2

- i CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS
2.1 INTRODUCTION

................................ ................................ ................................ ........... 2

- 1
2.2 BACKGROUND

................................ ................................ ................................ ............. 2

- 2
2.2.1 METRIC

................................ ................................ ................................ .......................... 2

- 3
2.3 MARKET AND TECHNOLOG Y ASSESSMENT

................................ ........................ 2

- 3 2.3.1 Market Assessment

................................ ................................ .............................. 2

- 4 2.3.1.1 Equipment Classes

................................ ................................ ............................... 2

- 4 2.3.2 Technology Assessment

................................ ................................ ....................... 2

- 9 2.3.2.1 Technology Options

................................ ................................ ............................. 2

- 9
2.4 SCREENING ANALYSIS

................................ ................................ ............................ 2

- 12
2.5 ENGINEERING ANALYSIS

................................ ................................ ........................ 2

- 13 2. 5.1 Baseline Equipment and Representative Sizes

................................ .................. 2

- 14 2.5.2 Refrigerants

................................ ................................ ................................ ........ 2

- 14 2.5.3 Ma nufacturer Production Costs

................................ ................................ ......... 2

- 18 2.5.4 Max Tech

................................ ................................ ................................ ........... 2

- 18
2.6 MARKUPS ANALYSIS

................................ ................................ ............................... 2

- 19
2.7 ENERGY USE ANALYSIS

................................ ................................ .......................... 2

- 20
2. 8 LIFE

- CYCLE COST AND PAYBA CK PERIOD ANALYSES

................................ .. 2

- 21 2.8.1 Retail Prices

................................ ................................ ................................ ....... 2

- 22 2.8.2 Energy Prices

................................ ................................ ................................ ..... 2

- 22 2.8.3 Maintenance, Repair, and Installation Costs

................................ ...................... 2

- 22 2.8.4 Product Lifetime

................................ ................................ ................................ 2

- 23 2.8.5 Discount Rates

................................ ................................ ................................ ... 2

- 23 2.8.6 Equipment Efficiency in the Base Case

................................ ............................. 2

- 24 2.8.7 Split Incentives

................................ ................................ ................................ ... 2

- 24
2.9 SHIPMENTS ANALYSIS

................................ ................................ ............................ 2

- 25
2.10 NATIONAL IMPACT ANAL YSIS

................................ ................................ .............. 2

- 26 2.10.1 National Energy Savings Analysis

................................ ................................ ..... 2

- 27 2.10.2 Net Present Value Analysis

................................ ................................ ............... 2

- 27
2.11 CUSTOMER SUB

- GROUP ANALYSIS

................................ ................................ ..... 2

- 28
2.12 PRELIMINARY MANUFACT URER IMPACT ANALYSIS

................................ ..... 2

- 29 2.12.1 Manufacturer and Trade Group Comments

................................ ....................... 2

- 292

- ii 2.13 EMISSIONS ANALYSIS

................................ ................................ .............................. 2

- 31
2.14 MONETIZATION OF EMIS SIONS REDUCTION BENE FITS

................................ . 2

- 34
2.15 EMPLOYMENT IMPACT AN ALYSIS

................................ ................................ ....... 2

- 35
2.16 UTILITY IMPACT ANALY SIS

................................ ................................ ................... 2

- 35
2.17 REGULATORY IMPACT AN ALYSIS

................................ ................................ ....... 2

- 362

- 1 CHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION
The Energy Policy and Conservation Act (EPCA), Pub. L. 94

- 163, 42 U.S.C. 6291 et seq. , requires the U.S. Department of Energy (DOE) to establish energy conservation standards that achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) This chapter describes the general analytical framework that DOE uses in developing such standards, and in particula r, the energy conservation standards that it is examining for refrigerated beverage vending machines . Included in this chapter are descriptions of the methodology, the analytical tools, and the relationships among the various analyses that are part of this rulemaking.

The analyses performed as part of the preliminary analysis stage and reported in this preliminary technical support document (TSD) are listed below.

• A market and technology assessment to characterize the markets for refrigerated beverage vendi ng machine s and the applicable existing technology options, including prototype designs.

• A screening analysis to review each technology option to decide whether it is technologically feasible; is practical to manufacture, install, and service; would advers ely affect equipment utility or availability; or would have adverse effects on health and safety.

• An engineering analysis to develop cost

- efficiency relationships, which indicate the manufacturer’s cost of achieving increased efficiency.

• A markups analysis to develop distribution channel markups that relate the manufacturer production cost (MPC) to the cost to the consumer.

• An analysis of the annual energy use of the considered products.

• Life

- cycle cost (LCC) and payback period (PBP) analys i s to calculate, at the vending machine owner level, the savings in operating costs throughout the estimated average lifetime of the covered equipment , compared to any increase in purchase and installation
cost.

• A shipments analysis to forecast shipments of refrigerated be verage vending machine s , which are then used to calculate the national impacts of standards on energy, net present value (NPV), and future manufacturer cash flows.2

- 2 • A national impact analysis (NIA) to assess aggregate impacts at the national level of potent ial energy conservation standards for refrigerated beverage vending machine s , as measured by the NPV of total consumer economic impacts and the national energy savings (NES).

• A preliminary manufacturer impact analysis (MIA) to assess the potential impacts of energy conservation standards on manufacturers’ capital conversion expenditures, marketing costs, shipments, and research and development costs.

In the subsequent Notice of Proposed Rulemaking (NOPR), DOE will present updated tentative results of the ab ove analyses, incorporating any revisions to the analyses based on comments and new information received. DOE will also present results of the following additional analyses in the NOPR:

• A LCC sub

- group analysis conducted to evaluate variations in commercia l business characteristics (e.g., energy prices, equipment use patterns, and installation and maintenance costs) that might cause a standard to affect particular customer sub

populations differently than the overall population.

• An MIA to estimate the fina ncial impact of standards on manufacturers and to calculate impacts on competition, employment, and manufacturing capacity.

• An emissions analysis to estimate the effects of considered standards on emissions of carbon dioxide (CO 2 ), sulfur dioxide (SO 2 ), nitrogen oxides (NO X ), and mercury (Hg).

• Monetization of emissions reductions benefits estimated to occur from reduced emissions of carbon dioxide and nitrogen oxides as a result of the standards.

• A utility impact analysis to estimate selected effects of considered standards on the electric power sector

.

• An employment impact analysis to assess the aggregate impacts of considered standards on national employment.

• A regulatory impact analysis to examine major alternatives to proposed amended energy
conservat ion standards that potentially could achieve substantially the same regulatory goal at a lower cost.

2.2 BACKGROUND
DOE developed this analytical framework and documented its initial findings in the Rulemaking Framework for Refrigerated Bottled or Canned Bever age Vending Machines (the Framework Document). DOE announced the availability of the Framework Document in a Notice of Public Meeting and Availability of a Framework Document published in the Federal2

- 3 Register on June 4, 2013 . 77 FR 33262 . DOE presented the analytical approach to interested parties during a public meeting on June 20, 2013 . The Framework Document is available at the rulemaking website. 1

In response to the publication of the Framework Document and the associated public meeting, DOE receiv ed comments from interested parties regarding its analytical approach. In this chapter (chapter 2) of the preliminary TSD, DOE: (1) summarizes the key comments received from interested parties and describes DOE’s responses to those comments; (2) summarizes any significant changes made in its analysis approach since publishing the Framework Document; and (3) explains in further detail each of the issues, identified in the executive summary, for which DOE seeks public comment.

In a simultaneous rulemaking (hereafter referred to as the Test Procedure NOPR) , DOE has published a NOPR including proposed clarifications and amendments to the test procedure for refrigerated beverage vending machine s

. Comments pertaining to refrigerated beverage vending machine ( BVM ) test procedure received after publication of the framework document for this rulemaking were incorporated into and addressed in the test procedure NOPR.

2.2.1 METRIC

Several manufacturers provided comment regarding DOE’s choice of metric for determining eq uipment performance. Royal and NAMA commented that energy use evaluation should be based on refrigerated volumetric capacity and vend capacity

. (Royal, No. 11 at p. 9 ; NAMA, No. 8 at p. 11) AMS commented that the AHAM HRF

- 1 volume calculation currently inc luded in the DOE test procedure was difficult to evaluate for its type of equipment (AMS, No. 7 at p. 79). DOE agrees with Royal and NAMA that refrigerated volume is an appropriate metric because it allows for equitable comparison of machines based on the amount of space refrigerated, which is a proxy for the amount of product which can be stored. DOE, based on extensive stakeholder input and feedback, determined for this reason in its 2009 final rule that refrigerated volume was a more appropriate metric t han vendible capacity. Therefore, absent any specific additional comment on this issue , DOE plans to retain the metric of refrigerated volume in this rulemaking. In response to the comment from AMS regarding difficulty in conducting the AHAM volume calcula tion, DOE has contacted numerous stakeholders who conduct the DOE BVM test procedure, including third party test labs and manufacturers, and has not received significant adverse comment to using the AHAM method of test for measuring volume. DOE plans to co ntinue to use AHAM HRF

- 1 as the method for measuring the refrigerated volume of vending machines.

2.3 MARKET AND TECHNOLOG Y ASSESSMENT
The market and technology assessment characterizes the relevant equipment markets and existing technology options, includin g prototype designs.2

- 4 2.3.1 Market Asse s sment

In the course of an energy conservation standards rulemaking, DOE develops information that provides an overall picture of the market for the products considered, including the nature of the products, the industry structure, and market characteristics for the products. This activity consists of both quantitative and qual itative efforts based primarily on publicly available information.

For this preliminary analysis

, DOE reviewed relevant literature and interviewed manufacturers to develop an overall picture of the BVM market in the United States. Industry publications , trade journals, government agencies, and trade organizations provided the bulk of the information, including (1) manufacturers and their market shares; (2) shipments by equipment type; (3) detailed equipment information; and (4) industry trends; and (5) existing regulatory and non

- regulatory equipment efficiency improvement initiatives. The analysis developed as part of the market and technology assessment is described in chapter 3 of the preliminary TSD.

2.3.1.1 Equipment Classes
In the Framework Document, DOE d iscussed its existing classification (from the 2009 final rule) of beverage vending machines into Class A, Class B, and C ombination machines, and requested comments from the public on this classification.

Class A and Class B Machines

Royal agr eed with the equipment class descriptions the Framework Document, noting that all of its transparent

- front machines were fully cooled, and all of its solid

- front machines

wer e zone cooled. (Royal, No. 11 at p. 5) Royal and NAMA both stated that this was ge nerally accepted as the market standard

. (Royal, No. 11 at p. 5 ; NAMA, No. 8 at p. 10) Conversely, AMS commented that it sells transparent

- front machines which are not fully cooled and that these are outsold by fully

- cooled machines approximately two

- to

- one

. (AMS, No. 17 at p. 4)

DOE agrees with Royal and NAMA that full cooling of transparent

- font machines and

zone

- cooling of opaque

- front machines appears to be the industry standard , and DOE has not identified any exceptions to this categorization on the market today. With respect to the comment from AMS regarding transparent

- front machines which are not fully cooled, based on a review of manufacturer literature DOE believes that AMS was in fact referring to what DOE has categorized as combination vending machines, which contain two separate merchandising volumes, one of which is actively refrigerated and the other of which is not. Therefore DOE does not believe that the comment by AM S raises any issue with its existing equipment categorization scheme.

Expressing the need for more clarity in the definition of Class B equipment, Wittern stated that its transparent

- front machines could be configured to be either fully cooled, or2

- 5 partia lly cooled, depending on the customer’s requirements. Additionally, Wittern noted that it would not achieve any energy savings by fully cooling a zone

- cooled machine, and that it would be cost prohibitive to zone

- cool only the next

- to

- vend products of a fu lly cooled machine (Wittern, No. 16 at p. 2). The CA IOUs agreed with Wittern, suggesting that Class B equipment be better defined . The CA IOU further requested that if the phrase “zone

- cooled” is used in the definition, then this phrase als o be explicitly defined (CA IOU s, No. 19 at p. 2).

In response to the comment from Wittern, DOE believes that there may be confusion regarding the use of the term “fully cooled” and that Wittern is in fact referring to machines which can be configured as combination mac hines. This is often attained through installation of an insulated horizontal divider to separate the refrigerated and non

- refrigerated volumes. The statement by Wittern that it would be cost

- prohibitive to zone

- cool a fully cooled machine reaffirms DOE’s understanding of this comment. In reviewing the comments from Wittern, the CA IOUs, and other parties, DOE included proposed language to address these issues in its BVM test procedure NOPR by providing a definition of ”fully cooled”

. For more information o n this test procedure rulemaking, please visit http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/24 . DOE welcomes comment regarding the proposed definitional clarifications.

Moreover, CA IOU s commented that because zone c ooling reduces the refrigeration power needed and thus lessens the energy consumption of the unit

, and opaque

- front machines do not have increased refrigeration loads from a transparent front, it would be intuitive to have more stringent energy consumption requirements for Class B than Class A, the reverse of the current situation. The CA IOUs stated that DOE should closely examine what accounts for differences in the overall energy consumption of these equipment types in order to better characterize the en ergy use of these equipment classes and set appropriate standard levels (CA IOUs, No. 19 at p. 2). AMS agreed, stating that glass front machines have different utility than the stack

- style, zone

- cooled, opaque

- front machines that form the most common public perception of beverage vending machines . AMS added that despite having fewer energy saving options such as insulation in the door and z one

- cooling, glass front beverage vending machines have a more stringent standard according to the 2009 final rule (AMS, No. 17 at p. 14)

.
DOE realizes that the standard levels set in the 2009 final rule exhibit the relation stated by the CA IOUs and AMS , with Class A machines being allowed a smaller amount of energy use for the same amount of refrigerated volume tha n Class B machines. However, DOE cautions against drawing conclusions from such a direct comparison of absolute standard levels. The 2009 standard levels were set independently through analyses of performance, cost, and energy savings on a class

- by

- class b asis utilizing a design option engineering approach. This approach applied efficiency

- improving technologies one

- by

- one to build cost and performance curves from baseline to max

- tech levels for each class examined. Impacts of each design option were quanti fied specific to each equipment class , and standard levels were set independently for each class based on economic and energy analyses . Therefore, the same design options may have proven to have different performance and economic impacts across classes, an d different2

- 6 combinations of design options thus proved justified for inclusion in the standard levels for the various classes in the 2009 final rule. DOE is revisiting this analysis in its current rulemaking, examining each product class in isolation and u tilizing new cost and performance information to ensure that proposed standards for each class examined are economically justified and technologically feasible

. Machines Vending Perishable Goods

Stakeholders also responded to DOE’s request for comments regarding machines vending perishable goods. While Royal and NAMA commented that they saw no need to define any additional equipment classes since the market for equipment sold to vend perishable items was an insignificant contributor to total BVM energy u se, AMS expressed support for an equipment category more suited to multi

- purpose machines which dispensed beverages as well as other perishable products

. (Royal, No. 11 at p. 6 ; NAMA, No. 8 at p. 7 ; AMS, No. 17 at p. 5) NAMA noted that machines configured to sell either perishable or non

- perishable items ship with special software controls governing the performance of the machine when vending perishable items, whose operations can be changed on site by the operator (NAMA, No. 8 at p. 7). Wittern, Crane and AMS agreed with NAMA, noting that their fully

- cooled units are used to sell perishable and

non

- perishable items, and that these machines are all shipped with a standard controller and software package which can be configured to accommodate perishable items as certified by a NAMA/FDA Standard

. (AMS, No. 17 at p. 6 ; AMS, No. 7 at p. 42 ; Wittern, No. 16 at p. 2 ; Crane, No. 7 at p. 43) AMS also stated that while it favors the definition of additional classes, it does not believe that the current rulemaking’s s chedule allows enough time for DOE to sufficiently define and analyze additional classes. Additionally, AMS also requested DOE to explicitly exempt chilled snack machines ( with the design intent of preventing chocolate from melting) from the scope of this rule (AMS, No. 17 at p. 6).

DOE believes that the comments in response to this issue present a unified industry position that machines capable of vending perishable goods are generally not materially different from other refrigerated beverage vending machi nes, and that the necessary levels of temperature maintenance to preserve perishables are achieved through the application of control settings rather than through more involved design changes. Therefore, in the interest of reducing analytical complexity an d compliance burden, DOE is not considering separate equipment classes at this time for equipment vending perishable products. DOE does not see a need to expand its equipment classes to cover multi

- purpose machines capable of vending both beverages and oth er perishable goods due to the fact that these designs can be tested using the existing method of test and do not have significantly different energy consumption profiles from other refrigerated beverage vending machines when tested using that methodology. With respect to the final comment from AMS, machines which do not meet the definition of a refrigerated beverage vending machine would not fall into any of the covered classes, and thus would not have applicable standards.2

- 7 AMS also commented that in orde r to have perishables maintained at viable temperature above 32 ° F and below 41 ° F, the next

– to

- vend product temperatures in its machines are typically set above 36 ° F, and that it is forced to install special control software in units which will be used for testing as per ASHRAE 32.1, and therefore, AMS machines as shipped would consume less energy than the test would indicate (AMS, No. 17 at p. 5).

While DOE appreciates the input from AMS regarding variability in the temperature control of machines designed to accommodate perishable products, testing of covered equipment for the purposes of determining compliance with DOE energy conservation standard s requires the use of the DOE test procedure ,, unless DOE has issued a test procedure waiver relating to the appropriate test procedure issue . This procedure includes a rating temperature requirement of a 36 ° F next

- to

- vend temperature for refrigerated beve rage vending machines. Therefore, regardless of the temperature set points as shipped or as used in some field applications, DOE will test covered equipment at the 36 ° F rating temperature. In its recent test procedure NOPR, DOE also proposed to establish p rovisions for testing of equipment that cannot attain a 36 ° F
next

- to

- vend temperature at the lowest application product temperature. Should those provisions be included in a final rule, they would be potentially applicable to the types of equipment mention ed in the comment from AMS.

Combination Vending Machines

In the Framework Document, DOE requested information and comments from stakeholders on the design, market prevalence, and energy performance of combination vending machines. The Joint Comment a encouraged DOE to gather data on sales and energy use for combination vending machines in order to help determine the potential for energy savings from them ( Joint Comment , No. 13 at p. 3). Regarding the definition of combination vending machines, AMS comm ented that it manufactures machines which could potentially be considered either zone

- cooled or combination machines, because even though cold air is blocked in the cold air supply plenum, there is some comingling of air in the product delivery path of the machine, since complete separation of the zones would be cost prohibitive (AMS, No. 17 at p. 8). Further, AMS noted that many transparent

- front machines currently on the market were combination machines (AMS, No. 7 at p. 41). Wittern commented that these could be a part of Class A, if they were tested in the worst case condition

– full cooling the refrigerated compartment

– since any other partial cooling configuration would only consume less energy than this setup (Wittern, No. 16 at p. 2). Royal noted th at it did not manufacture combination machines, and viewed these as a somewhat unique product (Royal, No. 7 at p. 33). NAMA agreed with Royal, noting that there is a segment of its members who did not manufacture or sell combination vending machines (NAMA, No. 8 at p. 6).

a Joint Comment refers to a written comment submitted by the Appliance Standards Awareness Project, the Alliance to Save Energy, the American Council for an Energy

- Efficient Economy, Natural Resources Defense Council, Northeast Energy Efficiency Partnerships, Northwest E nergy Efficiency Alliance, and the Northwest Power and Conservation Council in Docket No. EERE

- 2013

- BT

- STD

- 0022.2

- 8 DOE appreciates the input from stakeholders regarding combination vending machines. In agreement with the Joint Comment, DOE has gathered data on the design, construction, and sales volume of combination machines based on available sources , and has used that information as the basis for its analysis of combination classes at this stage of the rulemaking. In response to the comments from AMS and Wittern, DOE believes that there may be confusion in the industry regarding combination machine c lassification. While DOE realizes that slight leakage of cold air from a refrigerated volume into a non

- refrigerated volume, as described by AMS, may occur due to design inefficiencies, DOE does not believe that such a phenomenon would render a machine cla ssified as fully cooled b , as the design intent is not to chill the products in the non

- refrigerated space to a certain refrigerated vending temperature. Regarding the comment from Wittern about the ability to test combination machines as fully cooled, DO E believes that Wittern is referring to a style of machine in which the refrigerated and non

- refrigerated volumes are separated by way of a physical divider which could possibly be removed to allow the machine to be fully cooled. DOE invites further commen t regarding the prevalence of such designs within the combination vending machine market. Further, DOE understands the comments from Royal and NAMA about the unique nature of combination machines, and correspondingly will continue to gather available data from all applicable sources in order to continue to improve its analysis of this equipment class.

Several stakeholders also provided comments regarding the applicability of the DOE test procedure to combination vending machines. Royal and NAMA expressed c oncerns that the ASHRAE 32.1

- 2010 method of test might not be appropriate for testing combination vending machines. (Royal, No. 11 at p. 8 ; NAMA, No. 8 at p. 9) While AMS agreed with Royal and NAMA that ASHRAE 32.1 was not explicitly designed for combined equipment, they opined that ASHRAE 32.1 might be used with standard test packages loaded in the entire machine, but with only those in the cooled zone used to establish the average next

- to

- vend temperatures, and that the baseline maximum daily energy consu mption ( MDEC ) could be established us ing the volume of the cooled zone only (AMS, No. 17 at p. 8). NAMA recommended that DOE look to other existing rulemakings by the CEC and NRCan which currently had standards and test procedures covering combined equipment (NAMA, No. 8 at p. 10).

DOE agrees with AMS that the testing of combination machines can be accomplished through loading the refrigerated volume with standard test packages and using the temperatures of next

- to

- vend products in that volume for the purposes of ensuring that the unit is attaining the required rating temperature. DOE, through its research and product testing efforts, has not encountered any evidence to support the c oncerns of Royal and NAMA regarding the applicability of the ASHRAE 32.1 test method to combination machines featuring a refrigerated

b In its recent BVM test procedure NOPR, DOE proposed a definition for “fully cooled” as follows: “ a condition in which the refrigeration syste m of a beverage vending machine cools product throughout the entire refrigerated volume of a machine instead of being directed at a fraction (or zone) of the refrigerated volume as measured by the average temperature of the standard test packages in the fu rthest from the next

- to

- vend positions being no more than 10 °F above the integrated average temperature of the standard test packages ”

.2

- 9 volume. Therefore, in its recent test procedure NOPR, DOE proposed to retain ASHRAE 32.1 as the method of test for all cov ered equipment classes, including combination machines. In response to the comment from AMS regarding the development of standard levels, in its preliminary engineering analysis DOE modeled the performance of combination machines based on the need to cool the designated refrigerated volume, and also included the energy consumption of additional components such as lighting serving the entire machine. DOE believes that this modeling accurately depicts the performance of a combination machine as would be quant ified by the DOE test procedure and ASHRAE 32.1 method of test. For a full discussion of the engineering analysis methodology, please see c hapter 5 of the preliminary TSD.

2.3.2 Technology Assessment
As part of the technology assessment, DOE developed a list of technologies to consider for improving the efficiency of refrigerated beverage vending machine s

. DOE typically uses information about existing and past technology options and prototype designs t o help determine which technologies manufacturers use to attain higher energy performance levels. In consultation with interested parties, DOE develops a list of technologies for consideration in its screening and engineering analyses . Initially, these tec hnologies encompass all those that DOE believes are technologically feasible. Since many options for improving equipment efficiency are available in existing equipment, equipment literature and direct examination of BVM units currently on the market provid ed much of the information underlying this analysis. C hapter 3 of the TSD includes the detailed list of all technology options DOE identified for potential consideration in this rulemaking.

2.3.2.1 Technology Options
In the framework document, DOE discussed sever al possible technology options which could be adapted to improve BVM energy performance and requested comment on the technology options listed. While AMS asserted that it knew of no issues with the technology options listed in the framework document and di d not have any additions to suggest, the Joint Comment urged DOE to examine microchannel heat exchangers and other options used internationally in similar equipment, such as variable speed compressors and alternative refrigerants, as potential technology o ptions (AMS, No. 17 at p. 7 ; J oint Comment , No. 13 at p. 3). On the matter of variable speed compressors, however, AMS commented that while it had worked with variable speed compressors in the past, there was very little interest amongst
compressor manufacturers due to the small size of the BVM end

- use market (AMS, No. 7 at p. 45). ACEEE and the CA IOUs agreed with the Joint Comment, urging DOE to consider technology options which where prevalent outside the US (ACEEE, No. 7 at p. 61 ; CA IOUs, No. 19 at p. 6). ACEEE also pointed out that reasonably priced electronically commutated motor ( ECM ) and permanent magnet fan motors were available for heat exchangers, and were already being used in residential refrigerators (ACEEE, No. 7 at p. 61).2

- 10 During its preliminary market and technology analysis, DOE researched and considered a broad array of technologies with the potential to improve the efficiency of refrigerated beverage vending machines. Based on the results of that analysis, DOE then considered thos e technology options which met the necessary screening criteria as design options in its engineering analysis. In response to the comments from the Joint Comment and ACEEE, DOE did not explicitly consider variable speed compressors or microchannel heat exc hangers as design options in the preliminary engineering analysis due to a lack of available information, but will continue to gather data regarding applicable designs and components on the market and may include modeling of these technologies in its engin eering analysis at the NOPR stage. Any consideration of these or other technologies would take into account any issues with suppliers and component availability such as the market

- size issues raised by AMS. DOE agrees with ACEEE regarding the availability of ECM and permanent magnet fan motors for this application and has considered those motors explicitly in the modeling performed for its engineering analysis. With respect to refrigerants, DOE simulated equipment performance utilizing those refrigerants

cu rrently permitted in refrigerated beverage vending applications by the US EPA SNAP c program, specifically HFCs (namely R

- 134a, the most common HFC used in BVM applications) and CO 2 , at the time of this analysis. DOE is also remaining alert to SNAP’s acti ons and will adjust its analyses appropriately should SNAP take any final action during the time frame of this rulemaking. For a full discussion of comments pertaining to r efrigerants, please see section 2.5.2.

NAMA noted that it did not believe that any bundling or packaging of future technologies should be reviewed or incorporated when considering potential standard levels, since current construction already comprises many combinations or packages of technologies to meet the current standards (NAMA, No. 8 at p. 9). During the course of the engineering analysis, DOE considers each design option separately, developing cost

- efficiency curves by ordering the design options from lowest to highest payback period. Therefore DOE does not believe that it will enc ounter any of the issues with bundling or packaging of technologies as discussed by NAMA.

Honeywell commented that its SolsticeTM Liquid Blowing Agent ((HFO)

- 1233zd) should be added to the list of technology options considered. Honeywell stated this techno logy is commercially available, nonflammable, and offers superior energy efficiency and environmental performance to other market options with performance attributes including 12

- 20% better lambda factor, 10

- 12% improvement in residential refrigerator ener gy efficiency, estimated 5

- 10% energy efficiency improvement for refrigerated beverage vending machine s, and GWP of 1 (Honeywell, No. 9 at p. 2). Further, ebm

- papst commented that technologies such as fan blades with nano

- coatings and refrigerant pressure sensors were present on its RadiCal centrifugal fans, which could increase flow channels and thereby unit efficiency (ebm

- papst, No. 10 at p. 34). However, Honeywell also urged DOE to take a technology

- neutral approach when setting the

c The EPA Significant New Alternatives Policy (SNAP) program is the U.S. government regulatory program responsible for maintaining the list of alternatives to ozone depleting substances allowed for use within specific applications, including refrigeration, in the United States.2

- 11 standard, so as to a llow the market to choose the most effective designs for meeting the standard (Honeywell, No. 9 at p. 3).

DOE appreciates the specific comments and data concerning technologies applicable to the performance analysis of refrigerated beverage vending machine s. DOE will consider as design options all technologies which meet the screening criteria and which produce quantifiable results under the DOE test procedure. In its preliminary engineering analysis, DOE did consider improved insulating materials and incre ased fan efficiency as design options. Additionally, DOE agrees with the comment from Honeywell concerning the need for a technology

- neutral standard level approach. DOE is reviewing performance standard s based on daily energy consumption under the DOE tes t procedure, and does not plan to explore prescriptive standard s mandating the use of specific features. Therefore, as suggested by Honeywell, manufacturers will be free to choose any pathway they wish in order to develop designs compliant with any new or amended standards arising from this rulemaking.

In the framework document, DOE requested comments from the public on proprietary designs or technologies which might affect this rulemaking. NAMA, Royal

, and AMS agreed that proprietary designs were unlik ely to be a concern

. (NAMA, No. 8 at p. 8 ; Royal, No. 7 at p. 75 ; AMS No. 17 at p. 7 ) AMS asserted that max

- tech could be achieved without proprietary designs, albeit at a very high life

- cycle cost

. (AMS, No. 7 at p. 62) DOE considers a design option to be technologically feasible if it is used by the relevant industry or if a working prototype has been developed. Technologies incorporated in commercially available equipment or in working prototypes will be considered technologically feasible. 10 CFR 430, s ubpart C, appendix A, section 4(a)(4)(i) Although DOE considers technologies that are proprietary, it will not consider efficiency levels that can only be reached through the use of proprietary technologies (i.e., a unique pathway), which could allow a sin gle manufacturer to monopolize the market.

With regard to the use of low

- power

- modes as a technology option, NAMA commented that vending machines are already required to be equipped with certain types of low

- power modes which are currently available on all machines covered under the current rulemaking

. (NAMA, No. 8 at p. 10) AMS too, stated that all its units ship with software that includes a flexible low

- power mode, the timing of which can be based on sales history or manual programming

. (AMS, No. 17 at p . 7)

With respect to the comments from NAMA and AMS regarding low power modes, DOE wishes to clarify that its existing standards are solely performance

- based and do not require the presence of a low power mode. However, ENERGY STAR does include prescripti ve requirements on low power modes. In this rulemaking, DOE has considered both refrigeration and accessory (lighting) low power modes as design options in its engineering analysis, and DOE believes that the comments from NAMA and AMS regarding the prevale nce of these features provide sound support of their inclusion in the analysis.2

- 12 Some manufacturers also commented on the prevalence and energy consumption of hot

gas defrost and unit heating modes (used to prevent product from freezing in machines placed outdoors). Whereas Royal commented that none of its vending machines for outdoor applications have heaters or hot gas defrost mode and that heaters that are installed are probably an after

market component or an optional accessory, AMS commented that it d oes sell some machines with a heating mode, but that being at high efficiency on the cooling side generally means equally at high efficiency on the heating side. AMS added that since most of these heating systems are based on electricity which is essential ly 100 percent efficient at heating, DOE can ignore additional energy consumption from these features

. (Royal, No. 7 at p. 92 ; AMS, No. 7 at p. 93)

DOE appreciates stakeholder comments regarding the presence of hot gas defrost and heating modes in refriger ated beverage vending machines. Based on the comments received, and additional research including reviews of manufacturer literatures and exploration of equipment through teardowns, DOE did not model active defrost, including electric or hot gas defrost, i n its preliminary engineering analysis. Instead, most machines on the market utilize off

- cycle defrost, and this appears to be the industry standard technology. Additionally, as the DOE test procedure and the referenced ASHRAE 32.1

- 2004 method of test requ ire testing at a constant 75 ° F ambient condition, heaters used to keep product from freezing in cold ambient conditions would never be activated during conduct of the test. Therefore, in the modeling conducted for the preliminary engineering analysis, DOE did not include any provision to account for the energy consumption of heaters.

2.4 SCREENING ANALYSIS
The purpose of the screening analysis is to evaluate the technologies identified in the technology assessment to determine which technologies to consider fur ther and which technologies to screen out. DOE consulted with industry, technical experts, and other interested parties in developing a list of energy

- saving technologies for the technology assessment. DOE then applied the screening criteria to determine w hich technologies were unsuitable for further consideration in this rulemaking. Chapter 4 of the TSD, the screening analysis, contains details about DOE’s screening criteria.

As presented in further detail below, the screening analysis examines whether var ious technologies: (1) are technologically feasible; (2) are practicable to manufacture, install, and service; (3) have an adverse impact on equipment utility or availability; and (4) have adverse impacts on health and safety. In the engineering analysis, DOE further considers the efficiency

enhancement technologies that it did not eliminate in the screening analysis.

1. Technological feasibility. DOE screens out technologies that are not incorporated in commercially available equipment or working prototypes.2

- 13 2. Practicability to manufacture, install, and service. If DOE determines that mass production of a technology in commercial equipment and reliable installation and servicing of the technology could not be achieved on the scale necessary to serve the releva nt market by the time of the compliance date of the standard, it will not consider that technology further.

3. Adverse impacts on product or equipment utility or availability. If DOE determines a technology has a significant adverse impact on the utility of the equipment for significant consumer subgroups or results in the unavailability of any covered equipment type with performance characteristics (including reliability), features, size, capacities, and volumes that are substantially the same as equipment g enerally available in the United States at the time, it will not consider that technology further.

4. Adverse impacts on health or safety. If DOE determines that a technology will have significant adverse impacts on health or safety, it will not consider that technology further.

2.5 ENGINEERING ANALYSIS
The engineering analysis (chapter 5 of the preliminary TSD) establishes the relationship betw een manufacturing production cost (MPC) and efficiency for refrigerated beverage vending machine s . This relationship serves as the basis for cost

- benefit calculations in terms of individual consumers, manufacturers, and the n ation. Chapter 5 discusses the equipment classes analyzed, representative baseline units, incremental efficiency levels, methodology used to develop manufacturing production costs, cost

- efficiency curves, and impact of efficiency improvements on the considered equipment . To determine the cost to consumers of refrigerated beverage vending machine s at various efficiency levels, DOE estimated manufacturing costs, markups in the distribution chain, installation costs, and maintenance costs. Efficiency levels for equipment in cluded in this rulemaking were calculated according to the proposed DOE test procedure using an energy consumption model

. In the engineering analysis pertaining to refrigerated beverage vending machine s , DOE evaluated a range of equipment efficiency levels and associated MPCs , which it converted to manufacturer selling prices (MSPs) using information regarding typical markups . The purpose of the analysis is to estimate the incremental increase to selling prices that would result from increasing efficiency l evels above the baseline level in each equipment class. The engineering analysis considers technologies not eliminated in the screening analysis. The LCC analysis uses the cost

- efficiency relationships developed in the engineering analysis.

In the past, D OE has also noted that the maximum efficiency levels available in current equipment may not necessarily correspond to the max

- tech levels. Maximum

- available

efficiency models may not incorporate all possible design options for increasing efficiency and, th erefore, may not represent the max

- tech level. It is also possible that some of the design2

- 14 options that have met the screening criteria (i.e., passed the screening analysis) may not yet be commercially available and, therefore, would not be found in today’ s available maximum efficiency equipment

.

2.5.1 Baseline Equipment and Representative Sizes
In the framework document, DOE stated a baseline configuration for each of the two classes of equipment with current standards (Class A and Class B) , containing design o ptions which aligned with units performing near the level of the existing standard. DOE requested comment on the choice of representative unit sizes in each of these classes.

AMS stated that its refrigerated machines are built ranging from 20 to 27 cubic feet in two exterior sizes: 72"H x 36" D and either 34" or 39" W, and that all machines had the same design characteristics. Cabinet and door structures include blown

- in foam insulation supplemented with polyisocyanurate foam board in smaller spaces. The g lass is dual pane, tempered with an argon

- fill. The perimeter is heated with resistance wire to prevent condensation. There is a reciprocating compressor and R134a gas with thermal expansion valve control. The fans are ECM design. Cabinet temperate is elec tronically controlled, and defrost is passive and is only used in the event that the cabinet set

- point cannot be reached after one hour of continuous compressor operation

. (AMS, No. 17 at p. 8) NAMA noted that manufacturers tend not to build multiple versi ons of the same machine that would be different from a baseline design

. (NAMA, No. 8 at p. 11) With regard to the choice of representative sizes, NAMA, AMS, and Crane expressed agreement with DOE’s approach of using the same representative sizes that

were used in the 2009 BVM Final R ule

. (NAMA, No. 8 at p. 11 ; AMS, No. 17 at p. 10 ; Crane, No. 7 at p. 77)

DOE appreciates the quantitative input given by AMS regarding the size of their standard machines, as well as the details on specific features and design attributes that they use in baseline designs. DOE has corroborated that input with additional data gat hered from supplemental sources and used it to ensure that the inputs into its engineering analysis reflect an accurate depiction of the design and features of today’s baseline equipment. Based on the information it has reviewed, DOE also agrees with NAMA that manufacturers tend to build units based on a limited number of chassis sizes, not creating significant numbers of variations across models. DOE further agrees with NAMA, AMS, and Crane regarding the appropriateness of the 2009 representative sizes to this rulemaking, and has retained those representative sizes in the preliminary engineering analysis. For more information regarding the specifications DOE used in defining baseline designs and representative sizes, please see Chapter 5 of the preliminary TSD.

2.5.2 Refrigerants
In its framework analysis, DOE stated its understanding that R134a was the most commonly used refrigerant for beverage vending machines of all classes and sizes. At the Framework public meeting, and through written comments, manufactur ers and other2

- 15 stakeholders noted that alternative refrigerants

– specifically, natural refrigerants such as CO 2 and propane

– were not mentioned by DOE in the F ramework D ocument . Royal and NAMA commented that DOE should consider technologies that have bene fits in accordance with national policies but which may not necessarily result in decreased energy use, and recommended that DOE develop cost

- benefit criteria that fairly compares the energy penalty against other benefits accrued. Royal included as an exam ple the use of CO 2 refrigerant reducing the emissions of refrigerants with ozone depleting potential and high global warming potential, paralleling EPA's stated goal of replacing refrigerants such as HFCs in the long term. Royal referred DOE to the present ation “Benefits of Addressing HFCs under the Montreal Protocol" by Drusilla Hufford et al. (USEPA, Stratospheric Protection Division) at the ASHRAE/NIST Refrigerants Conference, Oct. 29

- 30, 2012

. (Royal, No. 11 at p. 9 ; NAMA, No. 8 at p. 11)

In this rulema king, DOE is evaluating the performance and cost of refrigerant options relevant to refrigerated beverage vending machine applications. At this time, these options consist of HFCs and CO 2 , the only widely

- utilized refrigerants approved by EPA SNAP (SNAP) f or use in refrigerated beverage vending machines . In July 2014, EPA issued two notices of proposed rulemakings stating the intent of SNAP to alter the list of allowable refrigerants for this application by adding and removing specified alternatives from th e listing. d As DOE moves forward with this rulemaking, it will remain apprised of any ongoing SNAP actions and will adjust its analyses as necessary to follow any changes in the refrigerant regulation landscape. Specifically, DOE will continue to analyze the cost and performance of CO 2 machines, which will be permitted in the marketplace going forward under both the existing and proposed SNAP regulatory structures. DOE will also remain aware of the action that SNAP may take with respect to HFCs and hydroc arbons. Should SNAP finalize its plan to consider HFC 134a as unacceptable and certain hydrocarbons as acceptable in BVM applications, DOE will update its analysis accordingly and consistent with available data on hydrocarbon refrigerant system performance and cost. One potential approach may be for DOE to use its existing performance curves for HFC machines as the basis for evaluating the performance of hydrocarbon machines, consistent with DOE’s understanding from literature and academic studies that hydr ocarbon refrigeration systems can generally achieve the level of performance seen in HFC systems. However, DOE would need specific additional data regarding the cost of components for hydrocarbon refrigeration systems, which are not currently in use in BVM applications in the United States. DOE may issue new or amended standards based on the results of its analysis, consistent with its statutory charge to promulgate standard levels which are both technologically feasible and economically justified, and whic h reflect a separate breakout of covered product based on the utility of different models and designs.

d Specifically, EPA proposed banning the use of certain HFC refrigerants in beverage vending ma chines and other refrigeration equipment starting January 1, 2016, and proposed approving the use of three hydrocarbon refrigerants: propane, isobutene and R441A (a blend of propane, n

- butane, isobutane and ethane ) (July 9, 2014; 79 FR 38811 ) ( http://www.epa.gov/ozone/downloads/SAN_5750_SNAP_Status_Change_Rule_NPRM_signature_version

signed_7

- 9

- 2014.pdf )2

- 16 The Joint Comment, NAMA, Royal, and shecco commented that the EPA had recently approved the use of some hydrocarbon refrigerants and CO 2 as acceptable substitutes to HFC’s under SNAP, and that this would increase the use of both R

- 744 and R

- 290 in the near future. (Joint Comment, No. 13 at p. 3 ; NAMA, No. 8 at p. 14 ; Royal, No. 11 at p. 11 ; shecco, No. 18 at p. 2) Royal and NAMA also refer red DOE to the SNAP regulations for allowable refrigerants and technologies. (NAMA, No. 8 at p. 14 ; Royal, No. 11 at p. 11)

DOE agrees with the comments stating that SNAP has allowed the use of CO 2 as a working fluid in refrigerated beverage vending machin e applications, as CO 2 is currently in the SNAP approved list of refrigerants for use in new vending equipment. However, DOE wishes to clarify that the SNAP approval issued for hydrocarbons, specifically propane, was applicable only to retail food refriger ation applications, and more specifically to only standalone refrigerators and freezers. Therefore, contrary to the suggestion of these commenters, hydrocarbons are not yet legally available for use in refrigerated beverage vending applications in the Unit ed States.

With regard to the factors driving increased usage of natural refrigerants in the near future, shecco commented that since the SNAP approval of CO 2 , the Coca

- Cola Company has instructed all its manufacturers to convert all their vending machine s to CO 2 by 2015, in keeping with the Consumer Goods Forum’s commitment to phase out HFCs by 2015. shecco also pointed out that roughly 950,000 HFC

- free vending machines have already been successfully installed worldwide, including 8,000 for PepsiCo. (shec co, No. 18 at p. 2) NAMA suggested that DOE contact the primary consumers of the equipment (specifically beverage bottlers) to help compile information relating to future usage trends

. (NAMA, No. 8 at p. 14)

DOE appreciates the specific inputs from shecco regarding the initiatives by some major purchasers of refrigerated beverage vending machines and the global market penetration of alternative refrigerant equipment. DOE considers information from a number of sources, including stakeholder comments and manu facturer interviews, in determining market size and shipment volume in its market & technology and shipments analyses. In response to the comment from NAMA, DOE agrees that input from bottlers regarding market trends would be extremely helpful, and invites comments or interviews with these parties in subsequent stages of the rulemaking.

While some stakeholders felt that market demand would increase specifically for CO 2 - based machines, certain manufactures pointed out that while those machines have lower

- GW P refrigerant, CO 2 refrigeration systems tend to be less energy

- efficient than HFC systems of comparable capacity. Royal and NAMA commented that while natural refrigerants have direct environmental benefits over HFC refrigerants, transcritical CO 2 is less energy efficient. Royal and NAMA thus recommended that DOE allow a 15%

- 20% higher MDEC for refrigerated beverage vending machine s using CO 2 as a working fluid versus the allowable level for machines using HFC refrigerants

. (Royal, No. 11 at p. 11 ; NAMA, No . 8 at p. 14) AMS expressed agreement that the use of CO 2 would negatively impact a unit’s energy performance,2

- 17 and suggested that natural refrigerants could be treated as a separate design in DOE’s analysis

. (AMS, No. 17 at p. 7) However, shecco noted that data presented by the Coca

- Cola Company at ATMOsphere Geneva 2012 showed improvements in the performance of CO 2 units. shecco also drew attention to a study which showed that CO 2 outperformed R134a and HFC1234yf at ambient temperatures below 32 ° C, and mat ches their performance up to 40 ° C

. (shecco, No. 18 at p. 2) The Joint Comment also opined that natural refrigerants could prove to be more efficient, noting that well

- designed commercial refrigerators and freezers may achieve 20%+ better efficiency with pr opane than with HFCs, and do so with lower refrigerant cost than the HFC machines

. ( Joint Comment , No. 13 at p. 3)

In response to the comments from stakeholders and the increasing prevalence of alternative refrigerant equipment within the refrigerated beverage vending machine market in the United States, DOE explicitly analyzed the performance of alternative refrigeran t equipment in this preliminary analysis. Specifically, DOE conducted a separate investigation within its engineering analysis to develop cost

- efficiency curves for Class A, Class B, and combination vending machines utilizing CO 2 refrigerant, which has bee n approved for use in the United States in refrigerated beverage vending applications by EPA SNAP. For an explanation of the methodology used in modeling CO 2 vending machines in the preliminary engineering analysis, please see chapter 5 of the preliminary TSD. DOE also used the outputs of the engineering analysis to inform downstream economic analyses including the life

- cycle cost and national impact analyses. DOE will continue analysis of CO 2 machines at subsequent stages of the rulemaking and may use the results of these analyses to inform any new or amended standards applicable to this equipment.

With respect to the specific comments concerning hydrocarbon refrigerants, DOE understands that some literature indicates that these refrigerants may offer a po tential opportunity for energy savings. T hese refrigerants are not approved for use in the United States in refrigerated beverage vending applications by the EPA SNAP program, and thus DOE did not conduct analysis of the performance potential of these refr igerants during the preliminary analysis

. In July 2014, EPA SNAP issued two notices in which it proposed to add some hydrocarbons to the list of acceptable alternatives for this application, as well as to remove HFC 134a from the allowable list of alternat ives. DOE is monitoring the SNAP action closely and will ensure that its analysis aligns with any final status change rules issued by EPA.

AMS requested that the consideration of hydrocarbon refrigerants be very closely scrutinized for safety reasons, because while these gases could be safely handled during the manufacturing process, these machines are transported, installed and serviced by persons that sometimes have little or no technical training

. (AMS, No. 17 at p. 9) DOE agrees with AMS regarding i ndustry safety concerns over hydrocarbon refrigerants. However, DOE understands that any equipment offered for sale in the United States will need to meet Underwriters Laboratories (UL) safety requirements in order to be compliant with codes. Additionally, transport of refrigerants themselves may fall under DOT regulations and other safety standards. These requirements include stringent safety provisions for equipment utilizing hydrocarbon2

- 18 refrigerants. Therefore, DOE believes that, should hydrocarbon refri gerants become available for use in vending applications, models on the market will exhibit the necessary features in order to ensure safety and code compliance.

2.5.3 Manufacturer Production Costs
In its engineering analysis, DOE estimates costs for manufacturers to produce equipment at the baseline and at increasingly higher levels of energy efficiency. In this preliminary analysis, DOE based this MPC model upon data from physical disassembly of un its available on the market, corroborated with information from manufacturer literature, discussions with industry experts, and other sources. At the F ramework D ocument public meeting and in written comment subsequent to the release of the framework docume nt, DOE received comment pertaining to MPC

. With regard to the increase in MSP that may result from the need for manufacturers to incorporate additional efficiency measures, AMS commented that current in

- compliance consumption is less than 50% that of machines produced before t he 2009 final rule standard levels, and that achieving meaningful further improvement, such as another 10% reduction, will require a selling price increase at least as great as that to reach current levels

. (AMS, No. 17 at p. 10)

DOE appreciates the quantitative input provided by AMS regarding past efficiency and cost trends. In conducting this rulemaking, DOE is gathering currently

- available equipment and component cost and performance data through a number of sources, including m anufacturer literature, component supplier information, public comments, equipment testing, reverse

engineering through teardowns, and manufacturer interviews. This information serves as the basis for the preliminary cost

- efficiency curves presented in thi s analysis, and will be continually updated throughout the NOPR and final rule stages. DOE is confident that this methodology will ensure that its analyses capture with an appropriate degree of accuracy the costs inherent in advancing the efficiency of thi s equipment.

2.5.4 Max Tech
In the framework document, DOE requested comment regarding the maximum technologically feasible level of performance attainable with today’s technologies. AMS opined that max

- tech efficiency levels for Class A equipment could likely o nly be improved through the use of hydrocarbon refrigerants and/or variable

- speed compressors

. (AMS, No. 17 at p. 7) Royal noted that there are only a few major customers in the global market for refrigerated beverage vending machines, and that they drive the max

- tech level

. (Royal, No. 7 at p. 62)

During its preliminary analysis, DOE reviewed a wide range of information sources from which to draw data on baseline and improved vending machine performance. DOE assembled this information into cost

- efficiency curves extending from the baseline up through max tech for2

- 19 each equipment class and configuration examined. In doing so, DOE considered all available design options which met the criteria outlined in the screening analysis. Therefore DOE believes that it has captured the feasible levels of equipment performance to the extent possible at this stage in the analysis. In subsequent analysis stages, DOE may seek additional information and consider additional technologies as data becomes available; for example, DOE may explore variable

- speed compressor technology as described by AMS. Regarding the comment by Royal on market share of major purchasers, DOE considers distribution channel pathways and costs in its markups, life

- cycle cost, and national impact analyse s. DOE develops the max

- tech level independently of these factors in the engineering analysis based on available information regarding the highest technologically

- feasible level of performance believed to be attainable at the time of the analysis.

2.6 MARKUPS ANALYSIS

DOE uses manufacturer

- to

- customer markups to convert the MSP estimates from the engineering analysis in to retail prices, which are then used in the LCC and PBP analysis and the manufacturer impact analysis. Retail prices are necessary for the b aseline efficiency level and all other efficiency levels under consideration.

Before it can develop markups, DOE must identify distribution channels (i.e., how the equipment is distributed from the manufacturer to the customer). Once it established proper distribution channels for each of the equipment classes, DOE relied on economic data from the U.S. Census Bureau and input from the industry to determine to what extent equipment prices are increased as they pass from the manufacturer to the customer (se e chapter 6 of the TSD).

DOE received comment from several parties regarding distribution channels. NAMA and Royal stated that refrigerated beverage vending machine s are typically sold to beverage bottlers, distributors of vending equipment, and vending operators. Distributors may sell directly to vending operators as well as directly to non

- commercial vending machine users. I n most cases the distribution channel i s BVM manufacturer to beverage bottler

, or distributor to end

- use customer ( NAMA , No

. 8 at p. 16; Royal, No. 11 at p. 13 )

DOE identified three distribution channels , as described below:

1. Equipment Manufacturer  Vending Machine Operator (e.g., bottler, beverage distributor)

2. Equipment Manufacturer  Distributor  Vending Machine Operator

3. Equipment Manufacturer  Distributor  Site Owner

NAMA recommended that DOE consult with the BVM ma nufacturers directly to request relevant data used to calculate markups for distribution channels. ( NAMA , No. 8 at p. 16) For the preliminary analysis DOE has used the markup calculated for the 2009 BVM final rule.

.2

- 20 DOE requests data from stakeholders on markups, and DOE will interview manufacturers at the NOPR stage to obtain this and other information.

2.7 ENERGY U SE ANALYSIS
The purpose of the energy use analysis is to establish the annual energy consumption of the equipment and assess the energy

- savings potential of different equipment efficiencies. DOE uses the annual energy consumption and energy

- savings potenti al in the LCC and PBP analysis to establish the consumer operating savings of considered efficiency levels.

The energy use analysis assessed the annual energy consumption of the refrigerated beverage vending machine s that would be located inside and outsid e of industrial and commercial buildings. During the last round of standards (culminating in the 2009 Final Rule), DOE modified its energy consumption model developed during the engineering analysis to reflect the equipment’s thermal and compressor perform ance characteristics in order to simulate a realistic performance of the machine exposed to varying temperature and relative humidity conditions. For the current analysis, DOE simplified its analysis by developing linear regressions on the 2009 data to obt ain scaling relationships between daily energy use and annual energy use for outdoor refrigerated beverage vending machine s (class B only) . DOE developed a s tate

- level (plus District of Columbia) distribution of refrigerated beverage vending machine s using population weights to determine annual energy consumption of machines located outdoors. DOE also estimated the fraction of Class B machines located in outdoor settings, based on publicly available data from college campuses. The machines that are typicall y located inside industrial and commercial buildings were assumed to be in conditioned spaces, and hence are exposed to the same temperature and relative humidity conditions (75 degrees Fahrenheit and 45 percent relative humidity) throughout the year.

Most refrigerated beverage vending machine s are located inside conditioned spaces and will add to the cooling load in the summer and reduce the heating load in the winter. DOE believes these impacts are fairly modest in most cases. DOE also believes that t he added complexity of determining the overall impact on building space

- conditioning loads is not worth the effort involved in accurately quantifying this effect, particularly given the variety of building types and BVM locations (e.g., outside, inside, or in vestibules) that would need to be taken into
account.

NAMA and Royal commented that third parties sell timers and rela ted devices that reduce energy consumption in low

- or non

- use periods by turning off the refrigerated beverage vending machine

. ( NAMA, No. 8 at p. 17 ; Royal, No. 11 at p. 13) DOE has included l ow

- power lighting and refrigeration technology options that would affect energy use based on the TP NOPR currently in draft. Third

- party accessories , however, are not include d in the cost efficien cy curves, and were not considered in the energy use analysis. DOE welcomes data from stakeholders on technologies that may reduce energy consumption through low

- power modes

.2

- 21 2.8 LIFE

- CYCLE COST AND PAYBA CK PERIOD ANALYSES

New or amended energy conservation standards usually decrease equipment operating expenses and increase the price. DOE analyzes the net effect of new or amended standards on consumers by evaluating the net life

- cycle cost ( LCC ) . To evaluate the net LCC, DOE uses the
cost

- efficiency relationship derived in the engineering analysis and the energy costs derived from the energy use analysis . Inputs to the LCC calculation include the installed cost of equipment to the consumer (consu mer purchase price plus installation cost), operating expenses (energy expenses and maintenance and repair costs), the lifetime of the unit, and a discount rate.

Because the installed cost of equipment typically increases while operating costs typically de crease under new standards, there is a time in the life of equipment having higher

than

- baseline efficiency when the net operating

- cost benefit (in dollars) since the time of purchase is equal to the incremental first cost of purchasing the equipment . The time required for equipment to reach this cost

- equivalence point is known as the payback period (PBP).

Recognizing that several inputs to determining consumer LCC and PBP are either variable or uncertain, DOE uses Monte Carlo simulation and probability dis tributions to model both the uncertainty and variability in inputs. DOE uses Microsoft Excel combined with Crystal Ball (a commercially available program) to develop LCC and PBP spreadsheet models that incorporate both Monte Carlo simulation and probabilit y distributions. The LCC subgroup analysis includes an assessment of impacts on customer subgroups.

For refrigerated beverage vending machine s , it was necessary to determine several of the input values for the LCC estimation, including retail prices; electricity prices; discount rate; maintenance, service, and installation costs; and equipment lifetimes.

DOE reviewed the Energy Information Admi nistration’s (EIA) energy price data for refrigerated beverage vending machine s to establish electricity prices. DOE relied on regional average energy price data for the commercial and industrial sectors (manufacturing facilities). DOE used projections of these energy prices for commercial and industrial customers to estimate future energy prices in the LCC and PBP analyses. DOE used EIA’s Annual Energy Outlook 201 4 ( AEO 201 4 ) as the default source of projections for future energy prices.

DOE used information from various literature sources (e.g., Automatic Merchandising and American Society of Heating, Refrigerating, and Air

- Conditioning Engineers Refrigeration Handbook) and input from manufacturers and other interested parties to establish average equipment lifetimes for use in the LCC a nd subsequent analyses.

NAMA commented that DOE should request feedback from the main users of the equipment (i.e. The Coca

- Cola Company and PepsiCo) for assistance in compiling information related to many aspects o f the LCC and other downstream analyses. ( NAMA , No. 8 at p. 17 ) In publishing its preliminary LCC and NIA analyses, DOE hopes to solicit feedback from a wide2

- 22 range of stakeholders on ways it can improve its assumptions, data sources

, and analysis methods.

2.8.1 Retail Prices

As described in section 2.6
, DOE used markups to convert the MSP s estimated in the engineering analysis to consumer retail prices for the LCC and PBP analysis.

2.8.2 Energy Prices
DOE develop ed estimates of commercial and industrial electricity prices for each s tate and the District of Columbia. DOE derived average regional energy prices from data that are published annually based on EIA Form 861. 2 DOE then used EIA’s AEO 201 4 price projections to estimate regional commercial and industrial electricity prices in future years. DOE assumed that 60 percent of installations were in commercial locations and 40 percent were in industrial locat ions.

2.8.3 Maintenance, Repair, and Installation Costs
DOE considered any expected changes to maintenance, repair, and installation costs for the refrigerated beverage vending machine s covered in this rulemaking. Typically, small incremental changes in equipmen t efficiency incur little or no changes in repair and maintenance costs over baseline equipment . There is a greater probability that equipment with efficiencies that are significantly higher than the baseline will incur increased repair and maintenance cos ts, as such equipment is more likely to incorporate technologies that are not widely available.

In earlier assessments , DOE assumed that more

- efficient refrigerated beverage vending machine s will not incur increased installation costs. DOE did not find ev idence to the contrary, so it has maintained this assumption in the current analysis.

The California IOUs and the Joint Comment both indicated that DOE should account for reduced maintenance costs associated with LED lighting in the analysis of LED lighting as a technology option. ( CA IOUs, No. 19 at p. 6 ; Joint Comment , No. 13 at p. 3) DOE has accounted for this in the LCC a nalysis. LED lighting is expected to have longer lifetime than linear fluorescent lighting

, which will reduce replacement freq uency but is expected to have higher replacement cost due to higher bulb replacement cost. Overall, DOE estimated that the annual maintenance cost associated with replacement of LED lighting is lower than for fluorescent lighting. For efficiency levels cor responding to the use of LED lighting as a design option, DOE therefore used a lower total repair and maintenance cost than for efficiency levels that assumed the use of fluorescent lighting.

AMS estimated that among high efficiency units, less headroom is available for examination of poor sealing on the door and product retrieval bin s. As a result, more frequent2

- 23 examination of seals, gaskets, hinged openings, etc. is necessary, add ing as much as 10% to the
rout in e and preventative maintenance costs. (AMS, No. 17 at p. 11) DOE welcomes more data to allow a quantitative estimate of increased maintenance costs on high efficiency units.

Royal commented that equipment with hydrocarbon refrigerant will have higher maintenance costs until the technology is more e stablished. (Royal, No. 7 at p. 104) DOE welcomes additional data on the maintenance costs of hydrocarbon refrigerants, but at the present time it is not modeling any refrigerated beverage vending machine s that use this technology.

Crane commented that the re has been a recent move towards bringing equipment back to a shop for servicin g rather than field servicing. (Crane, No. 7 at p. 108) DOE welcomes additional data that would help it quantify the difference in maintenance cost between field servicing and servicing at a repair center, as well as the relative frequency of which option is taken.

2.8.4 Product Lifetime
The 2009 Final Rule assumed that average BVM lifetime is 10 years. For this preliminary rulemaking, a longer lifetime of 13. 4 years is assumed based on a n assessment of current stock population and implied retirement rates.

Royal commented that the lifetime of the equipment may be misrepresented if refurbished machines are not taken into account in the standards analysis. (Royal, No. 7 at p. 1 00) Other data from Haeri et al. (2007) 3 indicate that many refrigerated beverage vending machines undergo repairs and/or refurbishment every 4 or 5 years several times in their lifetime. Assuming an average of two repairs/refurbishments every 4.5 yea rs is consistent with an average lifetime of 13. 4 years. DOE would welcome more quantitative information on refurbishment events and incidence rate of these events.

AMS noted that there is a possibility that some new technologies may result in a reduced li fetime, but that AMS knows of no way to accurately quantify the reduction

. AMS also commented that their machines are designed for a 1 5 year serviceable life, and they do not plan to deviate from that when designing higher efficiency equipment. ( AMS , No. 1 7 at p. 12 ) DOE would welcome any information that stakeholders have concerning the lifetime of new technologies and the effect they may have on overall equipment lifetime.

2.8.5 Discount Rates
DOE developed discount rates by estimating the average cost of capital to companies that purchase refrigerated beverage vending machine s covered under this rulemaking. DOE commonly uses the cost of capital to estimate the present value of cash flows to be derived from a typical company project or investment. M ost companies use both debt and equity capital to2

- 24 fund investments, so the cost of capital is the weighted

- average cost to the firm of equity and debt financing.

2.8.6 Equipment Efficiency in the Base Case
To estimate accurately the percentage of c ustomer s who would be affected by a standard at a particular efficiency level, DOE’s LCC and PBP analysis considered the projected distribution of equipment efficiencies that consumers purchase under the base case (the case without new energy efficiency standards). DOE relied on a combination of publicly

- available energy use data and energy consumption modeling to estimate the base

- case efficiency distributions for each equipment class considered in the LCC and PBP analysis. Chapter 8 of this preliminary TSD provides mo re detail about DOE’s approach to developing base case efficiency distributions.

Crane commented that the parent companies driving this industry only want to buy ENERGY STAR equipment because they do not want to be limited in potential machine locations, causing nearly the entire market to drive towards and meet ENERGY STAR levels. (Crane, No. 17 at p. 15) DOE acknowledges that the fraction of new equipment purchases are overwhelmingly ENERGY STAR compliant, and has modeled its projected base case shipment s as 100% ENERGY STAR for major bottlers (comprising 90% of the BVM market) and 3 0 % Energy Star for the remaining portion of the BVM market, resulting in an average ENERGY STAR market penetration of 93%.

NAMA and Royal commented that third parties are sell ing LED lighting kits to reduce the service costs of replacing fluorescent lamps and that these kits also reduce energy use. (NAMA, No. 8 at p. 17; Royal, No. 11 at p. 13) DOE has assumed that the fraction of new Class A BVM shipments with LED lighting wil l increase rapidly from the current year to 100 percent by 2019, but that Class B shipments will constitute a smaller portion with LED lighting by 2019 (about 19 percent) in the base case, and for Combination machines , DOE assumed zero shipments with LED lighting in the base case. By 2019, DOE assumes that refurbishment does not result in changes in lighting technology and hence BVM efficiency remains constant over the life of the equipment.

2.8.7 Split I ncentive s

Crane and AMS commented that the purcha sers of the equipment are often not the ones who pay the energy bill , so an increase in equipment prices may never be offset by a decrease in the purchaser’s energy use cost. ( Crane , No. 7 at p. 102 ; AMS, No. 17 at p. 13 ) AMS stated that vending machine o perators deserve attention, because their increasing equipment cos ts will almost never be offset by a decrease in energy use cost. (AMS, No. 17 at p. 13)

DOE acknowledges that in most cases the purchasers of refrigerated beverage vending machine s (a bottl er or a vending services company) do not pay the energy costs for operation and2

- 25 thus would not directly reap any energy cost savings from more

- efficient equipment. However, DOE believes that BVM owners would seek to pass on higher equipment costs to the us ers who pay the energy costs. DOE understands that the BVM owner typically has a financial arrangement with the company or institution on whose premises the refrigerated beverage vending machine is located, in which the latter may pay a fee or receive a share of the revenue from the refrigerated beverage vending machine . Thus, DOE expects that BVM owners could modify the arrangement to effectively pass on higher equipment costs. Therefore, DOE's LCC and PBP analysis uses the perspective that the company or institution on whose premises the refrigerated beverage vending machine is located pays the higher equipment cost and receives the energy cost savings. DOE acknowledges that there is uncertainty about the pass

- through of higher equipment costs, and thus it requests comments concerning the extent to which such pass

through occurs in the BVM market.

2.9 SHIPMENTS ANALYSIS
Shipments forecasts are required to calculate the national impacts of standards (NES and NPV) and to calculate the future cash flows of manufacturers. DOE developed shipments forecasts based on an analysis of key market drivers for the particular equipment . In DOE’s shipments model, shipments of equipment are driven by stock replaceme nts assuming that the overall population of refrigerated beverage vending machine s will slightly decrease over the next several decades.

Crane commented that the vending industry has been a declining industry over the past several years with shipments sta gnant and the number of units in the field declining. (Crane, No. 7 at p. 113) Royal commented that the proportion of new equipment shipped annually that replaces existing equipment varies widely and can range from 25 percent to 75 percent or more, dependi ng on customers' purchase programs

. NAMA and Royal commented that DOE should consider the market trend that indicates a shrinking industry

- wide sales volume for new refrigerated beverage vending machines a t rend that is generally expected to continue. (NAM A, No. 8 at p. 21 and Royal, No. 11 at p. 16)

DOE appreciates this shipment trend information. DOE will use the information in its national impact analysis ( NIA ) to better understand industry purchasing power for components. DOE estimates that the current stock of units installed in the field is 2.6 million. While it is true that new geographical locations may add vending machines to the current stock, DOE believes that many other places are removing vending machines, and that total stock will cont inue to decline. DOE used publicly available reports from ENERGY STAR on the market penetration of ENERGY STAR qualified machines to estimate total sales from 2005 to 2012. These reports show that shipments of new equipment have remained stagnant at approx imately 100,000, and DOE assumes this will continue into the future. DOE estimates that the t otal stock of refrigerated beverage vending machine s will decline to 1.51 million by 2019, and then stabiliz e at around 1.45 million through to 20 48

. DOE estimates that t he proportion of new equipment shipped2

- 26 annually that replaces existing equipment is 100 percent currently and will be for several years since the number of retiring units far exceeds units shipped.

DOE welcomes any sources of quantitative informat ion that can be used to provide a better estimate of vending machine stock and sales.

AMS predicted that as prices for its machines increase du e to new or amended standards, shipments will go down because return

- on

- investment projections factor heavily in purchasing decisions. (AMS, No. 17 at p. 12) DOE’s national impact assessment model estimates changes in future shipments due to changes in equipment and operating costs using a price elasticity relationship . These estimates determine the lifetime costs of the equipment in the base case and each of the standards cases. The lifetime costs include purchase price, installation cost, operating costs, repair cost and maintenance costs. The lifetime costs are discounted to give the present value of these costs.

AMS commented that as new standards drive costs of new equipment upward, refurbished and rebuilt equipment will become an increasingl y larger portion of the market. (AMS, No. 17 at p. 13) DOE does not currently capture the possible shift toward more refurbished and rebuilt equipment as a result of higher equipment costs, but may consider doing so at the NOPR stage if it can identify appropriate parameters

.

2.10 NATIONAL IMPACT ANALYSIS

The NIA assesses the national energy savings ( NES ) and the net present value ( NPV ) from a national perspective of total consumer costs and savings expected to result from new or amended energy conservation standards at specific efficiency levels. DOE deter mined the NPV and NES for the standard levels considered for the beverage vending machine classes analyzed. To make the analysis more accessible and transparent to all interested parties, DOE prepared a Microsoft Excel spreadsheet that uses typical values (as opposed to probability distributions) as inputs. To assess the effect of input uncertainty on NES and NPV results, DOE has developed its spreadsheet model to conduct sensitivity analyses by running scenario s on specific input variables.

Analyzing impa cts of potential energy conservation standards for refrigerated beverage vending machine s requires comparing projections of U.S. energy consumption with new energy conservation standards against projections of energy consumption without standards. The fore casts include projections of annual appliance shipments, the annual energy consumption of new appliances, and the pu rchase price of new appliances.

A key component of DOE’s NIA is the energy efficiencies forecasted over time for the base case (without new standards) and each of the standards cases. The forecasted efficiencies represent the annual shipment

- weighted energy efficiency of the equipment under consideration during the forecast period (i.e., from the assumed compliance date of a new standard to 30 years after compliance is required).2

- 27 As discussed above, DOE developed a distribution of effici encies in the base case for the assumed compliance year of new standards for each BVM equipment class. Because no information was available to suggest a differ ent trend, DOE assumed that the efficiency distribution in the base case would remain the same in future years. In each standards case, a “roll

- up” scenario approach was applied to establish the efficiency distribution for the compliance year

. Under the “roll

- up” scenario, DOE assumed: (1) equipment efficiencies in the base case that do not meet the standard level under consideration would “roll

- up” to meet the new standard level; and (2) equipment efficiencies above the standard level under con si deration would not be affected.

2.10.1 National Energy Savings Analysis
The inputs for determining the national energy savings are: (1) annual energy consumption per unit; (2) shipments; (3) product or equipment stock; (4) national energy consumption; and (5) s ite

- to

- source conversion factors. DOE calculated the national energy consumption by multiplying the number of units (stock) of each type of equipment (by vintage or age) by the unit energy consumption (also by vintage). Vintage represents the age of the
eq uipment

. DOE calculated annual NES based on the difference in national energy consumption for the base case (without new efficiency standards) and for each higher efficiency standard. DOE estimated energy consumption and savings based on site energy and co nverted the electricity consumption and savings to primary energy using annual conversion factors derived from the most recent version of the National Energy Modeling System (NEMS). Cumulative energy savings are the sum of the NES for each year over the ti meframe of the analysis.

DOE has historically presented NES in terms of primary energy savings. On August 18, 2011, DOE published a final statement of policy in the Federal Register announcing its intention to use full

- fuel

- cycle (FFC) measures of energy u se and greenhouse gas and other emissions in the national impact analyses and emissions analyses included in future energy conse rvation standards rulemakings. 76 FR 51281. After evaluating the approaches discussed in the August 18, 2011 notice, DOE publish ed a statement of amended policy in the Federal Register in which DOE explained its determination that NEMS is the most appropriate tool for its FFC analysis and its intention to use NEMS for that purpose . 77 FR 49701 (August 17, 2012). For this prelimina ry analysis, DOE presented NES in terms of FFC energy savings.

2.10.2 Net Present Value Analysis
The inputs for determining NPV are: (1) total annual installed cost; (2) total annual savings in operating costs; and (3) a discount factor to calculate the present v alue of costs and savings. DOE determined the net savings for each year as the difference between the base case and each standards case in terms of total savings in operating costs versus total increases in installed costs. DOE calculated savings over the lifetime of equipment shipped in the forecast period. DOE calculated NPV as the difference between the present value of operating cost savings and the present value of total installed costs.2

- 28 For the NPV analysis, DOE calculates increases in total installe d costs as the difference in total installed cost between the base case and standards case (i.e., once the standards take effect). Because the more

- efficient equipment bought in the standards case usually cost more than equipment bought in the base case, c ost increases appear as negative values in the NPV.

DOE expresses savings in operating costs as decreases associated with the lower energy consumption of equipment bought in the standards case compared to the base case. Total savings in operating costs are the product of savings per unit and the number of units of each vintag e that survive in a given year.

DOE used the most recently available edition of EIA’s Annual Energy Outlook (AEO 201 4 ) as the source of projecti ons for future energy prices.

DOE estimates the NPV of consumer benefits using both a 3

- percent and a 7

- percent real discount rate. DOE uses these discount rates in accordance with guidance provided by the Office of Management and Budget (OMB) to Federal agencies on the development of regu latory analysis. (OMB Circular A

- 4 (Sept. 17, 2003), section E, “Identifying and Measuring Benefits and Costs”)

2.11 CUSTOMER SUB

- GROUP ANALYSIS

A custome r subgroup comprises a subset of the population that might be affected disproportionately by new or amended energy conservation standards. The purpose of a subgroup analysis is to determine the extent of this disproportional impact. DOE will work with stakeholders to identify any subgroups for consideration. DOE will analyze the consumer subgroups in the NOPR s tage of the analysis. In comparing potential impacts on the different
customer subgroups, DOE will evaluate variations in regional electricity prices, energy use profiles, and purchase prices that might affect the LCC of an energy conservation standard to certain custome r subgroups.

NAMA commented that it believes that all subgroups considered during the 2009 rulemaking are still appropriate and require consideration. (NAMA, No. 8 at p. 21) DOE will consider including each of these potential subgroups in t he subgroup analysis at the NOPR stage

.
NAMA and Royal commented that small businesses (including machine manufacturers, distributors, suppliers and vending operators) may be strongly affected by amended standards. Additional expenses will be incurred by small manufacturers in reengineering model design s, manufacturing investment, testing

, and reporting

. I f customers demand that all their equipment meet current DOE standards , small businesses may be forc ed to scrap equipment before the end of their usef ul life. (NAMA, No. 8 at p. 22; Royal, No. 11 at p. 16) DOE will consider impacts of potential standards on small businesses as part of its NOPR analysis.2

- 29 2.12 PRELIMINARY MANUFACT URER IMPACT ANALYSIS
DOE performed a preliminary manufacturer impact analysis (M IA) to estimate the financial impact of higher energy conservation standards on manufacturers of refrigerated beverage vending machine s and to calculate the impact of such standards on employment and manufacturing capacity. The MIA has both quantitative an d qualitative aspects. The quantitative part of the MIA relies on the government regulatory impact model (GRIM), an industry

- cash

flow model customized for these industries. For more detail on the MIA, see chapter 12 of the preliminary TSD.

2.12.1 Manufacturer an d Trade Group Comments
Several manufacturers provided comments in response to the framework document and meeting

. A summary of these comments is presented below.

Both Crane and Royal commented that the specifications set by the Coca

- Cola Company and PepsiCo drive design within the industry. These two major customers typically provide the quality standards, equipment performance metrics and design requirements that manufacturers must meet in order to remain competitive

. (Crane, No. 7 at p. 56 ; Royal, N o. 7 at p. 141) DOE recognizes that design constraints are placed on manufacturers by Coca

- Cola and PepsiCo. Because all manufacturers will be required to comply with amended standards, DOE does not consider this characteristic of the refrigerated beverage vending machine market to be problematic relative to amended energy conservation standards as it would not disproportionately impose requirements on any specific manufacturer.

Wittern commented that the refrigerated beverage vending machine industry has made great strides in energy efficiency over the last 10 years. However, Wittern believes that equipment innovation suffers as the industry faces the burden of continued and unnecessary regulations. (Wittern, No. 16 at p. 3) DOE acknowledges that regulations compliance necessitates investment outlays and the use of other resources that might otherwise be directed elsewhere. As part of the MIA, DOE estimates conversion costs associated wi th each efficiency level and assesses the impact that conversion costs have on industry cash flows and net present value.

AMS suggested that any changes involving hydrocarbon refrigerants be studied closely with respect to existing and pending OSHA, DOT, and other regulations. (AMS, No. 17 at p. 14) Royal commented that market

- driver, ENERGY STAR, and SNAP should be considered under cumulative regulatory burden. (Royal, No. 7 at p. 123)

DOE recogniz es that the cumulative effect of multiple regulations on an industry may significantly increase the burden faced by manufacturers that need to comply with regulations and testing requirements from different organizations and various levels of government. DOE takes into account the cumulative cost of multiple re gulations on manufacturers in the2

- 30 cumulative regulatory burden section of its analysis. Additionally, DOE considers the cumulative regulatory burden as part of its decision process in setting proposed standards. Further information on cumulative regulator y burden can be found in chapter 12 of the TSD.

NAMA and Royal urge DOE to keep in mind the relatively small number of manufacturers active in the refrigerated beverage vending machine market. NAMA commented that a significant segment of its membership cou ld be classified as small businesses based on factors such as earning less than $1 million in annual sales/revenue and/or employing fewer than 50 people, and that this segment includes businesses in almost every industry category. (NAMA, No. 8 at p. 21) Bo th NAMA and Royal assert that additional regulatory burden on small manufacturers in this environment is undue and may curtail business investment, equipment choices to users, employment, and competition

. (NAMA, No. 8 at p. 21 and Royal, No. 11 at p. 16) The two stakeholders stated that they oppose a substantive amendment to the existing standards due to the impact on small manufacturers attributed to lost sales and from expenses related to reengineering, testing, reporting, and manufacturing investment. Both stakeholders stated that the cost of compliance may be hundreds of thousands of dollars, which will mean that small businesses will have fewer resources to devote to the development and production of n ew equipment designs. (NAMA, No. 8 at p. 16 ; Royal, No. 11 at p. 16) Finally, Wittern commented that it is a small family

- owned company with only one refrigeration engineer on staff. (Wittern, No. 16 at p. 3)

For the assessment of small business manufact urer impacts, DOE uses the Small Business Administration (SBA) size standards to identify small businesses. The SBA defined small business manufacturing enterprises for North American Industry Classification System (NAICS) code 33 3318
, Other Commercial and Service Industry Machinery Manufacturing

, which includes refrigerated beverage vending machines, as companies with 1,000 or less employees. Given this SBA size threshold, among the nine manufacturers occupying the refrigerated beverage vending space, DOE identified five companies that may be small businesses.

Stakeholder feedback that DOE received confidentially and through public comments indicated that smaller manufacturers of refrigerated beverage vending machines typically have smaller research and de velopment and engineering staff than larger manufacturers. Although small manufacturers often have a more limited equipment range than larger manufacturers, the effort to address certain aspects of regulations are fixed and do not scale directly with the n umber of types of equipment or equipment platforms produced. Consequently, the cumulative burden of regulations will tend to place more of a burden on smaller manufacturers because of their more limited resources.

When small business manufacturers are id entified during the course of a given rulemaking, DOE conducts a separate MIA for this sub

- group. U nique or disproportionate impacts on competition and employment for small businesses as a result of the rulemaking are explored qualitatively, using the inpu t from manufacturer interviews and other sources.2

- 31 Additionally, a separate GRIM may be created pending the availability of information relating to financial metrics, cost structure, and distribution channels specific to the small business sub

group

. This a llows DOE to analyze of the impact on INPV and employment specific to the small business segment. DOE studies the potential impacts on small businesses in greater detail in Chapter 12 of the TSD and eventually in the Regulatory Flexibility Analysis

.

AMS stated that those who experience the highest impact of the standards are small business vending operators, who experience no savings from the lower energy consumption, but rather a decrease in ROI. (AMS, No. 17 at p. 14)

The MIA assesses the economic impac ts of amended standards on the stakeholders who carry the direct burden of compliance. In the context of this rulemaking, refrigerated beverage vending machine manufacturers carry the burden of compliance. Analysis of the economic impacts to business vendi ng operators falls outside of the scope of the MIA.

2.13 EMISSIONS ANALYSIS
In the emissions analysis, DOE will estimate the reduction in power sector emissions of carbon dioxide (CO 2 ), nitrogen oxides (NO X ), sulfur dioxide (SO 2 ) and mercury (Hg) from potential energy conservation standards for the considered products. In addition, DOE will estimate emissions impacts in production activities (extracting, processing, and transporting fuels) that provide the energy inputs to power plants. These are referred to as “upstream” emissions. Together, these emissions account for the full

- fuel

- cycle (FFC). In accordance with DOE’s FFC Statement of Policy (76 FR 51282 (Aug. 18, 2011)), the FFC analysis includes impacts on emissions of methane and nitrous oxide, both of whic h are recognized as greenhouse
gases.
DOE conducts the emissions analysis using emissions factors derived from data in the latest version of EIA’s AEO , supplemented by data from other sources. EIA prepares the AEO using the NEMS. 4 Each annual version o f NEMS incorporates the projected impacts of existing air quality regulations on emissions. The text below refers to AEO 2013, which generally represents current legislation and environmental regulations, including recent government actions, for which impl ementing regulations were available as of December 31, 2012.

SO 2 emissions from affected electric generating units (EGUs) are subject to nationwide and regional emissions cap and trading programs. Title IV of the Clean Air Act sets an annual emissions cap on SO 2 for affected EGUs in the 48 contiguous States and the District of Columbia (D.C.). SO 2 emissions from 28 eastern States and D.C. were also limited under the Clean Air Interstate Rule (CAIR), which created an allowance

- based trading program that oper ates along with the Title IV program in those States and D.C. 70 FR 25162 (May 12, 2005). CAIR was remanded to EPA by the U.S. Court of Appeals for the District of Columbia Circuit (D.C.2

- 32 Circuit), but it remained in effect. e In 2011 EPA issued a replacem ent for CAIR, the Cross

- State Air Pollution Rule (CSAPR). 76 FR 48208 (August 8, 2011). On August 21, 2012, the D.C. Circuit issued a decision to vacate CSAPR. The court ordered EPA to continue administering CAIR. The emissions factors used for today’s N OPR, which are based on AEO 2013, assume that CAIR remains a binding regulation through 2040. f

The attainment of emissions caps is typically flexible among EGUs and is enforced through the use of emissions allowances and tradable permits. Under existing EPA regulations, any excess SO 2 emissions allowances resulting from the lower electricity demand caused by the adoption of an efficiency standard could be used to permit offsetting increases in SO 2 emissions by any regulated EGU. In past rulemakings, DOE recognized that there was uncertainty about the effects of efficiency standards on SO 2 emissions covered by the existing cap

- and

- trade system, but it concluded that no reductions in power sector emissions would occur for SO 2 as a result of standards.

Begin ning in 201 6
, however , SO 2 emissions will fall as a result of the Mercury and Air Toxics Standards (MATS) for power plants. 77 FR 9304 (Feb. 16, 2012) In the final MATS rule, EPA established a standard for HCl as a surrogate for acid gas hazardous air poll utants (HAP), and also established a standard for SO 2 (a non

- HAP acid gas) as an alternative equivalent surrogate standard for acid gas HAP. The same controls are used to reduce HAP and non

- HAP acid gas; thus, SO 2 emissions will be reduced as a result of t he control technologies installed on coal

- fired power plants to comply with the MATS requirements for acid gas. AEO 201 3 assumes that, in order to continue operating, coal plants must have either flue gas desulfurization or dry sorbent injection systems in stalled by 201 6 . Both technologies, which are used to reduce acid gas emissions, also reduce SO 2 emissions. Under the MATS, e missions will be far below the cap that would be established by CAIR , so it is unlikely that excess SO 2 emissions allowances result ing from the lower electricity demand would be needed or used to permit offsetting increases in SO 2 emissions by any regulated EGU. Therefore, DOE believes that efficiency standards will reduce SO 2 emissions in 201 6 and beyond.

CAIR established a cap on NO X emissions in eastern States and the District of Columbia. Energy conservation standards are expected to have little or no physical effect on these emissions

e See North Carolina v. EPA , 550 F.3d 1176 (D.C. Cir. 2008); North Carolina v. EPA , 531 F.3d 896 (D.C. Cir. 2008).
f On April 29, 2014, the U.S. Supreme Court reversed the judgment of the D.C. Circuit and remanded the case for further proceedings consistent with the Supreme Court's opinion. The Supreme Court held in part that EPA's methodology for quantifying emissions that must be eliminated in certain states due to their impacts in other downwind states was based on a permissible, workable, and equitable interpretation of the Clea n Air Act provision that provides statutory authority for CSAPR. See EPA v. EME Homer City Generation , No 12

- 1182, slip op. at 32 (U.S. April 29, 2014). Because DOE is using emissions factors based on AEO 2013 for today's NOPR, the NOPR assumes that CAIR, not CSAPR, is the regulation in force. The difference between CAIR and CSAPR is not relevant for the purpose of DOE's analysis of SO2 emissions.2

- 33 in those States covered by CAIR because excess NO x emissions allowances resulting from the lower electricity demand could be used to permit offsetting increases in NO x emissions. However, standards would be expected to reduce NO x emissions in the States not affected by the caps, so DOE estimates NO X emissions reductions from potential standards in the States where emissions are not capped.

The MATS limit mercury emissions from power plants, but they do not include emissions caps and, as such, DOE’s energy conservation standards would likely reduce mercury emissions. DOE will estimate mercury emissions reduction using emissions factors based on AEO 2013, which incorporates the MATS.

Power plants may emit particulates from the smoke stack, which are known as direct particulate matter (PM) emissions. N EMS does not account for direct PM emissions from power plants. DOE is investigating the possibility of using other methods to estimate reduction in PM emissions due to standards. The great majority of ambient PM associated with power plants is in the form of secondary sulfates and nitrates, which are produced at a significant distance from power plants by complex atmospheric chemical reactions that often involve the gaseous emissions of power plants, mainly SO 2 and NO x . The monetary benefits that DOE estim ates for reductions in SO 2 and NO x emissions resulting from standards are in fact primarily related to the health benefits of reduced ambient PM.

NAMA and Royal commented that DOE should consider technologies that ha ve benefits in accordance with national policies but may not necessarily result in decreased energy use, and recommends that DOE develop cost benefit criteria that fairly compares the energy penalty against other benefits accrued. Royal included as an example CO 2 refrige rant having a lower

o zone depletion potential and g lobal

- warming potential (GWP), paralleling EPA's stated goal of replacing refrigerants such as hydrofluorocarbon s (HFCs) in the long term. ( NAMA, No. 8 at p. 11 ; Royal , No. 11 at p. 9)

DOE is considering the impacts of refrigerate d beverage vending machines that utilize alternative non

- HFC refrigerants (specifically CO 2 ) in its analysis

. This includes quantification of energy efficiency, cost of components and cost vs. energy eff iciency curves, and lifetime GWP . Lifetim e GWP analysis includes both direct emissions related to refrigerant leakage and losses during servicing and maintenance and indirect emissions from the generation of electricity used for BVM operation. Preliminary G WP analysis for CO 2 finds that indirect emiss ions from electricity generation dominate direct emissions and that the impact to lifetime GHG emissions in moving to a low

- GWP refrigerant are much more sensitive to a loss in energy efficiency than to changes in refrigerant leakage and losses.2

- 34 2.14 MONETIZ ATION OF EMISSIONS R EDUCTION BENEFITS
DOE plans to consider the estimated monetary benefits likely to result from the reduced emissions of CO 2 and NO X that are expected to accompany each of the standard levels considered.

To estimate the monetary value of benefits resulting from reduced emissions of CO 2 , DOE plans to use the most current Social Cost of Carbon (SCC) values developed and/or agreed to by an interagency process. The SCC is intended to be a monetary measure of the incremental damage resulting f rom greenhouse gas (GHG) emissions, including, but not limited to, net agricultural productivity loss, human health effects, property damage from sea level rise, and changes in ecosystem services. Any effort to quantify and to monetize the harms associated with climate change will raise serious questions of science, economics, and ethics. But with full regard for the limits of both quantification and monetization, the SCC can be used to provide estimates of the social benefits of reductions in GHG emissions

. The Interagency Working Group on Social Cost of Carbon released an update of its previous report in 2013. 5 The most recent estimates of the SCC in 2015, expressed in 2013$

, are $12.0, $40.5, $62.4, and $119 per metric ton of CO 2 avoided. For emissions reductions that occur in later years, these values grow in real terms over time. Additionally, the interagency group determined that a range of values from 7 percent to 23 percent should be used to adjust the global SCC to calculate domestic effe cts, although DOE will give preference to consideration of the global benefits of reducing CO 2 emissions.

DOE multiplies the CO 2 emissions reduction estimated for each year by the SCC value for that year in each of the four cases. To calculate a present v alue of the stream of monetary values, DOE discounts the values in each of the four cases using the discount rates that had been used to obtain the SCC values in each case.

DOE recognizes that scientific and economic knowledge continues to evolve rapidly a s to the contribution of CO 2 and other GHG to changes in the future global climate and the potential resulting damages to the world economy. Thus, these values are subject to change.

DOE also estimates the potential monetary benefit of reduced NO X emissio ns resulting from the standard levels it considers. Estimates of monetary value for reducing NO X from
st ationary sources range from $476 to $4,893 per ton in 2013 $. 6 DOE calculates monetary benefits using a medium value for NO X emissions of $2,684 per s hort ton (in 2013 $), and real discount rates of 3 percent and 7 percent, in accordance with OMB guidance. 7

DOE is evaluating an appropriate valuation of avoided SO 2 and Hg emissions. Whether monetization of reduced Hg emissions will occur in this rulem aking is yet to be determined.2

- 35 2.15 EMPLOYMENT IMPACT AN ALYSIS
The adoption of energy conservation standards can affect employment both directly and indirectly. Direct employment impacts are changes in the number of employees at the plants that produce the cove red products, along with affiliated distribution and service companies. DOE will evaluate direct employment impacts in the MIA.

Indirect employment impacts may result from expenditures shifting between goods (the substitution effect) and changes in income and overall expenditure levels (the income effect) that occur due to standards. DOE defines indirect employment impacts from standards as net jobs eliminated or created in the general economy as a result of increased spending driven by increased equipment prices and reduced spending on energy.

The indirect employment impacts will be investigated in the employment impact analysis using the Pacific Northwest National Laboratory’s “Impact of Sector Energy Technologies” (ImSET) model. g The ImSET model was d eveloped for DOE’s Office of Planning, Budget, and Analysis to estimate the employment and income effects of energy

- saving technologies in buildings, industry, and transportation. Compared with simple economic multiplier approaches, ImSET allows for more c omplete and automated analysis of the economic impacts of energy conservation investments.

2.16 UTILITY IMPACT ANALY SIS
To estimate the impacts of potential energy conservation standards for refrigerated beverage vending machine s on the electric utility industry, DOE will use a variant of the EIA’s NEMS called NEMS

- BT. h NEMS is a large, multi

- sectorial , partial

- equilibrium model of the U.S. energy sector that EIA has developed over several years, primarily for the purpose of
pre paring the AEO . NEMS produces a widely recognized forecast for the United States through 2035 and is available to the public.

The utility impact analysis is a comparison between the NEMS

- BT model results for the base case and standard cases. Outputs of th e utility impact analysis usually parallel results that appear in the latest AEO , with some additions. The utility impact analysis reports the changes in installed capacity and generation that result from each standard level by plant type. DOE will model t he anticipated energy savings impacts from potential amended energy conservation standards using NEMS

- BT to generate forecasts that deviate from the AEO Reference Case.

g J. M. Roop, M. J. Scott & R. W. Schultz, ‘‘ImSET: Impact of Sector Energy Technologies,’’ PNNL

– 15273
, Pac ific Northwest National Laboratory (2005).

h EIA approves use of the name NEMS to describe only an official version of the model without any modification to code or data. Because this analysis entails some minor code modifications and the model is run und er various policy scenarios that are variations on EIA assumptions, DOE refers to the model by the name NEMS

- BT. (“BT” refers to DOE’s Building Technologies Program, under whose aegis this work is performed.)2

- 36 Intertek commented that smart

- grid ready equipment should be given attention in the

ana lyses. (Intertek, No. 7 at p. 137) DOE has not included smart

- grid ready equipment as a technology option in the engineering analysis, because this equipment would not affect the energy consumption as measured by the draft DOE test procedure

.
DOE is solic iting comment and data from the public on a variety of issues related to the physical characterization of smart and grid

- connected commercial and residential buildings en d

use equipment and appliances. To inform interested parties and to facilitate this da ta

- gathering process, DOE will hold a public meeting for stakeholders to discuss issues concerning the physical characterization of grid

- connected commercial and residential buildings end

- use equipment and appliances, including but not limited to processes and metrics for measurement, identification of grid and building services that can be provided, and identification of values and benefits of grid connectivity. The public meeting will also allow DOE to gather input on topics related to grid

- connected equi pment, allow stakeholder groups to engage, and provide an opportunity to allow interested parties to provide published work and studies related to these issues. Further details can be found at the following website:

https://www.federalregister.gov/article s/2014/04/08/2014

- 07864/physical

- characterization

- of

smart

- and

- grid

- connected

- commercial

- and

- residential

- buildings

- end

- use

2.17 REGULATORY IMPACT AN ALYSIS
In the NOPR stage, DOE will prepare a regulatory impact analysis (RIA) that evaluates potential non

- regulatory policy alternatives, comparing the costs and benefits of each to those of the proposed standards. DOE recognizes that non

- regulatory policy alternatives can substantially affect energy efficiency or reduce energy consump tion. DOE will base its assessment on the actual impacts of any such initiatives to date, but also will consider information presented by interested parties regarding the potential future impacts of current initiatives.

NAMA recommended that DOE research c urrent activities of Natural Resources Canada, Canadian Standards Association, and California Energy Commission. (NAMA, No. 8 at p. 24) DOE will investigate the work of these organizations in the RIA at the NOPR stage.2

- 37 REFERENCES

1 See Rulemaking for Refrigerated Beverag e Vending Machines Energy Conservation Standards, http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/73 (last visited Apr. 24, 2014). This material is also available in Docket #EERE

- 2013

- BT

- STD

- 0022 at www.regulations.gov

.

2 See Survey

- level Detail Data Files, http://www.eia.gov/electricity/data/detail

- data.html (last visited Apr. 24, 2014)

. This material is also available in Docket #EERE

- 2013

- BT

- STD

- 0022 at www.regulations.gov

.

3 H. Haeri, D. Bruchs, D. Korn, S. Shaw & J. Schott, Characterization and Energy Efficiency Opportunities in Vending Machines for the Northwestern US Market

, July 24, 2007 (revised report).

4 For more information on NEMS, please refer to the U.S. Department of Energy, Energy Information Administration documentation. For a useful summary see National Energy Modeling System: An Overview 2000

, DOE/EIA

- 0581 (March 2000), http://webapp1.dlib.indiana.edu/virtual_disk_library/index.cgi/4265704/FID3754/pdf/Docs/05812000.pdf

.

5 U

. S . Gov’ t, Interagency Working Gro up on Social Cost of Carbon, Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 ( May 2013
, revised Nov 2013 )

.

6 Office of M gmt. & Budget , Executive Office of the President

, 2006 Report to Congress on th e Costs and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities (2006)

.

7 Office of M gmt. & Budget , Executive Office of the President, Circular No. A

- 4, Regulatory Analysis (2003)

.