Rulemaking Framework for

Refrigerated Bottled or Canned Beverage Vending Machines

United States Department of Energy

Office of Energy Efficiency and Renewable Energy

Building Technologies Program

June 5, 2006

EERE-2006-STD-0125 COMMENT 02
TABLE OF CONTENTS

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1 INTRODUCTION . 1

1.1 The Appliances and Commercial Equipment Standards Program 2

1.2 Overview of the Rulemaking Process 4

1.2.1 Test Procedures 4

1.2.2 Rulemaking Process and Stakeholder Participation 5

1.3 Advance Notice of Proposed Rulemaking 5

1.4 Notice of Proposed Rulemaking 6

1.5 Final Rule 7

1.6 Overview of Beverage Vending Machines 8

1.6.1 Beverage Vending Machines for Indoor/Outdoor Use 8

1.6.2 Beverage Vending Machines for Indoor-Use-Only 8

2 ANALYSES FOR RULEMAKING 9

3 MARKET AND TECHNOLOGY ASSESSMENT 11

3.1 Market Assessment 11

3.2 Product Classes 12

3.3 Technology Assessment 13

3.4 Baseline Units 14

4 SCREENING ANALYSIS 15

5 ENGINEERING ANALYSIS 16

5.1 Engineering Analysis Overview 16

5.2 Proposed Approach for Determining the Cost-Efficiency Relationship 17

5.3 Manufacturer Prices 18

5.4 Proprietary Designs 18

5.5 Regulatory Changes Affecting the Engineering Analysis 19

6 ENERGY USE CHARACTERIZATION 19

7 MARKUPS FOR EQUIPMENT PRICE DETERMINATION 20

8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS 22

8.1 Overview 22

8.2 Energy Prices 22

8.3 LCC Discount Rates 23

8.4 Maintenance, Repair, and Installation Costs 23

8.5 Equipment Lifetimes 24

9 SHIPMENTS ANALYSIS 25

9.1 Base Case Forecast 25

9.2 Accounting Methodology 26

9.3 Standards Impacts on Product Shipments 26

10 NATIONAL IMPACT ANALYSIS 27

10.1 lnputs to Forecast 27

10.2 Calculation of Energy Savings 27

10.3 Net Present Value 28

11 LIFE-CYCLE COST SUBGROUP ANALYSIS 29

12 MANUFACTURER IMPACT ANALYSIS 29

12.1 Sources of Information 30

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12.2 Industry Cash Flow Analysis .30

12.3 Manufacturer Subgroup Analysis ....................................................................... 31

12.4 Competitive Impacts Assessment ....................................................................... 31

12.5 Cumulative Regulatory Burden .......................................................................... 32

13 UTILITY IMPACT ANALYSIS .......................................................................... 32

14 EMPLOYMENT IMPACT ANALYSIS ............................................................. 32

15 ENVIRONMENTAL ASSESSMENT .................................................................. 33

16 REGULATORY IMPACT ANALYSIS .............................................................. 33

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LIST OF FIGURES

Figure 1. Flow Diagram of Analyses for the Beverage Vending Machine Standards

Rulemaking Process 10

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LIST OF ACRONYMS

ABA American Beverage Association

AEO Annual Energy Outlook

ANOPR advance notice of proposed rulemaking

ASHRAE American Society of Heating, Refrigerating, and Air-Conditioning Engineers

BT Building Technologies Program

CFR Code of Federal Regulations

CEC California Energy Commission

CO2 carbon dioxide

CSA Canadian Standards Association

CSL candidate standard level

DOE United States Department of Energy

DOJ United States Department of Justice

ECM electronically commutated motor

EERE Office of Energy Efficiency and Renewable Energy

EIA Energy Information Administration

E.O. Executive Order

EPACT 1992 Energy Policy Act of 1992

EPACT 2005 Energy Policy Act of 2005

EPCA Energy Policy and Conservation Act

FR Federal Register

GRIM Government Regulatory Impact Mode]

HCFC hydrochiorofluorocarbon

HFC hydrofluorocarbon

ImSET Impact of Sector Energy Technologies

LCC life-cycle cost

MIA manufacturer impact analysis

NAMA National Automatic Merchandising Association

NECPA National Energy Conservation Policy Act of 1978

NEMS National Energy Modeling System

NES national energy savings

NOPR notice of proposed rulemaking

NO oxides of nitrogen

NPV net present value

OIRA Office of Information and Regulatory Affairs

R&D research and development

RIA regulatory impact analysis

SG&A selling, general, and administrative costs

SO2 sulfur dioxide

TSD technical support document

TSL trial standard level

U.S.C. United States Code

UL Underwriters Laboratories

WACC weighted-average cost of capital

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EERE-2006-STD-0125 COMMENT 02
Rulemaking Framework for Beverage Vending Machines

INTRODUCTION

The purpose of this document is to describe the procedural and analytical approaches the U.S.

Department of Energy (the Department or DOE) anticipates using to evaluate and establish

energy conservation standards for refrigerated bottled or canned beverage vending machines

(herein referred to as beverage vending machines). These energy conservation standards apply

to beverage vending machines manufactured on or after August 8, 2012, as mandated by

section 135(c)(4) of the Energy Policy Act of 2005 (EPACT 2005).

The DOE Appliances and Commercial Equipment Standards Program, of the Office of Energy

Efficiency and Renewable Energy's (EERE's) Building Technologies Program (BT), develops

and promulgates test procedures and energy conservation standards for certain consumer

appliances and commercial equipment. The Department is committed to expeditiously

completing overdue or "backlog" rulemakings. A DOE report submitted to Congress on January

31, 2006,1 identifies the rulemakings the Department has scheduled for completion by June 2011

and explains many of the techniques the Department will be applying to the rulemaking process

in order to meet this schedule. The Department will also continue to apply the procedures set

forth in the Process Rule,2 to the extent that they do not inhibit the completion of the rule by the

scheduled dates.

The process for developing standards involves analysis, public notice, and consultation with

interested parties. Such parties, collectively referred to as stakeholders, include manufacturers,

consumers, energy conservation and environmental advocates, State and Federal agencies, and

any other groups or individuals with an interest in the standards.

This document is intended to inform stakeholders of the process for the standards rulemaking for

the covered beverage vending machines, and to encourage and facilitate stakeholder input during

the rulemaking. This document is the starting point for developing standards and is not a

definitive statement with respect to any issue to be determined in the rulemaking.

Section 1 provides an overview of the rulemaking process. Sections 2 through 16 discuss

analyses DOE intends to conduct to fulfill the statutory requirements and guidance for this

standards rulemaking.

Information regarding this rulemaking will be maintained on the DOE website at

http:!!www,eere,energy.gov!buildings/appliance standards!

On January 31, 2006, the Department submitted to Congress the Energy Conservation Standards Activities, which

was submitted pursuant to section 141 of the Energy Policy Act of 2005 and to the Conference Report (109-275) to

the Fiscal Year 2006, Energy and Water Development Appropriations Act. The report is available as a PDF file on

the DOE webpage at: http:/!www.eere.energy.gov/buildings/appli ance standards/2006_schedule_setting.html.

2 Procedures for c'onsideration of New or Revised Energy Conservation Standards for Consumer Products (the

"Process Rule"), 61 FR 36974, 10 CFR Part 430, Subpart C, Appendix A, (July 15, 1996).

EERE-2006-STD-0125 COMMENT 02
This document contains comment boxes that highlight issues on which DOE seeks

comment and requests feedback from interested parties. These boxes are also used to ask

spec7lc questions on the approaches the Department is proposing to follow in conducting

the analyses required for the standards rulemaking. Such requests for stakeholder

feedback are numbered according to the section in which they appear.

1.1 The Appliances and Commercial Equipment Standards Program

Part B of Title III of the Energy Policy and Conservation Act (EPCA) sets forth a variety of

provisions designed to improve the energy efficiency of various products and equipment. Part B

of Title III provides for the "Energy Conservation Program for Consumer Products Other Than

Automobiles." (42 U.s .C. 6291-6309)

The National Energy Conservation Policy Act (NECPA) amended EPCA to add Part C of

Title III (42 U.S.C. 6311-6317), which established an energy conservation program for certain

industrial equipment. Part C provides for a program similar to Part B for certain industrial

equipment. The Energy Policy Act of 1992 (EPACT 1992), Public Law 102-486, included

amendments to EPCA that expanded Title III to include additional commercial equipment. The

recent Energy Policy Act of 2005 (EPACT 2005), Public Law 109-58, updates several existing

standards and test procedures; prescribes definitions, standards, and test procedures for certain

new covered products and commercial equipment; and mandates that the Secretary of Energy

(the Secretary) commence rulemakings to develop test procedures and standards for certain new

covered products and commercial equipment.

Due to what appears to be an error in legislative drafting, EPACT 2005 includes provisions

dealing with definitions, test procedures, and energy conservation standards relating to several

types of commercial equipment, including beverage vending machines, in a section that amends

sections 321, 323 and 325 of Part B of Title III of EPCA (42 U.S.C. 6291, 6293, and 6295

respectively) for consumer products. The DOE anticipates that this error will be corrected

through legislation, and that the provisions will become amendments to Part C of Title III of

EPCA for "Certain Industrial Equipment." 70 FR 60407 (October 18, 2005). Consistent with its

previous action to incorporate the EPACT 2005 requirements for commercial equipment into

Title 10 of the Code of Federal Regulations (CFR), Part 431, which covers that type of

equipment, DOE intends to place the new requirements for beverage vending machines in

Part 431.

Section 135(c)(4) of EPACT 2005 amends section 325 of EPCA by adding, in part, new

subsections 325(v)(2), (3), and (4) (42 U.S.C. 6295(v)(2), (3) and (4)), which direct the Secretary

to issue by rule, no later than August 8, 2009, energy conservation standards for refrigerated

bottled or canned beverage vending machines. Such standards shall apply to beverage vending

machines manufactured three years after the date of publication of a final rule that establishes

energy conservation standards for that equipment.

Section 135(b) of EPACT 2005 amends section 323 of EPCA by adding, in part, new

subsections 323(b)(15) (42 U.S.C. 6293(b)(15)) and 323(f) (42 U.S.C. 6293(f)), which,

respectively, state that the test procedure for refrigerated bottled or canned beverage vending

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EERE-2006-STD-0125 COMMENT 02
machines shall be based on American National Standards Institute (ANSI)/American Society of

Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Standard 32.1-2004,

"Methods of Testing for Rating Vending Machines for Bottled, Canned or Other Sealed

Beverages," and that the Secretary has until August 8, 2007, to prescribe that new test procedure.

Section 135(a)(3) of EPACT 2005 amends section 321 of EPCA by adding, in part, new

subsection 32 1(40) (42 U.S.C. 6291(40)), which establishes the following definition:

The term "refrigerated bottled or canned beverage vending machine" means a

commercial refrigerator that cools bottled or canned beverages and dispenses the

bottled or canned beverages on payment.

In addition, section 136(a)(3) of EPACT 2005 amends section 340 of EPCA by replacing

subsection 340(9) (42 U.S.C 6311(9)) with, in part, definitions for the following terms relating to

commercial refrigeration equipment that are relevant to beverage vending machines:

(9)(A) The term "commercial refrigerator, freezer, and refrigerator-freezer" means

refrigeration equipment that-

(i) is not a consumer product (as defined in section 321);

(ii) is not designed and marketed exclusively for medical, scientific, or research

purposes;

(iii)operates at a chilled, frozen, combination chilled and frozen, or variable

temperature;

(iv)displays or stores merchandise and other perishable materials horizontally,

semivertically, or vertically;

(v) has transparent or solid doors, sliding or hinged doors, a combination of

hinged, sliding, transparent, or solid doors, or no doors;

(vi)is designed for pull-down temperature applications or holding temperature

applications; and

(vii) is connected to a self-contained condensing unit or to a remote condensing

unit.

(B) The term "holding temperature application" means a use of commercial

refrigeration equipment other than a pull-down temperature application, except a

blast chiller or freezer.

* * *

(D) The term "pull-down temperature application" means a commercial

refrigerator with doors that, when fully loaded with 12 ounce beverage cans at 90

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EERE-2006-STD-0125 COMMENT 02
degrees F, can cool those beverages to an average stable temperature of 38

degrees F in 12 hours or less.

(E) The term "remote condensing unit" means a factory-made assembly of

refrigerating components designed to compress and liquefy a specific refrigerant

that is remotely located from the refrigerated equipment and consists of 1 or more

refrigerant compressors, refrigerant condensers, condenser fans and motors, and

factory supplied accessories.

(F) The term "self-contained condensing unit" means a factory-made assembly of

refrigerating components designed to compress and liquefy a specific refrigerant

that is an integral part of the refrigerated equipment and consists of 1 or more

refrigerant compressors, refrigerant condensers, condenser fans and motors, and

factory supplied accessories.

EPACT 2005 does not explicitly define the terms "self-contained commercial refrigerator,

freezer, or refrigerator-freezer" and "remote condensing commercial refrigerator, freezer, or

refrigerator-freezer." The Department construes these two terms to mean "commercial

refrigerator, freezer, or refrigerator-freezer that is connected to a self-contained condensing unit"

and "commercial refrigerator, freezer, or refrigerator-freezer that is connected to a remote

condensing unit," respectively.

As presented above, section 135(a)(3) of EPACT 2005 defines a "refrigerated bottled or canned

beverage vending machine," in part, as equipment that cools bottled or canned beverages and

dispenses them on payment. The Department is considering defining the terms "bottled

beverage" and "canned beverage" in a manner that is consistent with the definitions for "bottle"

and "can" established in ANSI/ASHRAE Standard 32.1-2004, which are:

bottle: a glass or plastic container in which a beverage is sealed.

can: a container made of metal or paperboard or a combination of both in which a beverage

is sealed.

The Department expects that such broad definitions for "bottled beverage" and "canned

beverage" would allow for more comprehensive coverage of existing beverage vending machine

equipment, and particularly of certain types of equipment that are currently experiencing market

growth.

Item 1-1 The Department requests feedback on this approach to defining the terms

"bottled beverage" and "canned beverage."

1.2 Overview of the Rulemaking Process

1.2.1 Test Procedures

The Department is developing test procedures and testing requirements for the beverage vending

machines covered under this rulemaking, as mandated in EPACT 2005 and discussed in

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EERE-2006-STD-0125 COMMENT 02
section 1.1 above, in a separate rulemaking. As required by EPACT 2005, the test procedure

under consideration for the beverage vending machines covered under this rulemaking is the

ANSI/ASHRAE Standard 32.1-2004, "Methods of Testing for Rating Vending Machines for

Bottled, Canned, and Other Sealed Beverages."

1.2.2 Rulemaking Process and Stakeholder Participation

Under EPCA, when DOE is studying new or amended standards, it must consider to the greatest

extent practicable: (1) the economic impact of the standard on the manufacturers and consumers

of the affected products; (2) the savings in operating costs throughout the estimated average life

of the product compared to any increases in the initial cost or maintenance expense; (3) the total

projected amount of energy savings likely to result directly from the imposition of the standard;

(4) any lessening of the utility or the performance of the products likely to result from the

imposition of the standard; (5) the impact of any lessening of competition, as determined in

writing by the Attorney General, that is likely to result from the imposition of the standard; (6)

the need for national energy conservation; and (7) other factors the Secretary considers relevant.

(42 U.S.C. 6295(o)(2)(B)(i) and 42 U.S.C. 6316(e), added by section 136(h)(3) of EPACT 2005)

Other statutory requirements are set forth in 42 U.S.C. 6295(o)(l)-(2)(A), (2)(B)(ii)-(iii), and

(3)-(4), and 42 U.S.C. 63 16(e).

The Department considers stakeholder participation to be a very important part of the process for

setting energy conservation standards. The Department actively encourages the participation and

interaction of all stakeholders during the comment period in each stage of the rulemaking.

Beginning with the framework document and every subsequent comment period, interactions

among stakeholders provide a balanced discussion of the information that is required for the

standards rulemaking.

In conducting the test procedures and the energy conservation standards rulemakings, the

Department involves stakeholders through a variety of means, including formal public

notifications (i.e., Federal Register notices). The standards rulemaking process involves three

formal, major public notices, which are published in the Federal Register. The first of the

rulemaking notices is an advance notice of proposed rulemaking (ANOPR, see section 1.3). The

ANOPR is designed to publicly vet the models and tools used in the rulemaking, and to facilitate

public participation before the proposed rule stage. The second notice is a notice of proposed

rulemaking (NOPR, see section 1.4), which presents a discussion of comments received in

response to the ANOPR; analysis of the impacts of standards on consumers, manufacturers, and

the Nation; the Department's weighting of the impacts; and the proposed standards. The third

notice is the final rule (see section 1 .5), which presents a discussion of comments received in

response to the NOPR, the revised analysis of the impacts of standards, the Department's

weighting of the impacts, the standards adopted by DOE, and the effective dates of the standards.

1.3 Advance Notice of Proposed Rulemaking

As part of its initial rulemaking activities, the Department typically identifies the product design

options or efficiency levels that it will analyze in detail, and those it should eliminate from

further consideration. This process includes a market and technology assessment (see section 3)

and a screening analysis (see section 4). These activities include consultations with stakeholders

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EERE-2006-STD-0125 COMMENT 02
and independent technical experts who can assist with identifying the key issues and design

options or efficiency levels to be considered by the Department in the rulemaking.

At the start of the ANOPR analysis, the Department considers efficiency levels for each product

class. The Department uses these efficiency levels to collect manufacturer cost data, historical

shipment data, shipment-weighted average efficiency data, and preliminary manufacturer impact

data (e.g., capital conversion expenditures, marketing costs, research and development costs).

During the ANOPR stage, DOE presents consumer life-cycle cost (LCC) impact and payback

period results (see section 8), national energy savings (NES) and consumer net present value

(NPV) results (see section 10) for a range of efficiency or energy-use levels, and a preliminary

manufacturer impact analysis (MIA) (see section 12).

The Department's selection of efficiency or energy-use levels to analyze is based on the costs

and benefits of efficiency levels or design options. The Department generally selects levels or

design options for consideration that span the full range of technologically achievable

efficiencies, specifically including:

1. The highest energy efficiency level or lowest energy consumption level that is

technologically feasible (the "max-tech" level);

2. The level with the lowest LCC; and

3. Levels that incorporate noteworthy technologies or fill in large gaps between efficiency

levels considered.

The efficiency or energy-use levels analyzed serve to demonstrate the functions and outputs of

the models and tools. During the ANOPR, models and tools are tested for the different product

classes at each efficiency or energy-use level analyzed. in addition, preliminary ANOPR results

may facilitate negotiations among interested parties.

The Department will make the results of the analyses available on its website for review and will

consider comments on them after the publication of the ANOPR. When the Department

publishes the ANOPR, the Department will also make available a technical support document

(TSD) containing the details of all the analyses performed to date.

11.4 Notice of Proposed Rulemaking

After the publication of the ANOPR, there is a 75-day public comment period and a public

meeting. At this point, the Department encourages stakeholders to develop joint

recommendations for standard levels.

After the ANOPR, DOE will conduct further economic impact analyses. These analyses may

include refinements of previous analyses, and will include a consumer LCC sub-group analysis

(see section 11), a manufacturer impact analysis (see section 12), a utility impact analysis (see

section 13), an employment impact analysis (see section 14), an environmental assessment (see

section 15), and a regulatory impact analysis (see section 16).

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EERE-2006-STD-0125 COMMENT 02
The Department will make the results of all the analyses available on its website for review and

will consider comments after the publication of the NOPR. This review and comment process

may result in revisions to the analyses. This analytical process ends with the selection of

proposed energy conservation levels that will be presented in the NOPR. The Department

selects the proposed standard levels from the trial standard levels analyzed. The NOPR,

published in the Federal Register, will document the evaluation and selection of any proposed

standards.

For each product class, the Department will identify the maximum improvement in energy

efficiency or maximum reduction in energy use that is technologically feasible. If the

Department proposes a level that is below this "max-tech" level, it will explain the reasons for

eliminating higher levels beginning with the highest level considered. The Department will

present the results of the analysis in the NOPR and the details of the analysis in an

accompanying TSD.

The Department considers many factors in selecting proposed standards. These factors or

criteria are established by statute and capture the many benefits, costs, and impacts of the

standards. Additionally, the Department encourages stakeholders to develop joint

recommendations for standard levels. The Department will carefully consider such

recommendations in its decision process.

When the Department publishes the NOPR, it will provide the Department of Justice (DOJ) with

a copy of the NOPR and TSD and will solicit feedback on the impact of the proposed standard

levels on competition. The DOJ will review these standard levels in light of any lessening of

competition that is likely to result from the imposition of standards. The Department will

consider DOJ's determination on the impacts of the proposed standard on competition in

preparing the final rule. The NOPR is followed by a 75-day public comment period that includes

a public meeting.

1.5 Final Rule

Revisions to the analyses may result from the public comments on the NOPR. On the basis of

the public comments, DOE will review the engineering and economic impact analyses and

proposed standards and make modifications as necessary.

After the publication of the NOPR, the Department will conduct a thorough review of all

analyses performed, and of the trial standard levels. Final revisions to the analyses and trial

standard levels will be made as appropriate.

Before the final rule is issued, the Department will consider DOJ comments on the NOPR

relating to the impacts of the proposed standard levels on competition to detenTnine whether

changes to these standard levels are needed.

The standards rulemaking will conclude with the publication of the final rule. The Department

will select the final standard levels based on the complete record of the standards rulemaking.

The final rule will promulgate the final standard levels and their effective date and explain the

basis for their selection. The final rule will be accompanied by a final TSD.

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EERE-2006-STD-0125 COMMENT 02
1.6 Overview of Beverage Vending Machines

Refrigerated bottled or canned beverage vending machines can be divided into categories either

by machine-use designation (indoor/outdoor use or indoor-use-only) or door type (solid door or

glass-fronted). The classification of the beverage vending machines by machine-use designation

of indoor/outdoor use and indoor-use-only are explained in detail in sections 1.6.1 and 1.6.2,

respectively. Both classes of beverage vending machines are commonly found in numerous

public spaces, including retail spaces, private offices, schools, and other institutions.

1.6.1 Beverage Vending Machines for Indoor/Outdoor Use

The most common beverage vending machine that is intended for both indoor and outdoor use is

the solid-door machine. With solid-door machines, the products contained are typically

advertised on the front via signage or a backlit panel and the actual machine contents are not

visible to the user. These machines3 are typically designed to be placed outdoors and withstand

weather effects. Some glass-fronted machines are also placed outdoors in sheltered or protected

locations limited only by concerns of vandalism and damage. These machines are marked

"Suitable for Outdoor Use" or "Suitable for Protected Locations" in accordance with

Underwriters Laboratories (UL) Standard 541-2003, "Refrigerated Vending Machines."

A small number of the solid-door beverage vending machines are classified as having a "live

display" door type, where a sample of the product is visible to the consumer through a small

window. These "live-display" machines represent a small fraction of the total market.

Item 1-2 The Department seeks feedback on the terminology "indoor/outdoor use "for

beverage vending machines. What types of beverage vending machines are

designed for indoor/outdoor use?

1.6.2 Beverage Vending Machines for Indoor-Use-Only

Although solid-door beverage vending machines can be found indoors as well, the beverage

vending machines intended for indoor-use-only are dominated by glass-front models. These

machines are found primarily indoors because the glass fronts make them vulnerable to

vandalism in addition to introducing the problem of solar gain and heat loss through the glass

front. These machines are marked "For Indoor Use Only" in accordance with UL Standard 541-

2003, "Refrigerated Vending Machines." The glass-fronted vending machines are also known as

multi-package vending machines. This design allows the consumer to see the products inside the

machine-commonly displayed on shelves-with some models displaying as many as 45 different

varieties of drinks. Product packaging is not limited to cans and bottles, and may also include

cartons, juice packs, and non-standard bottle and can shapes. Dispensed mechanically, many

machines have a mechanism to move the product to the door gently rather than dropping the

beverage from the upper shelves.

Depending on the model, these machines can contain up to 800 cans and up to 12 varieties of beverages.

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EERE-2006-STD-0125 COMMENT 02
With the increasing market for non-carbonated soft drinks, such as energy drinks, fruit juices and

water (which come in a variety of packaging types and sizes), these machines provide a much

wider choice for the consumer.

Item 1-3 The Department seeks feedback on the terminology "indoor-use-only"for

beverage vending machines. What types of beverage vending machines are

designed for indoor-use-only?

2 ANALYSES FOR RULEMAKING

Ultimately, the Department intends to select energy conservation standards that achieve the

maximum improvement in energy efficiency that is technologically feasible and economically

justified. The selection of such standards is expected to achieve the maximum energy savings

that are economically justified without putting an unjust financial burden on any particular party.

Economic justification includes consideration of the economic impacts on domestic

manufacturers and consumers, national benefits including environmental impacts, issues of

consumer utility, and impacts from any lessening of competition. The purpose of the analyses

conducted in support of the standards rulemaking will be to insure that the final standards meet

these criteria of technological feasibility and economic justification.

This section offers an overview of DOE's analytical methodology and discusses the major

components of the analyses DOE will conduct. A consistent approach to the analyses throughout

the rulemaking will be ensured through the consideration of each analysis as a part of the overall

standards-setting framework.

Figure 1 summarizes the analytical components of the standards-setting process. The analyses

are presented in the center colunm. Each analysis has a set of key inputs, which are data and

information required for the analysis. "Approaches" are the methods that will be used to obtain

key inputs. For example, some key inputs exist in public databases, some will be collected from

stakeholders or others with special knowledge, and some will be developed by the project team

in support of the rulemaking. The results of each analysis are key outputs, which feed directly

into the rulemaking. Dotted lines connecting one analysis to another indicate the flow of

information.

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EERE-2006-STD-0125 COMMENT 02
Approaches Key Inputs Analyses Key 0

• Identity Firms/Products

• Characterize Industry • Historical Shipments Market and Technology

• Product Classes

Technology Options • Market Segmentation Assessment

____________________

• Analysis of Market Data • Non-Regulatory Programs

Product Classes Technology Options

• Analysis of Product Data Product Prototypes S i A l i

Design Options

creen ng na ys s

• Efficiency-Level Approach Design Options • Design Option Approach • Manufacturing Cost

• Efficiency/Performance Cost-Efficiency Relationship Engineering Analysis

• Analysis of Energy Use

Data E U

Design Energy/ Use nergy se Energy-Efficiency

• Define Distribution Channels, • Annual Energy Use (UEC) Levels

• Economic Census Data

Analysis Markups for Retail Prices

• Retail Price Collection and Product Price i

Analysis Determination Life-Cycle Cost and Life-Cycle Costs

• Energy Prices I Payback Period • Payback Periods

• Installation Costs

• Maintenance & Repair Costs: Analysis

• Ener y-Efficiency Levels Candidate I USC I • Installation

Costs 1

Standard

Levels

Energy Prices • Maint Costs

• Accounting Approach Shipments . Repair Costs

__________________________

• Backcast and Forecast Analysis National Impact

National Energy Savings

• Net Present Values - Market Saturation

• Energy Price Forecasts Analysis

• Site-to-Source Factors ________________________________

I

Preliminary • Conversion Capital Expenditures

- Manufacturer Prices -Direct Employment Impacts

• Average Costs Manufacturer Impact

I -

Analysis

• Stakeholder Comments Revise ANOPR _____________________

• Trial Standard Levels (TSL5))

Analyses

• Life-Cycle Costs

• Demographics • Payback Periods

Analysis

-

- Industry Cash Flow

• Manufacturer P rices • Sub-Group Cash-Flom

• Average Costs • Di t E l t I t

• Manufacturer Interviews M nufacturer Im act

rec mp oymen mpac s

• Competitive Impacts a p

A l i -Cumulative Regulatory Burdeç

• GRIM Analysis Manufacturer Financial Data na ys s

-

Utility Load Factors _____________________________

1 Diect Employment

NEMS-BT Im acts • National Energy Savings Utility Impact p

______________________ _______________________

Analysis • Utility Impacts

• National Energy Savings

• National Product Costs

• ImSET National Operating Costs Employment Impact

Analysis • National Employment Impacts

• NEMS-BT

• Emission Rates

• National Energy Savings Environmental Emission Estimates

Assessment - ___________________________

• Non-Regulatory

Alternstivqs • National Energy Savings

Analys

• Net Present Values

iRidRI Justice Review1

Final Rule

Figure 1. Flow Diagram of Analyses for the Beverage Vending Machine Standards Rulemaking

Process

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EERE-2006-STD-0125 COMMENT 02
3 MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment will provide information about the beverage vending

machine industry that the Department will use throughout the rulemaking. This assessment is

particularly important at the outset of the rulemaking to determine product classes and to identify

potential design options or efficiency levels for each product class.

3.1 Market Assessment

The Department will qualitatively and quantitatively characterize the structure of the beverage

vending machine industry and market. In the market assessment, the Department will identify

and characterize the manufacturers of this equipment; estimate market shares and trends in the

market; address regulatory and non-regulatory initiatives intended to improve the energy

efficiency or reduce the energy consumption of the beverage vending machines covered under

this rulemaking; and explore the potential for technological improvements in the design and

manufacturing of such equipment.

The National Automatic Merchandising Association (NAMA) is the trade association for

manufacturers of equipment covered under this rulemaking, and the American Beverage

Association (ABA) is the trade association for the bottlers and syrup companies in the beverage

industry. The Department expects that NAMA and ABA will play a critical role in providing

market information, including input on characterizing current and historical trends in equipment

shipments and energy efficiency.

As stated above, the collected information will serve as a resource for use throughout the

rulemaking. For example, the Department will use historical equipment shipments and prices as

an aid in creating shipment scenarios and predicting future prices. Market structure data will be

particularly useful for assessing competitive impacts as part of the manufacturer impact analysis.

The beverage vending machines covered under this rulemaking have never before been the

subject of energy conservation regulations at the Federal level. The Department understands that

some limited data on energy consumption and energy efficiency is available for this equipment.

In addition, a preliminary investigation by the Department indicates that there is little or no

publicly available data on the cost of manufacturing this equipment, manufacturers' market

shares, shipments, or channels of distribution. Such data is essential to the development of

technologically feasible and economically justified energy conservation standards. Stakeholders

are therefore encouraged to submit any available, applicable data to the Department for

consideration.

Item 3-] The Department seeks information that would contribute to the market

assessment (e.g., the manufacturers of this equipment in the United States and

the products they sell, by product class). It is particularly important that the

Department be aware of the major and small/niche manufacturers.

Item 3-2 The Department seeks information on annual product shipments from 1990 to

2005 (both domestic and imports), and the corresponding shipment-weighted

average daily energy consumption of these shipments.

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EERE-2006-STD-0125 COMMENT 02
3.2 Product Classes

The Department intends to separate the beverage vending machines covered under this

rulemaking into product classes. The criteria for separation into different classes are: type of

energy used and vendible capacity and/or other performance-related features, such as those that

provide utility to the consumer, or others deemed appropriate by the Secretary, which justify' the

establishment of a separate energy conservation standard. (42 U.S.C. 62 95(q) and 6316(e) added

by section 1 36(h)(3) of EPACT 2005)

The Department proposes the product classes listed below, defined according to equipment use

designation and physical characteristics such as door-type.

Beverage vending machines for indoor/outdoor use

(a) solid-door

(b) glass-fronted

2. Beverage vending machines for indoor-use-only

(a) solid-door

(b) glass-fronted

Item 3-3 The Department seeks comments on the proposed classes for beverage vending

machines, and on the criteria used in creating the classes. Are the proposed

product classes appropriate? For instance, is the distinction between soliddoor and glass-fronted door machines necessary?

Item 3-4 What product classes, f any, can be combined for standards-s etting purposes

because of their similarities?

Item 3-5 Are any of these product classes extensible (i.e., can analyses performed for one

product class be applied or extrapolated to another product class)?

Item 3-6 Should all of these product classes be considered (e.g., do any of these product

classes have few or no shipments)?

The standards established by the California Energy Commission (CEC), the ENERGY STAR

specifications established by the U.S. Environmental Protection Agency (EPA), and the

regulations established by the Canadian Standards Association for these beverage vending

machines take the form of upper limits on daily energy consumption as a function of the vendible

capacity. The Department is considering using a similar test metric in establishing energy

conservation standards for the covered equipment.

Item 3-7 The Department requests feedback on the use of a similar, vendible-capacitybased daily energy consumption metric for beverage vending machines.

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EERE-2006-STD-0125 COMMENT 02
3.3 Technology Assessment

The Department typically uses information about existing and past technology options and

prototype designs as input in identif'ing baseline units (see section 3.4) for the engineering

analysis and technologies manufacturers could use to attain higher energy efficiency levels. In

consultation with interested parties, the Department intends to develop a list of technologies that

should be considered in the analysis. Initially, this list will include all those technologies

considered to be technologically feasible and will serve to establish the maximum

technologically feasible design. In the screening analysis, DOE will eliminate from

consideration technologies that have not been incorporated in commercial equipment or in

working prototypes, or that fail to meet certain criteria as to practicability to manufacture, install,

and service, as to impacts on product utility or availability, or as to health or safety. (Process

Rule, sections 4(a)(4) and 5(b))

The Department is collecting information on technologies that could be used to improve the

energy efficiency of beverage vending machines. The Department is currently considering the

specific tecimologies and designs listed below.

The following technologies and designs are relevant to all product classes:

1. Higher efficiency signage lighting (e.g., T8 fluorescent lamps, light-emitting diodes

(LEDs));

2. Higher efficiency lighting ballasts (e.g., electronic ballasts);

3. Remote lighting ballast location (i.e., outside the refrigerated space);

4. Higher efficiency expansion valves (e.g., dual-port thermostatic expansion valves (TXVs)

and electronic expansion valves (EEVs));

5. Higher efficiency evaporator fan motors (e.g., electronically commutated motors

(ECMs));

6. Increased evaporator surface area or efficiency to achieve lower case-evaporator

temperature differential (with a possible increase in fan energy);

7. Evaporator-fan-motor controllers;

8. Higher efficiency evaporator fan blades;

9. Low-pressure-differential evaporators;

10. Anti-sweat heater controls;

11. Machine-insulation increases or improvements;

12. Defrost mechanism (e.g., hot-gas defrost);

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EERE-2006-STD-0125 COMMENT 02
13. Defrost-cycle control (e.g., partially or fully demand-based defrost rather than partially or

fully time-based defrost);

14. Higher efficiency compressors (e.g., variable-speed compressors);

15. Liquid-to-suction heat exchanger (LSHX) (subcool liquid refrigerant with suction line);

16. Increased condenser surface area or efficiency to achieve lower ambient-condenser

temperature differential;

17. Higher efficiency condenser fan motors (e.g., electronically commutated motors (ECM));

18. Condenser-fan-motor controllers; and

19. Higher efficiency condenser fan blades.

Jiem 3-8 What technologies or designs, if any, should be added to or removed from the

above list?

Item 3-9 What technologies or designs, if any, should be treated individually, or be

incorporated into afew standard "design packages"? If "design packages" are

possible, how should the packages be assembled?

3.4 Baseline Units

Once the Department establishes product classes, it will select a baseline model as a reference

point for each product class, against which it can measure changes resulting from energy

conservation standards. The baseline model in each product class represents the characteristics

of equipment in that class, e.g., the vendible capacity. Typically, a baseline model would be a

model that just meets current required energy conservation standards. Because there are no

existing standards for the beverage vending machines covered under this rulemaking, the

Department will select baseline models using a different method (e.g., the unit with the highest

energy consumption or the typical unit). The Department proposes to use information provided

by stakeholders in selecting appropriate baseline models. The ENERGY STAR Tier 1 voluntary

standard could be used as the baseline, since the largest manufacturers are well on their way to

manufacturing and selling primarily equipment that meets or exceeds this level. Note that the

CEC required that all beverage vending machines meet this level as of January 1, 2006.

Item 3-10 The Department seeks feedback on how to select a baseline model for each

product class.

item 3-11 is the ENERGY STAR Tier] level appropriate for the baseline model?

The Department will use the baseline models in the engineering analysis and the life-cycle-cost

and payback-period analyses. To determine energy savings and changes in price, the

Department will compare a model with a higher energy efficiency or a lower energy

consumption with the baseline model.

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EERE-2006-STD-0125 COMMENT 02
Item 3-12 Given that the cost of improving efficiency in order to meet a new standard may

vaiy with machine capacity, should there be a spec/Ic capacity for the baseline

model? What should be the capacity of the baseline model for each product

class?

Item 3-13 The Department seeks information on what particular components and features

characterize the baseline model in each product class (e.g., materials,

dimensions, insulation, refrigerant type, compressors, evaporators, condensers,

expansion devices, fans, motors, anti-condensate devices and controls, defrost

mechanisms and controls, lighting, etc.).

4 SCREENING ANALYSIS

The purpose of the screening analysis is to screen out design options that will not be considered

in the rulemaking for beverage vending machines.

In consultation with interested parties, the Department will develop a list of design options for

consideration. Initially, the design options will encompass all those technologies considered to

be technologically feasible. Following development of this initial list of design options, the

Department will review each design option based on the following four criteria, as addressed in

sections 4(a)(4) and 5(b) of the Process Rule:

I. Technological feasibility. Technologies that are not incorporated in commercial products

or in working prototypes will not be considered further.

Practicability to manufacture, install, and service. If it is determined that mass

production of a technology in commercial products and reliable installation and servicing

of the technology could not be achieved on the scale necessary to serve the relevant

market at the time of the effective date of the standard, then that technology will not be

considered further.

Impacts on product utility to consumers. If a technology is determined to have

significant adverse impact on the utility of the product to significant subgroups of

consumers, or result in the unavailability of any covered product type with perfommnce

characteristics (including reliability), features, size, capacities, and volumes that are

substantially the same as products generally available in the United States at the time, it

will not be considered further.

4. Safety of technologies. If it is determined that a technology will have significant adverse

impacts on health or safety, it will not be considered further.

The reasons for eliminating any design options during the screening analysis will be fully

documented and published as part of the ANOPR.

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EERE-2006-STD-0125 COMMENT 02
5 ENGINEERING ANALYSIS

After conducting the screening analysis, the Department performs an engineering analysis based

on the remaining design options. Potentially, as a result of screening out some design options

which may enable the achievement of the highest efficiencies, the Department may, in effect, be

limiting the efficiency levels considered in the engineering analysis. The engineering analysis

consists of estimating the costs of equipment at various levels of increased energy efficiency or

reduced energy consumption. This section provides an overview of the engineering analysis

(section 5.1), and discusses: the approach for determining the cost-efficiency relationship

(section 5.2); manufacturer prices (section 5.3); proprietary designs (section 5.4); and regulatory

changes that affect the engineering analysis (section 5.5) other than the Department's energy

conservation standards process.

5.1 Engineering Analysis Overview

The purpose of the engineering analysis is to determine the relationship between manufacturer

selling price and energy efficiency for beverage vending machines. In determining this

relationship, the Department will estimate the increase in manufacturer selling price associated

with technological changes that increase the efficiency of the baseline models.

The Department will obtain cost estimates for the engineering analysis (which it will also use in

the manufacturer impact analysis) from detailed incremental cost data disaggregated into the cost

of incremental material, labor, and overhead. The Department will create an industry-wide

analysis based primarily on the manufacturer-supplied data. The Department may supplement

this analysis with cost estimates of specific design options.

Therefore, the Department seeks design, efficiency, and cost information to determine the cost of

improving the efficiency of the baseline model. In addition, the Department must identify the

model with the highest efficiency that is technologically feasible within each product class (i.e.,

the "max-tech" model).

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EERE-2006-STD-0125 COMMENT 02
Item 5-1 For each product class, the Department seeks information on incremental

manufacturing costs and components (see Item 3-13) for four energy-efficiency

levels above the baseline (e.g., daily energy consumption, components that

d[fer from the baseline, material costs,4 labor costs,5 overhead costs6

(excluding depreciation), building conversion capital expenditures,

tooling/equipment conversion capital expenditures, research and development

(R&D) expenses, marketing expenses, etc.).

Item 5-2 The Department is also interested in any equipment lest data that stakeholders

can provide (e.g., test procedures used, rating conditions, equipment

parameters, test results, etc.). Test data for the baseline model in each product

class is particularly important.

5.2 Proposed Approach for Determining the Cost-Efficiency Relationship

In support of this rulemaking effort, the Department seeks to collect incremental cost data. The

data are intended to represent the average incremental production cost to improve a baseline

model to a specified efficiency level. The Department will aggregate the data by weighting each

individual data point by company-level sales volumes for each product class. This methodology

constitutes an efficiency-level approach to the engineering analysis because the Department will

examine aggregated incremental increases in manufacturer selling price at specified levels of

energy efficiency.

To be useful in the manufacturer impact analysis, manufacturer cost information should reflect

the variability in baseline models, design strategies, and cost structures that can exist among

manufacturers. The Department will attempt to qualify the aggregated cost-efficiency data

supplied by stakeholders through engineering expertise and consultation with stakeholders or

technical experts. Specifically, the Department will supplement these aggregated cost data with

information obtained through follow-up manufacturer interviews. These confidential interviews

will provide a deeper understanding of the various combinations of technologies used to increase

equipment efficiency, and their associated manufacturing costs.

Ifthe Department is unable to reconcile information collected during the manufacturer

interviews with the aggregated cost data, or with information contained in the market and

technology assessment, the Department will supplement the manufacturer-provided data through

Costs of raw materials including scrap that can be traced to final or end products. Direct material costs do not

include indirect material costs, which are attributed to supplies that may be used in the production process but are

not assigned to final products (e.g., lubricating oil for production machinery).

The earnings of workers who assemble parts into a finished good or operate machines in the production process.

Direct labor includes the fringe benefits of direct laborers such as group health care, as well as overtime pay. Direct

labor does not include indirect labor, which is defined as the earnings of employees who do not work directly in

assembling a product, such as supervisors, janitors, stockroom personnel, inspectors, and forklift operators.

Factory overhead excluding depreciation. Factory overhead includes indirect labor, downtime, set-up costs,

indirect material, expendable tools, maintenance, property taxes, insurance on assets, and utility costs. Factory

overhead does not include selling, general, and administrative costs (SG&A); research and development costs

(R&D); interest; or profit (accounted for by the Department separately).

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EERE-2006-STD-0125 COMMENT 02
a design-options approach involving consultation with outside experts andlor further review of

publicly available cost and perforrriance information.

The Department will estimate the contribution of the depreciation of conversion capital

expenditures to the incremental overhead. During the interviews, the Department will gather

information about the capital expenditures that would be necessitated by increasing the

efficiency of the baseline models to various efficiency levels (i.e., conversion capital

expenditures by efficiency or energy use level). The Department will also request information

about the depreciation method used to expense the conversion capital.

The approach proposed above will allow the Department to represent beverage vending

machines throughout the entire efficiency range without depending on time-consuming

simulation modeling. The Department will maintain the confidentiality of proprietary data while

allowing the public to examine the cost and design assumptions that underlie the cost-efficiency

estimates.

Item 5-3 The Department requests feedback on the use of an efficiency-level approach to

determining the relationship between manufacturer selling price and energy

efficiency for beverage vending machines, supported, as needed, by a designoptions approach.

5.3 Manufacturer Prices

The Department plans to apply markups to convert manufacturer production costs to.

manufacturer selling prices. The Department will estimate manufacturer markups from publicly

available financial information (e.g., Securities and Exchange Commission 10-K reports).

Item 5-4 The Department seeks comment on the markup approach proposed for

developing estimates of manufacturer selling prices.

5.4 Proprietary Designs

The Department will consider in its engineering and economic analyses all design options that

have not been screened out, including proprietary designs. The Department will consider a

proprietary design in the subsequent analyses only if it is not a unique path to a given efficiency

level. If the proprietary design is the only approach available to achieve a given efficiency level,

then DOE will reject the efficiency level (that can only be achieved by a proprietary design) from

further analysis. Furthermore, the Department is sensitive to manufacturer concerns regarding

proprietary designs and will make provisions to maintain the confidentiality of any proprietary

data submitted by manufacturers. This information will provide input to the competitive impacts

assessment and other economic analyses.

item 5-5 Are there proprietary designs that the Department should consider for any of

the products under consideration by this rulemaking? If so, how should the

Department acquire the cost data necessaiy for evaluating these designs?

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EERE-2006-STD-0125 COMMENT 02
5.5 Regulatory Changes Affecting the Engineering Analysis

In conducting an engineering analysis, the Department must consider the effects of regulatory

changes that can impact the manufacturers of the covered equipment outside the Department's

statutory energy conservation standards rulemaking process. Some of these changes can also

affect the energy efficiency or energy consumption of the covered equipment. For example, due

to the phase-out of hydrochlorofluorocarbons (HCFC5), the beverage vending machine industry

must transition to non-ozone-depleting refrigerants. As a result, the industry will likely use

hydrofluorocarbon-based (HFC-based) refrigerants in its products.

The Department will attempt to identifj all such regulatory issues that could impact the

engineering analysis. The consideration of these issues is closely related to the cumulative

regulatory burden assessment that the Department will carry out as part of the manufacturer

impact analysis.

Based on consideration of the comments received for the ANOPR, DOE will make the necessary

changes to the analysis. These changes will be reflected in the documentation of the NOPR.

Item 5-6 Are there additional regulatory issues that the Department should consider in

its analysis of beverage vending machines?

6 ENERGY USE CHARACTERIZATION

The purpose of the energy use characterization analysis is to assess the energy savings potential

of different equipment designs across a range of climate zones where the equipment is used. As

part of the energy use analysis, certain engineering assumptions must be made regarding

equipment application, including where the equipment is located (outdoor versus indoor).

Characterizing the energy use of beverage vending machines is a critical part of the standards

rulemaking analysis as it establishes the per-unit energy savings potential achievable from

energy efficiency standards.

Although many beverage vending machines are located inside conditioned spaces, a relatively

small number of machines are typically installed in an individual building. It is recognized that

beverage vending machines will add to the cooling load and reduce the heating load during

winter months, but these impacts are believed to be fairly modest in most cases. Furthermore, the

Department believes the added complexity of determining the overall impact to the building

space-conditioning loads is not worth the effort involved in accurately quantifying this effect,

particularly given the variety of building types and of the vending machine locations (e.g.,

outside, inside, or in vestibules) that would need to be taken into account.

Item 6-] Is the assumption that the beverage vending machine operation has a negligible

impact on the building space-conditioning loads a valid assumption?

Item 6-2 How should the Department consider energy use in "heating mode "for

outdoor machines in cold climates?

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EERE-2006-STD-0125 COMMENT 02
Studies conducted by Arthur D. Little, Inc., the Environmental Protection Agency, Canadian

Standards Association, and Australian National Appliance and Equipment Energy Efficiency

Program provide some information on the unit energy consumption of existing machines.

Item 6-3 Because of the age of some of this data, the Department requests stakeholders

to submit current field measured data on unit energy consumption of existing

machines.

7 MARKUPS FOR EQUIPMENT PRICE DETERMINATION

The Department uses manufacturer-to-consumer markups to convert the manufacturer-sellingprice estimates from the engineering analysis to consumer prices, which are then used in the

LCC and payback period analysis and the MIA. Retail prices are needed for the baseline

efficiency level and all other efficiency levels under consideration. The Department will obtain

these retail prices by applying manufacturer-to-consumer markups to the manufacturer-sellingprice estimates. To qualify these markups, the Department will attempt to collect data on

existing prices in the market either by purchasing large data sets or by downloading data from

distributor Internet sites.

Before it can develop markups, the Department must identify distribution channels (i.e., how the

equipment is distributed from the manufacturer to the consumer). Once it establishes proper

distribution channels for each of the product classes, DOE will rely on economic data from the

U.S. Bureau of the Census (the Bureau) and input from the industry to define how products are

marked up from the manufacturer to the consumer. To the extent possible, the Department also

will use collected retail price data to help quantify overall manufacturer-to-consumer markups.

This analysis will generate retail prices for each possible efficiency level. Because it expects to

generate a range of price estimates, the Department plans to describe new retail prices within a

range of uncertainty. If the range of retail prices for the equipment is large enough, the

Department will conduct a sensitivity analysis to determine how high or low estimates of retail

price impact the economic feasibility of amended energy conservation standards.

In the beverage vending machine industry, the Department understands that the distribution

chains are as follows:

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

2. Equipment Manufacturer 4 Distributor 9 Vending Machine Operator

3. Equipment Manufacturer 9 Site Owner

4. Equipment Manufacturer 9 Distributor 9 Site Owner

In the first distribution-chain scenario, the equipment manufacturer manufactures the equipment

to meet the machine performance specifications provided by the beverage company and sells it

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EERE-2006-STD-0125 COMMENT 02
directly to the vending machine operator who is either a bottler or a beverage distributor. The

vending machine operator owns the machine, places it on-site through a "location contract,"

maintains the machine and stocks it, and receives a certain percentage of coin-box revenue. The

site owner, in this case, allows the machine to be placed on-site, receives a percentage of coinbox and/or other remuneration, and most importantly, pays the electric bill. In the second

scenario, the vending machine operator purchases the equipment from a distributor instead of

directly from the equipment manufacturer. In the third scenario, a site owner (e.g., large retail

store chain) may purchase the vending machines directly from the manufacturer. Certain others

(e.g., gas stations) (as in the fourth scenario) may purchase the vending machines from a

distributor. In both the third and fourth scenarios, the site owner maintains and stocks the

machines for the entire coin-box revenue.

The current market structure in the first scenario creates a "split-incentive system" where

bottling companies or distributors purchase a significant portion of the vending machines from

the equipment manufacturers and place them in locations where they do not pay the utility bills

associated with their operation. The site owner may sometimes be paid a commission as part of

the location contract to defray part of the electric bill for which they are responsible. There can

be, therefore, a lack of an economic incentive for improved energy efficiency on the part of the

equipment purchaser. Irrespective of the split-incentive system, the Department understands that

there may be a growing market for energy-efficient beverage vending machines. This may be

caused by two factors: environmentally conscious beverage companies "pushing" to install

energy-efficient machines, and certain site owners demanding that energy-efficient machines be

installed to reduce their energy costs.

The Department intends to use the data gathered from stakeholders to develop both average

markups for wholesalers of the equipment as well as incremental markups. Incremental markups

assume that certain industry costs, such as labor and building occupancy expenses, do not

increase with an increase in cost of goods sold, but that other costs would scale with cost of

goods sold. The Department will develop both the average and incremental markups in the LCC

analysis, and base the LCC analysis on the incremental markups developed.

Item 7-1 The Department requests information on the distribution paths described above

for the beverage vending machines covered under this rulemaking. The

Department also requests information on the relative fractions ofshiments

expected for each path in the overall distribution chain for beverage vending

machines.

Item 7-2 The Department requests information on how the overall markups for the

beverage vending machines covered under this rulemaking may vary for each

path (or sub-path) in the distribution chain.

Item 7-3 The Department requests feedback on its proposal to use incremental

distribution chain markups for the LCC analysis.

Item 7-4 The Department seeks comment on other sources of relevant data that could be

used to characterize markups for the beverage vending machine industry.

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EERE-2006-STD-0125 COMMENT 02
8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

8.1 Overview

The effects of new energy conservation standards on equipment result in changes in operating

expenses-usually a decrease-and changes in purchase price-usually an increase. In the past,

the Department has analyzed the net effect of new standards on consumers by evaluating the net

LCC using the cost-efficiency relationship derived in the engineering analysis, as well as the

energy costs derived from the energy-use-characterization analysis. Inputs to the LCC

calculation include the installed cost to the consumer (purchase price plus installation cost),

operating expenses (energy expenses and maintenance costs), the lifetime of the appliance, and a

discount rate. In addition, there is a specific time in the life of higher-than-baseline-efficiency

equipment when the net-operating-cost-benefit (in dollars) from the time of purchase is equal to

the incremental first cost of purchasing the higher efficiency equipment. The length of time

required for equipment to reach this cost-equivalence point is known as the payback period.

For the ANOPR, the Department will conduct the LCC and payback period analysis using

typical values to reflect the conditions in the field for equipment life, equipment retail price,

national or regional energy costs, energy consumption, and discount rates. If the Department

determines that there is significant variability in any of the above inputs, it will conduct

sensitivity analyses to determine how high and low estimates for each of the inputs affect the

LCC and payback period. For any sensitivity analyses it conducts, the Department will account

for correlations that may exist between inputs (e.g., there may be a correlation between energy

usage and energy prices). The life-cycle-cost subgroup analysis will be conducted for the NOPR

and will include an assessment of impacts on subgroups of consumers.

For beverage vending machines, it will be necessary to detennine several values for the LCC

estimation, including retail prices; electricity prices; discount rate; maintenance, service and

installation costs; and equipment lifetimes. The following sections discuss the methodologies

the Department plans to use in determining these values.

8.2 Energy Prices

The Department will review the Energy Information Administration's (ETA's) energy price data

for the commercial sector as a means of establishing electricity prices. The Department's

inclination is to rely on regional average energy price data for the commercial sector. The

Department will use projections of these energy prices for commercial consumers to estimate

future energy prices in its life-cycle cost and payback period analysis. The Department will use

EIA's Annual Energy Outlook (AEO) as the default source of projections for future energy

prices.

Item 8-I The Department seeks comment on the proposed approaches for estimating

current and forecasted energy prices.

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EERE-2006-STD-0125 COMMENT 02
8.3 LCC Discount Rates

The calculation of consumer LCCs requires the use of an appropriate discount rate. For beverage

vending machines, the Department intends to use the same approach that it used for developing

discount rates for commercial unitary air conditioners and distribution transformers. (See

http://www.eere.energy.gov/buildings/appl iance standards/commercial/ac hp.html and

h://www.eere.energy.gov/buildings/appliance standards/commercial/distribution transformer

s.html.) This approach involves deriving the discount rates for commercial consumers, in this

case, the bottling companies or the vending machine operators, by estimating the cost of capital

to the companies that purchase the beverage vending machines covered under this rulemaking.

The Department typically uses the cost of capital 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 the cost of capital to the firm is the weighted-average cost

of equity and debt financing. This corporate finance approach is referred to as the weightedaverage cost of capital (WACC).

The Department will include for public comment in the ANOPR the discount rates and

calculations associated with the LCC of beverage vending machines.

Item 8-2 The Department seeks comment on the proposed approaches for estimating

discount rates for consumers using the equipment covered under this

rulemaking.

Item 8-3 The Department recognizes that a large fraction of the consumers of beverage

vending machines are beverage bottlers. Which commercial sectors besides the

bottlers should be considered in the evaluation of discount rates? In addition,

do stakeholders believe that government direct purchases of this equipment are

large enough to require that they be included in the evaluation of discount

rates?

8.4 Maintenance, Repair, and Installation Costs

The Department understands that rebuilt beverage vending machines may be a large part of the

market. The ENERGY STAR program defines a "Rebuilt refrigerated beverage vending

machine" as a UL Listed or Classified model that has been previously in use and subjected to

various degrees of retrofitting, remanufacturing, refurbishing, repairing, or reconditioning for

resale or reuse. This could range from fixing up nicks and scratches to re-painting, re-lamping,

or changing signage, all the way to replacing the compressor or other critical components.

Consequently, rebuilding of a machine may range from no change to a significant improvement

of the energy performance of the machine. Some machines may undergo three or four cycles of

rebuilding. The Department acknowledges that separate mechanisms are in place for rebuilding

beverage vending machines; however, it will consider only expected routine installation,

See the 'Definitions" section of the "Eligibility Criteria" of the "ENERGY STAR® for Refrigerated Vending

Machines Rebuilt Machine Specification March 2, 2006, DRAFT 2" at

http:t/www.energystar.gov/index.cfrn?c=revisions.rehuilt vending spec&lavout=print.

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EERE-2006-STD-0125 COMMENT 02
maintenance, and repair costs over the life cycle of originally manufactured machines that are

covered under this rulemaking.

The Department understands that small incremental changes in equipment efficiency typically

incur no, or only very small, changes in repair and maintenance costs over baseline products.

There is a greater probability that equipment with efficiencies that are significantly greater than

the baseline will incur increased repair and maintenance costs since such equipment is more

likely to incorporate technologies that are not widely available. The Department will rely on

input from manufacturers and other stakeholders in developing appropriate incremental repair

and maintenance costs for higher efficiency equipment if stakeholders feel such estimates are

necessary.

Unless the efficiency increases considered for this rulemaking result in significantly larger or

heavier products, the Department expects that more-efficient beverage vending machines will not

incur increased installation costs.

item 8-4 The Department seeks feedback on what fraction of the installation,

maintenance, and repairs involve efficiency improvements and what are the

typical practices during the life cycle of an originally manufactured beverage

vending machine (e.g., change lamps but not the compressor)?

Jtem 8-5 What is a typical time period between the sale of a new product and the first

maintenance or repairs? What are the typical cycles of maintenance and

repairs?

Item 8-6 The Department seeks feedback on whether and how routine maintenance,

repair, and installation costs will change for more efficient products.

item 8-7 If it is not appropriate to assume that changes in maintenance, repair, or

installation costs would be negligible for more efficient products, the

Department seeks feedback on appropriate methodologies for assessing

changes to each of these costs.

8.5 Equipment Lifetimes

The Department will use information from various literature sources (e.g., Vending Times) and

input from manufacturers and other stakeholders to establish average equipment lifetimes for use

in the life-cycle cost and subsequent analyses.

A typical vending machine undergoes periodic refurbishments during its, lifetime. Depending on

the frequency of the refurbi shments and their nature with regard to improvements in energy

performance, these refurbishments may change the useful lifetime of the equipment.

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Based on consideration of the comments received on the ANOPR, the Department will make

necessary changes to the analyses. These changes will be reflected in the documentation of the

NOPR.

Item 8-8 The Depart inent seeks feedback on appropriate equ1ment lifetimes for the

beverage vending machines covered under this rulemaking.

Item 8-9 Is there a suitable inventory model that could be used to estimate the fraction of

new versus rebuilt/refurbished machines in the market? If no inventory model

exists, what is the impact of refurbishment on the equloment lifetime? The

Department also seeks feedback on the number of refurbishment cycles in the

typical lifetime of the beverage vending machines.

9 SHIPMENTS ANALYSIS

Shipment forecasts are required to calculate the national impacts of standards on energy

consumption, net present value (NPV), and future manufacturer cash flows. The Department

plans to develop shipment forecasts based on an analysis of key market drivers for beverage

vending machines.

9.1 Base Case Forecast

To evaluate the various impacts of standards, the Department must develop a base case forecast

against which to compare forecasts for higher efficiency levels. The base case forecast is

designed to depict what will happen to energy consumption and energy costs over time if the

Department does not adopt new energy conservation standards for the equipment covered under

this rulemaking. In determining the base case forecast, the Department will consider historical

shipments, the mix of efficiencies sold in the absence of standards, and how that mix might

change over time. For these purposes, the Department needs data on historical product

shipments and the market shares of the different efficiency levels offered in each product class.

Vending Times reports historical shipments for beverage vending machines as an overall product

group. (See http://www.vendingtimes.coniIME2/default.asp.) In addition, the Bureau has also

published limited statistics on the quantity and value of product shipments. (See

http://www.census.gov/.) Bureau data is available online for the years 1995, 1996, 1999, and

2000 for refrigerated soft drink vending machines. This data is not broken down by product

class. The data collection was discontinued after the publishing of the 2000 data, so no

additional data from the Bureau beyond 2000 will be available.

The Department hopes to collect shipment data within each product class, as well as marketshare efficiency data (i.e., data on the distribution of product shipments by efficiency) for each

product class. The Department recognizes that this information may be difficult to collect, and

may therefore consider using other methods for estimating the efficiency distribution in the

market. For example, when market-share efficiency data are not available, the Department may

use efficiency distributions based on available models as a proxy. The Department may also

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request separate shipment information for products sold with specific design features (e.g., ECM

evaporator fan motors).

9.2 Accounting Methodology

The Department proposes to determine annual shipments in the base case by accounting for new

building construction and historical rates of product ownership (saturation rates) in buildings.

For product retirements, DOE will use the same product lifetimes and retirement functions that it

generates for the life-cycle cost and payback period analysis. This method has the distinct

advantage of separately accounting for units installed in new construction and existing buildings.

More importantly, the Department can express product saturation rates as a function of consumer

price and operating cost to capture their impact on future shipments. The Department plans to

rely on EIA's AEO to forecast new commercial construction.

The Department will also consider any other inputprovided by stakeholders.

item 9-] The Department seeks information on representative saturation rates for each

product class covered under this rulemaking, as well as industry-trend data

regarding relative growth in each product class.

item 9-2 The Department seeks input on whether there are better methods offorecasting

the markets for each product class and access to models or methods that could

be used to forecast shipments.

9.3 Standards Impacts on Product Shipments

For each product, the Department will develop a set of shipment forecasts for the covered

equipment for each set of standards analyzed. These standards-case forecasts will be used to

evaluate the impacts of standards on product shipments. Standards-case forecasts are derived

using the same data-sets as base-case forecasts; however, because the standards-case forecasts

take into account the increase in purchase price and the decrease in operating costs caused by

standards, forecasted shipments typically deviate from the base case. The magnitude of the

difference between the standards-case and base-case shipment forecasts depends on the

estimated purchase-price-increase as well as the operating-cost-savings caused by the standard.

Because the purchase price tends to have a larger impact than operating cost on equipment

purchase decisions, standards-case forecasts typically show a drop in product shipments relative

to the base case.

The Department's past standards analyses have attempted to quantifv the sensitivity of shipments

to purchase price and operating-cost-savings. Because the data required to develop these

sensitivities are limited and often difficult to obtain, the Department will consider modeling

standards-case shipments forecasts with scenarios (i.e., specified impacts to product shipments)

rather than developing sensitivities to purchase price or operating-cost-savings.

Market-pull programs, such as consumer rebate programs that encourage the purchase of moreefficient products and manufacturer tax credits that encourage the production of more-efficient

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products, also affect standards-case forecasts. When such programs exist, the Department

considers their impact on the forecast of both standards-case and base-case shipments.

Item 9-3 As part of its preliminary manufacturer impact analysis, the Department will

seek input from manufacturers on the potential impact of new energy

conservation standards on product shipments. Other stakeholders are also

welcome to provide input. The Department also requests input on any marketpull programs that currently exist topron-lote the adoption of more-efficient

products.

10 NATIONAL IMPACT ANALYSIS

Section 8 discusses methods for estimating the LCC savings and payback period for individual

consumers. This section discusses the Department's assessment of the aggregate impacts at the

national level. Measures of impact to be reported include the net present value (NPV) of total

consumer LCCs and national energy savings.

10.1 Inputs to Forecast

Analyzing national impacts of Federal energy conservation standards requires a comparison of

projected United States energy consumption for the beverage vending machines covered under

this rulemaking with, and without, new or amended energy conservation standards. The

forecasts contain projections of unit energy consumption for new equipment, annual equipment

shipments, and the price of purchased equipment. The derivations of the base-case shipments

forecasts are discussed in section 9.1. Approaches to determining retail prices are described in

section 7, while approaches to determining per-unit net-energy-consumption impact are

described in section 6.

10.2 Calculation of Energy Savings

The Department intends to calculate national energy consumption for each year beginning with

the expected effective date of the standards. It will calculate national energy consumption by

fuel type for the base case and each standard level analyzed. The Department plans to perform

this calculation through the use of a spreadsheet model that effectively multiplies annual

shipment forecasts by unit energy savings.

In response to earlier DOE rulemakings and comments from stakeholders who asked for a

simple, transparent energy savings model, the Department has developed and used nationalenergy-savings (NES) spreadsheet models for its standards rulemakings since 1996. The

Department expects the NES spreadsheet model to provide a credible, stand-alone forecast of

national energy savings and NPV of equipment costs and energy cost savings for beverage

vending machines.

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The Department has prepared NES spreadsheet models for other equipment9 to forecast energy

savings and to demonstrate how the growth in efficiency can be accounted for over time.

Although these models are specific to each equipment type, their general structure can be applied

to refrigerated bottled or canned beverage vending machines.

Based on consideration of the comments DOE may receive on the ANOPR, DOE will make any

necessary changes to the analysis. Those changes will be reflected in the documentation for the

NOPR.

Item 10-1 The Department seeks comment on the share of the market that is met by

refurbished or rebuilt machines, and on how the Department should address

refurbished or rebuilt machines in this rulemaking.

Item 10-2 What fraction of the predicted stock in 2012 is expected to meet Tier 1 of the

ENERGY STAR specifications, and what fraction is expected to meet Tier 2 of the

ENERGY STAR specifications? (See ENERGY STAR Program Requirements for

Refrigerated Beverage Vending Machines Eligibility Criteria, Verision 1, at

http://www. energystar.gov/index. cfm ?c=vendingmachines.pr_vending_machin

es.

Item 10-3 The Department seeks comment on its plan to develop NES spreadsheet models

for estimating national impacts of amended energy conservation standards.

10.3 Net Present Value

The Department calculates the national NPV of the standards in conjunction with the NES. It

calculates annual energy expenditures from annual energy consumption by incorporating

forecasted energy prices, using the shipment and average-energy-conservation forecasts

described in section 9.1. The Department calculates annual equipment expenditures by

multiplying the price-per-unit by the forecasted shipments. The difference between a base-case

and a standards-case scenario gives the national energy-bill savings and increased equipment

expenditures in dollars. The difference each year between energy-bill savings and increased

equipment expenditures is the net savings (if positive) or net cost (if negative). The Department

discounts these annual values to the present time and sums them to give an NPV.

Based on consideration of the comments received for the ANOPR, the Department will make

any necessary changes to the analysis and candidate standard levels (CSLs). Thereafter, the

Department will give stakeholders an opportunity to review the revised analysis during the

NOPR stage.

For example, the NES model used in the Commercial Unitary Air-Conditioners and Heat Pumps rulemaking is

available for examination at:

http ://www.eere.energy.gov/buildings/appli ance_standards/commercial/docs/nes_cuac.xls

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11 LIFE-CYCLE COST SUBGROUP ANALYSIS

This section describes how the Department analyzes consumer impacts by dividing consumers

into subgroups and accounting for variations in key inputs to the life-cycle cost analysis. A

consumer subgroup comprises a subset of the population that is likely, for one reason or another,

to be impacted disproportionately by new or revised energy conservation standards. The purpose

of a subgroup analysis is to determine the extent of this disproportionate impact. The

Department will work with stakeholders early in the rulemaking process to identify any

subgroups for this consideration. However, it will not analyze the consumer subgroups until the

NOPR stage of the analysis.

In comparing potential impacts on the different consumer subgroups, the Department will

evaluate variations in regional energy prices, variations in energy use, and variations in

installation costs that might affect the NPV of a standard to consumer subgroups. To the extent

possible, the Department may obtain estimates of the variability in each input variable and

consider this variability in its calculation of consumer impacts. It will discuss the variability in

each input variable and likely sources of information with stakeholders.

The Department intends to consider the impact of any new standards on consumer subgroups.

Item 11-1 The Department seeks input about what consumer subgroups the Department

should consider in the present rulemaking. Examples of possible subgroups the

Department could consider appropriate for beverage vending machines include

independent grocery stores and small convenience stores.

12 MANUFACTURER IMPACT ANALYSIS

Recently, the Department announced changes to the manufacturer impact analysis format

through a report issued to Congress on January 31, 2006 (as required by section 141 of EPACT

2005 (P.L. 109-58)). This report, entitled "Energy Conservation Standards Activities,"

(Standards Activities) is available on the DOE website at:

http ://www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html.

Previously, the Department did not report any manufacturer impact analysis results during the

ANOPR phase; however, under this new format, the Department will collect, evaluate, and

report preliminary information and data in the ANOPR. (See Standards Activities, section

6.4.4.) Such preliminary information includes the anticipated conversion capital expenditures by

efficiency level and the corresponding, anticipated impacts on jobs. The Department will solicit

this information during the ANOPR engineering analysis manufacturer interviews.

The analysis of impacts on manufacturers is intended to provide the Department with an

assessment of the potential impacts of energy conservation standards on manufacturers. In

addition to financial impacts, a wide range of quantitative and qualitative effects may occur

following adoption of a standard that may require changes to the manufacturing practices for

these products. The Department will identify these effects through interviews with

manufacturers and other stakeholders.

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12.1 Sources of Information

Many of the analyses described earlier provide important information that the Department uses

as inputs for the manufacturer impact analysis. Such information includes financial parameters

developed in the market assessment (section 3.1), manufacturing costs and prices from the

engineering analysis (sections 5.2 and 5.3), retail price forecasts (section 7), and shipments

forecasts (section 9.1). The Department supplements this information with information gathered

during manufacturer interviews. The interview process will play a key role in the manufacturer

impact analysis, as it provides an opportunity for interested parties to express their views on

important issues.

The Department will conduct detailed interviews with manufacturers to gain insight into the

range of potential impacts of standards. During the interviews, the Department will solicit

information on the possible impacts of standards on manufacturing costs, equipment prices,

sales, direct employment, capital assets, and industry competitiveness. Both qualitative and

quantitative information are valuable. The Department will schedule interviews well in advance

to provide every opportunity for key individuals to be available. In addition, an interview guide

will be provided before the interviews to allow the manufacturers to gather the appropriate

information. Although a written response to the questionnaire is acceptable, the Department

prefers an interactive interview process because it helps clarify responses and provides the

opportunity for additional issues to be identified.

The Department will ask that interview participants identify all confidential information

provided, both in writing and orally. While it will consider information gathered, as appropriate,

in its decision-making process, the Department will nol make confidential information available

in the public record. The Department will also ask participants to identify all information that

they wish included in the public record, but that they do not want to have associated with their

interview. The Department will incorporate this information into the public record, but will

report it without attribution.

The Department will collate the completed interview questionnaires and prepare a summary of

the major issues and outcomes. This summary will become part of the technical support

document produced for this rulemaking.

Item 12-] What procedures should the Department follow when scheduling interviews and

requesting information?

12.2 industry Cash Flow Analysis

The industry cash flow analysis relies primarily on the Government Regulatory Impact Model

(GRIM). The Department uses the GRIM to analyze the financial impacts of more stringent

energy conservation standards on the industry that produces the products covered by the

standard.

The GRIM analysis uses a number of factors-annual expected revenues; manufacturer costs

such as costs of goods sold; selling, general, and administrative costs; taxes; and capital

expenditures related to depreciation, new standards, and maintenance-to arrive at a series of

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annual cash flows beginning from the announcement of the new standard and continuing for

several years after its implementation. The Department compares the results against base-case

projections that involve no new standards. The financial impact of new standards is then the

difference between the two sets of discounted annual cash flows. Other performance metrics,

such as return on invested capital, also are available from the GRIM.

The Department will gather this information from two primary sources: the analyses conducted

to this point, and interviews with manufacturers and other stakeholders. Information gathered

from previous analyses will include financial parameters, manufacturing costs, price forecasts,

and shipments forecasts. Interviews with manufacturers and other stakeholders will be essential

in supplementing this information.

12.3 Manufacturer Subgroup Analysis

It is possible that the use of average-industry-cost values will not adequately assess differential

impacts among subgroup manufacturers. The Department recognizes that smaller manufacturers,

niche manufacturers, and manufacturers exhibiting a cost structure that differs substantially from

the industry average may be differentially impacted by the imposition of standards. Ideally, the

Department would consider the impact on each individual firm. In highly concentrated

industries, this may be possible. However, within common industries that have numerous

participants, the Department will use the results of the market and technology assessment to

group manufacturers into subgroups, as appropriate.

Item 12-2 The Department seeks comment on the establishment of manufacturer

subgroups for beverage vending machines.

12.4 Competitive impacts Assessment

The EPCA directs the Department to consider any lessening of competition that is likely to result

from the imposition of standards. (42 U.S.C. 6295(o)(2)(B)(i)(V) and 63 16(e) added by section

136(h)(3) of EPACT 2005) It further directs the Attorney General to determine, in writing, the

impacts, if any, of any lessening of competition. (42 U.S.C. 6295(o)(2)(B)(ii) and 6316(e) added

by section 136(h)(3) of EPACT 2005) The Department will make a determined effort to gather

firm-specific financial information and impacts. The Department will then report the aggregated

impact of the standards on manufacturers. The competitive impacts assessment will focus on

assessing the impacts to smaller, yet significant, manufacturers. The Department will provide

the Attorney General with a copy of the NOPR for consideration in his evaluation of the impact

of standards on the lessening of competition. The Department will base the assessment on

manufacturing cost data and on information collected from interviews with manufacturers. The

manufacturer interviews will focus on gathering information that would help in assessing

asymmetrical cost increases to some manufacturers, increased proportion of fixed costs

potentially increasing business risks, and potential barriers to market entry (e.g., proprietary

technologies).

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12.5 Cumulative Regulatory Burden

Finally, the Department is aware that other regulations may be placed on equipment covered

under this rulemaking as well as on other equipment which may be manufactured by the

manufacturers of equipment covered under this rulemaking. Multiple regulations may result in a

cumulative regulatory burden on these manufacturers. The Department will address and seek to

mitigate the overlapping effects on manufacturers of amended DOE standards and other

regulatory actions affecting the same equipment or companies.

Item 12-3 What regulations or pending regulations should the Department consider in the

analysis of cumulative regulatory burden?

13 UTILITY IMPACT ANALYSIS

The utility impact analysis will include an analysis of both the electric and the gas utility

industries. The Department is considering adapting the National Energy Modeling System

(NEMS) produced by the ETA for this analysis. The NEMS (EIA 2005) is a large, multi-sectoral,

partial-equilibrium model of the United States energy sector that has been developed over the

past decade by the ETA, primarily for the purpose of preparing the Department's AEO. In prior

rulemakings, a variant of NEMS (currently identified as NEMS-BT, where BT refers to the DOE

Building Technologies Program) was developed to better address the particular impacts of an

energy efficiency standard for commercial equipment.

The NEMS produces a widely recognized baseline energy forecast for the United States through

the year 2030, and is available in the public domain. The typical NEMS outputs include

forecasts of electricity sales, price, and avoided capacity. The Department plans on conducting

the utility-impact analysis as a scenario departing from the latest AEO reference case. In other

words, the energy savings impacts from amended energy conservation standards will be modeled

using NEMS-BT to generate forecasts that deviate from the AEO reference case.

While NEMS has been used to model utility impacts for energy conservation standards analyses

in the recent past, the presumed relatively small impacts on the total utility sector for this

product may suggest other approaches.

Item 13-] The Department seeks input on its proposed use of NEMS-BT to conduct the

utility impact analysis.

Item 13-2 Should the Department consider using methods other than NEMS in the utility

impact analysis?

14 EMPLOYMENT IMPACT ANALYSIS

The imposition of standards can impact employment both directly and indirectly. Direct

employment impacts are changes in the number of employees at the plants that produce the

covered equipment, along with the affiliated distribution and service companies, resulting from

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the imposition of standards. The Department will evaluate direct employment impacts in the

manufacturer-impact analysis, as described in section 12. Indirect employment impacts may

result from expenditures shifting between goods (the substitution effect) and changes in income

and overall expenditure levels (the income effect) that occur due to the imposition of standards.

The combined direct and indirect employment impacts will be investigated in the employmentimpact analysis using the Pacific Northwest National Laboratory's "Impact of Sector Energy

Technologies" (ImSET) model. The ImSET model was developed for the Department's Office

of Planning, Budget, and Analysis, and estimates the employment and income effects of energysaving technologies in buildings, industry, and transportation. In comparison with simple

economic multiplier approaches, ImSET allows for more complete and automated analysis of the

economic impacts of energy conservation investments.

Item 14-1 The Department requests feedback on this approach to assessing employment

impacts.

15 ENVIRONMENTAL ASSESSMENT

The primary environmental effects of energy conservation standards for the beverage vending

machines covered under this rulemaking will be reduced emissions resulting from reduced

electrical energy consumption. The environmental impact analysis will track the impact of

possible standards on three types of energy-related emissions: carbon dioxide (C02), oxides of

nitrogen (NO), and sulfur dioxide (SO2). The Department intends to base these calculations on

the NEMS-BT modeling work proposed for the utility impact analysis. This approach has the

advantage of examining the marginal impact of standards for the covered equipment on the

utility generation mix and the subsequent environmental emissions.

Carbon emissions are tracked in NEMS-BT by a detailed module that produces robust results

because of its broad coverage of all sectors and inclusion of interactive effects. NEMS-BT also

includes a module for S02-allowance trading and delivers a forecast of S02-allowance prices. It

is important to note that simulation of SO2 trading tends to imply that physical emissions effects

will be zero. However, there is an SO2 benefit from conservation in the form of a lower

allowance price and, if large enough to be calculable by NEMS, this value can be reported.

NEMS-BT also has an algorithm for estimating NO emissions from power generation.

Item 15-1 The Department requests feedback on this approach to assessing the

environmental factors.

16 REGULATORY IMPACT ANALYSIS

In the NOPR stage, the Department will prepare a regulatory impact analysis (RIA) pursuant to

Executive Order (E.O.) 12866, "Regulatory Planning and Review," 58 FR 51735, October 4,

1993, which is subject to review under the Executive Order by the Office of Information and

Regulatory Affairs (OIRA) at the Office of Management and Budget. The RIA will address the

potential for non-regulatory approaches to supplant or augment energy conservation standards to

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improve the energy efficiency or reduce the energy consumption of the beverage vending

machines covered under this rulemaking in the market.

The Department recognizes that voluntary or other non-regulatory efforts by manufacturers,

utilities, and other interested parties can result in substantial improvements to energy efficiency

or reductions in energy consumption. The Department intends to consider the likely effects of

non-regulatory initiatives such as the ENERGY STAR program on equipment energy use, consumer

utility, and LCC. The Department will base its assessment on the actual impacts of any such

initiatives to date, but also will consider information presented regarding the impacts that any

existing initiative might have in the future.

Item 16-1 The Department is aware of the existing ENERGY STAR program for the beverage

vending machine industry covered under this rulemaking. Are stakeholders

aware of any other such programs that should be examined as optional, nonregulatory approaches?

Item 16-2 Are there specfIc subgroups of end-users whom the Department should

consider in its review ofpotential adverse impacts from standards developed

under this rulemaking

EERE-2006-STD-0125 COMMENT 02