8-i 

CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS 

TABLE OF CONTENTS 

8.1 INTRODUCTION............................................................................................................... 8-1 

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analysis................ 8-1 

8.1.2 Overview of Life-Cycle Cost and Payback Period Inputs................................... 8-2 

8.2 LIFE-CYCLE COST INPUTS ............................................................................................ 8-5 

8.2.1 Definition............................................................................................................. 8-5 

8.2.2 Total Installed Cost Inputs................................................................................... 8-5 

8.2.2.1 Baseline Manufacturer Selling Price .................................................... 8-6 

8.2.2.2 Standard-Level Manufacturer Selling Price Increases.......................... 8-8 

8.2.2.3 Overall Markup..................................................................................... 8-9 

8.2.2.4 Installation Cost .................................................................................. 8-10 

8.2.2.5 Weighted-Average Total Installed Cost.............................................. 8-11 

8.2.3 Operating Cost Inputs........................................................................................ 8-14 

8.2.3.1 Electricity Price Analysis.................................................................... 8-15 

8.2.3.2 Electricity Price Trend ........................................................................ 8-18 

8.2.3.3 Repair Cost.......................................................................................... 8-19 

8.2.3.4 Maintenance Cost................................................................................ 8-20 

8.2.3.5 Lifetime............................................................................................... 8-23 

8.2.3.6 Discount Rate...................................................................................... 8-23 

8.2.3.7 Effective Date of Standard.................................................................. 8-25 

8.3 PAYBACK PERIOD INPUTS.......................................................................................... 8-27 

8.3.1 Definition........................................................................................................... 8-27 

8.3.2 Inputs ................................................................................................................. 8-27 

8.4 LIFE-CYCLE COST AND PAYBACK PERIOD RESULTS ......................................... 8-27 

8.4.1 Life-Cycle Cost Results..................................................................................... 8-27 

8.4.1.1 Life-Cycle Cost Breakdown Based on Average Input Values............ 8-28 

8.4.1.2 Differences in Life-Cycle Cost Between Baseline and StandardLevel Equipment................................................................................. 8-29 

8.4.2 Payback Period Results...................................................................................... 8-31 

8.4.3 Rebuttable Presumption Payback Period........................................................... 8-35 

8.5 LCC SENSITIVY STUDIES ............................................................................................ 8-36 

8.5.1 Sensitivity to Fuel Escalation Rate.................................................................... 8-36 

8.5.2 Sensitivity to Baseline Efficiency Level............................................................ 8-38 

8.5.3 Sensitivity to LED Lighting Costs..................................................................... 8-40 

8.6 DETAILED RESULTS ..................................................................................................... 8-42 

REFERENCES .......................................................................................................................... 8-43 

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LIST OF TABLES 

Table 8.1.1 Summary Information of Inputs for the Determination of Life-Cycle Cost 

and Payback Period.............................................................................................. 8-4 

Table 8.2.1 Inputs for Total Installed Costs............................................................................ 8-6 

Table 8.2.2 Products Evaluated for the Commercial Refrigeration Equipment Standard 

Life-Cycle Cost and Payback Period Analysis .................................................... 8-7 

Table 8.2.3 Baseline Efficiency Levels for Commercial Refrigeration Equipment 

Considered in the Life-Cycle Cost and Payback Period Analysis....................... 8-7 

Table 8.2.4 Baseline Manufacturer Selling Prices per Unit.................................................... 8-8 

Table 8.2.5 Standard-Level Manufacturer Selling Price Increases (Price Increases 

Relative to the Price of Level 1 Equipment)........................................................ 8-9 

Table 8.2.6 Installation Costs for Baseline Commercial Refrigeration Equipment Units.... 8-11 

Table 8.2.7 Installation Cost Indices (National Value = 100.0) ........................................... 8-12 

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

Installed Costs for Supermarkets (Vertical Open, Remote Condensing, 

Medium Temperature Case)* ............................................................................ 8-12 

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

Costs for Vertical Open Refrigerated Display Case, Remote Condensing, 

Medium Temperature in a Supermarket at U.S. Average Prices (2007$)* ....... 8-14 

Table 8.2.10 Inputs for Operating Costs................................................................................. 8-15 

Table 8.2.11 Estimated Commercial Electricity Prices by State (2007 cents/kWh)............... 8-16 

Table 8.2.12 Derived Average Commercial Electricity Price by Business Type ................... 8-17 

Table 8.2.13 Frequency of Component Replacement............................................................. 8-19 

Table 8.2.14 Annualized Lighting Maintenance Costs for Each Efficiency Level 

Addressed in the Life-Cycle Cost Analysis (2007$) ......................................... 8-22 

Table 8.2.15 Annualized Maintenance Costs for Baseline Efficient Commercial 

Refrigeration Equipment (2007$)...................................................................... 8-22 

Table 8.2.16 Discount Rates by Company and Ownership Category....................................... 8-26 

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

by Efficiency Level for VOP.RC.M .................................................................. 8-31 

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

Efficiency Level and Equipment Class.............................................................. 8-32 

Table 8.4.3 Summary of Payback Period Results for Vertical Open Display Case, 

Remote Condensing, Medium Temperature, Efficiency Level 4 ...................... 8-34 

Table 8.4.4 National Average Payback Periods by Efficiency Level and Equipment 

Class................................................................................................................... 8-35 

Table 8.4.5 Rebuttable Presumption Payback Periods by Efficiency Level and 

Equipment Class ................................................................................................ 8-36 

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

Efficiency Level and Equipment Class – EIA Low Growth Scenario............... 8-37 

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

Efficiency Level and Equipment Class – EIA High Growth Scenario.............. 8-38 

Table 8.5.3 Sensitivity of Average Life-Cycle Cost Savings and Payback Period to 

Selection of Baseline Efficiency Level --VCT.RC.L Equipment Class ............ 8-39 

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Table 8.5.4 LED Lighting System Cost Reduction Necessary to Provide Equivalent 

LCC Savings for TSL 4 and TSL 5 for VOP.RC.M, VOP.SC.M, 

SVO.RC.M, SVO.SC.M, and SOC.RC.M......................................................... 8-41 

Table 8.5.5 LED Lighting System Cost Reduction Necessary to Provide Equivalent 

LCC Savings for TSL 4 and TSL 5 Assuming 50 Percent Cost Reduction 

for Future LED Lighting Replacements ............................................................ 8-42 

LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life-Cycle Cost and 

Payback Period..................................................................................................... 8-4 

Figure 8.2.1 Cumulative Probability Distribution Showing the Electricity Prices Paid 

by Grocery Store/Food Market Sector (2007$) ................................................. 8-17 

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2042 .................................... 8-18 

Figure 8.4.1 Effect of the Change in Efficiency Level on Life-Cycle Cost for Vertical 

Open Display Case, Remote Condensing, Medium Temperature in 

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

Level). ................................................................................................................ 8-29 

Figure 8.4.2 Cumulative Chart of Life-Cycle Cost Savings for Vertical Open Display 

Case, Remote Condensing, Medium Temperature: Efficiency Level 4 ........... 8-30 

Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for Vertical 

Open Display Case, Remote Condensing, Medium Temperature, in 

Supermarkets at Average U.S. Conditions (Level 1 is the Baseline Level). ..... 8-33 

Figure 8.4.4 Cumulative Chart of Payback Period for Vertical Open Display Case, 

Remote Condensing, Medium Temperature: Efficiency Level 4 ..................... 8-34 

Figure 8.5.1 Sensitivity of Payback Period to Baseline Efficiency Level – VCT.RC.L 

Equipment Class ................................................................................................ 8-40 

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CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS 

8.1 INTRODUCTION 

This chapter describes the analysis the U.S. Department of Energy (DOE) has carried out 

to evaluate the economic impacts on individual customers of possible energy efficiency 

standards developed for commercial refrigeration equipment (CRE). The effect of standards on 

individual customers includes a change in operating cost (usually decreased) and a change in 

purchase cost (usually increased). This chapter describes two metrics used in the customer 

analysis to determine the effect of standards on individual commercial customers: 

• Life-cycle cost (LCC). The total customer cost over the life of an appliance or 

equipment, including purchase costs and operating costs (which in turn include 

maintenance, repair, and energy costs). Future operating costs are discounted to the time 

of purchase, and summed over the lifetime of the appliance or equipment. 

• Payback period (PBP). The amount of time it takes customers to recover the assumed 

higher purchase price of more energy efficient equipment through lower operating costs. 

Inputs to the LCC and PBP analysis of commercial refrigeration equipment are discussed 

in sections 8.2 and 8.3, respectively. Results for each metric are presented in sections 8.4.1 and 

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

calculations discussed here were performed with a series of Microsoft Excelspreadsheets which 

are accessible over the Internet (http://www.eere.energy.gov/buildings/appliance_standards/ 

commercial _products.html). 

Details and instructions for using the spreadsheets are discussed in Appendix E. A more 

complete set of results is presented in Appendix G. 

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

Recognizing that each commercial building that uses the commercial refrigeration 

equipment is unique, DOE analyzed variability and uncertainty by performing the LCC and PBP 

calculations detailed here for two prototype commercial buildings (stores) and four types of 

businesses (two types of businesses for each prototype store). The first store prototype is a 

“large” grocery store, which encompasses (1) supermarkets and (2) wholesaler/retailer multi-line 

stores, such as “big-box,” “warehouse,” and “supercenters.” The second prototype is a “small” 

store, which encompasses (1) convenience and small specialty stores, such as meat markets, 

wine, beer, and liquor stores; and (2) convenience stores associated with gasoline stations. 

Within a given prototype of stores, one CRE unit of various types can serve the store’s 

refrigeration needs. The LCC and PBP model was developed using Microsoft Excel

spreadsheets. 

Aside from the relationship between increasing selling price and increasing energy 

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

State to which each CRE unit is shipped. These factors include energy prices, installation cost, 

markup, and sales tax. The LCC analysis presented here used the predicted energy consumption 

based on the engineering analysis and reviewed in chapter 7, Energy Use Characterization. 

 EE-2006-STD-0126 COMMENT 23.2
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Energy consumption of commercial refrigeration equipment calculated using this approach is not 

sensitive to climatic conditions, so energy consumption in the LCC analysis is not assumed to 

vary by geographical location. Analysis presented in chapter 5, Engineering Analysis, and 

chapter 7, Energy Use and Load Characterization, explores variation in energy consumption for 

commercial refrigeration equipment by climate. At the national level, the spreadsheets explicitly 

modeled variability in the model inputs for electricity price and markups using probability 

distributions based on the shipment of units to different states and business types. 

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

baseline conditions, which for purposes of the advance notice of proposed rulemaking (ANOPR) 

are the Level 1 efficiency level (see section 8.2.2.1 for a description of the efficiency levels). 

Results are presented at the end of this chapter and in Appendix G of the technical support 

document (TSD). A variety of graphic displays can be created to illustrate the implications of 

the analysis. Examples of graphic displays are a cumulative probability distribution showing the 

percentage of CRE units in U.S. commercial buildings that would experience a net savings at 

each efficiency level, and a frequency chart depicting variation in life-cycle cost for each CRE 

efficiency level considered. 

8.1.2 Overview of Life-Cycle Cost and Payback Period Inputs 

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

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

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

cost due to an increased efficiency standard divided by the change in annual operating cost that 

results from the standard. It represents the number of years it will take the customer to recover 

the increased purchase cost through decreased operating costs. In the calculation of PBP, future 

costs are not discounted. 

Inputs to the LCC and PBP analysis are categorized as follows: inputs for establishing 

the purchase cost, otherwise known as the total installed cost; and inputs for calculating the 

operating cost (i.e., energy, maintenance, and repair costs). 

The primary inputs for establishing the total installed cost are: 

• Baseline manufacturer selling price: Baseline manufacturer selling price is the price 

charged by the manufacturer to either a wholesaler or customer for equipment meeting 

existing minimum efficiency (or baseline) standards. The manufacturer selling price 

includes a markup that converts the cost (i.e., the manufacturer cost) to a manufacturer 

selling price. 

• Standard-level manufacturer selling price increase: Standard-level manufacturer selling 

price increase is the incremental change in manufacturer selling price associated with 

producing equipment at each of the higher standard levels. 

• Markups and sales tax: Markups and sales tax are the markups and sales tax associated 

with converting the manufacturer selling price to a customer price. The markups and 

sales tax are described in detail in chapter 6, Markups for Equipment Price 

Determination. 

 EE-2006-STD-0126 COMMENT 23.2
8-3 

• Installation price: Installation price is the cost to the customer of installing the 

equipment. The installation price represents all costs required to install the equipment 

but does not include the marked-up customer equipment price. The installation price 

includes labor, overhead, and any miscellaneous materials and parts. Thus, the total 

installed cost equals the customer equipment price plus the installation price. 

The primary inputs for calculating the operating cost are: 

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

use associated with the use of the commercial refrigeration equipment. Although there 

are potentially some interactive effects on the overall heating and cooling of the building, 

for purposes of the ANOPR the LCC analysis includes only the use of electricity by the 

equipment itself. This approach is consistent with most other DOE equipment efficiency 

rulemakings. Analysis results from whole building simulation of supermarkets suggest 

that the overall impact of the design options for the refrigerated cases when taken 

together did not significantly affect the HVAC energy consumption. Details on the 

refrigeration equipment energy use simulations and their results are provided in 

chapter 7, Energy Use Characterization. 

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

cents or dollars (e.g., $/kWh) paid by each customer for electricity. Electricity prices are 

determined using average commercial electricity prices in each State, as determined from 

Energy Information Administration (EIA) data for 2006. These prices were then 

estimated for 2007 using the EIA national commercial electricity reference price 

forecasts for 2006 and 2007. The 2007 average commercial prices derived were modified 

to reflect the fact that the four types of businesses analyzed pay prices that on average are 

either slightly higher or lower than the average commercial prices. Details on the 

development of electricity prices and the data sources used are found in Section 8.2.3.1. 

• Electricity price trends: The EIA’s Annual Energy Outlook 20071 (AEO 2007) is used to 

forecast electricity prices. For the results presented in this chapter, DOE used the AEO 

2007 reference case to forecast future electricity prices. 

• Maintenance costs: The labor and materials costs associated with maintaining the 

operation of the equipment (e.g., cleaning heat exchanger coils, checking refrigerant 

charge levels, lamp replacement). 

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

components that have failed. 

• Lifetime: The age at which the commercial refrigeration equipment is retired from 

service. 

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

value. 

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

cost inputs for the calculation of the LCC and PBP. Table 8.1.1 summarizes the values for the 

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

characterized by probability distributions that capture variability in the input. The values 

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8-4 

provided in Table 8.1.1 are the weighted-average values from the distribution that is being used 

to characterize the input. Also listed in Table 8.1.1 are chapters in the TSD where more detailed 

information on the input can be found. 

Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes

Annual Maintenance

Electricity 

Consumption Electricity 

Consumption

Manufacturer Base 

Price

Total Installed Cost 

(Std i –Base)

Manufacturer Base 

Price

Contractor Markups

Markups

Wholesaler/ 

Distributor Markup

Electricity Prices

National Account 

Markup

Equipment Prices

Sales Tax

Manufacturer Base 

Price

Installation Costs

Manufacturer Std 1 

Base Price

Manufacturer Std 1 

Base Price

Manufacturer Price

Standard i= 1...n

Electricity 

Consumption Annual Energy Costs

Annual Maintenance

Repair Costs

Annual Operating 

Cost (Std i - Base)

Payback 

Period

Discount Rate

Lifetimes

Lifetime 

Operating 

Cost (Std 

i – Base)

Lifecycle 

Cost

Annual Maintenance 

Costs

Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes

Annual Maintenance

Electricity 

Consumption Electricity 

Consumption

Manufacturer Base 

Price

Total Installed Cost 

(Std i –Base)

Manufacturer Base 

Price

Contractor Markups

Markups

Wholesaler/ 

Distributor Markup

Electricity Prices

National Account 

Markup

Equipment Prices

Sales Tax

Manufacturer Base 

Price

Installation Costs

Manufacturer Std 1 

Base Price

Manufacturer Std 1 

Base Price

Manufacturer Price

Standard i= 1...n

Electricity 

Consumption Annual Energy Costs

Annual Maintenance

Repair Costs

Annual Operating 

Cost (Std i - Base)

Payback 

Period

Discount Rate

Lifetimes

Lifetime 

Operating 

Cost (Std 

i – Base)

Lifecycle 

Cost

Annual Maintenance 

Costs

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life-Cycle Cost and 

Payback Period 

Table 8.1.1 Summary Information of Inputs for the Determination of Life-Cycle Cost and 

Payback Period 

Factor Weighted-Average Value TSD Reference Section 

Total Installed Cost Primary Inputs 

Baseline manufacturer selling price Varies with product Chapter 5 

Standard-level manufacturer selling price 

increases 

Varies with product and efficiency 

level 

Chapter 5 

Markups and sales tax Varies with product, distribution 

channel, and location 

Chapter 6 

Installation price Varies with location Chapter 8 

Operating Cost Primary Inputs 

Equipment energy consumption Varies with product Chapter 7 

Electricity prices Vary with location, building type Chapter 8 

Electricity price trends Vary with price scenario Chapter 8 

Maintenance costs Varies with product Chapter 8 

Repair costs Varies with product Chapter 8 

Lifetime Varies with type of business Chapters 3, 8 

Discount rate Varies with type of business Chapter 8 

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

sections 8.2 and 8.3. 

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8.2 LIFE-CYCLE COST INPUTS 

8.2.1 Definition 

Life-cycle cost is the total customer cost over the life of a piece of equipment, including 

purchase cost and operating costs (which are comprised of energy costs, maintenance costs, and 

repair costs). Future operating costs are discounted to the time of purchase and summed over the 

lifetime of the equipment. Life-cycle cost is defined by the following equation: 

∑=

+= +

N

t

t

t OCICLCC r

1

1/( ) Eq. 8.1

where 

LCC = life-cycle cost ($), 

IC = total installed cost ($), 

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

(years), 

OC = operating cost ($), 

r = discount rate, 

t = year for which operating cost is being determined. 

DOE cost data for the LCC analysis was collected over the 2006-2007 time frame and 

where necessary the ratio of an appropriate gross domestic product price deflator from 2006 to 

2007 was used to provide cost estimates in 2007$. DOE expresses all the costs in 2007$ for the 

LCC analysis. Total installed cost, operating cost, lifetime, and discount rate are discussed in the 

following sections. In the LCC analysis, the year of equipment purchase is assumed to be 2012. 

8.2.2 Total Installed Cost Inputs 

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

= EQPIC + INST Eq. 8.2

where 

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

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

and materials), ($). 

The equipment price is based on the distribution channel through which the customer 

purchases the equipment. As discussed in chapter 6, Markups for Equipment Price 

Determination, DOE defined three types of distribution channels to describe how the equipment 

passes from the manufacturer to the customer: the manufacturer sells the equipment to a 

wholesaler, who in turn sells it to the consumer; the manufacturer sells the equipment to a 

wholesaler/distributor, who sells to a mechanical contractor, who purchases the equipment on 

 EE-2006-STD-0126 COMMENT 23.2
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behalf of the consumer; and the manufacturer sells the equipment directly to the consumer 

through a national account. 

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

calculate the total installed cost for commercial refrigeration equipment. Table 8.2.1 shows 

inputs for the determination of total installed cost. 

Table 8.2.1 Inputs for Total Installed Costs

Baseline manufacturer selling price ($) 

Standard-level manufacturer selling price increases ($) 

Wholesaler markup 

Mechanical contractor markup 

National accounts markup 

Sales tax ($) 

Installation price ($) 

8.2.2.1 Baseline Manufacturer Selling Price 

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

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

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

converts the cost to manufacture (i.e., the manufacturing cost) to a manufacturer selling price. 

DOE developed the baseline manufacturer selling prices through an efficiency level analysis 

supplemented by certain design option considerations. Refer to chapter 5, Engineering Analysis, 

for details. DOE developed manufacturer selling prices for equipment classes within ten 

possible equipment families, with two possible modes of CRE operation (remote condensing and 

self-contained) and three possible rating temperatures. Not all possible equipment classes have 

significant actual shipments (see chapter 3, Market and Technology Assessment). The LCC and 

PBP have been carried out on a set of 15 equipment classes identified in chapter 5. Table 8.2.2 

shows the set of 15 equipment classes that DOE evaluated. 

DOE was not able to identify a voluntary or industry standard that provided a minimum 

baseline efficiency requirement or maximum energy consumption level for commercial 

refrigeration equipment. Although it has been informally reported by the industry that the actual 

shipments of commercial refrigeration equipment for many of the equipment classes cover a 

range of efficiencies, no data were identified or made available to DOE. DOE does not have 

actual shipment data for the various equipment classes by efficiency level and therefore could 

not define a baseline efficiency level that accurately reflects shipments that may occur across all 

efficiency levels. Comments received on the ANOPR did not provide further detail on the 

typical or average equipment efficiencies shipped today, although they did suggest modifications 

of the engineering baseline. Industry representatives stated that they believed use of the 

engineering baseline was acceptable.a Accordingly, for the NOPR, DOE selected the lowest 

efficiency equipment (Level 1) from the engineering analysis and designated it as the baseline 

efficiency for the life-cycle cost analysis (Table 8.2.3). The design options incorporated in the 

Level 1 efficiency level reflected input from CRE manufacturer interviews. 

 

a ARI, No. 18 at p. 5

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Table 8.2.2 Products Evaluated for the Commercial Refrigeration Equipment Standard 

Life-Cycle Cost and Payback Period Analysis 

Description (Equipment Family. Operating Mode. Temperature) Symbol*

Vertical Open.Remote Condensing.Medium Temperature VOP.RC.M 

Vertical Open.Remote Condensing.Low Temperature VOP.RC.L 

Vertical Open.Self Contained.Medium Temperature VOP.SC.M 

Vertical Closed Transparent.Remote Condensing.Medium Temperature VCT.RC.M 

Vertical Closed Transparent.Remote Condensing.Low Temperature VCT.RC.L 

Vertical Closed Transparent.Self Contained.Ice Cream Temperature VCT.SC.I 

Vertical Closed Solid.Self Contained.Ice Cream Temperature VCS.SC.I 

Semi-Vertical Open.Remote Condensing.Medium Temperature SVO.RC.M 

Semi-Vertical Open.Self Contained.Medium Temperature SVO.SC.M 

Service Over Counter.Remote Condensing.Medium Temperature SOC.RC.M 

Horizontal Open.Remote Condensing.Medium Temperature HZO.RC.M 

Horizontal Open.Remote Condensing.Low Temperature HZO.RC.L 

Horizontal Open.Self Contained.Medium Temperature HZO.SC.M 

Horizontal Open.Self Contained.Low Temperature HZO.SC.L 

* Equipment class designations consist of a combination (in sequential order separated by periods) of a equipment family code (VOP=vertical 

open, SVO=semivertical open, HZO=horizontal open, VCT=vertical transparent doors, VCS=vertical solid doors, HCT=horizontal transparent 

doors, HCS=horizontal solid doors, or SOC=service over counter), an operating mode code (RC=remote condensing or SC=self-contained), and 

a rating temperature code (M=medium temperature (38°F), L=low temperature (0°F), or I=ice-cream temperature (-15°F)). For example, 

"VOP.RC.M refers to the "vertical open, remote condensing, medium temperature" equipment class. See chapter 3, market and technology 

assessment, for a more detailed explanation of the equipment class terminology 

Table 8.2.3 Baseline Efficiency Levels for Commercial Refrigeration Equipment 

Considered in the Life-Cycle Cost and Payback Period Analysis 

Equipment Type 

Baseline Energy Consumption 

(kWh/day) 

Vertical Open.Remote Condensing.Medium (VOP.RC.M) 57.9

Vertical Open.Remote Condensing.Low (VOP.RC.L) 133.6

Vertical Open.Self Contained.Medium (VOP.SC.M) 39.6

Vertical Closed Transparent.Remote Condensing.Medium (VCT.RC.M) 33.2

Vertical Closed Transparent.Remote Condensing.Low (VCT.RC.L) 69.3

Vertical Closed Transparent.Self Contained. Ice Cream (VCT.SC.I) 45.6

Vertical Closed Solid.Self Contained.Very Low (VCS.SC.I) 27.1

Semi-Vertical Open.Remote Condensing.Medium (SVO.RC.M) 43.6

Semi-Vertical Open. Self Contained.Medium (SVO.SC.M) 33.1

Service Over Counter.Remote Condensing.Medium (SOC.RC.M) 31.7

Horizontal Open.Remote Condensing.Medium (HZO.RC.M) 19.6

Horizontal Open.Remote Condensing.Low (HZO.RC.L) 38.4

Horizontal Open.Self Contained.Medium (HZO.SC.M) 19.2

Horizontal Open.Self Contained.Low (HZO.SC.L) 38.7

Horizontal Closed Transparent.Self Contained.Ice Cream (HCT.SC.I) 7.2

Table 8.2.4 shows baseline manufacturer selling prices as developed in the engineering 

analysis. DOE designated the highest-energy-use equipment as Level 1, and selected this as the 

baseline equipment. 

 EE-2006-STD-0126 COMMENT 23.2
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8.2.2.2 Standard-Level Manufacturer Selling Price Increases 

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

selling price associated with producing equipment at higher efficiency levels associated with 

higher standards. DOE developed manufacturer selling price increases associated with increases 

in equipment efficiency levels through a combination of efficiency level and design option 

analyses. Refer to chapter 5, Engineering Analysis, for details. Manufacturer selling price 

increases as a function of equipment efficiency were developed for each of the 15 equipment 

classes. Although DOE’s engineering analysis produced up to 11 efficiency levels, depending 

on equipment type, only up to eight selected efficiency levels were used in the LCC and PBP 

analysis. Appendix F discusses the selection of efficiency levels for the LCC and PBP analysis. 

Table 8.2.4 Baseline Manufacturer Selling Prices per Unit 

Equipment Type 

Baseline Manufacturer Selling 

Price (2007$) 

Vertical Open.Remote Condensing.Medium (VOP.RC.M) $4,217

Vertical Open.Remote Condensing.Low (VOP.RC.L) $6,410

Vertical Open.Self Contained.Medium (VOP.SC.M) $2,175

Vertical Closed Transparent.Remote Condensing.Medium (VCT.RC.M) $6,710

Vertical Closed Transparent.Remote Condensing.Low (VCT.RC.L) $7,356

Vertical Closed Transparent.Self Contained. Ice Cream (VCT.SC.I) $3,504

Vertical Closed Solid.Self Contained.Very Low (VCS.SC.I) $2,082

Semi Vertical Open.Remote Condensing.Medium (SVO.RC.M) $3,804

Semi Vertical Open. Self Contained.Medium (SVO.SC.M) $1,778

Service Over Counter.Remote Condensing.Medium (SOC.RC.M) $7,465

Horizontal Open.Remote Condensing.Medium (HZO.RC.M) $4,265

Horizontal Open.Remote Condensing.Low (HZO.RC.L) $4,307

Horizontal Open.Self Contained.Medium (HZO.SC.M) $1,586

Horizontal Open.Self Contained.Low (HZO.SC.L) $1,849

Horizontal Closed Transparent.Self Contained.Ice Cream (HCT.SC.I) $1,036

The engineering analysis established a distribution of manufacturer selling price increases 

for each standard level. Table 8.2.5 summarizes the estimated manufacturer selling price 

increases for CRE standard levels considered in the LCC and PBP analysis. 

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Table 8.2.5 Standard-Level Manufacturer Selling Price Increases (Price Increases Relative 

to the Price of Level 1 Equipment) 

Increase in Manufacturer Selling Price by Efficiency Level 

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

VOP.RC.M $34.10 $116.35 $201.73 $451.40 $504.58 $2,678.11 NA 

VOP.RC.L $79.57 $271.49 $565.43 $602.02 $655.20 $1,586.71 NA 

VOP.SC.M $23.74 $68.21 $152.41 $224.67 $499.41 $1,211.44 $1,264.61 

VCT.RC.M $28.42 $96.96 $1,108.01 $1,161.19 $1,979.90 $2,046.23 NA 

VCT.RC.L $28.42 $96.96 $1,380.84 $1,434.01 $2,252.72 $2,364.54 NA 

VCT.SC.I $29.22 $108.93 $279.55 $793.10 $804.47 $1,213.82 $1,294.42 

VCS.SC.I $11.37 $25.54 $52.96 $79.31 $176.66 $229.84 $257.25 

SVO.RC.M $22.74 $77.57 $138.55 $312.61 $1,865.13 $1,918.31 NA 

SVO.SC.M $17.32 $36.71 $101.06 $136.44 $346.41 $857.67 $910.85 

SOC.RC.M $22.74 $77.57 $138.55 $202.14 $1,754.67 $1,807.84 $2,112.76 

HZO.RC.M $22.74 $77.57 $155.67 $208.85 NA NA NA 

HZO.RC.L $22.74 $77.57 $173.72 $226.90 NA NA NA 

HZO.SC.M $8.16 $13.84 $33.23 $67.66 $179.99 $193.69 $246.87 

HZO.SC.L $15.98 $21.67 $95.12 $100.80 $295.73 $309.44 $362.61 

HCT.SC.I $8.36 $14.04 $121.03 $134.74 $187.92 NA NA 

* NA means that no efficiency level was designated; e.g., VOP.RC.M had only seven efficiency levels and HZO.RC.L had only five. 

8.2.2.3 Overall Markup 

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

multiplying all the associated retail markups and the applicable sales tax markup together to 

arrive at a single overall distribution chain markup value. The overall markup in turn is 

multiplied by the baseline or standard-level manufacturer selling price to arrive at the price paid 

by the customer. Because there are baseline and incremental markups associated with the 

wholesaler and mechanical contractor, the overall markup is also composed of a baseline markup 

(i.e., a markup used to convert the baseline manufacturer selling price into a customer price) and 

an incremental markup (i.e., a markup used to convert a standard-level manufacturer selling price 

increase due to an increase in rated efficiency into an incremental customer price). 

As discussed in chapter 6, Markups for Equipment Price Determination, DOE based 

overall markups on one of three distribution channels, as well as whether the equipment is being 

purchased for the new construction or the replacement market. DOE based a distribution 

channel on whether equipment is purchased either through a wholesaler/distributor, mechanical 

contractor, or national account. 

Based on input received by DOE during the ANOPR comment period, approximately 

15 percent of remote-condensing equipment purchased by end-use customers is from 

wholesaler/distributors, 15 percent is from mechanical contractors, and 70 percent is through 

national accounts. For self-contained equipment approximately 35 percent of remote-condensing 

equipment purchased by end-use customers is from wholesaler/distributors, 35 percent is from 

mechanical contractors, and 30 percent is through national accounts. DOE’s understanding is 

that most existing equipment replacements are done through store remodels (as opposed to 

equipment failure), and that the distribution channels and installation process are similar for the 

new and replacement markets. DOE has assumed that the fraction of equipment purchased 

through the distribution channels is the same for new and replacement equipment. With three 

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

for remote-condensing equipment and an additional six overall baseline and incremental 

 EE-2006-STD-0126 COMMENT 23.2
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markups for self-contained equipment. Chapter 6 presented the overall weighted average 

markups and their associated components for the baseline and incremental markups for both 

remote-condensing and self-contained equipment for supermarkets. The overall weightedaverage baseline markup for supermarkets equals 1.490 for remote-condensing equipment and 

1.742 for self-contained equipment. The overall weighted-average incremental markup equals 

1.183 for remote-condensing equipment and 1.260 for self-contained equipment. DOE 

calculated similar markups for the three other building types. 

8.2.2.4 Installation Cost 

Most refrigerated display cases are installed in fairly standard configurations, which help 

in estimating the cost of installation. For example, supermarkets commonly configure such 

display cases as part of a “line-up” of similar cases. Horizontal open cases are commonly 

installed as single units placed in appropriate store locations. Self-contained cases are used for 

portable or temporary product displays, or sometimes used as end-caps of aisles. 

Typical steps in the installation of refrigerated display cases in a lineup are as follows:2

• Move new case to lineup position in store; 

• Position case in lineup, providing shims for vertical spacing as needed; 

• Caulk or seal adjacent cases together; 

• Bolt adjacent cases together; 

• Trim cases together for good visual look (installing bumpers and covering seams); 

• Braze refrigerant lines as necessary to system piping (already in place); 

• If hot gas defrost is used, braze hot gas defrost refrigerant lines as necessary to defrost 

piping (already in place); 

• Provide electrical conduit and tie-in electrical connections to case; 

• Install display lamps; and 

• Set refrigerant and defrost control settings. 

Note that final operational testing of cases is undertaken after initial installation of all 

cases in a lineup and refrigerant is piped to each case. 

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

actual equipment) needed to install the refrigeration equipment. Estimated installation costs for 

remote-condensing and for self-contained equipment were provided by stakeholders during the 

ANOPR review period. The majority of the installation price is captured by cost-based labor 

rates. Labor rates vary significantly from region to region of the country and the RS Means data 

provide the necessary information to capture this regional variability. RS Means provides cost 

indices that reflect the labor rates for 295 cities in the United States. Several cities in all 

50 states and the District of Columbia are identified in the RS Means data. DOE incorporated 

these cost indices into the analysis to capture variation in installation cost, depending on the 

location of the customer. 

 EE-2006-STD-0126 COMMENT 23.2
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Since data were not available to indicate how installation costs actually vary with CRE 

type or efficiency level, DOE considered two scenarios where installation costs either varied in 

direct proportion to the cost of the equipment, or remained flat (not varying with cost of the 

equipment). DOE did not however find a basis for the former view, and stakeholder comment 

during the ANOPR comment period suggested that a flat installation cost was most 

representative and thus a flat installation price forms the basis of DOE’s LCC calculations. The 

LCC spreadsheet however, retains the ability to analyze the alternative scenario—that the 

installation price increases with higher efficiency levels—implemented in the LCC spreadsheet 

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

above the baseline level. 

Table 8.2.6 summarizes the national average installation price used by DOE. 

Table 8.2.6 Installation Costs for Baseline Commercial Refrigeration Equipment Units 

System Type Total Installation Price 

Remote Condensing Equipment $2,000 

Self-Contained Equipment $750 

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

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

To arrive at an average index for each state, DOE first weighted the city indices in each 

state by their population within the state. DOE used population weights for the year 2000 from 

the U.S. Census Bureau to calculate a weighted-average index for each state from the R.S. Means 

data. For each business type (e.g., supermarkets) being examined, these state indices are then 

renormalized based on the proportion of sales to each state for a given business type. 

8.2.2.5 Weighted-Average Total Installed Cost 

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

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

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

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

manufacturer selling prices, markups, and the sales tax all can take on a variety of values, 

depending on location, the resulting total installed cost for a particular standard level will not be 

a single-point value, but rather a distribution of values. 

As an example, the weighted-average costs for the VOP.RC.M equipment class are 

presented for the baseline level at national average markup rates and national average installation 

costs. The section also applies the corresponding incremental values to provide an indication of 

the increase in the total installed cost due to an increase in rated energy efficiency. 

 EE-2006-STD-0126 COMMENT 23.2
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Table 8.2.7 Installation Cost Indices (National Value = 100.0) 

State Index State Index State Index 

Alabama 65.4 Kentucky 73.2 North Dakota 67.0 

Alaska 117.1 Louisiana 60.9 Ohio 103.0 

Arizona 79.1 Maine 76.9 Oklahoma 67.3 

Arkansas 53.7 Maryland 92.1 Oregon 115.3 

California 123.8 Massachusetts 123.1 Pennsylvania 128.5 

Colorado 88.3 Michigan 112.3 Rhode Island 120.9 

Connecticut 111.7 Minnesota 122.8 South Carolina 42.6 

Delaware 125.1 Mississippi 41.6 South Dakota 40.1 

Dist. of Columbia 97.7 Missouri 104.0 Tennessee 75.2 

Florida 64.8 Montana 80.9 Texas 66.7 

Georgia 67.3 Nebraska 83.7 Utah 76.6 

Hawaii 126.6 Nevada 113.1 Vermont 73.6 

Idaho 78.5 New Hampshire 91.9 Virginia 70.8 

Illinois 129.1 New Jersey 132.3 Washington 109.8 

Indiana 91.7 New Mexico 78.3 West Virginia 93.5 

Iowa 85.6 New York 166.3 Wisconsin 99.3 

Kansas 75.0 North Carolina 46.4 Wyoming 56.4 

Derivation of the total installed cost is straightforward. The baseline manufacturer 

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

determining the total installed cost (values are taken directly from Table 8.2.4 and Table 8.2.5). 

DOE used the baseline and incremental markups, the sales tax, and installation costs to 

convert the manufacturer selling prices into total installed costs for a case where the incremental 

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

markups necessary for determining the weighted-average baseline and standard-level total 

installed costs for supermarkets as an example. 

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

Costs for Supermarkets (Vertical Open, Remote Condensing, Medium 

Temperature Case)* 

Variable Weighted Average or Mean Value 

Baseline Manufacturer selling price $4,217 

Standard-Level Manufacturer Selling Price Increase (Efficiency Level 4) $202 

Overall Markup Factor–Baseline 1.490 

Overall Markup Factor–Incremental 1.183 

Installation Cost–Baseline $2,000 

Installation Cost Factor 0.99** 

* Incremental installation costs held flat. 

** National incremental cost index on a sales-weighted national basis is not quite equal to 1.00.

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

Table 8.2.8, DOE presents the calculation below for the baseline (Level 1) and for a higher 

efficiency level (Level 4) vertical open remote-condensing medium temperature equipment class 

(VOP.RC.M). For the baseline product, the calculation of the total installed cost at national 

average conditions is as follows: 

 EE-2006-STD-0126 COMMENT 23.2
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ICBASE VOP.RC.M = EQPBASE- VOP.RC.M +INSTBASE- VOP.RC.M x ISTINDEX Eq. 8.3

= MFGBASE- VOP.RC.M x MU BASE- VOP.RC.M + INST BASE-VOP.RC.M x

ISTINDEX 

= $4,217 x (1.490) + $2,000 x (0.99) 

= $6,283 + $2,000 x (0.99) 

= $8,263 

where 

IC = total installed cost ($), 

EQP = equipment price ($), 

INST = installation cost or the customer price to install equipment ($), 

MFG = manufacturer selling price ($), 

MU = markup. 

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

for the VOP.RC.M equipment class and MU is the overall baseline markup. The calculation of 

the higher efficiency Level 4 total installed cost includes the use of a manufacturer selling price 

adder. In addition, DOE derived an incremental markup. 

In view of incremental equipment price changes, DOE based the derivation of the Level 4 

total installed cost on determining the change in equipment price over the baseline equipment 

price. The manufacturer selling price increment for a higher efficiency level is multiplied times 

the incremental markup. 

DOE calculated the Level 4 total installed cost (IC VOP.RC.M LEVEL4) as follows: 

IC VOP.RC.M LEVEL4 = EQP VOP.RC.M LEVEL1 + ∆EQP VOP.RC.M LEVEL4 + INST VOP.RC.M LEVEL4

 Eq. 8.4

= MFG BASE VOP.RC.M x MU BASE VOP.RC.M + ∆MFG VOP.RC.M LEVEL4 

x MU VOP.RC.M LEVEL4 + INST x ISTINDEX 

= $4,217 x (1.490) + $202 x (1.183) + $2,000 x (0.99) 

= $8,502 

where 

IC = total installed cost ($), 

EQP = equipment price ($), 

INST = installation cost or the customer price to install equipment ($), 

MFG = manufacturer selling price ($), 

MU = markup, 

ISTINDEX = location dependent multiplier on installation costs, but approximately 1.0 at 

a national average. 

 EE-2006-STD-0126 COMMENT 23.2
8-14 

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

installed costs for the VOP.RC.M equipment classes at the baseline level and each higher 

efficiency level examined. 

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

Costs for Vertical Open Refrigerated Display Case, Remote Condensing, 

Medium Temperature in a Supermarket at U.S. Average Prices (2007$)* 

Efficiency Level 

Equipment 

Price 

Installation 

Cost 

Total Installed

Cost

1 (Baseline) $6,281 $1,980 $8,259 

2 $6,322 $1,980 $8,300 

3 $6,419 $1,980 $8,397 

4 $6,520 $1,980 $8,498 

5 $6,815 $1,980 $8,793 

6 $6,878 $1,980 $8,856 

7 $9,450 $1,980 $11,428 

8 NA NA NA 

*Details do not add to total due to rounding error, Total is exact. 

8.2.3 Operating Cost Inputs 

DOE based the operating cost for the LCC analysis on energy consumption data 

developed from whole-building simulations on a sample of buildings from the 2003 Commercial 

Buildings Energy Consumption Survey (CBECS).3 After the LCC analysis was performed, DOE 

generated a distribution of LCC differences (i.e., the LCC difference between the baseline 

equipment and equipment with a higher efficiency level) to determine the mean LCC difference, 

as well as the percentage of buildings analyzed that had LCC savings associated with more 

efficient equipment. 

DOE defined the operating cost by the following equation: 

OC = EC+ RC+ MC Eq. 8.5

where 

OC = operating cost ($), 

EC = energy cost associated with operating the equipment ($), 

RC = repair cost associated with component failure ($), 

MC = service cost for maintaining equipment operation ($). 

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

calculate the operating cost for commercial refrigeration equipment. 

Table 8.2.10 shows the inputs for the determination of operating costs. The lifetime, 

discount rate, and effective date of the standard are required for determining the operating cost 

and for establishing the operating cost present value. The electricity consumption for the 

baseline (which by definition is efficiency Level 1 for the ANOPR) and the other efficiency 

levels examined (efficiency levels 2, 3, etc.) define the efficiency levels of interest for comparing 

standards’ life operating costs. 

 EE-2006-STD-0126 COMMENT 23.2
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Table 8.2.10 Inputs for Operating Costs 

Electricity price ($) 

Electricity price trend 

Repair cost ($) 

Maintenance cost ($) 

Lifetime (years) 

Discount rate (percent) 

Effective date of standard 

Baseline electricity consumption (kWh/day) 

Standard case electricity consumption (kWh/day) 

8.2.3.1 Electricity Price Analysis 

Introduction to the analysis of electricity prices. This section describes the electricity 

price (cents/kWh) analysis used to develop the energy portion of the annual operating costs 

(price times electricity consumption) for commercial refrigeration equipment in the grocery 

sector. 

Subdivision of the Country. Because of the wide variation in electricity consumption 

patterns, wholesale costs, and retail rates across the country, it is important to consider regional 

differences in electricity prices. For this reason, DOE divided the continental U.S. into the 

50 states and the District of Columbia. DOE used reported average effective commercial 

electricity prices at the state level from the EIA publication State Energy Consumption, Price, 

and Expenditure Estimates (SEDS).4 The latest available prices from this source are for the 

calendar year 2006. These were adjusted to represent 2007$ prices using the forecasted ratio 

between 2007 and 2006 national commercial retail electricity prices from the 2007 Annual 

Energy Outlook . 

EPRICECOM STATE 2007 = EPRICE COM STATE 2006 x (EPRICE COM AEO FORECAST 2007/EPRICE COM AEO FORECAST 2006) 

Eq. 8.6

where 

EPRICE COM STATE YEAR =commercial sector average electricity price in a state or United 

States (US) in a particular year (cents/kWh), 

EPRICE COM AEO FORCAST YEAR = commercial sector reference case national average forecasted 

electricity price in a specific year from the 2007 Annual Energy Outlook (cents/kWh). 

Table 8.2.11 provides data on the adjusted electricity prices. 

 EE-2006-STD-0126 COMMENT 23.2
8-16 

Table 8.2.11 Estimated Commercial Electricity Prices by State (2007 cents/kWh) 

State 

Commercial 

Electricity 

Price State 

Commercial 

Electricity 

Price State 

Commercial 

Electricity 

Price 

Alabama 8.00 Kentucky 6.38 North Dakota 6.20 

Alaska 11.56 Louisiana 8.83 Ohio 8.35 

Arizona 7.77 Maine 12.20 Oklahoma 7.13 

Arkansas 6.70 Maryland 10.13 Oregon 6.89 

California 12.92 Massachusetts 15.57 Pennsylvania 8.73 

Colorado 7.37 Michigan 8.62 Rhode Island 13.31 

Connecticut 13.61 Minnesota 6.92 South Carolina 7.53 

Delaware 10.72 Mississippi 8.91 South Dakota 6.34 

Dist. of Col. 10.80 Missouri 6.01 Tennessee 7.88 

Florida 9.71 Montana 7.40 Texas 9.58 

Georgia 7.78 Nebraska 6.10 Utah 6.05 

Hawaii 21.10 Nevada 9.95 Vermont 11.52 

Idaho 5.04 New Hampshire 13.58 Virginia 6.09 

Illinois 7.87 New Jersey 11.65 Washington 6.45 

Indiana 7.11 New Mexico 7.53 West Virginia 5.50 

Iowa 7.21 New York 13.38 Wisconsin 8.28 

Kansas 6.78 North Carolina 7.06 Wyoming 6.15 

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

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

effective prices. To make this adjustment, DOE used the 2003 CBECS data set to identify the 

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

prices paid by all commercial customers. Equation 8.7 shows the ratios of prices paid by the 

four types of businesses were used to increase or decrease the average commercial prices. 

EPRICECOM BLD I STATE 2006 = EPRICE COM STATE 2006 x (EPRICE BLDG I US 2003/EPRICE COM US 2003) Eq. 8.7

where 

EPRICECOM BLD I STATE 2006 = average commercial sector electricity price in building type I 

(supermarkets) in a specific state in 2006 (cents/kWh), 

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

2006 (cents/kWh), 

EPRICE BLDG I US 2003 = national average commercial sector electricity price in building 

type I in 2003 CBECS (cents/kWh), 

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

(cents/kWh). 

Table 8.2.12 shows the derivation of the EPRICE ratios from CBECS. 

 EE-2006-STD-0126 COMMENT 23.2
8-17 

Table 8.2.12 Derived Average Commercial Electricity Price by Business Type 

Business Type 

Grocery 

Store/Food 

Market 

Convenience 

Store*

Convenience 

Store with 

Gas Station 

Other 

Food 

Sales**

All 

Food 

Sales 

All 

Commercial 

Buildings 

Electricity Price (cents/kWh) 7.2 8.6 7.7 8.2 7.6 7.8 

Ratio of Electricity Price to 

Average Price for all 

Commercial Buildings 

0.928 1.109 0.993 1.057 0.980 1.000 

* This group is assumed to include convenience stores without gas stations, specialty stores (such as meat markets), and beer, wine, and liquor 

stores. 

** This group is assumed to include mainly large multi-line retailers and super centers that sell both grocery and non-grocery items. 

Source: CBECS 2003

Once the electricity prices for the four commercial building types (stores) were adjusted, 

DOE used the resulting prices in the analysis to represent 2007 electricity prices. Future prices 

are forecasted as described in section 8.2.3.2. To obtain a weighted-average national price, DOE 

weighted the prices paid by each business in each state by the estimated sales of CRE units in 

each state to each prototype building.5,6,7,8 The state/building type weights are the probabilities 

that a given CRE unit shipped will be operated with a given price. For evaluation purposes, the 

prices and weights can be depicted as a cumulative probability distribution. The effective prices 

range from approximately 5 cents per kWh to approximately 20 cents per kWh. Figure 8.2.1 

illustrates the results for the grocery store and food market sector. 

Electricity Prices Faced by CREs Sold to Supermarkets

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Cents per kWh

Cumulative Percent of Electricity 

Prices

Electricity Price

Figure 8.2.1 Cumulative Probability Distribution Showing the Electricity Prices Paid by 

Grocery Store/Food Market Sector (2007$) 

 EE-2006-STD-0126 COMMENT 23.2
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8.2.3.2 Electricity Price Trend 

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

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

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

industry. 

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

energy prices. The discussion in this chapter uses the AEO 2007 reference price scenario. In the 

LCC analysis, the following four scenarios can be analyzed: 

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

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

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

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

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

assumed to change. DOE extrapolated the values in later years (i.e., after 2030) from their 

relative sources because AEO 2007 does not forecast beyond 2030. To arrive at values for these 

later years, DOE used the price trend from 2020 to 2030 of the forecast to establish prices in the 

years 2030 to 2042. This method of extrapolation is in line with methods currently used by the 

EIA to forecast fuel prices for the Federal Energy Management Program. 

Gas Price Index Projections

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

Year

Index (2007=1.00)

AEO 2007

High Growth

Low Growth

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2042 

 EE-2006-STD-0126 COMMENT 23.2
8-19 

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

AEO 2007 Reference Case, shown in Figure 8.2.2. Spreadsheets used in calculating the LCC 

have the capability to analyze the other electricity price trend scenarios, namely, the AEO 2007 

High Growth and the AEO 2007 Low Growth price trends and constant energy prices. 

8.2.3.3 Repair Cost 

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

commercial refrigeration equipment that have failed. In its ANOPR analysis, DOE based the 

annualized repair cost for baseline energy consumption commercial refrigeration equipment (i.e., 

the cost the customer pays annually for repairing the equipment) on the following expression: 

RC= k x EQP/LIFE Eq 8.8

where 

RC = repair cost ($), 

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

EQP = equipment price (customer price for the equipment only) ($), 

LIFE = average lifetime of the equipment in years (a value of 10.0 years was assumed). 

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

efficiency level, DOE considered two scenarios for the ANOPR: repair costs that varied in direct 

proportion with the manufacturer selling price of the equipment, and repair costs that were kept 

constant (i.e., did not increase with higher efficiency levels). The latter was accomplished by 

holding EQP at the baseline equipment price. DOE used repair costs that are constant with 

manufacturer selling price (the second scenario above) as the default annualized repair cost 

scenario in the LCC and PBP analysis. Comments received during the ANOPR were that repair 

costs would likely increase for higher efficiency equipment but a simply proportional cost was 

likely inappropriate. For the NOPR analysis, DOE contacted CRE users to assess typical 

equipment failure rates in the field and used replacement cost estimates to augment the baseline 

repair cost from the ANOPR. 

Key equipment components that might be replaced over the equipment life and for which 

higher efficiency components are examined in the engineering analysis are shown in 

Table 8.2.13 along with estimates of the relative frequency of replacementb. Replacement 

frequencies were annualized for use in the LCC analysis. Costs for replacement components in 

the field were estimated as 250 percent of the OEM cost for each component in 2007$ as 

established in the engineering analysis. 

Table 8.2.13 Frequency of Component Replacement 

Component Estimated Replacement Rate (over 10 year period) 

Evaporator Fans 50% 

Condenser Fans 25% 

Compressors 25% 

Coils 5% 

Doors 5% 

 

b

 Estimates for replacement frequencies were based on personal conversation with Jim Vannon, Engineering 

Manager for Albertsons, October 26, 2007 

 EE-2006-STD-0126 COMMENT 23.2
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8.2.3.4 Maintenance Cost 

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

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

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

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

coils). 

DOE took annualized maintenance costs for commercial refrigeration equipment from 

data in RS Means Facilities Maintenance & Repair Cost Data.9RS Means provides estimates on 

the person-hours, labor rates, and materials required to maintain commercial refrigeration 

equipment. RS Means specifies preventative maintenance activities for commercial display cases 

expected to occur on a semi-annual basis as including the following actions: cleaning evaporator 

coils, drain pans, fans and intake screens; lubricating motors; inspecting door gaskets and seals, 

and lubricating hinges; cleaning condenser coils; checking refrigerant pressures and compressor 

oil as necessary; checking starter panels and controls; and checking defrost system operation. 

DOE did not break out these activities into separate line-item maintenance activities. Instead, 

DOE used a single figure of $156/yr (2007$) for preventative maintenance activities for all CRE 

classes. 

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

efficiency level, DOE decided to use preventative maintenance costs that remain constant as 

equipment efficiency is increased. 

DOE considered lamp replacements and other lighting maintenance activities as required 

maintenance for commercial refrigeration equipment, and apart from preventative maintenance. 

Thus, DOE did not itemize them in the preventative maintenance activities described by RS 

Means. Different CRE classes have different numbers of lamps (and ballasts), and many of the 

efficiency options DOE considered in its design option engineering analysis involved changes to 

the lighting configuration (lamp, ballast, or use of light emitting diode (LED) lighting systems). 

Because the lighting configurations can vary by efficiency level, DOE estimated the relative 

maintenance costs for lighting by each case type for which DOE performed a design option 

analysis. DOE's methodology was to estimate the frequency of failure and replacement of 

individual lighting components, to estimate the cost of replacement in the field, and to develop 

an annualized maintenance cost based on the sum of the total lighting maintenance costs (in 

2007$) over the estimated life of the equipment divided by the estimated life of the equipment. 

Lifetime estimates for particular components were as follows: 

• Fluorescent lamps would be replaced every 24 months in a preventative fashion. 

• Fluorescent lamp ballasts would be replaced once over the estimated 10-year life of the 

equipment based on a typical ballast life of 80,000 hours. 

• LED lamps would be replaced once over the estimated 10-year life of the equipment 

based on a typical fixture life of 50,000 hours (GE 2007).10 

DOE based cost estimates for fluorescent lamp and ballast replacements on review of the 

original equipment manufacturer (OEM) costs used in the engineering analysis, RS Means

 EE-2006-STD-0126 COMMENT 23.2
8-21 

estimates and cost data from Grainger,

11 and previous studies. The final approach taken was to 

estimate the costs of field replacement using labor cost hours from RS Means Electrical Cost 

Data

12 for typical lamp or ballast replacement for other lighting fixtures, and to provide a 

150-percent multiplier on OEM costs for lamps and ballasts (provided in the engineering 

analysis spreadsheets) to reflect retail pricing. 

Fluorescent lamp and ballast technology is mature. Available information suggests that 

there would be no change in inflation adjusted costs for these components. However, because of 

rapid technological improvement, costs for LED lamps are declining. DOE’s estimate for the 

ANOPR was that costs for replacing LED lighting fixtures (which would occur first in 

approximately 2018, or six years after the target date of the rule) would be 140 percent of the 

OEM cost of LED case lighting fixtures today (in 2007$). DOE recognizes that both life and 

cost assumptions for LED replacement are speculative and believes it has taken a conservative 

approach to estimating price reduction over time for this technology. DOE did not consider 

overhead and profit factors from RS Means. 

The total costs for lamp, ballast or LED fixture replacement were annualized by dividing 

the total estimated replacement costs over the CRE lifetime as shown in Eq. 8.9. 

∑ 















+ ×

×+× + ×

=

Life OEM

OEM Bulb Ballast

LEDFixture

Bulb Ballast NBulb Labor NBallast Labor

Life

AnnualizedLightingMa enance

%140

1 & %150

int

Eq. 8.9

where 

Annualized Lighting Maintenance = Annualized Lighting Maintenance Cost (2007$), 

Life = CRE lifetime (years), 

Bulb & BallastOEM = OEM Costs for bulb and ballast from engineering analysis ($), 

LED FixtureOEM = OEM Installed costs for LED fixtures from engineering analysis ($), 

NBulb = Number of bulbs in particular CRE class analyzed, 

NBallast = Number of ballasts in particular CRE class analyzed, 

LaborBulb = Labor cost to replace one bulb ($), 

LaborBallast = Labor cost to replace one ballast ($). 

The Air-Conditioning and Refrigeration Institute provided cost-energy-consumption 

curves for certain equipment classes, but without maintenance costs for lighting components. 

For such equipment classes, DOE calculated a nominal lighting maintenance cost for all levels 

on the basis that T8 lamp lighting represented the current market.13

Table 8.2.14 shows the annualized lighting maintenance costs for each efficiency level 

addressed in the LCC analysis. 

 EE-2006-STD-0126 COMMENT 23.2
8-22 

Table 8.2.14 Annualized Lighting Maintenance Costs for Each Efficiency Level Addressed 

in the Life-Cycle Cost Analysis (2007$) 

Equipment Annualized Lighting Maintenance Costs ($/yr) 

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

VOP.RC.M 104.37 104.37 104.37 140.12 140.12 140.12 262.95 NA

VOP.RC.L 44.73 44.73 44.73 44.73 60.05 60.05 112.69 NA

VOP.SC.M 38.64 38.64 38.64 38.64 50.86 50.86 87.65 87.65

VCT.RC.M 98.27 98.27 98.27 98.27 98.27 110.26 110.26 NA

VCT.RC.L 98.27 98.27 98.27 98.27 98.27 110.26 110.26 NA

VCT.SC.I 49.14 49.14 49.14 49.14 49.14 49.14 55.13 55.13

VCS.SC.I 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

SVO.RC.M 74.55 74.55 74.55 100.08 100.08 187.82 187.82 NA

SVO.SC.M 26.77 26.77 26.77 26.77 35.44 35.44 62.61 62.61

SOC.RC.M 74.55 74.55 74.55 100.08 100.08 187.82 187.82 187.82

HZO.RC.M 0.00 0.00 0.00 0.00 0.00 NA NA NA

HZO.RC.L 0.00 0.00 0.00 0.00 0.00 NA NA NA

HZO.SC.M 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

HZO.SC.L 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

HCT.SC.I 0.00 0.00 0.00 0.00 0.00 0.00 NA NA

*NA means that no efficiency level was designated; e.g., VOP.RC.M had only seven efficiency levels and HZO.RC.L had only five. 

Total annualized maintenance costs are the sum of the preventative maintenance and the 

lighting maintenance costs. Table 8.2.15 summarizes the nationally representative annualized 

maintenance costs for baseline refrigeration equipment. 

Table 8.2.15 Annualized Maintenance Costs for Baseline Efficient Commercial 

Refrigeration Equipment (2007$) 

Equipment Annualized Lighting Maintenance Costs for LCC ($/yr) 

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

VOP.RC.M 260.79 260.79 260.79 296.54 296.54 296.54 419.37 NA

VOP.RC.L 201.15 201.15 201.15 201.15 216.47 216.47 269.11 NA

VOP.SC.M 195.06 195.06 195.06 195.06 207.28 207.28 244.07 244.07

VCT.RC.M 254.69 254.69 254.69 254.69 254.69 266.68 266.68 NA

VCT.RC.L 254.69 254.69 254.69 254.69 254.69 266.68 266.68 NA

VCT.SC.I 205.56 205.56 205.56 205.56 205.56 205.56 211.55 211.55

VCS.SC.I 156.42 156.42 156.42 156.42 156.42 156.42 156.42 156.42

SVO.RC.M 230.97 230.97 230.97 256.50 256.50 344.24 344.24 NA

SVO.SC.M 183.19 183.19 183.19 183.19 191.86 191.86 219.03 219.03

SOC.RC.M 230.97 230.97 230.97 256.50 256.50 344.24 344.24 344.24

HZO.RC.M 156.42 156.42 156.42 156.42 156.42 NA NA NA

HZO.RC.L 156.42 156.42 156.42 156.42 156.42 NA NA NA

HZO.SC.M 156.42 156.42 156.42 156.42 156.42 156.42 156.42 156.42

HZO.SC.L 156.42 156.42 156.42 156.42 156.42 156.42 156.42 156.42

HCT.SC.I 156.42 156.42 156.42 156.42 156.42 156.42 NA NA

*NA means that no efficiency level was designated; e.g., VOP.RC.M had only seven efficiency levels and HZO.RC.L had only five. 

 EE-2006-STD-0126 COMMENT 23.2
8-23 

8.2.3.5 Lifetime 

DOE defines lifetime as the age when a CRE unit is retired from service. DOE based 

equipment lifetime on discussions with industry experts, and concluded that a typical lifetime of 

10 years is appropriate for commercial refrigeration equipment used in large grocery and 

multiline retail business types. Based on comments received during the ANOPR, DOE used 

15 year life for commercial refrigeration equipment used in small grocery/convenience stores. 

Chapter 3, Market and Technology Assessment, contains a discussion of equipment life and 

tabulates estimates from various sources used in assessing equipment life. CRE units are 

typically replaced when stores are renovated—about every 10 years for large grocery chains14—

which is before the CRE units would have physically worn out. Because of this, there is a usedequipment market for commercial refrigeration equipment. DOE understands, however, that the 

salvage value to the original purchaser is very low and thus this has not been taken into account 

in the LCC. 

8.2.3.6 Discount Rate 

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

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

capital for companies that purchase commercial refrigeration equipment. The cost of capital is 

commonly used to estimate the present value of cash flows to be derived from a typical company 

project or investment. Most companies use both debt and equity capital to fund investments, so 

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

financing. 

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

(CAPM).15 The CAPM, among the most widely used models to estimate the cost of equity 

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

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

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

systematic risk. 

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

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

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

premium or ERP. The risk coefficient of a company, , indicates the degree of risk associated 

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

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

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

2.0 faces twice the overall stock market risk. 

 EE-2006-STD-0126 COMMENT 23.2
8-24 

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

ke = Rf + (β x ERP) Eq. 8.10

where 

ke = the cost of equity for a company ($), 

Rf = the expected return of the risk free asset ($), 



= the risk coefficient,

ERP = the expected equity risk premium ($). 

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

bonds. DOE used a 4.8-percent estimate for the ERP based on data from the Damodaran 

Online16 site.

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

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

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

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

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

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

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

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

of debt and equity financing: 

k =ke x we+ kd x wd Eq. 8.11

where 

k = the (nominal) cost of capital ($), 

ke = the expected rate of return on equity ($), 

kd = the expected rate of return on debt ($), 

we = the proportion of equity financing in total annual financing, 

wd = the proportion of debt financing in total annual financing. 

The cost of capital is a nominal rate, because it includes anticipated future inflation in the 

expected returns from stocks and bonds. The real discount rate or WACC deducts expected 

inflation (r) from the nominal rate. DOE calculated expected inflation (2.2 percent) from the 

average of the projected change in gross domestic product (GDP) prices in the Economic Report 

of the President (February 2006).17

To estimate the WACC of CRE purchasers, DOE used a sample of companies involved 

in groceries and multi-line retailing drawn from a database of 7,319 U.S. companies given on the 

Damodaran Online website. This database includes most of the publicly-traded companies in 

the United States. 

 EE-2006-STD-0126 COMMENT 23.2
8-25 

DOE divided the companies into the three ownership categories shown in 

Table 8.2.16according to their type of activity (small grocery, in the last line of the table covers 

convenience stores with and without gasoline stations). DOE sought financial information for all 

of the firms in the full sample involved in the two lines of business. This resulted in a sample of 

about 22 firms. In cases where one or more of the variables needed to estimate the discount rate 

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

discarded about 22 percent of the firms in the full database for this reason. 

Table 8.2.16 describes the economic sectors represented in each of the ownership 

categories as well as the number of companies used for determining discount rates. 

Ultimately, DOE used a sample of 17 companies to represent the purchasers of 

commercial refrigeration equipment. For each company in the sample, DOE derived the cost of 

debt, percent debt financing, and systematic company risk from information provided at the 

Damodaran Online website. It estimated the cost of debt financing from the long-term 

government bond rate (4.39 percent) and the standard deviation of the stock price. Table 8.2.16 

shows the weighted-average values for the cost of debt, percent debt financing and systematic 

firm risk for each category of the sample companies. The cost of capital for small, independent 

grocers, convenience store franchisees, gasoline station owner-operators and others with more 

limited access to capital is more difficult to determine. Individual credit-worthiness varies 

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

corporation. However, personal contacts with a sample of commercial bankers yielded an 

estimate for the small operator weighted cost of capital of about 200 to 300 basis points 

(2 percent to 3 percent) above the rates for large grocery chains. A central value equal to the 

weighted average of large grocery chains, plus 2.5 percent, was used for small operators. 

Deducting expected inflation from the cost of capital provides the estimates of the real 

discount rate by ownership category shown in Table 8.2.16. The average after-tax discount rate, 

weighted by the percentage shares of total CRE purchases, is 5.87 percent for large grocery, 

5.11 percent for multi-line retailers and 8.37 percent for convenience stores and convenience 

stores associated with gasoline stations. 

8.2.3.7 Effective Date of Standard 

The effective date is the future date when a new standard becomes operative. Under 

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

commercial refrigeration equipment will be three years after the final rule is published. DOE 

calculated the LCC for all customers as if they each would purchase a new CRE unit in the year 

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

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

2012 and used these dates in the ANOPR analyses. It based the cost of the equipment on this 

year; however, all dollar values are expressed in 2007$. DOE considered annual energy for the 

life of the commercial refrigeration equipment. For the LCC analysis, the year of equipment 

purchase is 2012. 

 EE-2006-STD-0126 COMMENT 23.2
_ 8-26 Table 8.2.16 Discount Rates by Company and Ownership Category Company Company Value (millions $) Value Line Beta Cost of Equity (E) E/(D+E) Std Dev in Stock Cost of Debt (D) Effective Tax Rate After Tax Cost of Debt 

(

A $ 25,042 1.45 11.35% 66.33% 23.70% 4.89% 13.19% 4.24% 3

B $ 389 0.6 7.27% 99.56% 33.37% 5.39% 40.61% 3.20% 

C $ 1,361 0.9 8.71% 88.38% 25.77% 5.14% 35.85% 3.30% 1

D $ 1,281 0.7 7.75% 56.56% 23.42% 4.89% 37.45% 3.06% 4

E $ 23,380 1.2 10.15% 69.07% 21.55% 4.89% 37.18% 3.07% 3

F $ 1,184 1.2 10.15% 48.87% 45.83% 5.64% 0.00% 5.64% 5

G $ 1,503 0.85 8.47% 88.42% 20.90% 4.89% 36.22% 3.12% 1H $ 21,819 1.05 9.43% 70.86% 23.48% 4.89% 34.41% 3.21% 2

I $ 715 0.9 8.71% 84.74% 39.00% 5.39% 36.74% 3.41% 1

J $ 775 0.75 7.99% 93.79% 55.96% 5.89% 42.97% 3.36% 

K $ 302 0.65 7.51% 88.92% 22.06% 4.89% 41.81% 2.85% 1

L $ 1,084 0.8 8.23% 100.00% 16.67% 4.64% 36.14% 2.96% 

M $ 6,647 0.95 8.95% 99.72% 32.50% 5.39% 39.44% 3.26% 

N $ 598 1.15 9.91% 71.22% 65.26% 6.39% 15.16% 5.42% 2

Large Grocery Weighted Average 1.1805 10.06% 72.24% 24.68% 4.97% 29.04% 3.52% 2

Inflation-Adjusted 

U $25,715 0.8 8.23% 97.0% 19.86% 4.64% 37.0% 2.92% V $58,915 1 9.19% 83.2% 21.26% 4.89% 37.8% 3.04% 1

W $230,590 0.75 7.99% 83.2% 15.89% 4.64% 34.7% 3.03% 1

Large Multi-Line Retailers and Wholesalers Weighted Average 

 0.8008 8.23% 84.31% 17.22% 4.69% 35.47% 3.02% 1

Inflation

Small Grocery, Inflation Adjusted 

E=equity; D=debt Source: Pacific Northwest National Laboratory (PNNL) calculations applied to firms sampled from the Damodaran Online website. 

 EE-2006-STD-0126 COMMENT 23.2
8-27 

8.3 PAYBACK PERIOD INPUTS 

8.3.1 Definition 

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

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

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

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

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

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

effective discount rate of zero percent. 

The equation for PBP is: 

PBP =∆IC/∆OC Eq. 8.12

where 

PBP = payback period (years),

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

equipment (efficiency Levels 2, 3, etc.) and the baseline (efficiency Level 1) equipment 

($), 

∆OC = difference in annual operating costs ($). 

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

product mean that the increased total installed cost of the more efficient equipment is not 

recovered in reduced operating costs over the life of the equipment. 

8.3.2 Inputs 

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

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

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

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

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

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

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

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

PBP calculation of electricity cost was the price projected for 2012, expressed in 2007$, but not 

discounted to 2007. Discount rates are not used in the PBP calculation. 

8.4 LIFE-CYCLE COST AND PAYBACK PERIOD RESULTS 

8.4.1 Life-Cycle Cost Results 

This section presents LCC results for the higher efficiency levels specified in the 

engineering analysis (chapter 5) and also presented in section 8.2.2.2, Standard-Level 

Manufacturer Selling Price Increases. The results presented here are based on annual operating 

 EE-2006-STD-0126 COMMENT 23.2
8-28 

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

Section 8.2 presents the electricity price inputs as well as all other LCC inputs. 

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

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

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

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

show how these costs vary with efficiency level for each of the commercial refrigeration 

equipment classes. 

8.4.1.1 Life-Cycle Cost Breakdown Based on Average Input Values 

Figure 8.4.1 shows how, on an average basis, the total installed costs and LCC vary with 

efficiency level for a given building type. Similar figures for other equipment classes are 

provided in appendix G. 

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

cost. It separated the figures for annual operating cost into annual electricity, repair, and 

maintenance costs. It separated the figures for LCC into total installed cost and lifetime 

operating cost. Although these figures show only mean or average values rather than 

distributions of LCC results, they demonstrate how the various inputs impact LCC. In view of 

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

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

efficiencies. 

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

efficiency level. As efficiency is increased, electricity cost decreases. 

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

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

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

rated efficiency. As a result, the LCC at all efficiency levels is lower than that for the baseline 

level (Level 1). 

Again, the results shown in Figure 8.4.1 are based on average input values rather than 

input distributions and are depicted for only one building type. Thus, one can observe how the 

various inputs impact LCC and, in turn, how the resulting LCC changes with an increase in 

efficiency level in this example. Conclusions, however, should also take into account the 

distribution of LCC results discussed in section 8.4.1.2. 

 EE-2006-STD-0126 COMMENT 23.2
8-29 

Installed Cost-LCC Tradeoff

$22,500

$23,000

$23,500

$24,000

$24,500

$25,000

$25,500

$26,000

$26,500

$8,259 $8,300 $8,397 $8,498 $8,793 $8,856 $11,428 #N/A

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

Installed Cost

Life Cycle Cost

Installed Cost-LCC Tradeoff

 Equipment= Vertical Open (VOP), Operating Mode=Remote Condenser (RC), Temperature=Medium (M), 

Fuel Price=AEO 2007 - Reference Case, Start Year= 2012

Figure 8.4.1 Effect of the Change in Efficiency Level on Life-Cycle Cost for Vertical Open 

Display Case, Remote Condensing, Medium Temperature in Supermarkets 

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

8.4.1.2 Differences in Life-Cycle Cost Between Baseline and Standard-Level 

Equipment 

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

the commercial refrigeration equipment classes. Unlike many recent DOE rulemakings, 

commercial refrigeration equipment has no pre-existing Federal standard, voluntary standard 

(e.g., ASHRAE), or other convenient reference standard available to serve as a baseline. As 

discussed in section 8.2.2.1, DOE’s baseline energy efficiency level for the ANOPR analysis is 

Level 1. 

 EE-2006-STD-0126 COMMENT 23.2
8-30 

Cumulative LCC Savings at Level 4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 500 1000 1500 2000 2500 3000 3500 4000 4500

LCC Savings (2007$)

Cumulative Probability

Cumulative LCC Savings at

Level 4

 Equipment= Vertical Open (VOP), Operating Mode=Remote Condenser (RC), Temperature=Medium (M), 

Fuel Price=AEO 2007 - Reference Case, Start Year= 2012

 

Figure 8.4.2 Cumulative Chart of Life-Cycle Cost Savings for Vertical Open Display Case, 

Remote Condensing, Medium Temperature: Efficiency Level 4 

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

the baseline commercial refrigeration equipment. The LCC differences are depicted as a 

distribution of values. DOE presents the results in a cumulative chart showing the cumulative 

distribution of LCC differences along with the corresponding probability of occurrence for each 

given efficiency level. In each figure, DOE provides the mean LCC difference along with the 

percent of the population for which the LCC will decrease. In the case of commercial 

refrigeration equipment, the population is the number of CRE units in commercial buildings 

(grocery and convenience stores) that utilize commercial refrigeration equipment. 

Figure 8.4.2 presents the LCC results for the case of efficiency Level 4 in the VOP.RC.M 

equipment class across all building types. Similar figures for other efficiency levels are found in 

appendix G for all equipment classes. In Figure 8.4.2, the 50-percent line shows the median 

change in LCC (a savings of $1,040 in this example). Half of the purchasers of this commercial 

refrigeration equipment would save more than $1,040, while half would save less than $1,040. 

The “0” horizontal line is the minimum savings value, which in this example is $284 savings due 

to the increased efficiency at efficiency level 4 compared to the baseline efficiency level 

(Level 1). The maximum LCC savings is $3,667. 

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

commercial refrigeration equipment classes. These charts provide more complete information, 

but DOE provides a summary of the change in LCC from the baseline by percentile groupings 

(i.e., of the distribution of results) for each of the equipment classes in Table 8.4.1. Table 8.4.1 

also shows the mean LCC savings and the percent of LCCs that are reduced for a standard set at 

each efficiency level. 

 EE-2006-STD-0126 COMMENT 23.2
8-31 

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

Efficiency Level for VOP.RC.M 

Decrease in LCC from Baseline (Level 1) Shown by Percentiles of the Distribution of Results (2007$)

Efficiency Level 

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

Mean 

Savings

Percent 

of Units 

with 

LCC 

Savings

Level 2 $250 $365 $404 $438 $477 $530 $565 $659 $737 $780 $1,483 $566 100% 

Level 3 $490 $748 $837 $910 $1,000 $1,120 $1,201 $1,411 $1,586 $1,684 $3,269 $1,201 100% 

Level 4 $284 $596 $701 $779 $903 $1,049 $1,142 $1,387 $1,618 $1,739 $3,667 $1,143 100% 

Level 5 $337 $773 $929 $1,031 $1,205 $1,414 $1,552 $1,907 $2,217 $2,390 $5,129 $1,551 100% 

Level 6 $303 $746 $909 $1,009 $1,187 $1,400 $1,542 $1,905 $2,221 $2,398 $5,197 $1,540 100% 

Level 7 -$2,240 -$1,566 -$1,249 -$1,124 -$837 -$466 -$233 $347 $899 $1,225 $5,988 -$234 35% 

Level 8 NA NA NA NA NA NA NA NA NA NA NA NA NA 

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

results for the VOP.RC.M equipment class. The Level 4 efficiency level in Table 8.4.1 (row 3) 

shows that the change in LCC in the zero-percentile column is a minimum saving of $284. This 

means that the 100 percent of the market are estimated to have LCC savings of $284. For 

90 percent of the cases studied (90th percentile), the change in LCC for Level 4 is a LCC 

reduction of $1,739 or less compared with the base case. Consequently, 10 percent of the cases 

have LCC savings of greater than $1,739. The largest reduction in LCC for Level 4 is $3,667 at 

the 100th percentile. The mean change in LCC is a net savings of $1,143. The last column shows 

that 100 percent of the sample has LCC savings (i.e., reductions in LCC greater than zero) when 

compared to the baseline efficiency level. 

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

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

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

savings compared with the baseline. 

8.4.2 Payback Period Results 

This section presents PBP results for each of the higher efficiency levels defined in 

section 8.2.2.2. The results presented here are based on annual operating costs calculated from 

state average commercial electricity prices. Section 8.2 describes the tariff-based electricity 

price inputs as well as all other PBP inputs. 

Similar to LCC, the analysis provides an estimate of the simple payback period at 

different ranges of energy prices, sales taxes, and installation costs that prevail across the country 

for each efficiency level and each building (store) type. Figure 8.4.3 shows the effect on 

payback period as the efficiency level changes from Level 1 (the baseline), for VOP.RC.M 

equipment class in supermarkets at U.S. national average energy prices, sales taxes, and 

installation costs. 

 EE-2006-STD-0126 COMMENT 23.2
8-32 

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

Level and Equipment Class 

Equipment National Average LCC Savings (2007$) 

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

VOP.RC.M 0 566 1,201 1,143 1,551 1,540 -234 NA 

VOP.RC.L 0 1,461 3,132 4,005 3,983 4,089 3,364 NA 

VOP.SC.M 0 523 758 1,020 1,065 1,342 748 703 

VCT.RC.M 0 286 581 1,106 1,107 900 867 NA 

VCT.RC.L 0 326 676 3,594 3,662 3,575 3,546 NA 

VCT.SC.I 0 879 1,723 2,305 3,806 3,818 3,841 3,818 

VCS.SC.I 0 324 640 990 1,191 1,527 1,554 1,565 

SVO.RC.M 0 386 810 782 1,106 -153 -170 NA 

SVO.SC.M 0 416 527 738 756 988 567 516 

SOC.RC.M 0 363 759 741 819 -386 -421 -673 

HZO.RC.M 0 376 792 942 917 NA NA NA 

HZO.RC.L 0 285 593 927 971 NA NA NA 

HZO.SC.M 0 241 312 414 551 747 759 721 

HZO.SC.L 0 532 610 1,073 1,094 1,576 1,585 1,559 

HCT.SC.I 0 146 192 692 710 693 NA NA 

 Percent of Units with Positive LCC Savings 

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

VOP.RC.M 0% 100% 100% 100% 100% 100% 35% NA 

VOP.RC.L 0% 100% 100% 100% 100% 100% 100% NA 

VOP.SC.M 0% 100% 100% 100% 100% 100% 84% 81% 

VCT.RC.M 0% 100% 100% 99% 99% 81% 79% NA 

VCT.RC.L 0% 100% 100% 100% 100% 100% 100% NA 

VCT.SC.I 0% 100% 100% 100% 100% 100% 100% 100% 

VCS.SC.I 0% 100% 100% 100% 100% 100% 100% 100% 

SVO.RC.M 0% 100% 100% 100% 100% 35% 35% NA 

SVO.SC.M 0% 100% 100% 100% 100% 100% 86% 82% 

SOC.RC.M 0% 100% 100% 100% 100% 30% 27% 26% 

HZO.RC.M 0% 100% 100% 100% 100% NA NA NA 

HZO.RC.L 0% 100% 100% 100% 100% NA NA NA 

HZO.SC.M 0% 100% 100% 100% 100% 100% 100% 100% 

HZO.SC.L 0% 100% 100% 100% 100% 100% 100% 100% 

HCT.SC.I 0% 100% 100% 100% 100% 100% NA NA 

 EE-2006-STD-0126 COMMENT 23.2
8-33 

Installed Cost-Payback Tradeoff

0.0 

1.0 

2.0 

3.0 

4.0 

5.0 

6.0 

7.0 

8.0 

9.0 

10.0 

$8,259 $8,300 $8,397 $8,498 $8,793 $8,856 $11,428 #N/A

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

Installed Cost

Payback Period (Years)

Installed Cost-Payback Period Tradeoff

 Equipment= Vertical Open (VOP), Operating Mode=Remote Condenser (RC), Temperature=Medium 

(M), Fuel Price=AEO 2007 - Reference Case, Start Year= 2012

Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for Vertical 

Open Display Case, Remote Condensing, Medium Temperature, in 

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

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

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

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

PBP. 

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

payback periods for each of the higher efficiency levels analyzed for the VOP.RC.M equipment 

class. Appendix G contains the frequency charts for all the efficiency levels considered for all 

commercial refrigeration equipment in this analysis. In Figure 8.4.4, the y-axis shows 

cumulative percent of all VOP.RC.M units (“Probability” at left y-axis). The x-axis is the PBP 

of a higher efficiency level (in this example, Level 4) relative to the baseline efficiency level 

(Level 1). In Figure 8.4.4, a Level 4 efficiency level provides commercial refrigeration units in 

this equipment class with a median PBP of 1.4 years, a mean payback period of 1.5 years, and a 

payback period range from just greater than 0.4 years to approximately 3.3 years depending on 

the placement of the unit. (Note that these cannot be read with precision from the chart; rather, 

the analysis output data provides these values in a statistical summary.) 

 EE-2006-STD-0126 COMMENT 23.2
8-34 

Cumulative Payback Period at Level 4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5

Years

Cumulative Probability

Cumulative Payback at

Level 4

 Equipment= Vertical Open (VOP), Operating Mode=Remote Condenser (RC), Temperature=Medium (M), 

Fuel Price=AEO 2007 - Reference Case, Start Year= 2012

Figure 8.4.4 Cumulative Chart of Payback Period for Vertical Open Display Case, 

Remote Condensing, Medium Temperature: Efficiency Level 4 

Table 8.4.3 summarizes the PBP results for each of the VOP.RC.M equipment class 

efficiency levels. Results are summarized for PBP by percentile groupings (i.e., percentile of the 

distribution of results). The table also shows the mean PBP for each efficiency level. 

Table 8.4.3 Summary of Payback Period Results for Vertical Open Display Case, 

Remote Condensing, Medium Temperature, Efficiency Level 4 

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

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

Level 2 0.2 0.4 0.4 0.5 0.5 0.5 0.6 0.7 0.7 0.7 1.0 0.6 

Level 3 0.3 0.6 0.6 0.7 0.8 0.8 0.9 1.0 1.1 1.2 1.6 0.9 

Level 4 0.4 0.9 1.0 1.1 1.3 1.4 1.6 1.8 1.9 2.1 3.3 1.5 

Level 5 0.7 1.4 1.5 1.7 2.0 2.1 2.3 2.6 2.8 3.1 4.5 2.2 

Level 6 0.7 1.5 1.6 1.9 2.2 2.3 2.5 2.8 3.0 3.3 4.9 2.4 

Level 7 2.5 5.4 5.8 7.0 8.5 9.0 10.1 11.9 12.9 14.8 27.5 9.7 

Level 8 NA NA NA NA NA NA NA NA NA NA NA NA 

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

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

percentage of units reporting payback periods of less than 3 years. 

 EE-2006-STD-0126 COMMENT 23.2
8-35 

Table 8.4.4 National Average Payback Periods by Efficiency Level and Equipment Class 

Equipment National Average Payback Period (Years) 

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

VOP.RC.M NA 0.6 0.9 1.5 2.2 2.4 9.7 NA 

VOP.RC.L NA 0.5 0.8 1.2 1.3 1.3 3.0 NA 

VOP.SC.M NA 0.4 0.8 1.3 1.8 2.7 5.7 5.9 

VCT.RC.M NA 0.9 1.4 4.5 4.6 6.0 6.1 NA 

VCT.RC.L NA 0.8 1.2 2.6 2.6 3.5 3.7 NA 

VCT.SC.I NA 0.3 0.6 1.1 1.7 1.7 2.4 2.5 

VCS.SC.I NA 0.4 0.4 0.5 0.6 1.1 1.3 1.4 

SVO.RC.M NA 0.5 0.8 1.5 2.1 9.7 9.7 NA 

SVO.SC.M NA 0.4 0.7 1.2 1.6 2.6 5.6 5.9 

SOC.RC.M NA 0.6 0.9 1.6 1.9 11.4 11.5 12.6 

HZO.RC.M NA 0.6 0.9 1.4 1.8 NA NA NA 

HZO.RC.L NA 0.7 1.1 1.5 1.8 NA NA NA 

HZO.SC.M NA 0.3 0.4 0.8 1.1 1.9 2.0 2.5 

HZO.SC.L NA 0.3 0.4 0.8 0.9 1.6 1.6 1.9 

HCT.SC.I NA 0.6 0.7 1.5 1.6 2.1 NA NA 

 Percent of Units with Payback Period Less than 3 Years 

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

VOP.RC.M 0% 100% 100% 100% 88% 80% 0% NA 

VOP.RC.L 0% 100% 100% 100% 100% 100% 51% NA 

VOP.SC.M 0% 100% 100% 100% 99% 68% 2% 1% 

VCT.RC.M 0% 100% 100% 10% 8% 1% 1% NA 

VCT.RC.L 0% 100% 100% 70% 68% 33% 31% NA 

VCT.SC.I 0% 100% 100% 100% 100% 100% 85% 79% 

VCS.SC.I 0% 100% 100% 100% 100% 100% 100% 100% 

SVO.RC.M 0% 100% 100% 99% 90% 0% 0% NA 

SVO.SC.M 0% 100% 100% 100% 100% 70% 4% 1% 

SOC.RC.M 0% 100% 100% 99% 92% 0% 0% NA 

HZO.RC.M 0% 100% 100% 100% 99% NA NA NA 

HZO.RC.L 0% 100% 100% 100% 99% NA NA NA 

HZO.SC.M 0% 100% 100% 100% 100% 99% 95% 79% 

HZO.SC.L 0% 100% 100% 100% 100% 100% 100% 99% 

HCT.SC.I 0% 100% 100% 100% 100% 92% NA NA 

8.4.3 Rebuttable Presumption Payback Period 

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

42 U.S.C. 6316(e)(1)(A)), establish a rebuttable presumption for commercial refrigeration 

equipment. The rebuttable presumption states that a standard is economically justified if the 

Secretary finds that “the additional cost to the consumer of purchasing a product complying with 

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

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

calculated under the applicable test procedure ...” This rebuttable-presumption test is an 

alternative path to establishing economic justification. 

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

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

saved during the first year of operation of the equipment as determined by ARI 1200-2006. 

DOE interprets that the increased cost of purchasing standard-compliant equipment includes the 

cost of installing the equipment for use by the purchaser. DOE calculated the rebuttable 

presumption payback period (RPBP), or the ratio of the value of the increased installed price 

above the baseline efficiency level to the first year’s energy cost savings. When this payback 

period is less than three years, the rebuttable presumption is satisfied; when this payback period 

 EE-2006-STD-0126 COMMENT 23.2
8-36 

is equal to or more than three years, the rebuttable presumption is not satisfied. Note that this 

payback period calculation does not include other components to the annual operating cost of the 

equipment (i.e., maintenance costs and repair costs). The rebuttable presumption payback 

periods calculated can thus be different from the payback periods calculated in section 8.4.2. 

DOE calculated the rebuttable presumption payback periods for the distribution of 

installed costs and energy prices discussed in sections 8.4.1 and 8.4.2 representative of the same 

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

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

period was calculated for each higher efficiency level within each equipment class. 

Table 8.4.5 shows the nationally-averaged rebuttable presumption payback periods 

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

rebuttable presumption payback period of less than three years is also shown in Table 8.4.5 for 

each equipment class. 

Table 8.4.5 Rebuttable Presumption Payback Periods by Efficiency Level and 

Equipment Class 

Equipment Rebuttable Presumption Payback Period (Years) 

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

VOP.RC.M NA 0.5 0.8 1.1 1.7 1.9 5.9 NA 

VOP.RC.L NA 0.5 0.7 1.1 1.1 1.2 2.5 NA 

VOP.SC.M NA 0.4 0.8 1.2 1.5 2.3 4.4 4.6 

VCT.RC.M NA 0.8 1.2 4 4.1 5.3 5.4 NA 

VCT.RC.L NA 0.7 1.1 2.4 2.4 3.2 3.3 NA 

VCT.SC.I NA 0.3 0.6 1 1.6 1.6 2.2 2.3 

VCS.SC.I NA 0.3 0.4 0.5 0.6 1 1.2 1.3 

SVO.RC.M NA 0.5 0.8 1.1 1.7 5.8 5.9 NA 

SVO.SC.M NA 0.4 0.6 1.1 1.3 2.2 4.3 4.6 

SOC.RC.M NA 0.5 0.8 1.1 1.4 6.2 6.4 7.1 

HZO.RC.M NA 0.5 0.8 1.2 1.6 NA NA NA 

HZO.RC.L NA 0.6 1 1.4 1.6 NA NA NA 

HZO.SC.M NA 0.3 0.4 0.7 1 1.8 1.9 2.3 

HZO.SC.L NA 0.3 0.3 0.8 0.8 1.5 1.5 1.7 

HCT.SC.I NA 0.5 0.7 1.4 1.5 2 NA NA 

8.5 LCC SENSITIVY STUDIES 

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

with changes in fuel escalation rate and baseline efficiency level. The results of these are 

discussed in sections 8.5.1 and 8.5.2 

8.5.1 Sensitivity to Fuel Escalation Rate 

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

AEO 2007 high growth and low growth scenarios. Table 8.5.1 and Table 8.5.2 examine the 

national average LCC savings for the AEO 2007 low growth scenario and AEO 2007 high 

growth scenarios respectively. For the high growth scenario, while the average LCC savings is 

increased for all efficiency levels above the baseline when compared with the reference case, 

there are no changes in the level showing the highest LCC savings when compared with the 

results using AEO 2007 reference case. For the low growth scenario, the average LCC savings 

 EE-2006-STD-0126 COMMENT 23.2
8-37 

is reduced for all efficiency levels above the baseline when compared with the reference case 

(see Table 8.4.2). Two equipment classes, VCT.RC.M and VCT.SC.I show a change in the 

efficiency level with the maximum LCC savings. Under the AEO 2007 low growth scenario for 

VCT.RC.M, the level with the maximum LCC savings is Level 4, compared to Level 5 in the 

AEO 2007 reference case. The difference in LCC between these levels is $2 in the AEO 2007

low growth scenario. For VCT.SC.I, the level with the maximum LCC savings is Level 6 under 

the AEO 2007 low growth scenario, compared to Level 7 in the AEO reference case. 

Payback period is calculated based on first year energy savings and thus is insensitive to 

fuel escalation rate scenarios. 

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

Efficiency Level and Equipment Class – EIA Low Growth Scenario 

Equipment National Average LCC Savings (2007$) 

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

VOP.RC.M 0 534 1,128 1,054 1,424 1,411 -453 NA 

VOP.RC.L 0 1,378 2,944 3,753 3,724 3,821 3,056 NA 

VOP.SC.M 0 494 713 956 988 1,231 608 561 

VCT.RC.M 0 269 541 974 972 721 685 NA 

VCT.RC.L 0 307 632 3,316 3,378 3,240 3,205 NA 

VCT.SC.I 0 831 1,626 2,166 3,554 3,564 3,558 3,530 

VCS.SC.I 0 306 605 934 1,123 1,435 1,457 1,465 

SVO.RC.M 0 364 761 721 1,016 -307 -327 NA 

SVO.SC.M 0 393 497 692 704 909 465 414 

SOC.RC.M 0 343 713 682 752 -521 -557 -816 

HZO.RC.M 0 354 744 881 853 NA NA NA 

HZO.RC.L 0 268 555 865 904 NA NA NA 

HZO.SC.M 0 228 295 390 517 696 705 666 

HZO.SC.L 0 504 577 1,011 1,030 1,473 1,481 1,453 

HCT.SC.I 0 138 181 648 663 644 NA NA 

 Percent of Units with Positive LCC Savings 

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

VOP.RC.M 0% 100% 100% 100% 100% 100% 33% NA 

VOP.RC.L 0% 100% 100% 100% 100% 100% 100% NA 

VOP.SC.M 0% 100% 100% 100% 100% 100% 75% 71% 

VCT.RC.M 0% 100% 100% 98% 98% 71% 70% NA 

VCT.RC.L 0% 100% 100% 100% 100% 100% 100% NA 

VCT.SC.I 0% 100% 100% 100% 100% 100% 100% 100% 

VCS.SC.I 0% 100% 100% 100% 100% 100% 100% 100% 

SVO.RC.M 0% 100% 100% 100% 100% 33% 32% NA 

SVO.SC.M 0% 100% 100% 100% 100% 100% 80% 71% 

SOC.RC.M 0% 100% 100% 100% 100% 27% 26% 11% 

HZO.RC.M 0% 100% 100% 100% 100% NA NA NA 

HZO.RC.L 0% 100% 100% 100% 100% NA NA NA 

HZO.SC.M 0% 100% 100% 100% 100% 100% 100% 100% 

HZO.SC.L 0% 100% 100% 100% 100% 100% 100% 100% 

HCT.SC.I 0% 100% 100% 100% 100% 100% NA NA 

 EE-2006-STD-0126 COMMENT 23.2
8-38 

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

Efficiency Level and Equipment Class – EIA High Growth Scenario 

Equipment National Average LCC Savings (2007$) 

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

VOP.RC.M 0 591 1,256 1,210 1,646 1,638 -70 NA 

VOP.RC.L 0 1,524 3,274 4,195 4,178 4,290 3,595 NA 

VOP.SC.M 0 545 792 1,069 1,123 1,424 854 809 

VCT.RC.M 0 299 610 1,206 1,209 1,035 1,004 NA 

VCT.RC.L 0 341 709 3,803 3,876 3,827 3,802 NA 

VCT.SC.I 0 914 1,796 2,410 3,995 4,008 4,055 4,035 

VCS.SC.I 0 338 666 1,032 1,243 1,597 1,627 1,640 

SVO.RC.M 0 403 847 829 1,173 -37 -53 NA 

SVO.SC.M 0 433 550 772 796 1,048 643 593 

SOC.RC.M 0 379 794 786 870 -285 -319 -565 

HZO.RC.M 0 392 828 988 964 NA NA NA 

HZO.RC.L 0 298 622 973 1,021 NA NA NA 

HZO.SC.M 0 251 325 433 576 786 799 762 

HZO.SC.L 0 554 635 1,120 1,142 1,652 1,663 1,638 

HCT.SC.I 0 152 201 725 744 729 NA NA 

 Percent of Units with Positive LCC Savings 

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

VOP.RC.M 0% 100% 100% 100% 100% 100% 37% NA 

VOP.RC.L 0% 100% 100% 100% 100% 100% 100% NA 

VOP.SC.M 0% 100% 100% 100% 100% 100% 90% 86% 

VCT.RC.M 0% 100% 100% 99% 99% 85% 83% NA 

VCT.RC.L 0% 100% 100% 100% 100% 100% 100% NA 

VCT.SC.I 0% 100% 100% 100% 100% 100% 100% 100% 

VCS.SC.I 0% 100% 100% 100% 100% 100% 100% 100% 

SVO.RC.M 0% 100% 100% 100% 100% 38% 37% NA 

SVO.SC.M 0% 100% 100% 100% 100% 100% 90% 86% 

SOC.RC.M 0% 100% 100% 100% 100% 34% 32% 27% 

HZO.RC.M 0% 100% 100% 100% 100% NA NA NA 

HZO.RC.L 0% 100% 100% 100% 100% NA NA NA 

HZO.SC.M 0% 100% 100% 100% 100% 100% 100% 100% 

HZO.SC.L 0% 100% 100% 100% 100% 100% 100% 100% 

HCT.SC.I 0% 100% 100% 100% 100% 100% NA NA 

8.5.2 Sensitivity to Baseline Efficiency Level 

Sensitivity to the baseline efficiency level was carried out using the LCC analysis 

spreadsheet to calculate LCC Savings and Payback Period for each efficiency level using 

alternative efficiency levels (e.g., Level 2) selected as the baseline level. The analysis was first 

carried out for a single equipment class (VCT.RC.L) and summing over all business types and 

fuel costs. The results of this analysis, assuming baseline levels at Level 1, Level 2, Level 3, and 

Level 4 are shown in Table 8.5.3. For this product and business type, it is clear that as the 

assumed baseline level moves from Level 1 to Level 4, the average LCC savings calculated for 

each level higher than the baseline are reduced, and the average payback period calculated for 

each higher efficiency level increases. The maximum life cycle cost savings is achieved at 

Level 5. Payback periods to reach a given efficiency level (e.g., Level 7) increase as higher 

baseline levels are assumed. For Level 7, the PBP was 3.7 years calculated with a Level 1 

baseline. PBP is increased to 8.7 years for a Level 4 baseline. 

 EE-2006-STD-0126 COMMENT 23.2
8-39 

Table 8.5.3 Sensitivity of Average Life-Cycle Cost Savings and Payback Period to 

Selection of Baseline Efficiency Level --VCT.RC.L Equipment Class 

Baseline Average LCC Savings (2007$) 

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

Level 1 0 326 676 3,594 3,662 3,575 3,546 NA 

Level 2 NA 0 350 3,268 3,336 3,249 3,219 NA

Level 3 NA NA 0 2,918 2,986 2,899 2,870 NA 

Level 4 NA NA NA 0 68 -19 -48 NA 

Average Payback Period (Years)

Level 1 NA 0.8 1.2 2.6 2.6 3.5 3.7 NA 

Level 2 NA 0.0 1.6 2.7 2.7 3.7 3.8 NA 

Level 3 NA 0.0 0.0 2.8 2.9 3.9 4.0 NA 

Level 4 NA 0.0 0.0 0.0 3.9 8.5 8.7 NA 

Table 8.5.3 results are for one equipment class and one business type using national 

average electricity rates. The behavior of other equipment classes is qualitatively similar, i.e., 

the LCC savings is reduced and the payback period is increased when higher efficiency levels 

are assumed as the baseline level. However, the degree of change in LCC or payback depends 

on the relative shape of the cost-efficiency curves. To examine the impact of baseline level on a 

national basis, the LCC spreadsheet was exercised for all business types and equipment classes 

and state-by-state electricity prices. The resulting LCC savings and payback periods were 

aggregated to national average values. These results are found in appendix G. Figure 8.5.1 

illustrates the impact on PBP for VCT.RC.L. The data points along each line of the chart 

indicate the calculated PBP for the efficiency level indicated for the line assuming the baseline 

level shown on the horizontal axis. The variation in the height of points along a given line (each 

line representing a specific target efficiency level) indicates the sensitivity of that level to the 

choice of baseline. Figure 8.5.1 shows the PBP for the VCT.RC.L equipment class is sensitive 

to the choice of baseline level, and that the overall PBP to reach Level 5 varies by approximately 

1.3 years depending on the baseline level assumed for Levels 1 – 4. PBP to reach Level 6 or 

Level 7 vary significantly depending on the choice of baseline level. 

 EE-2006-STD-0126 COMMENT 23.2
8-40 

National Average Payback Period versus Baseline Level Selection 

VCT.RC.L Equipment Class

0

2

4

6

8

10

12

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6

Assumed Baseline Level 

Payback Period (years)

PBP to Level 7

PBP to Level 6

PBP to Level 5

PBP to Level 4

PBP to Level 3

PBP to 

Level 2

Figure 8.5.1 Sensitivity of Payback Period to Baseline Efficiency Level – VCT.RC.L 

Equipment Class 

8.5.3 Sensitivity to LED Lighting Costs 

As discussed in section 8.2.3.4, the base LCC analysis uses current (2007) cost data for 

LED lighting both for the development of customer cost data as well as for replacement LED 

fixtures. LED lighting costs are expected to decline rapidly over the next decade (See Appendix 

B discussion of LED and LED fixture cost projections). DOE projects that the cost of LED 

fixtures could decline by as much as 50% by 2012, the effective date of the rule. 

DOE performed two analyses of the effect of possible cost reductions in LED lighting 

systems on LCC and LCC savings. These analyses involved five equipment classes: 

VOP.RC.M, VOP.SC.M, SVO.RC.M, SVO.SC.M, and SOC.RC.M. In the first of these 

analyses, DOE determined the percentage reduction in LED system cost by 2012 necessary to 

offset the increases in national average LCC between selected levels incorporating fluorescent 

lighting and LED lighting systems found in the base LCC analysis. As these sensitivity analyses 

were done in the NOPR stage of the rulemaking, the specific efficiency levels select for this 

analysis were Trial Standard Levels (TSLs) selected in the NOPR stage of the rulemaking. A 

mapping between efficiency levels and TSLs is provided in chapter 9. In particular, DOE 

analyzed the reduction in LED system cost necessary to offset the increases in LCC between 

TSL 4 (also equivalent to TSL 3, the efficiency level with maximum LCC for these equipment 

classes) and TSL 5. 

 EE-2006-STD-0126 COMMENT 23.2
8-41 

 Table 8.5.4 shows the total increase in installed cost between TSL 4 and TSL 5 by each 

design change incorporated as well as the difference in LCC between these TSLs. In addition 

Table 8.5.4 shows the total cost of LED lighting including total cost for LED lighting systems for 

TSL 5 as well as the value of future LED lighting system replacements. Future LED lighting 

systems replacements were discounted to the year 2012 using the shipment-weighted average 

discount rate for all business types used in the LCC analysis. DOE then calculated the 

percentage reduction in these total LED lighting system costs that would be necessary to offset 

any increase in LCC between TSL 5 and the baseline. DOE also calculated the percentage 

reduction in LED system costs necessary to offset the difference in LCC between TSL 4 and 

TSL 5. This analysis indicates that reductions in LED system costs of between 37 and 44 

percent would be sufficient to offset the LCC difference between TSL 4 and TSL 5, providing 

equivalent LCC savings at both levels. 

Table 8.5.4 LED Lighting System Cost Reduction Necessary to Provide Equivalent LCC 

Savings for TSL 4 and TSL 5 for VOP.RC.M, VOP.SC.M, SVO.RC.M, 

SVO.SC.M, and SOC.RC.M. 

Equipment Class VOP.RC.M VOP.SC.M SVO.RC.M SVO.SC.M SOC.RC.M 

2012 Net LED Lighting 

Cost (No Reduction to 

LED Costs Assumed) $2,571 $897 $1,837 $644 $1,837 

Additional Insulation $63 $67 $63 $67 $63 

High Efficiency Doors - - - - $361 

Total Installed Cost 

Increase from TSL4 to 

TSL5 

2018 LED Field 

Replacement Costs (One 

Replacement After 6 

Years) $1,922 $641 $1,373 $458 $1,373 

Baseline LCC $26,592 $17,005 $22,039 $14,380 $26,638 

LCC Savings TSL4 $1,551 $1,342 $1,106 $988 $819 

LCC Savings TSL5 -$234 $703 -$170 $516 -$673 

Delta LCC (TSL4 – TSL5) $1,785 $639 $1,276 $472 $1,492 

LED Gross Costs (Total First Cost + 

Replacements Discounted to Present 

Value) $4,771 $1,590 $3,408 $1,136 $3,408 

Minimum % LED Cost Reduction 

Needed for Positive LCC Savings at 

TSL5 Compared to Baseline 4.9% 0.0% 5.0% 0.0% 19.8% 

Minimum % LED Cost Reduction 

Needed for Equivalent LCC Savings 

at TSL5 Compared to TSL4 37.4% 40.2% 37.4% 41.6% 43.8% 

 In the second sensitivity analysis, DOE presumed that the cost for replacement LED 

fixtures in 2018 would be reduced by 50 percent of the cost assumed in the base LCC analysis, 

DOE then calculated the percent reduction in LED system cost necessary by 2012 to reduce the 

average LCC for TSL 5 to a level that provided equivalent LCC savings as TSL 4. These results 

are shown in Table 8.5.5. DOE determined that under this scenario an LED system cost 

reduction ranging from 29 percent to 40 percent, depending on equipment class, would provide 

an LCC at TSL 5 equivalent to that at TSL 4. 

 EE-2006-STD-0126 COMMENT 23.2
8-42 

Table 8.5.5 LED Lighting System Cost Reduction Necessary to Provide Equivalent LCC 

Savings for TSL 4 and TSL 5 Assuming 50 Percent Cost Reduction for 

Future LED Lighting Replacements 

Equipment Class VOP.RC.M VOP.SC.M SVO.RC.M SVO.SC.M SOC.RC.M 

2012 Net LED Lighting 

Cost (No Reduction to 

LED Costs Assumed) $2,571 $897 $1,837 $644 $1,837 

Additional Insulation $63 $67 $63 $67 $63 

High Efficiency Doors - - - - $361 

Total Installed Cost 

Increase from TSL4 to 

TSL5 

2018 LED Field 

Replacement Costs (One 

Replacement After 6 

Years) $961 $320 $686 $229 $686 

Baseline LCC $26,592 $17,005 $22,039 $14,380 $26,638 

LCC Savings TSL4 $1,551 $1,342 $1,106 $988 $819 

LCC Savings TSL5 $727 $1,023 $516 $745 $13 

Delta LCC (TSL4 – TSL5) $824 $318 $589 $243 $806 

LED Gross Costs (Total First Cost + 

Replacements Discounted to Present 

Value) $3,810 $1,270 $2,721 $907 $2,721 

Minimum Percent LED System Cost 

Reduction Needed for Positive LCC 

Savings at TSL5 Compared to 

Baseline 0.0% 0.0% 0.0% 0.0% 0.0% 

Minimum Percent LED System Cost 

Reduction Needed for Equivalent 

LCC Savings at TSL5 Compared to 

TSL4 28.9% 33.5% 29.0% 35.9% 39.6% 

Based on these analyses, DOE concluded that a reduction in LED system costs of 

approximately 45 percent (with no further cost reductions over the life of the equipment) would 

be sufficient to result in the maximum LCC savings for all five equipment classes occurring at 

TSL 5, and a reduction of 40 percent would make TSL 5 the maximum LCC savings level for 

VOP.RC.M, VOP.SC.M, and SVO.RC.M. Assuming a trajectory of continuous LED cost 

reduction through 2018─to a point where LED system replacement costs are 50 percent of 

current costs─would result in a somewhat lower LED system cost reduction (40 percent by 

2012) necessary to make TSL 5 the maximum LCC savings for these five equipment classes. 

8.6 DETAILED RESULTS 

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

Appendix G. 

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8-43 

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