 $250 $337 $356 $351 $200 -$711 

A-S-IN NA $144 $246 $327 $338 $331 $183 -$564 

B-L-IO NA $246 $339 $405 $390 $369 $359 -$838 

B-M-IO NA $247 $323 $383 $365 $336 $323 -$768 

B-S-IO NA $245 $306 $329 $304 $267 $253 -$674 

 Percent of Units with Positive LCC Savings 

 Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

A-L-IN 0% 100% 100% 100% 99% 99% 81% 1% 

A-M-IN 0% 100% 100% 100% 99% 99% 81% 1% 

A-S-IN 0% 100% 100% 100% 99% 99% 81% 1% 

B-L-IO 0% 100% 100% 100% 99% 97% 95% 1% 

B-M-IO 0% 100% 100% 100% 99% 95% 93% 1% 

B-S-IO 0% 100% 100% 100% 97% 89% 87% 1% 

8.6 DETAILED RESULTS 

DOE presents more detailed results and supporting data for the LCC analysis in appendix F. 

EERE-2006-STD-0125 COMMENT 22
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REFERENCES 

1. EIA 2007a EIA (Energy Information Administration). 2007a. Monthly Electricity 

Database (EIA form 826) Annual 1991 through 2006, Jan-Feb 2007. 

http://www.eia.doe.gov/cneaf/electricity/page/data.html. Accessed May 29, 2007. 

2 EIA 2003. EIA (Energy Information Administration). 2003. 2003 CBECS Detailed 

Tables. Table C13A. Total Electricity Consumption and Expenditures. 

http://www.eia.doe.gov/emeu/cbecs/cbecs2003/detailed_tables_2003/detailed_tables_2003.

html. Accessed June 14, 2007. 

3 EIA (Energy Information Administration). 2007b. Average Retail Price of Electricity to 

Ultimate Customers by End-Use Sector: 

http://www.eia.doe.gov/cneaf/electricity/epa/epat7p4.html. Accessed October 31, 2006. 

4 EIA (Energy Information Administration). 2007c. Annual Energy Outlook 2007. EIA, 

Washington, D.C., DOE/EIA-0554 (2007). 

5 Bureau of Labor Statistics. May 2006. Occupational Employment and Wage Estimates 

http://www.bls.gov/oes/oes_dl.htm 

6 Foster-Miller, Inc. 2002. Vending Machine Service Call Reduction using the 

VendingMiser, Waltham, MA. 

7 Automatic Merchandiser. 2006. State of the Vending Industry Report, 

www.AMonline.com, August 2006. 

8 Damodaran Online. Leonard N. Stern School of Business, New York University:

http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html. (Accessed May 23, 

2007). 

9 Executive Office of the President. 2007. 2007 Economic Report of the President, 

Washington, D.C. 

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