5-i 

CHAPTER 5. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

 

TABLE OF CONTENTS

5.1 INTRODUCTION ............................................................................................................... 5-1

5.1.1 General Approach for Life-Cycle Cost and Payback Period Analysis ................ 5-1

5.1.2 Overview of Life-Cycle Cost and Payback Period Inputs ................................... 5-2

5.2 LIFE-CYCLE COST INPUTS ............................................................................................ 5-4

5.2.1 Definition ............................................................................................................. 5-4

5.2.2 Total Installed Cost Inputs ................................................................................... 5-5

5.2.2.1 Baseline Contractor Cost ...................................................................... 5-6

5.2.2.2 Standards-Level Contractor Cost Increases .......................................... 5-7

5.2.2.3 Markups ................................................................................................ 5-8

5.2.2.4 Baseline Markup ................................................................................... 5-9

5.2.2.5 Incremental Markup ............................................................................ 5-10

5.2.2.6 Overall Markup ................................................................................... 5-10

5.2.2.7 Assumptions Used to Estimate Wholesaler and Contractor Markups 5-11

5.3 ESTIMATION OF MECHANICAL CONTRACTOR MARKUPS ................................ 5-12

5.3.1 Markups for Mechanical Contractors in the Replacement and New 

Construction Markets......................................................................................... 5-13

5.4 ESTIMATION OF GENERAL CONTRACTOR MARKUPS ........................................ 5-15

5.5 SALES TAX ...................................................................................................................... 5-16

5.6 OVERALL MARKUPS .................................................................................................... 5-16

5.6.1.1 Installation Cost .................................................................................. 5-18

5.6.1.2 Weighted-Average Total Installed Cost.............................................. 5-21

5.6.2 Operating Cost Inputs ........................................................................................ 5-24

5.6.2.1 Fuel Price Analysis ............................................................................. 5-25

5.6.2.2 Fuel Price Trends ................................................................................ 5-29

5.6.2.3 Maintenance and Repair Costs ............................................................ 5-31

5.6.2.4 Lifetime ............................................................................................... 5-32

5.6.2.5 Discount Rate ...................................................................................... 5-32

5.6.2.6 Effective Date of Standard .................................................................. 5-34

5.7 PAYBACK PERIOD INPUTS.......................................................................................... 5-36

5.7.1 Definition ........................................................................................................... 5-36

5.7.2 Inputs ................................................................................................................. 5-36

5.8 LIFE-CYCLE COST AND PAYBACK PERIOD RESULTS ......................................... 5-37

5.8.1 Life-Cycle Cost Results ..................................................................................... 5-37

5.8.1.1 Differences in Life-Cycle Cost Between Baseline and StandardLevel Equipment ................................................................................. 5-37

5.8.2 Payback Period Results...................................................................................... 5-38

5.9 ESTIMATES OF IMPACTED CUSTOMERS ................................................................. 5-39

5.9.1 Sensitivity to Fuel Escalation Rate .................................................................... 5-40

5.10 DETAILED RESULTS ..................................................................................................... 5-42

REFERENCES .......................................................................................................................... 5-43

EERE-2008-BT-STD-0013 COMMENT 22
5-ii

LIST OF TABLES

Table 5.1.1 Summary Information of Inputs for the Determination of Life-Cycle Cost and 

Payback Period..................................................................................................... 5-4

Table 5.2.1 Inputs for Total Installed Costs ................................................................................. 5-6

Table 5.2.2 Equipment Classes for the Commercial Packaged Boiler Life-Cycle Cost and 

Payback Period Analysis...................................................................................... 5-6

Table 5.2.3 Baseline Contractor Costs per Unit by Equipment Class ......................................... 5-7

Table 5.2.4 Standard-Level Contractor Cost Increases (Cost Increases Relative to the 

Cost of Baseline Equipment) ............................................................................... 5-7

Table 5.2.5 Distribution Channels for Commercial Packaged Boiler Equipment ....................... 5-8

Table 5.3.1 Baseline Markup, All Mechanical Contractors....................................................... 5-12

Table 5.3.2 Baseline Markups for the Replacement and New Construction Markets, 

All Mechanical Contractors ............................................................................... 5-13

Table 5.3.3 Mechanical Contractor Expenses and Baseline Markup, Residential and Light 

Commercial ........................................................................................................ 5-14

Table 5.3.4 Mechanical Contractor Expenses and Markups Based on U.S. Census Bureau 

Data .................................................................................................................... 5-14

Table 5.4.1 General Contractor Expenses and Markups............................................................ 5-15

Table 5.5.1 State Sales Tax Rates .............................................................................................. 5-16

Table 5.6.1 Overall Baseline Markups ...................................................................................... 5-17

Table 5.6.2 Overall Incremental Markups ................................................................................. 5-17

Table 5.6.3 Baseline Installation Cost Equation Parameters ..................................................... 5-18

Table 5.6.4 Estimated Efficiency Difference (∆) Between Thermal and Combustion 

Efficiencies ........................................................................................................ 5-19

Table 5.6.5 Combustion Efficiency (Ec) Level Assumed for Onset of Incremental 

Installation Costs ................................................................................................ 5-20

Table 5.6.6 Comparison Between Residential and Commercial Incremental Installation 

Cost for Higher-Efficiency Boilers .................................................................... 5-21

Table 5.6.7 Installation Cost Indices (National Value = 100.0) ................................................ 5-22

EERE-2008-BT-STD-0013 COMMENT 22
5-iii

Table 5.6.8 Costs and Markups for 800-kBtu/h Commercial Gas-Fired Hot-Water Boiler 

at Efficiency Level 2 at National Average Conditions* ..................................... 5-23

Table 5.6.9 Weighted-Average Equipment Price, Installation Cost, and Total Installed 

Costs for the 800-kBtu/h Commercial Packaged Hot-Water Boiler at U.S. 

Average Prices (2008$)...................................................................................... 5-24

Table 5.6.10 Inputs for Operating Costs .................................................................................... 5-25

Table 5.6.11 Estimated Commercial Natural Gas Prices by State (2007 $/MBtu).................... 5-27

Table 5.6.12 Estimated Commercial Oil Prices by State (2007 $/MBtu) .................................. 5-27

Table 5.6.13 Derived Average Commercial Fuel Price Ratios by Building Type .................... 5-28

Table 5.6.14 Average Annual Repair Cost per Unit (2008$) ................................................. 5-31

Table 5.6.15 Average Discount Rates by Building Type .......................................................... 5-34

Table 5.8.1 Distribution of Life-Cycle Cost Savings from Baseline Level for Small GasFired Commercial Packaged Boilers* ............................................................... 5-37

Table 5.8.2 Average Life-Cycle Cost Savings from Baseline Level (Level 0) by 

Efficiency Level and Equipment Class* ............................................................ 5-38

Table 5.8.3 Summary of Payback Period Results by Efficiency Level for Small Gas-Fired 

Commercial Packaged Boilers ........................................................................... 5-39

Table 5.8.4 National Average Payback Periods by Efficiency Level and Equipment 

Class* ................................................................................................................. 5-39

Table 5.9.1 Fraction of Customers Impacted by Efficiency Level and Equipment Class ......... 5-40

Table 5.9.2 Average Life-Cycle Cost Savings from a Baseline Level (Level 1) by 

Efficiency Level and Equipment Class – EIA Low Price Scenario*................. 5-41

Table 5.9.3 Average Life-Cycle Cost Savings from a Baseline Level (Level 0) by 

Efficiency Level and Equipment Class – EIA High Price Scenario* ................ 5-42

LIST OF FIGURES

Figure 5.1.1 Flow Diagram of Inputs for the Determination of Life-Cycle Cost and 

Payback Period..................................................................................................... 5-4

Figure 5.6.1 AEO 2009 Commercial Natural Gas Price Trends................................................ 5-30

Figure 5.6.2 AEO 2009 Commercial Fuel Oil Price Trends...................................................... 5-30

EERE-2008-BT-STD-0013 COMMENT 22
5-1 

CHAPTER 5. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

5.1 INTRODUCTION

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

assess the life-cycle cost benefits and the payback for adoption of potential energy efficiency 

standards for commercial packaged boilers that would exceed the voluntary efficiency standards 

set out in American Society of Heating, Refrigerating and Air-Conditioning Standard 90.1-

2007.1

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

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

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

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

The effect of higher standards on individual customers includes a change in operating 

cost (usually decreased) and a change in purchase cost (usually increased). This chapter 

describes two metrics used in the customer analysis to determine the economic viability of higher 

efficiency standards on individual commercial customers: 

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

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

Inputs to and calculations used in the LCC and PBP analysis of commercial packaged 

boilers are discussed in sections 5.2 through 5.7. Results for each metric are presented in sections 

5.8.1 and 5.8.2 respectively. Key variables and calculations are presented for each metric. The 

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

accessible on the DOE web site at 

(http://www1.eere.energy.gov/buildings/appliance_standards/commercial/ashrae_products_docs

_meeting.html). 

Appendix 5-A contains additional results from the LCC analysis. 

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

Recognizing that each commercial building that uses the commercial packaged boiler

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

calculations detailed here for seven types of commercial buildings for which energy consumption 

data were developed in TSD chapter 4—public assembly, education, food service, lodging, 

office, retail, and warehouse buildings across the United States—and aggregated the results 

based on estimated shipments of commercial boilers to these building types. The LCC and PBP 

model was developed using Microsoft Excelspreadsheets.

Aside from the relationship between increasing selling price and increasing energy

efficiency, and the type of building in which a boiler is used, the most important factors 

influencing the LCC and PBP analysis are related to the State to which each commercial 

packaged boiler is shipped. These factors include energy prices, installation cost, markup, and 

sales tax. In addition, estimated discount rates for different classes of commercial customer are 

used in the LCC analysis. The LCC analysis presented here used the predicted energy 

consumption for commercial boilers based on the energy analysis and reviewed in chapter 4 of 

the TSD, Energy Use Characterization. 

EERE-2008-BT-STD-0013 COMMENT 22
5-2 

The energy consumption of commercial packaged boilers is sensitive to climatic 

conditions and building type, thus energy consumption in the LCC analysis varies by 

geographical location and building type. At the national level, the spreadsheets explicitly 

accounted for variability in the model inputs for fuel price and markups using distributions based 

on the shipment of units to different States and building types. 

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

baseline conditions, which for purposes of the Notice of Proposed Rulemaking (NOPR) are the 

ASHRAE Standard 90.1-2007 efficiency levels specified for each class of commercial packaged 

boiler. Results are presented at the end of this chapter. 

5.1.2 Overview of Life-Cycle Cost and Payback Period Inputs

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

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

discounted to the time of purchase and summed over the lifetime of the equipment. The PBP is 

the change in purchase cost due to an increased efficiency divided by the change in annual 

operating cost that results from the energy conservation standard. It represents the number of 

years it will take the customer to recover the increased purchase cost through decreased 

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

Inputs to the LCC and PBP analysis are categorized as: (1) inputs for establishing the 

total installed cost; and (2) inputs for calculating the operating cost. 

The inputs for establishing the total installed cost are as follows: 

• Baseline contractor cost: The cost paid by a contractor to purchase a commercial 

packaged boiler of the size and equipment classes analyzed in this analysis. Baseline 

contractor costs for equipment are discussed in TSD chapter 3. 

• Standard-level contractor cost increase: The incremental change in contractor cost 

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

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

contractor costs to a customer price. 

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

price represents the cost required to install the equipment but does not include the 

marked-up customer equipment price. The installation price includes labor, overhead, and 

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

equipment price plus the installation price.

The inputs for calculating the operating cost are as follows: 

• Equipment energy consumption: The site energy use associated with the use of the 

commercial packaged boilers. Although there are potentially some electrical energy 

consumption impacts for different efficiency levels within certain commercial packaged 

boiler equipment classes, the LCC analysis includes only the estimates of primary fuel 

(either gas or oil) by the equipment itself as calculated in TSD chapter 4. Underlying this 

EERE-2008-BT-STD-0013 COMMENT 22
5-3 

assumption is that any changes in electrical energy consumption, for instance caused by

changes in blower design or controls for equipment meeting the standards, are small. 

• Fuel prices: Natural Gas and fuel oil prices used in the analysis are the price in dollars 

per million British thermal units (MBtu) paid by each customer. Fuel prices are 

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

available State-by-State Energy Information Administration (EIA) data for 2007. The 

2007 average commercial prices were modified to reflect the fact that the seven types of 

businesses analyzed pay prices that, on average, are either slightly higher or lower than 

the average commercial prices. Details about the development of fuel prices and the data 

sources used are found in Section 5.6.2.1. 

• Fuel price trends: The EIA’s Annual Energy Outlook 20092 (DOE/EIA 2009; hereafter 

referred to as AEO 2009) is used to forecast fuel prices. For the results presented in this 

chapter, DOE used the AEO 2009 April 2009 reference case including American 

Recovery and Reinvestment Act (ARRA) to forecast future fuel prices.

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

operation of the equipment (e.g., cleaning boiler tubes).

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

components that have failed. 

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

service. DOE assumed a 30-year life for commercial boilers. 

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

value.

Figure 5.1.1 depicts the relationships between the installed cost and operating cost inputs 

for the calculation of the LCC and PBP. Table 5.1.1 summarizes the values for the various inputs 

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

distributions that capture variability in the input. The values provided in Table 5.1.1 are the 

weighted-average values from the distribution that is being used to characterize the input. Also 

listed in Table 5.1.1 are chapters in the TSD where more detailed information about the inputs 

can be found. 

EERE-2008-BT-STD-0013 COMMENT 22
5-4 

Baseline

Manufacturer

Price

Std-Level

Manufacturer

Price

Total Installed

Cost

From 

Engineering 

Analysis

(Price is a 

Function of 

Efficiency)

From Markups 

for Equipment 

Price 

Determination 

Analysis

Annual Energy

Expense

Repair Cost

Maintenance

Cost

Annual

Operating

Expense

Lifetime

Operating

Expense

Life-Cycle

Cost

From Energy 

Use 

Characterization 

Analysis 

(Energy Use as a 

Function of 

Efficiency)

Payback

Period

Energy

Consumption

Distributor

Markup

Sales Tax

Mechanical 

Contractor

Markups

Customer

Price

Installation

Cost

& General

Lifetime

Discount Rate

Fuel

Price Trend

Fuel

Prices

Baseline

Manufacturer

Price

Std-Level

Manufacturer

Price

Total Installed

Cost

From 

Engineering 

Analysis

(Price is a 

Function of 

Efficiency)

From Markups 

for Equipment 

Price 

Determination 

Analysis

Annual Energy

Expense

Repair Cost

Maintenance

Cost

Annual

Operating

Expense

Lifetime

Operating

Expense

Life-Cycle

Cost

From Energy 

Use 

Characterization 

Analysis 

(Energy Use as a 

Function of 

Efficiency)

Payback

Period

Energy

Consumption

Distributor

Markup

Sales Tax

Mechanical 

Contractor

Markups

Customer

Price

Installation

Cost

& General

Lifetime

Discount Rate

Fuel

Price Trend

Fuel

Prices

 

Figure 5.1.1 Flow Diagram of Inputs for the Determination of Life-Cycle Cost and Payback 

Period

Table 5.1.1 Summary Information of Inputs for the Determination of Life-Cycle Cost and 

Payback Period

Factor Weighted-Average Value

TSD 

Chapter

Total Installed Cost Primary Inputs

Baseline contractor cost Varies with equipment class Chapter 3

Standard-level contractor cost increases Vary with equipment class and efficiency level Chapter 5

Markups and sales tax Vary with equipment class, distribution channel, and 

location

Chapter 5

Installation price Varies with equipment class Chapter 5

Operating Cost Primary Inputs

Equipment energy consumption Varies with equipment class Chapter 4

Fuel prices Vary with location, building type Chapter 5

Fuel price trends Vary with price scenario Chapter 5

Maintenance costs Vary with equipment class Chapter 5

Repair costs Vary with equipment class Chapter 5

Lifetime Varies with type of business Chapters 3, 5

Discount rate Varies with type of business Chapter 5

All of the inputs depicted in Figure 5.1.1 and summarized in Table 5.1.1 are discussed in 

sections 5.2 through 5.7. 

5.2 LIFE-CYCLE COST INPUTS

5.2.1 Definition

Life-cycle cost is defined by the following equation:

EERE-2008-BT-STD-0013 COMMENT 22
5-5 

∑=

+= +

N

t

t

t ICLCC OC r

1

/( )1 Eq. 5.1

where

LCC = life-cycle cost ($), 

IC = total installed cost ($), 

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

(years), 

OC = operating cost ($), 

 r = discount rate, 

 t = year for which operating cost is being determined. 

DOE expresses all of the costs in 2008$ for the LCC analysis. Total installed cost, 

operating cost, lifetime, and discount rate are discussed in the following sections. 

Because the purpose of the NOPR analysis is to examine the potential impact of DOE 

setting energy conservation standards at levels higher than those established in ASHRAE 

Standard 90.1-2007 for commercial packaged boilers, DOE assumes the start date for the LCC 

analysis is determined as the earliest date that standards higher than ASHRAE Standard 90.1-

2007 levels could go into effect. Under current legislation, this is 2014, 4 years after a rule could 

be put into effect setting standards for commercial boilers at levels higher than those shown in 

ASHRAE Standard 90.1-2007. In the LCC analysis, the year of equipment purchase is assumed 

to be 2014. 

5.2.2 Total Installed Cost Inputs

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

IC EQP += INST Eq. 5.2

where

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

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

labor and materials), ($). 

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

purchases the equipment. Because the available cost data were developed based on contractor 

costs as discussed in TSD chapter 3, DOE developed a simplified distribution channel starting 

with the mechanical contractor. The remainder of this section provides information about the 

variables DOE used to calculate the total installed cost for commercial packaged boiler 

equipment. Table 5.2.1 lists the inputs for the determination of total installed cost. 

EERE-2008-BT-STD-0013 COMMENT 22
5-6 

Table 5.2.1 Inputs for Total Installed Costs

Baseline contractor cost ($)

Standard-level contractor cost increases ($)

Mechanical contractor markup

General contractor markup

Sales tax (%)

Installation price ($)

5.2.2.1 Baseline Contractor Cost

The baseline contractor cost is the cost paid by mechanical contractors purchasing 

commercial packaged boilers that meet the existing minimum efficiency (or baseline) standards

as defined under ASHRAE Standard 90.1-2007 in 2014. DOE developed the baseline contractor 

costs through an efficiency level analysis that estimated contractor costs by efficiency level for 

each class of commercial packaged boiler analyzed, but without reference to boiler design 

features. Refer to TSD chapter 3, Engineering Analysis, for discussion of the development of 

contractor costs data. 

DOE developed contractor costs for 10 equipment classes and using two sizes of 

commercial packaged boilers typical boiler capacities (800 kBtu per hour [kBtu/h] and 3,000 

kBtu/h output ratings for small and large commercial packaged boilers, respectively). The LCC 

and PBP analysis has been carried out for the typical boiler sizes identified within each 

equipment class. Table 5.2.2 shows the 10 equipment classes that DOE evaluated. Table 5.2.3 

lists baseline contractor costs per unit.

Table 5.2.2 Equipment Classes for the Commercial Packaged Boiler Life-Cycle Cost and 

Payback Period Analysis 

Equipment Class Output Capacity (kBtu/h)

Small Gas-Fired Hot Water 800

Small Gas-Fired Steam All Except Natural Draft 800

Small Gas-Fired Steam Natural Draft 800

Small Oil-Fired Hot Water 800

Small Oil-Fired Steam 800

Large Gas-Fired Hot Water 3,000

Large Gas-Fired Steam All Except Natural Draft 3,000

Large Gas-Fired Steam Natural Draft 3,000

Large Oil-Fired Hot Water 3,000

Large Oil-Fired Steam 3,000

EERE-2008-BT-STD-0013 COMMENT 22
5-7 

Table 5.2.3 Baseline Contractor Costs per Unit by Equipment Class

Equipment Class Baseline Contractor Cost (2008$)

Small Gas-Fired Hot Water 6,294

Small Gas-Fired Steam All Except Natural Draft 10,717

Small Gas-Fired Steam Natural Draft 11,190

Small Oil-Fired Hot Water 10,168

Small Oil-Fired Steam 9,261

Large Gas-Fired Hot Water 14,567

Large Gas-Fired Steam All Except Natural Draft 30,441

Large Gas-Fired Steam Natural Draft 31,966

Large Oil-Fired Hot Water 23,533

Large Oil-Fired Steam 28,870

5.2.2.2 Standards-Level Contractor Cost Increases

The standards-level contractor cost increase is the change in contractor cost associated 

with contractor purchase of equipment at higher efficiency levels associated with higher energy 

conservation standards. DOE developed contractor costs for higher efficiency levels through 

analysis of data provided directly from mechanical contractors or equipment distributors. Refer to 

TSD chapter 3, Engineering Analysis, for details. Contractor cost increases as a function of 

equipment efficiency were developed for each of the 10 equipment classes. Up to four selected 

efficiency levels higher than those in ASHRAE Standard 90.1-2007 were used in the LCC and 

PBP analysis. The selection of these higher efficiency levels for the LCC and PBP analysis are 

discussed in TSD chapter 3.

The engineering analysis established a distribution of contractor cost increases for each 

standard level. Table 5.2.4 summarizes the estimated contractor cost increases for commercial 

packaged boiler standard levels considered in the LCC and PBP analysis. 

Table 5.2.4 Standard-Level Contractor Cost Increases (Cost Increases Relative to the Cost

of Baseline Equipment)

Equipment Class 

Increase in Contractor Cost by Efficiency Level*

(2008$)

Level 1 Level 2 Level 3 Level 4

Small Gas-Fired Hot Water 1,044 3,305 6,985 12,329

Small Gas-Fired Steam All Except Natural Draft 873 2,695 5,548 7,627

Small Gas-Fired Steam Natural Draft 529 1,628 3,339 na

Small Oil-Fired Hot Water 1,189 3,706 7,707 na

Small Oil-Fired Steam 803 2,480 6,137 na

Large Gas-Fired Hot Water 1,797 5,614 11,699 36,345

Large Gas-Fired Steam All Except Natural Draft 1,656 3,402 5,243 7,184

Large Gas-Fired Steam Natural Draft 1,071 3,240 6,536 10,987

Large Oil-Fired Hot Water 4,459 10,131 16,060 na

Large Oil-Fired Steam 1,570 4,796 9,768 18,522

*

na indicates that no analysis was undertaken at this efficiency level for this equipment class. 

EERE-2008-BT-STD-0013 COMMENT 22
5-8 

5.2.2.3 Markups 

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

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

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

multiplied by the baseline or standards-level contractor cost to arrive at the price paid by the 

customer. The overall markup is composed of a baseline markup (i.e., a markup used to convert 

the baseline contractor cost to a customer price) and an incremental markup (i.e., a markup used 

to convert a standard-level contractor cost increase caused by an increase in efficiency standards 

into an incremental customer price). These markups are necessary for mechanical contractors 

and in some case general contractors to cover their costs. 

DOE recognizes that the price of commercial boilers depends on the distribution channel 

the customer uses to purchase the equipment. Typical distribution channels for commercial 

heating, ventilation, and air-conditioning (HVAC) equipment include manufacturers’ national 

accounts, wholesalers, mechanical contractors, and/or general contractors. DOE developed costs 

for mechanical contractors directly in the engineering analysis and estimated cost to customers 

using a distribution channel beginning with the mechanical contractor cost. DOE did not develop 

an estimate for manufacturer selling prices in the engineering analysis and consequently, did not 

develop an estimate of markups for national account distribution channels with sales directly 

from manufacturers to customers. Because of the complexity of installation and based on few 

shipments to mercantile/retail building types (where national accounts are prevalent), DOE 

assumed that sales of commercial packaged boilers involved mechanical contractors. 

Consequently, DOE did not develop separate markups for costs through a national account 

distribution channel or directly from wholesalers.

DOE developed distribution channel markups in the form of multipliers that represent 

increases above the mechanical contractor cost. DOE applied these markups (or multipliers) to 

the mechanical contractor costs it developed in the engineering analysis. DOE then added sales 

taxes and installation costs to arrive at the final installed equipment prices for baseline and 

higher efficiency equipment. DOE identified two separate distribution channels for commercial 

boilers that describe how the equipment passes from the mechanical contractor to the customer 

(Table 5.2.5). DOE assumed that in the case where an existing boiler is replaced, mechanical 

contractors would sell the boiler, along with services necessary to replace the existing boiler, 

directly to the customer. DOE assumed that replacement of existing boilers would not involve 

general contractors. For new construction, however, DOE assumed that general contractors 

would be involved whenever the installation of commercial boiler is involved, resulting in a 

further markup on new boilers in addition to the mechanical contractor markup. 

Table 5.2.5 Distribution Channels for Commercial Packaged Boiler Equipment

Channel 1 (Replacements) Channel 2 (New Construction)

Mechanical Contractor Mechanical Contractor

General Contractor

Customer Customer

DOE estimated percentages for both the new construction and replacement markets based 

on data developed for the shipments model and based on growth in new construction and 

EERE-2008-BT-STD-0013 COMMENT 22
5-9 

replacement of existing stock as determined in the shipments analysis (see TSD chapter 6). 

Based on these results, DOE assumed that approximately 33 percent of commercial boilers 

purchased will be installed in new construction, and the remaining 67 percent will replace 

existing commercial boilers. 

For each step in the distribution channels presented above, DOE estimated a baseline 

markup and an incremental markup. DOE defined a baseline markup as a multiplier that converts 

the mechanical contractor cost of equipment with baseline efficiency to the customer purchase 

price for the equipment at the same baseline efficiency level. An incremental markup is defined 

as the multiplier to convert the incremental increase in mechanical contractor cost of higher 

efficiency equipment to the customer purchase price for the same equipment. Both baseline and 

incremental markups only depend on the distribution channel and are independent of the boiler 

efficiency levels.

DOE developed the markups for each distribution channel based on available financial 

data. DOE based the mechanical contractor markups on data from the Air Conditioning 

Contractors of America (ACCA)3

 and on the 2002 U.S. Census Bureau financial data for the 

plumbing, heating, and air conditioning industry. DOE derived the general contractor markups 

from U.S. Census Bureau financial data for the commercial and institutional building 

construction sector.4 

The overall markup is the product of all the markups (baseline or incremental) for the 

different steps within a distribution channel plus sales tax. DOE calculated sales taxes based on 

2008 State-by-State sales tax data reported by the Sales Tax Clearinghouse. Because both 

contractor costs and sales tax vary by State, DOE developed distributions of markups within 

each distribution channel by State. 

5.2.2.4 Baseline Markup

DOE defined baseline markups as cost multipliers that convert the contractor cost of 

equipment with baseline efficiency to the customer purchase price for the equipment at the same 

baseline efficiency level.

If sold to a customer directly by a mechanical contractor the following equation defines 

the equipment price: 

EQP MECH CONT BASE = MCCBASE x MUMECH CONT BASE x (1+ST) Eq. 5.3

where

EQP MECH CONT BASE = mechanical contractor price to the customer of baseline equipment ($), 

 MCCBASE = mechanical contractor cost of baseline equipment ($), 

MUMECH CONT BASE = mechanical contractor markup on baseline equipment, 

ST = sales tax (%).

If sold to a customer by a mechanical contractor through a general-contractor distributor: 

EQPGEN CONT BASE = MCCBASE x MUMECH CONT BASE x MUGEN CONT BASE x (1+ST) Eq. 5.4

EERE-2008-BT-STD-0013 COMMENT 22
5-10

where

EQPGEN CONT BASE = general contractor price of baseline equipment ($),

MUGEN CONT BASE = general contractor markup on baseline equipment. 

5.2.2.5 Incremental Markup

Incremental markups are defined as the cost multipliers to convert the incremental 

increase in mechanical contractor cost (MCC) of higher efficiency equipment to the incremental 

increase in customer purchase price for the same equipment, as shown in the following 

equations. 

If equipment is sold to a customer directly by a mechanical contractor, the following 

equation defines the equipment price: 

EQP MECH CONT INC = MCCINC x MUMECH CONT INC x (1+ST) Eq. 5.5

where

EQP MECH CONT INC = incremental increase in mechanical contractor price to the customer of 

higher efficiency equipment ($), 

 MCCINC = incremental increase in mechanical contractor cost of higher efficiency 

equipment ($), 

MUMECH CONT INC = mechanical contractor incremental markup on higher efficiency equipment, 

ST = sales tax (%).

If equipment is sold to a customer by a mechanical contractor through a generalcontractor distributor, the following equation defines the equipment price: 

EQPGEN CONT INC = MCCINC x MUMECH CONT INC x MUGEN CONT INC x (1+ST) Eq. 5.6

where

EQPGEN CONT INC = incremental increase in general contractor price of higher efficiency 

equipment ($), 

MUGEN CONT INC = general contractor markup on higher efficiency equipment.

5.2.2.6 Overall Markup

The overall markup is the product of all of the markups, including both overall baseline 

and overall incremental markups, for the different steps within a distribution channel plus sales 

tax, as indicated by the following equations: 

EQPCUST BASE = MSPBASE x (WTMECH CONT x MUMECH CONT BASE + WTGEN CONT x MUMECH CONT BASE

x MUGEN CONT BASE) x (1+ST) 

= MSPBASE x MUOVERALL BASE Eq. 5.7 

EQPCUST INC = MSPINC x (WTMECH CONT x MUMECH CONT INC + WTGEN CONT x MUMECH CONT INC

x MUGEN CONT INC) x (1+ST) 

= MSPINCR x MUOVERALL INCR Eq. 5.8 

EERE-2008-BT-STD-0013 COMMENT 22
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EQPCUST = EQPCUST BASE + EQPCUST INCR Eq. 5.9

where

EQPCUST BASE = baseline customer price ($),

EQPCUST INCR = incremental customer price ($), 

EQPCUST = total customer price ($), 

MUOVERALL BASE = overall weighted baseline markup that is the product of all the weights and 

baseline markups for each step of the distribution channel, 

MUOVERALL INCR = overall weighted incremental markup that is the product of all the weights 

and incremental markups for each step of the distribution channel, 

WTMECH CONT = weight (percent) of equipment sales through mechanical contractors only, 

WTGEN CONT = weight (percent) of equipment sales through general contractors, 

The use of the overall baseline and overall incremental markups results in the baseline 

customer price (EQPCUST BASE) and the incremental customer price (EQPCUST INCR). For a particular 

higher efficiency level that increases MCC, the total equipment price (EQPCUST ) to the customer 

is the sum of the baseline customer price (EQPCUST BASE) and the incremental customer price 

(EQPCUST INCR).

5.2.2.7 Assumptions Used to Estimate Wholesaler and Contractor Markups

DOE based the mechanical contractor markups on firm balance-sheet data, while it based 

the general contractor markups on U.S. Census Bureau data for the commercial and institutional 

building construction industry. DOE obtained the firm balance sheet data from the Air 

Conditioning Contractors of America (ACCA)

5,6 for development of mechanical contractor 

markups. (ACCA) is a trade association representing mechanical contractors and, while it is not 

specific to mechanical contractors installing commercial package boilers, it was used under the 

assumption that it would provide markups characteristic of mechanical contractors providing 

HVAC equipment in general. DOE used the financial data from the 2002 U.S. Bureau for 

developing general contractor markups in the same form as the balance sheet data for 

wholesalers and mechanical contractors.7

 These balance sheets break out the components of all 

costs incurred by firms that supply and install commercial packaged boilers.

a

1. The firm balance sheets accurately represent the various average costs incurred by firms 

distributing and installing commercial packaged boilers. 

Three key 

assumptions used to estimate markups using these financial data are as follows: 

2. These costs can be divided into two categories: (1) costs that vary in proportion to the 

MCC of commercial packaged boilers (variable costs); and (2) costs do not vary with the 

MCC of commercial packaged boilers (fixed costs).

3. Contractor prices vary in proportion to contractor costs included in the balance sheets.

In support of the first assumption, the balance sheets itemize firm costs into a number of 

expense categories, including direct costs to purchase or install the equipment, operating labor 

 

a Wholesalers and mechanical contractors to which these reports refer handle multiple commodity lines, including 

residential and commercial air-conditioners and warm-air furnaces.

EERE-2008-BT-STD-0013 COMMENT 22
5-12

and occupancy costs, and other operating costs and profit. Although contractors tend to handle 

multiple commodity lines (including air conditioners, furnaces, and boilers), the data provide the 

most accurate available indication of expenses associated with the mechanical and general 

contracting industry as a whole. 

Information obtained from the trade literature and selected HVAC wholesalers, 

contractors, and consultants support the second assumption. This information indicated that 

wholesaler and contractor markups vary according to the quantity of labor and materials used to 

distribute and install appliances, with markups on labor tending to be much higher than markups 

on materials. The obtained information described markups as varying much more in relation to 

sales volume than in relation to other factors, including appliance efficiency. This last finding 

strongly suggested that labor inputs vary more with sales volume than with equipment cost or 

efficiency. DOE assumed a division of costs between the costs that do not scale with the MCC 

(labor and occupancy expenses), and those that do (operating expenses and profit). This division 

of costs led to the estimate of contractor markups described below. 

In support of the third assumption, the HVAC wholesaler and contractor industry is 

competitive and customer demand for commercial heating and air-conditioning is generally 

inelastic, i.e., the demand is not expected to decrease significantly with an increase in price of 

equipment. The large number of HVAC firms listed in the 2002 U.S. Census reports indicates 

the competitive nature of the market. For example, there are more than 293 Power Boiler 

Manufacturers,

8

 over 2,800 wholesalers of boilers, radiators, and convector equipment,9 more 

than 37,000 general contractors,10 and 87,000 HVAC contractors11 listed in the U.S. Census for 

2002. Following standard economic theory, competitive firms facing inelastic demand either set 

prices in line with costs or quickly go out of business.12

5.3 ESTIMATION OF MECHANICAL CONTRACTOR MARKUPS

The HVAC contractors, defined here as mechanical contractors, reported median cost 

data in an ACCA financial analysis of the HVAC industry.4 These data are shown in Table 5.3.1. 

Table 5.3.1 Baseline Markup, All Mechanical Contractors

Description

Contractor Expenses or Revenue

Per Dollar

Sales Revenue

Per Dollar 

Cost of Goods

Direct Cost of Equipment Sales: Cost of goods sold $0.73 $1.00

Gross Margin: Labor, occupancy, operating expenses, and profit $0.27 $0.37

Revenue: Baseline revenue earned per dollar cost of goods $1.37

Baseline Markup (MUMECH CONT BASE) 1.37

Source: Air Conditioning Contractors of America, Financial Analysis for the HVACR Contracting Industry, 2005.

Data reported in this analysis are not as detailed as those provided by the other sources, 

containing only cost of goods sold and gross margin. Because the gross margin is the sum of 

labor, occupancy expenses, operating expenses, and profit, the gross margin allows for the 

determination of the baseline markup. The first data column in Table 5.3.1 provides the cost of 

goods sold and gross margin as expenses per dollar of sales revenue. The only important 

EERE-2008-BT-STD-0013 COMMENT 22
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difference is that the direct cost of equipment sales in this table includes installation costs as well 

as the cost of goods sold. As shown in the table, the direct cost of sales represents about 

$0.73 per dollar of sales revenue to the contractor and the gross margin is $0.27 per dollar of 

sales revenue. 

DOE converted these expenses per dollar sales into revenue per dollar cost of goods sold 

by dividing each figure in the first data column by $0.73. For every $1.00 the mechanical 

contractor spends on equipment costs, the mechanical contractor earns $1.00 in sales revenue to 

cover the equipment cost, and $0.37 to cover the other costs. This totals $1.37 in sales revenue 

earned for every $1.00 spent on equipment costs, for a baseline markup (MUMECH CONT BASE) of 

1.37 for mechanical contractors, because the contractor earns $1.37 in sales revenue for every 

$1.00 spent to purchase the equipment. 

5.3.1 Markups for Mechanical Contractors in the Replacement and New Construction 

Markets

The baseline markup derived above for mechanical contractors is the average value for 

all contractors including the replacement and new construction markets. This section describes 

how DOE further derived the baseline and incremental markups for these latter two markets. As 

above, the ACCA financial data provided gross margin data, which allows for the determination 

of only the baseline markup for the two markets, because the gross margin is the sum of all 

contractor labor and operating expenses plus profit. Calculation of the incremental markup uses 

U.S. Census Bureau data. ACCA data were not used here for the calculation of the incremental 

markup as the variable costs are not provided separately. 

Table 5.3.2 summarizes the gross margin and resulting baseline markup data for all 

mechanical contractors that serve the replacement and new construction markets. 

Table 5.3.2 Baseline Markups for the Replacement and New Construction Markets, 

All Mechanical Contractors

Description

Contractor Expenses or Revenue by Market Type*

Replacement New Construction

Per Dollar

Sales Revenue

Per Dollar 

Cost of Goods

Per Dollar

Sales Revenue

Per Dollar 

Cost of Goods

Direct Cost of Equipment Sales: 

Cost of goods sold $0.70 $1.00 $0.75 $1.00

Gross Margin: Labor, occupancy, 

operating expenses, and profit $0.30 $0.43 $0.25 $0.33

Baseline Markup (MUMECH CONT BASE): 

Revenue per dollar cost of goods na 1.43 na 1.33

Source: Air Conditioning Contractors of America, Financial Analysis for the HVACR Contracting Industry, 2005. 

* na means not applicable in this context.

Using the baseline markup data from Table 5.3.2 and results of a financial analysis,

4

DOE calculated that the baseline markups for the replacement and new markets are 4.4 percent 

higher and 2.9 percent lower, respectively, than that for all mechanical contractors serving all 

markets. DOE then used the ACCA data to calculate the baseline markup of 1.32 for the 

commercial building construction section as shown in Table 5.3.3. 

EERE-2008-BT-STD-0013 COMMENT 22
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Table 5.3.3 Mechanical Contractor Expenses and Baseline Markup, Residential and Light 

Commercial

Description

Contractor Expenses or Revenue

Per Dollar

Sales Revenue

Per Dollar 

Cost of Goods

Direct Cost of Equipment Sales: Cost of goods sold $0.76 $1.00

Gross Margin: Labor, occupancy, operating expenses, and profit $0.24 $0.32

Baseline Markup (MUMECH CONT BASE): Revenue per dollar cost of goods 1.32

Source: Air Conditioning Contractors of America, Financial Analysis for the HVACR Contracting Industry, 2005. 

The markup deviations derived above (i.e., 4.4 percent higher and 2.9 percent lower for 

the replacement and new construction markets, respectively) were then applied to the baseline 

markup of 1.32 for the residential and light commercial building construction section. This 

resulted in baseline markups of 1.38 and 1.28, respectively, for the replacement and new 

construction markets served by mechanical contractors for commercial building construction. 

Calculation of the incremental markups for each market type required separation of the 

fixed and variable costs. Because this was not possible using the ACCA data, DOE used more 

detailed U.S. Census Bureau data for 2002 for all plumbing, heating, and air-conditioning 

contractors.8

 The U.S. Census Bureau data were used to calculate the baseline and incremental 

markups as shown in Table 5.3.4. 

Table 5.3.4 Mechanical Contractor Expenses and Markups Based on U.S. Census Bureau 

Data

Description

Contractor Expenses or Revenue

Per Dollar

Sales Revenue

Per Dollar Cost 

of Goods

Direct Cost of Equipment Sales: Cost of goods sold $0.66 $1.00

Labor Expenses: Salaries (indirect) and benefits $0.17 $0.26

Occupancy Expense: Rent, maintenance, and utilities $0.02 $0.03

Other Operating Expenses: Depreciation, advertising, and insurance. $0.03 $0.05

Net Profit Before Taxes $0.12 $0.18

Baseline Markup (MUMECH BASE): Revenue per dollar cost of goods 1.52

Incremental Markup (MUMECH INCR): Increased revenue per dollar increase cost of goods sold 1.23

Source: U.S. Census Bureau, Plumbing, Heating, and Air-Conditioning Contractors: 2002, Table 4, Detailed Statistics for 

Establishments, 2002.

Using the data in Table 5.3.4, the incremental markup is 19.1 percent lower than the 

baseline markup. DOE assumed that this deviation applies equally to the baseline markups for 

replacements of 1.38 and new construction of 1.28. This yields incremental markups of 1.12 and 

1.04, respectively, for the replacement and new construction markets served by mechanical 

contractors.

EERE-2008-BT-STD-0013 COMMENT 22
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5.4 ESTIMATION OF GENERAL CONTRACTOR MARKUPS

DOE derived markups for general contractors from U.S. Census Bureau data for the 

commercial and institutional building construction sector.5 This sector includes establishments 

primarily engaged in construction work, including new construction work, additions, alterations, 

and repairs. The U.S. Census Bureau data for the construction sector include detailed statistics 

for establishments with payrolls, similar to the data reported by ACCA for wholesalers. The 

primary difference is that the U.S. Census Bureau reports itemized revenues and expenses for the 

construction industry as a whole in total dollars rather than in typical values for an average or 

representative business. Because of this, DOE assumed that the total dollar values that the 

U.S. Census Bureau reported, once converted to a percentage basis, represented revenues and 

expenses for an average or typical contracting business. Similar to the data for wholesalers, 

Table 5.4.1 summarizes the expenses for general contractors as expenses per dollar of sales 

revenue in the first data column. 

In Table 5.4.1, the direct cost of sales represents about $0.78 per dollar of sales revenue 

to the general contractor. Labor expenses represent $0.08 per dollar of sales revenue, occupancy 

expenses represent $0.02 per dollar of sales revenue, other operating expenses represent $0.01, 

and profit makes up $0.12 per dollar of sales revenue. 

Table 5.4.1 General Contractor Expenses and Markups

Description

Wholesale Firm Expenses or 

Revenue

Per Dollar

Sales Revenue

Per Dollar 

Cost of Goods

Direct Cost of Equipment Sales: Cost of goods sold $0.78 $1.00

Labor Expenses: Salaries (indirect) and benefits $0.08 $0.10

Occupancy Expense: Rent, maintenance, and utilities $0.02 $0.03

Other Operating Expenses: Depreciation, advertising, and insurance. $0.01 $0.01

Net Profit Before Taxes $0.12 $0.15

Baseline Markup (MUGEN CONT BASE): Revenue per dollar cost of goods 1.29

Incremental Markup (MUGEN CONT INCR): Increased revenue per dollar increase cost of goods sold 1.16

Source: U.S. Census Bureau, Commercial and Institutional Building Construction: 2002, Table 4, Detailed Statistics for 

Establishments, 2002.

DOE converted these expenses per dollar sales into revenue per dollar cost of goods sold, 

by dividing each figure in the first data column by $0.78. The data in column two in Table 5.4.1

show that, for every $1.00 the general contractor spends on equipment costs, the general 

contractor earns $1.00 in sales revenue to cover the equipment cost, $0.10 to cover labor costs, 

$0.03 to cover occupancy expenses, $0.01 for other operating expenses, and $0.15 in profits. 

This totals $1.29 in sales revenue earned for every $1.00 spent on equipment costs. Thus, the 

general contractor baseline markup (MUGEN CONT BASE) is 1.29. 

DOE was also able to use the data in column two in the table above to estimate the 

incremental markups by being able to separate the fixed and variable costs. At one extreme, if all 

of the other costs scale with the equipment price (i.e., all costs are variable), the increase in 

general contractor price will be $1.29, resulting in an incremental markup of 1.29, or the same as 

EERE-2008-BT-STD-0013 COMMENT 22
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the baseline markup. At the other extreme, if none of the other costs are variable, then a $1.00 

increase in the equipment price will lead to a $1.00 increase in the general contractor price, for 

an incremental markup of 1.0. DOE assumed the labor and occupancy costs to be fixed and the 

other operating costs and profit to scale with the equipment price (i.e., be variable). In this case, 

for a $1.00 increase in the equipment price, the general contractor price will increase by $1.16, 

giving a general contractor incremental markup (MUGEN CONT INCR) of 1.16. 

5.5 SALES TAX

The sales tax represents State and local sales taxes that are applied to the customer price 

for commercial packaged boilers. The sales tax is a multiplicative factor that increases the 

customer equipment price. DOE derived sales taxes representative of both State and local sales 

taxes from The Sales Tax Clearinghouse,

13 shown in Table 5.5.1. 

Table 5.5.1 State Sales Tax Rates 

State

Combined 

State and 

Local Tax 

Rate State

Combined 

State and 

Local Tax 

Rate State

Combined 

State and 

Local Tax 

Rate

Alabama 8.10% Kentucky 6.00% North Dakota 5.70%

Alaska 1.45% Louisiana 8.70% Ohio 6.75%

Arizona 7.15% Maine 5.00% Oklahoma 8.05%

Arkansas 8.15% Maryland 6.00% Oregon 0.00%

California 8.00% Massachusetts 5.00% Pennsylvania 6.25%

Colorado 6.35% Michigan 6.00% Rhode Island 7.00%

Connecticut 6.00% Minnesota 6.70% South Carolina 6.90%

Delaware 0.00% Mississippi 7.00% South Dakota 5.45%

Dist. of Columbia 5.75% Missouri 6.60% Tennessee 9.40%

Florida 6.70% Montana 0.00% Texas 8.00%

Georgia 6.95% Nebraska 6.60% Utah 6.55%

Hawaii 4.40% Nevada 7.50% Vermont 6.05%

Idaho 6.05% New Hampshire 0.00% Virginia 5.00%

Illinois 7.70% New Jersey 6.95% Washington 8.55%

Indiana 7.00% New Mexico 6.35% West Virginia 6.00%

Iowa 6.75% New York 8.25% Wisconsin 5.40%

Kansas 6.90% North Carolina 6.80% Wyoming 5.25%

The State-level combined tax rates are applied to the total purchase cost to the customer 

located in any State. DOE applied sales taxes to the customer equipment price irrespective of the 

distribution channel and the market in which the customer is located.

5.6 OVERALL MARKUPS

DOE multiplied the mechanical and general contractor markups described above by the 

sales tax to obtain the overall baseline and incremental markups shown in Table 5.6.1 and 

Table 5.6.2, respectively. 

EERE-2008-BT-STD-0013 COMMENT 22
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Table 5.6.1 Overall Baseline Markups

Replacement Market* New Construction Market

Mechanical Contractor 1.38 1.28

General Contractor na 1.29

Sales Tax 1.07 1.07 

Overall 1.48 1.77

Overall Weighted Average 1.56

*na means no general contractor markup assumed for this market

Table 5.6.2 Overall Incremental Markups

Replacement Market* New Construction Market

Mechanical Contractor 1.12 1.04

General Contractor na 1.16

Sales Tax 1.07 1.07 

Overall 1.20 1.29

Overall Weighted Average 1.22

*na means no general contractor markup assumed for this market 

DOE calculated overall markups through each distribution channel depending on whether the 

equipment is being purchased for the new construction or replacement market. DOE based the 

distribution channel on whether the final equipment purchase is directly through a mechanical 

contractor or a general contractor. 

EERE-2008-BT-STD-0013 COMMENT 22
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Table 5.6.1 and Table 5.6.2 present overall markups, including sales tax, for both the baseline 

and incremental markups. The overall baseline markups are 1.48 and 1.77 for replacement and 

new markets, respectively. As shown in Table 5.6.2, the overall incremental markups are 1.20 

and 1.29 for the replacement and new markets, respectively. The weighted-average overall 

baseline markup equals 1.57, while the weighted-average overall incremental markup equals 

1.22. 

DOE used the overall markups to estimate the customer price of baseline equipment, 

given the manufacturer selling price of baseline equipment. For example, if the manufacturer 

selling price of a commercial packaged boiler is $10,000, DOE can multiply this by the 

weighted-average overall baseline markup (1.57) to arrive at a baseline customer price of the 

boiler unit of $15,700. Similarly, DOE used the overall incremental markup to estimate changes 

in the customer price, given changes in the manufacturer selling price above the baseline price 

resulting from a standard to raise equipment efficiency. For example, if a standard increases the 

contractor cost for a commercial packaged boiler by $100, DOE can multiply this by the 

weighted-average overall incremental markup (1.22) to determine the customer price increase of 

$122. 

5.6.1.1 Installation Cost 

DOE derived national average installation costs for commercial boilers from data 

provided in RS Means CostWorks 2008 (RS Means) for commercial boiler equipment with 

efficiencies at or below the ASHRAE Standard 90.1-2007 efficiency levels. RS Means provides 

estimates for installation costs for hot water and steam boilers by equipment capacity and fuel 

type, as well as cost indices that reflect the variation in installation costs for 295 cities in the 

United States. The RS Means data identify several cities in all 50 States and the District of 

Columbia. DOE incorporated location-based cost indices into the analysis to capture variation in 

installation cost, depending on the location of the customer. 

RS Means provided unit installation costs for 20 sizes of natural-gas-fired hot-water 

boilers between 360- and 6,970-kBtu/h output capacity and 21 sizes of natural-gas-fired steam 

boilers between 360- and 6,970-kBtu/h output capacity. RS Means lists these as cast-iron boilers 

and the installation costs include standard controls and insulated jacket, as well as additional 

overhead and profit markup factor for the installing contractors and general requirement fees 

including design fees for engineers of approximately 1.37. DOE developed linear regressions to 

provide estimates of baseline installation costs for natural gas boilers with the resulting 

parameters shown in Table 5.6.3

Table 5.6.3 Baseline Installation Cost Equation Parameters 

Boiler Type

Installation Cost Equation Parameters

Slope ($/kBtu/h) Intercept ($) R2

Natural-Gas-Fired Hot-Water 2.688 2,672 0.972

Natural-Gas-Fired Steam 2.372 3,215 0.975

RS Means also provided costs for oil-fired boilers described as packaged water tube 

boilers, steam or hot-water, #2 oil. However, examination of the costs for these boilers indicated 

that the overall installation costs were over twice the cost of the natural gas boilers described 

EERE-2008-BT-STD-0013 COMMENT 22
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above across the range of oil boilers, with hot-water boilers shown as significantly higher in 

installation costs compared with steam boilers. Other installation costs for oil boilers did not 

exist in the unit cost section. In a separate section of the Costworks data, RS Means also 

provided what are referred to as “Assembly” installation costs for commercial packaged boilers, 

which include additional features that may be included in the installation of the boiler tied to the 

hydronic system. However, in this section, there were limited data on installation costs. Two 

costs provided for cast-iron oil-fired hot-water boilers at 1,084 and 3,550 kBtu/h, appear to be 

consistent with the unit cost data and were within 3 percent of the regressed cost for the same 

size natural gas hot-water boilers developed by DOE. In addition, RS Means provides separately 

in the Assembly installation costs, installation costs for cast-iron, gas and oil, packaged boilers. 

These costs appear to be for systems with dual-fire capability. Based on the available data, DOE 

assumed that the costs calculated from Table 5.6.3 would also reasonably represent installation 

costs for oil-fired hot-water and steam output commercial packaged boilers 

Additional installation cost adders were developed for certain higher efficiency levels. 

For certain higher efficiency levels, DOE presumed that additional costs for venting would be 

required when compared to installation of boilers just meeting the ASHRAE Standard 90.1-2007 

requirements. DOE first estimated the combustion efficiency of all boilers examined. DOE 

developed combustion efficiency estimates for boilers at specific thermal efficiency levels using 

data from the DOE commercial packaged boiler data set discussed in TSD chapter 2. DOE 

developed the estimated difference factors (between thermal and combustion efficiencies) for 

converting the thermal efficiency at specific levels to combustion, as listed in Table 5.6.4. 

Table 5.6.4 Estimated Efficiency Difference (∆) Between Thermal and Combustion 

Efficiencies

Equipment Class ∆E (%)

Small Gas-Fired Hot Water 1.5

Small Gas-Fired Steam All Except Natural Draft 2.0

Small Gas-Fired Steam Natural Draft 3.5

Small Oil-Fired Hot Water 2.5

Small Oil-Fired Steam 2.5

Large Gas-Fired Steam All Except Natural Draft 1.5

Large Gas-Fired Steam Natural Draft 2.0

Large Oil-Fired Steam 2.5

Based on the resulting combustion efficiencies, DOE determined that additional venting 

requirements would be required at or above the efficiency levels shown in Table 5.6.5. This is 

compared with the combustion efficiencies determined for ASHRAE Standard 90.1-2007 

baseline efficiency levels. For large gas-fired and oil-fired hot-water boilers, the efficiency 

descriptor proposed by ASHRAE is a combustion efficiency descriptor at the ASHRAE Standard 

90.1-2007 level, also shown. For gas-fired boiler combustion efficiencies at or above 82.5 

percent, DOE assumed that a stainless steel vent (e.g., Type L vent) would typically be required 

for installation. For the ASHRAE Standard.90.1-2007 levels, DOE assumed that Type B venting 

or venting into a masonry chimney would suffice in the boiler installation. 

EERE-2008-BT-STD-0013 COMMENT 22
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Table 5.6.5 Combustion Efficiency (Ec) Level Assumed for Onset of Incremental 

Installation Costs 

Equipment Class

Efficiency 

Level First 

Experiencing 

Increased 

Venting Costs

Estimated 

Ec %

Ec

ASHRAE 

Standard 90.1-

2007 Baseline (for 

comparison) %

Small Gas-Fired Hot Water 1 83.5 81.5

Small Gas-Fired Steam All Except Natural Draft 2 83.0 81.0

Small Gas-Fired Steam Natural Draft 2 82.5 80.5

Small Oil-Fired Hot Water 1 86.5 84.5

Small Oil-Fired Steam 2 85.5 83.5

Large Gas-Fired Hot Water 1 83.0 82.0

Large Gas-Fired Steam All Except Natural Draft 2 82.5 80.5

Large Gas-Fired Steam Natural Draft na* na* 79.0

Large Oil-Fired Hot Water 1 86.0 84.0

Large Oil-Fired Steam 2 85.5 83.5

*na means that no efficiency level for this equipment class had a calculated combustion efficiency high enough to 

require increased installation costs

DOE assumed that when compared with installation of ASHRAE Standard 90.1-2007 

efficiency level boilers, installation of new gas boiler installations with efficiency levels at or 

above those shown in Table 5.6.5 would experience increased combustion gas venting costs. For 

new installations, the net increase in venting costs could be estimated as the differential in 

material price of a Type L vent over a Type B vent with a typical installed length of 35 feet of 

straight pipe plus elbows, cap, and flashing. For 3,000-kBtu/h boilers, a 10-inch (in.)-diameter 

vent stack was assumed. For 800-kBtu/h boilers a 6-in.-diameter vent stack was assumed. To 

these material prices was added an additional installation cost for the labor for replacement of the 

venting in a boiler replacement application (two-thirds of all installations), equivalent to $460. 

An additional $250 for controls modifications and $200 for installation of condensate 

drain lines was used. DOE assumed that for near condensing boilers, where some condensate 

may be generated in the flue, a condensate drain would need to be added to the flue. For fully 

condensing boilers where condensate is present at the boiler itself, a condensate pump was also 

included at a cost of $200 to $300 for 800-kBtu/h and 3000-kBtu/h boilers repectively. Finally, 

an additional $500 for installation costs specific to replacement of existing boilers with highefficiency boilers was included. This would include other unspecified costs for replacement, such 

as additional costs for boilers vented through masonry chimneys. Average incremental 

installation costs for these higher efficiency boilers were calculated to be approximately $4,718 

and $2,987 for 3,000- and 800-kBtu/h fully condensing natural gas boilers, respectively. 

Average incremental installation costs for near condensing boilers were calculated to be 

approximately $4,518 and $2,787 for 3,000- and 800-kBtu/h near condensing natural gas boilers, 

respectively. Separate costs were not calculated for the higher efficiency oil-fired boilers, but 

were estimated to be similar in magnitude to those calculated above for gas-fired equipment. 

DOE recognizes that costs for installation of higher efficiency boilers and replacement of 

existing baseline efficiency boilers with higher efficiency boilers are highly uncertain in 

commercial buildings and may vary with individual installations and the different efficiency 

EERE-2008-BT-STD-0013 COMMENT 22
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levels between higher efficiency boilers. By contrast with the above estimates, DOE notes that 

the installation costs developed in the recent residential furnace and boiler rulemaking14 were 

estimated at $1,208 for an 86-percent Annual Fuel Utilization Efficiency (AFUE), 105-kBtu/h 

input capacity gas boiler, and $664 and $629 for an 85-percent AFUE and 90-percent AFUE gas 

boiler, respectively. Costs for a 140-kBtu/h input capacity oil-fired residential boiler were $615 

for an 85-percent AFUE boiler, $923 for an 86-percent AFUE boiler, and $1,230 for an 87-

percent AFUE boiler. Table 5.6.6 compares these incremental cost estimates and the commercial 

cost estimates for near-condensing boilers developed for this rulemaking. 

Table 5.6.6 Comparison Between Residential and Commercial Incremental Installation 

Cost for Higher-Efficiency Boilers

Equipment 

Class

Commercial Incremental Cost 

Estimate (Fixed Amount for 

Efficiencies Shown Below)

(2008$)

Residential Incremental 

Cost Estimate (Average of 

Efficiencies Shown Below)

(2008$)

Gas-Fired 

Hot-Water 

Boiler

800-kBtu/h output 

boiler (82%≤Et ≤

86%) 

3,000-kBtu/h output 

boiler (81.5% ≤ Et≤ 

83.5%) 

105-kBtu/h input* boiler 

average of AFUE = 85% 

and 86% 

$2,787 or $3.48 per 

kBtu/h output capacity

$4,518 or $1.51 per 

kBtu/h output capacity

$936 or $10.43 per kBtu/h 

output capacity

Oil-Fired HotWater Boiler

800-kBtu/h output 

boiler (84%≤Et ≤ 

88%)

3,000-kBtu/h output 

boiler (84%≤Et ≤ 

86%) 

140-kBtu/h input** boiler 

average of AFUE = 85% 

and 86%

$2,787 or $3.48 per 

kBtu/h output capacity

$4,518 or $1.51 per 

kBtu/h output capacity

$769 or $6.42 per kBtu/h 

output capacity

* Approximately 90-kBtu/h output capacity ** Approximately 120-Btu/h output capacity

DOE notes that these commercial incremental installation cost estimates assume a boiler 

with a baseline efficiency equivalent to that in ASHRAE Standard 90.1-2007. Where a 

distribution of boiler efficiencies exists in the market as assumed in the national net present value 

(NPV) analysis (see chapter 7), no incremental installation costs result from moving between an 

existing high-efficiency boiler and a replacement existing high-efficiency boiler. 

5.6.1.2 Weighted-Average Total Installed Cost 

As presented in Eq. 5.2, the total installed cost is the sum of the equipment price and the 

installation price including any incremental installation costs for higher higher-efficiency 

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

multiplying the baseline contractor cost by the baseline markup and adding to it the product of 

the incremental contractor cost and the incremental markup. Because contractor costs, markups, 

and the sales tax all can take on a variety of values, depending on location, the resulting total 

EERE-2008-BT-STD-0013 COMMENT 22
5-22

installed cost for a particular standard level will not be a single-point value, but rather a 

distribution of values.

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

State-by-State installation cost indices, shown in Table 5.6.7, to convert the contractor costs to 

total installed costs for a case where the incremental installation costs are held flat. The 

installation cost indices are factors used to vary the installation costs on a State-by-State basis to 

reflect regional variation in labor and other costs involved in installation. To arrive at an average 

index for each State, DOE first weighted city indices from RS Means Costworks in each State by 

their population within the State. DOE used population weights for the year 2000 from the U.S. 

Census Bureau to calculate a weighted-average index for each State from the RS Means data. 

Table 5.6.8 summarizes the weighted average or mean costs and markups necessary for 

determining the weighted-average baseline and standard-level 2 total installed costs for the 

800-kBtu/h gas-fired hot-water boiler as an example. The weighted-average costs for the 800-

kBtu/h gas-fired hot-water boiler equipment class are presented for the baseline level at national 

average markup rates and national average installation costs. The example presented also applies 

the corresponding incremental contractor costs and the baseline and incremental markups to 

provide an indication of the increase in the customer cost due to an increase in rated energy 

efficiency. The baseline contractor cost and the standard-level contractor cost increases are the 

starting points for determining the total installed cost (values are taken directly from Table 5.2.3

and Table 5.2.4). 

Table 5.6.7 Installation Cost Indices (National Value = 100.0) 

State Index State Index State Index

Alabama 0.631 Kentucky 0.842 North Dakota 0.642

Alaska 1.072 Louisiana 0.627 Ohio 1.014

Arizona 0.791 Maine 0.753 Oklahoma 0.615

Arkansas 0.620 Maryland 0.939 Oregon 1.140

California 1.265 Massachusetts 1.235 Pennsylvania 1.229

Colorado 0.860 Michigan 1.070 Rhode Island 1.182

Connecticut 1.266 Minnesota 1.224 South Carolina 0.452

Delaware 1.253 Mississippi 0.600 South Dakota 0.399

Dist. of Columbia 0.996 Missouri 1.056 Tennessee 0.712

Florida 0.679 Montana 0.774 Texas 0.636

Georgia 0.739 Nebraska 0.881 Utah 1.446

Hawaii 1.195 Nevada 1.425 Vermont 0.700

Idaho 0.768 New Hampshire 0.919 Virginia 0.744

Illinois 1.376 New Jersey 1.327 Washington 1.080

Indiana 0.889 New Mexico 0.749 West Virginia 0.913

Iowa 0.813 New York 1.719 Wisconsin 1.039

Kansas 0.724 North Carolina 0.453 Wyoming 0.644

EERE-2008-BT-STD-0013 COMMENT 22
5-23

Table 5.6.8 Costs and Markups for 800-kBtu/h Commercial Gas-Fired Hot-Water Boiler at 

Efficiency Level 2 at National Average Conditions*

Variable Weighted Average or Mean Value

Baseline Contractor Cost $6,294

Standard-Level Contractor Cost Increase (Efficiency Level 2) $3,305

Overall Markup Factor–Baseline 1.557

Overall Markup Factor–Incremental 1.216

Installation Cost–Baseline $6,595

Installation Cost–Incremental $2,787

Installation Cost Factor 1.0**

* Incremental installation costs held flat. ** National Average Installation Cost Factor defined as 1.0.

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

Table 5.6.8, DOE presents the calculation below for the baseline (level 0) and for a 

higher efficiency level (level 2) 800-kBtu/h commercial gas-fired hot-water boiler. For the 

baseline product, the calculation of the total installed cost at national average conditions is as 

follows: 

ICBASE = EQPBASE +INSTBASE x ISTINDEX Eq. 5.10

= MFGBASE x MUBASE + INSTBASE x ISTINDEX

= $6,294 x (1.557) + $6,595 x (1.0) 

= $9,800 + $6,595 x (1.0) 

= $16,395 

where

IC = total installed cost ($), 

EQP = equipment price ($), 

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

MFG = contractor cost ($), 

MU = markup. 

The calculation of the higher efficiency level 2 total installed cost includes the use of a 

contractor cost adder (incremental contractor cost) to which DOE applied an incremental 

markup. 

In view of incremental equipment price changes, DOE based the derivation of the level 2 

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

price. The contractor cost increment for a higher efficiency level is multiplied by the incremental 

markup. 

DOE calculated the level 2 total installed cost (IC LEVEL2) as follows:

ICLEVEL2= EQPLEVEL0+ ∆EQPLEVEL2+ INSTLEVEL2 +∆INSTLEVEL2 Eq. 5.11

= CONTBASE x MUBASE + ∆CONTLEVEL2

x MULEVEL2+ (INSTLEVEL0 +∆INSTLEVEL2) x ISTINDEX

EERE-2008-BT-STD-0013 COMMENT 22
5-24

= $6,294 x (1.557) + $3,305 x (1.216) + ($6,595 + $2,787) x (1.0) 

= $23,201 

where

IC = total installed cost ($), 

EQP = equipment price ($), 

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

MFG = contractor cost ($), 

MU = markup, 

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

national average. 

Table 5.6.9 presents the weighted-average equipment price, installation costs, and total 

installed costs for the 800-kBtu/h commercial packaged gas-fired hot water boiler equipment 

class at the baseline level and each higher efficiency level examined. 

Table 5.6.9 Weighted-Average Equipment Price, Installation Cost, and Total Installed 

Costs for the 800-kBtu/h Commercial Packaged Hot-Water Boiler at U.S. Average Prices 

(2008$) 

Efficiency Level

Equipment 

Price 

Installation 

Cost 

Total Installed

Cost*

0 (Baseline) $9,798 $6,596 $16,393

1 $11,068 $9,383 $20,450

2 $13,817 $9,383 $23,200

3 $18,293 $9,383 $27,675

4 $24,792 $9,583 $34,375 *

Equipment price + installation cost may not add to total because of rounding error. Total is exact.

5.6.2 Operating Cost Inputs

DOE based the operating cost for the LCC analysis on full load-equivalent operating hour 

data discussed in TSD chapter 4, the fuel cost estimates for commercial buildings, and repair and 

maintenance cost data. After the LCC analysis was performed, DOE generated a distribution of 

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

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

buildings analyzed that had LCC savings associated with more efficient equipment. 

DOE defined the operating cost by the following equation: 

OC = EC+ RC+ MC Eq. 5.12

where

OC = operating cost ($), 

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

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

EERE-2008-BT-STD-0013 COMMENT 22
5-25

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

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

calculate the operating cost for commercial packaged boiler equipment. 

Table 5.6.10 shows the inputs for the determination of operating costs. The lifetime, 

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

and for establishing the operating cost present value. The fuel consumption for the baseline 

(which by definition is efficiency level 0 for the Final Rule) and the other efficiency levels 

examined (efficiency levels 1, 2, etc.) determine the principle variable of interest for comparing 

the lifetime operating costs at different standard levels. 

Table 5.6.10 Inputs for Operating Costs 

Fuel price ($)

Fuel price trend

Repair cost ($)

Maintenance cost ($)

Lifetime (years)

Discount rate (percent)

Effective date of standard

Baseline annual fuel consumption (kBtu/yr)

Standards case annual fuel consumption (kBtu/yr)

5.6.2.1 Fuel Price Analysis

Fuel prices are needed to convert the gas or oil energy savings from higher-efficiency 

equipment into energy cost savings. Because of the variation in annual fuel consumption savings 

and equipment costs across the country, DOE considered regional differences in fuel prices. This 

section describes the development of fuel prices and fuel price forecasts used in the analysis of 

commercial packaged boilers.

DOE divided the continental United States into the 50 States and the District of 

Columbia. DOE used average effective commercial natural gas and commercial fuel oil prices at 

the State level for 2007. These data were initially reported in 2007$. DOE converted these 

values to 2008$ using the gross domestic product (GDP) price deflator15. DOE then further 

adjusted these by the ratio of the national-average commercial natural gas and oil fuel prices in 

2007 to that predicted in the AEO 2009. This latter step was used to obtain consistency between 

the fuel prices used in this analysis and those projected by EIA in the AEO 2009. The effective 

average state fuel prices (2008$) ranged from $7.71 per thousand (M) Btu to $27.96 per MBtu

for natural gas, and from $15.21 per MBtu to $18.04 per MBtu for commercial fuel oil.

DOE weighted the prices each building type paid in each State by the estimated sales of 

commercial boilers to each building type to obtain a weighted-average national average natural 

gas and national average fuel oil price for 2007. The State and building type weights reflect the 

probabilities that a given boiler unit shipped will operate with a given fuel price. 

The natural gas and fuel price trends provide the relative change in fuel costs for future 

years to the year 2042. DOE applied the AEO 2009 reference case as the default scenario and 

EERE-2008-BT-STD-0013 COMMENT 22
5-26

extrapolated the trend in values from 2020 to 2030 of the forecast to establish prices from 2030 

to 2042. This method of extrapolation is in line with methods the EIA uses to forecast fuel prices 

for the Federal Energy Management Program. 

DOE used reported average effective commercial fuel prices at the State level from EIA’s 

State Energy Price Data.16,17 The latest available prices from this source are for the calendar year 

2007. 

FPRICECOM STATE 2007 = FPRICECOM EIA STATE 2007 x (GDPDEF,2008 / GDPDEF,2007 ) / (FPRICE COM AEO FORECAST 

2007/FPRICE COM NAT 2007) 

Eq. 5.13

where

FPRICECOM STATE 2007 = commercial sector average fuel price in a State in 2007 

(2008$/MBtu), 

GDPDEF, Year = Gross Domestic Product Deflator for given year

FPRICECOM AEO FORCAST 2007 = commercial sector reference case national average forecasted fuel

price for 2007 from the 2009 Annual Energy Outlook ($/MBtu)

FPRICECOM NAT 2007 = commercial sector average fuel price in a State in 2007 

(2007$/MBtu),

. 

FPRICECOM STATE YEAR = FPRICECOM STATE 2007 x (FPRICE COM AEO FORECAST YEAR /FPRICE COM AEO FORCAST 2007) 

Eq. 5.14

where

FPRICECOM STATE YEAR = commercial sector average fuel price in a State in a given year

(2008$/MBtu),

FPRICECOM AEO FORCAST YEAR = commercial sector reference case national average forecasted fuel 

price for a given year from the 2009 Annual Energy Outlook 

($/MBtu)

Table 5.6.11 and Table 5.6.12 provide data about the commercial gas and oil prices 

by State. 

EERE-2008-BT-STD-0013 COMMENT 22
5-27

Table 5.6.11 Estimated Commercial Natural Gas Prices by State (2008 $/MBtu) 

State

Commercial 

Natural Gas 

Price State

Commercial 

Natural Gas 

Price State

Commercial 

Natural Gas 

Price

Alabama 15.12 Kentucky 11.27 North Dakota 8.18

Alaska 7.71 Louisiana 11.11 Ohio 11.59

Arizona 12.82 Maine 13.45 Oklahoma 10.52

Arkansas 10.31 Maryland 12.16 Oregon 12.41

California 10.31 Massachusetts 15.31 Pennsylvania 12.57

Colorado 8.16 Michigan 10.02 Rhode Island 14.67

Connecticut 12.55 Minnesota 10.17 South Carolina 13.39

Delaware 14.28 Mississippi 11.06 South Dakota 9.00

Dist. Of Col. 13.66 Missouri 11.89 Tennessee 11.82

Florida 12.39 Montana 9.84 Texas 9.70

Georgia 13.17 Nebraska 9.22 Utah 7.74

Hawaii 27.96 Nevada 11.75 Vermont 13.09

Idaho 10.67 New Hampshire 15.57 Virginia 11.76

Illinois 10.51 New Jersey 11.97 Washington 12.35

Indiana 10.20 New Mexico 9.95 West Virginia 12.75

Iowa 10.11 New York 11.71 Wisconsin 10.47

Kansas 12.11 North Carolina 12.61 Wyoming 7.77

Table 5.6.12 Estimated Commercial Oil Prices by State (2007 $/MBtu) 

State

Commercial 

Fuel Oil 

Price State

Commercial 

Fuel Oil 

Price State

Commercial 

Fuel Oil 

Price

Alabama 15.93 Kentucky 16.62 North Dakota 16.46

Alaska 17.01 Louisiana 15.93 Ohio 16.34

Arizona 17.05 Maine 16.72 Oklahoma 16.38

Arkansas 16.23 Maryland 15.90 Oregon 15.90

California 17.32 Massachusetts 16.61 Pennsylvania 16.11

Colorado 16.77 Michigan 17.37 Rhode Island 17.12

Connecticut 16.98 Minnesota 17.88 South Carolina 15.57

Delaware 15.53 Mississippi 16.38 South Dakota 16.31

Dist. Of Col. 16.70 Missouri 16.34 Tennessee 16.78

Florida 15.63 Montana 16.30 Texas 16.27

Georgia 15.34 Nebraska 16.54 Utah 17.07

Hawaii 16.79 Nevada 17.19 Vermont 18.04

Idaho 17.54 New Hampshire 15.86 Virginia 15.21

Illinois 16.95 New Jersey 17.12 Washington 16.94

Indiana 16.46 New Mexico 16.08 West Virginia 16.12

Iowa 16.46 New York 16.22 Wisconsin 17.09

Kansas 16.51 North Carolina 15.36 Wyoming 16.95

Furthermore, different kinds of building types typically use fuel in different amounts at 

different times of the day, week, and year, and therefore face different effective prices. To make 

appropriate adjustments to reflect different usage patterns between building types, DOE used 

EIA’s 2003 Commercial Buildings Energy Consumption Survey18 data set to identify the average 

fuel costs in the seven building types and compared them with the average costs for all 

EERE-2008-BT-STD-0013 COMMENT 22
5-28

commercial customers identified in the survey. DOE used the ratios of fuel costs for each of the 

seven types of buildings to the national average commercial prices seen in the 2003 CBECS as 

multipliers to adjust the State-by-State average commercial price data estimated for 2007. 

FPRICECOM BLD I STATE 2007 = FPRICE COM STATE 2007 x (FPRICE BLDG I US 2003/FPRICE COM US 2003) Eq. 5.15

where

FPRICECOM BLD I STATE 2007 = average commercial sector fuel price in building type I in a specific 

state in 2007 ($/MBtu), 

FPRICE COM STATE 2007 = average commercial sector fuel price in a specific state in 2007 

($/MBtu), 

FPRICE BLDG I US 2003 = national average commercial sector fuel price in building type I in 

2003 CBECS ($/MBtu), 

FPRICE COM US 2003 = national average commercial sector fuel price in 2003 CBECS

($/MBtu). 

Table 5.6.13 shows the derivation of the fuel price ratios from CBECS.

Table 5.6.13 Derived Average Commercial Fuel Price Ratios by Building Type 

Building Type Assembly Education

Food 

Service Lodging Office Retail Warehouse

All 

Buildings

2003$/MBtu (Nat Gas) 8.161 7.660 6.800 6.603 7.702 8.687 8.604 7.624

2003$/MBtu (Fuel Oil) 8.374 7.723 7.622 8.380 8.303 7.002 9.447 8.010

Ratio of Natural Gas 

Prices to Average of 

All Commercial 

Buildings 

1.070 1.005 0.892 0.866 1.010 1.139 1.129 1.000

Ratio of Fuel Oil to 

Average of All 

Commercial Buildings 

1.045 0.964 0.952 1.046 1.037 0.874 1.179 1.000

Source: CBECS 2003.

Once the fuel prices for the seven commercial building types were adjusted, DOE used 

the resulting prices in the analysis in conjunction with future fuel price forecast indices from EIA 

(in real terms, taking into account inflation) to develop future fuel prices as described in section 

5.6.2.2. 

EERE-2008-BT-STD-0013 COMMENT 22
5-29

5.6.2.2 Fuel Price Trends 

The fuel price trends provide the relative change in fuel prices for future years out to the 

year 2042. DOE applied a projected trend in national average fuel prices to each customer’s 

energy prices. The discussion in this chapter uses the AEO 2009 reference price scenario. In the 

LCC analysis, the following four scenarios can be analyzed: 

1. Constant (real) energy prices at 2008 values (Constant index of 1.0 in Figure 5.6.1 and 

Figure 5.6.2) 

2. AEO 2009, High Price Case (“High Price” in Figure 5.6.1 and Figure 5.6.2) 

3. AEO 2009, Reference Case (“AEO 2009” in Figure 5.6.1 and Figure 5.6.2) 

4. AEO 2009, Low Price Case (“Low Price” in Figure 5.6.1 and Figure 5.6.2) 

Figure 5.6.1 and Figure 5.6.2 show the natural gas fuel and fuel oil price trends for the 

three AEO 2009 price projections where prices are assumed to change. DOE extrapolated the 

values in later years (i.e., after 2030) from their relative sources because AEO 2009 does not 

forecast beyond 2030. To arrive at values for these later years, DOE used the price trend from 

2020 to 2030 of the forecast to establish prices from the years 2030 to 2044. This method of 

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

Federal Energy Management Program. 

The default fuel prices trend scenario used in the LCC analysis is the trend from the AEO 

2009 Reference Case, shown in Figure 5.6.1 for natural gas and Figure 5.6.2 for fuel oil. 

Spreadsheets used in calculating the LCC have the capability to analyze the other fuel price trend 

scenarios, namely, the AEO 2009 High Price and the AEO 2009 Low Price trends and constant 

energy prices.

EERE-2008-BT-STD-0013 COMMENT 22
5-30

Gas Price Index Projections

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

Year

Index (200

=1.00)

AEO 2009

High Growth

Low Growth

Figure 5.6.1 AEO 2009 Commercial Natural Gas Price Trends 

Fuel Oil Index Projections

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

Year

Index (2007=1.0

AEO 2008

High Growth

Low Growth

Figure 5.6.2 AEO 2009 Commercial Fuel Oil Price Trends 

EERE-2008-BT-STD-0013 COMMENT 22
5-31

5.6.2.3 Maintenance and Repair Costs 

Maintenance costs are the costs to the customer of maintaining equipment operation. 

Maintenance costs include services such as cleaning heat-exchanger tubes, fireboxes, and 

burners. Repair costs include costs for repair and replacement of components that fail over the 

life of the equipment, including repair of controls, burner/blower devices, tubes, and gas 

regulators. DOE estimated annual routine maintenance costs and repair costs for commercial 

boiler equipment based on data provided in MARS 8 Facility Cost Forecast System database.

19

from as $1,445 per year for boilers with output capacities of nominally 800 kBtu/h, and $2,835 

per year ($0.945/kBtu-h/yr) for boilers with output capacities of 3,000 kBtu/h, as reported in the 

MARS 8 Facility Cost Forecast System database. Because data were not available to indicate 

how maintenance costs vary with equipment efficiency, DOE decided to use preventive 

maintenance costs that remain constant as equipment efficiency increases. 

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

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

with general maintenance (e.g., checking and maintaining burners, cleaning fireboxes or heat 

exchanger surfaces, etc). The costs for replacement or repair of boiler or boiler system 

components that have failed over the normal operational life are considered repair costs. DOE 

estimated annualized repair costs for commercial boiler equipment also based on data provided 

in the MARS 8 Facility Cost Forecast System database. The MARS database explicitly provides 

repair costs for commercial boilers of various sizes. Based on the available data, DOE estimated 

the annualized repair cost for baseline efficiency commercial boilers as $443/yr for boilers with 

output capacities of nominally 800 kBtu/h, and as $820/yr for boilers with output capacities of 

3,000 kBtu/h. DOE assumed that repair costs would increase in direct proportion with increases 

in equipment prices. As the price of boilers increases with efficiency, the cost for component 

repair would also be expected to increase. 

DOE based average annual repair costs on the value of the commercial boiler equipment. 

Table 5.6.14 shows the average annual repair costs for commercial boilers by equipment class as 

developed for the life-cycle cost analysis. 

Table 5.6.14 Average Annual Repair Cost per Unit (2008$) 

Equipment Class

Level 0 

(Baseline) Level 1 Level 2 Level 3 Level 4*

Small, Gas-fired, Hot Water 443 502 628 834 1,132

Small, Gas-fired, Steam, All 

Except natural Draft 443 472 532 625 694

Small, Gas-fired, Steam, Natural 

Draft 443 460 495 548 na

Small, Oil-fired, Hot Water 443 485 572 710 na

Small, Oil-fired, Steam 443 474 538 676 na

Large, Gas-fired, Hot Water 820 900 1,070 1,342 2,441

Large, Gas-fired, Steam, All 

Except Natural Draft 820 855 892 932 973

Large, Gas-fired, Steam, Natural 

Draft 820 841 885 952 820

Large, Gas-fired, Hot Water 820 943 1,099 1,263 820

Large, Oil-fired, Steam 820 855 928 1,040 820

*na means that this efficiency level was not analyzed 

EERE-2008-BT-STD-0013 COMMENT 22
5-32

5.6.2.4 Lifetime

DOE defines equipment lifetime as the age when a commercial boiler is retired from 

service. DOE reviewed available literature and consulted with manufacturers to establish typical 

equipment lifetimes. The literature and experts consulted offered a wide range of typical 

equipment lifetimes. DOE used a 30-year lifetime for commercial boilers as established in the 

2000 Screening Analysis20 based on data from ASHRAE’s 1995 Handbook of HVAC 

Applications21. DOE continued to use this estimate for the LCC analysis. Other ASHRAE data 

on commercial equipment life, including boilers, are available through the ASHRAE Equipment 

Life/Maintenance Cost Survey, maintained online by ASHRAE.

22 This ASHRAE database 

currently has data for 152 fuel-fired boilers in commercial buildings, primarily steel fire or 

water-tube boilers. Of these, 28 data points represent boilers that have been removed from 

service and have a known life. The average life for these units removed from service was 

20.8 years, but ranged from 10 to 33 years. One hundred twenty-four boiler units in the data set

represent boilers currently used in commercial buildings, but with a known installation date and 

vintage. The data set indicates that the average life of boilers still in operation was 38.4 years, 

ranging from 3 to 51 years. ASHRAE’s 2007 Handbook of HVAC Applications23 contains 

median equipment service life data from the first 163 commercial buildings that were used to 

create the online database and presents these data along with the older 1995 ASHRAE data for 

the user. 

5.6.2.5 Discount Rate

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

present value. DOE derived the discount rates by estimating the cost of capital for companies 

that purchase commercial packaged boiler equipment. The cost of capital is commonly used to 

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

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

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

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

(CAPM).

24 The CAPM, which is among the most widely used models to estimate the cost of 

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

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

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

systematic risk.

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

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

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

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

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

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

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

2.0 faces twice the overall stock market risk.

EERE-2008-BT-STD-0013 COMMENT 22
5-33

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

ke = Rf + (β x ERP) Eq. 5.16

where

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

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

β = the risk coefficient,

ERP = the expected equity risk premium (%). 

DOE defined the risk-free rate as the yield on long-term government bonds. DOE used a 

4.8-percent estimate for the ERP based on data from the Damodaran Online25 site.

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

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

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

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

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

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

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

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

of debt and equity financing: 

k =ke x we+ kd x wd Eq. 5.17

where

 k = the (nominal) cost of capital, expressed as a percentage; 

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

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

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

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

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

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

inflation (r) from the nominal rate. DOE calculated expected inflation from the average of the 

projected change in gross domestic product prices in the Economic Report of the President.

26

To estimate the WACC of commercial packaged boilers purchasers, DOE used a sample 

of companies involved in groceries and multi-line retailing drawn from a database of over 7,300 

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

publicly traded companies in the United States.

For the purpose of the boiler analysis, DOE relied on discount rate data determined from 

two other recently published rulemaking activities that relied on this same methodology defined 

above. These were for the final rule for Packaged Terminal Air Conditioners and Heat Pumps27

EERE-2008-BT-STD-0013 COMMENT 22
5-34

equipment and the Advanced Notice of Public Rulemaking for Beverage Vending Machines.28

DOE assigned classes of companies as established in these two previous works to be 

representative of occupants of each of the seven commercial building types on a one-for-one 

basis and used the discount rates developed from the Damodaran data to establish average 

discount rates for the occupants of each of the seven building types. 

Table 5.6.15 shows the economic sectors represented in each of the occupancy categories 

assigned to each building type as well as the source data and number of companies used for 

determining discount rates. Deducting expected long-term inflation of approximately 2 percent 

from the cost of capital provides the estimates of the real discount rate by ownership category 

shown in Table 5.6.15. For the LCC analysis, a national average analysis result depends on the 

weighted average of the discount rates shown weighted by the overall estimate of shipments to 

each building class as determined in chapter 4. 

Table 5.6.15 Average Discount Rates by Building Type 

Building 

Type

Assumed 

Occupancy/Ownership

Categories Used Source for Discount Rate Data

Number of 

Observations

Wt. Average 

Discount Rate (Real, 

above inflation)

Assembly Public Tax-Exempt Long-Term 

Borrowing Rate (BVM)*

1 2.15%

Education Public Tax-Exempt Long-Term 

Borrowing Rate (BVM)*

1 2.15%

Food Service Retail Trade Damodaran (BVM)** 261 5.85%

Range: 1.43%-9.19%

Lodging Large Hotel/Motel Chain Damodaran (Packaged Terminal 

Air-Conditioner)

†

28 5.53%

Range: 3.16%-7.69%

Office Office/Health Care Damodaran (BVM)** 1820 4.96%

Range: 0.86%-13.37%

Retail Retail Trade Damodaran (BVM)** 261 5.85%

Range: 1.43%-9.19%

Warehouse Retail Trade Damodaran (BVM)** 261 5.85%

Range: 1.43%-9.19%

* Tax Exempt Borrowing Rate, developed for Beverage Vending Machine analysis. Original source: Yahoo Finance Bonds 

Center http://finance.yahoo.com/bonds/composite_bond_rates, Accessed 5-23-2007 ** Refrigerated Beverage Vending Machine ANOPR Analysis, June 2008. Original source: Damodaran January 200726

† Packaged Terminal Air Conditioner and Heat Pump Final Rule Analysis, October 2008. Original source: Damodaran January

200827

5.6.2.6 Effective Date of Standard

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

Policy and Conservation Act of 1975 (EPCA), as amended, directs DOE to establish energy 

conservation standards for certain commercial and industrial equipment, including commercial 

heating, air-conditioning, and water-heating equipment. Of particular relevance here, the statute 

also requires that each time the corresponding industry standard—the ASHRAE/Illuminating 

Engineering Society of North America (IESNA) Standard 90.1—is amended, DOE must assess 

whether there is a need to update the uniform national energy conservation standards for the 

EERE-2008-BT-STD-0013 COMMENT 22
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same equipment covered under EPCA. Specifically, pursuant to EPCA, DOE must, for those 

equipment classes for which ASHRAE set more stringent efficiency levels (i.e., commercial 

packaged boilers), analyze the economic and energy savings potential of amended national 

energy conservation standards (at both the new ASHRAE Standard 90.1 levels and more 

stringent efficiency levels). Of particular relevance, the statute also requires that each time the 

corresponding consensus industry standard—ASHRAE/IESNA 90.1—is amended, DOE must 

either

a) establish an amended uniform national standard for the product at the minimum level 

specified in the amended ASHRAE/IESNA Standard 90.1 and do so not later than 

18 months after the date of publication of the amendment to the ASHRAE/IES Standard 

90.1 for a product so prescribed, or 

b) determine, by rule published in the Federal Register, and supported by clear and 

convincing evidence, that adoption of a uniform national standard more stringent than the 

amended ASHRAE/IES Standard 90.1 for the product would result in significant 

additional conservation of energy and is technologically feasible and economically 

justified. If such a rule is published, DOE shall, not later than 30 months after the date of 

publication of the amendment to the ASHRAE/IES Standard 90.1 for the product, issue 

the rule establishing the amended standard. 

A standard for commercial boilers amended by the Secretary under (a) above shall 

become effective for products manufactured on or after a date that is 2 years after the effective 

date of the applicable minimum energy efficiency requirement in the amended ASHRAE/IES 

standard referred to in ASHRAE Standard 90.1-2007. 

A standard for commercial boilers amended by the Secretary under (b) above shall 

become effective for products manufactured on or after a date that is 4 years after the date such 

rule is published in the Federal Register. 

ASHRAE published ASHRAE Standard 90.1-2007 on January 20, 2008. Thus, 

depending on whether DOE adopts the amended efficiency levels for boilers shown in the 

ASHRAE Standard 90.1-2007, or publishes a rule that higher standards are economically 

justified, results in a different effective date for the amended Federal Standard for a product. If 

DOE adopts the efficiency level established in ASHRAE Standard 90.1-2007 for the Federal 

standard, it would most likely publish a rule with an effective data in 2012. If DOE determines 

that standards with efficiency levels higher than those levels shown in the amended ASHRAE 

90.1-2007 are warranted, it would most likely publish a rule establishing higher Federal 

standards with an effective date of 2014. 

Because the purpose of the commercial boiler LCC analysis is to provide information that 

would allow DOE to determine whether an efficiency standard higher than that proposed in 

ASHRAE Standard 90.1-2007 is economically justified, DOE assumes that the default 

assumption for the baseline product efficiency in the LCC analysis is the ASHRAE Standard 

90.1-2007 efficiency level and that the alternatives being analyzed are higher efficiency levels. 

Traditionally, since DOE looks at the LCC from the perspective of the customer (for instance in 

the use of customer discount rates), we are looking at determining the life-cycle cost impact from 

the point of view of a customer purchasing equipment. A customer purchase decision occurs at 

EERE-2008-BT-STD-0013 COMMENT 22
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one particular point in time. Typically, DOE uses the first year that a revised standard would be 

in effect as the first year in the LCC analysis and the LCC is done over one life cycle of the 

product in question. Because, in the case of the ASHRAE products, DOE is looking at whether 

there are LCC savings for going higher than ASHRAE, the most logical first date at which a 

consumer could in fact experience savings from an amended standard higher than ASHRAE 

levels is July 1, 2014. Taking into account the time periods in EPCA for putting a rule into place 

establishing higher standard levels, and the minimum allowed time period before that rule can go 

into effect (4 years after the date of publication), 2014 would be used as the start year for the 

analysis of all possible efficiency levels higher than ASHRAE Standard 90.1-2007 levels. The 

analysis is over a time period from the start year to the expected end of life of the commercial 

packaged boiler. 

5.7 PAYBACK PERIOD INPUTS 

5.7.1 Definition

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

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

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

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

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

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

effective discount rate of zero percent.

The equation for PBP is as follows: 

PBP =∆IC / ∆OC Eq. 5.18

where

PBP = payback period (years),

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

equipment (efficiency levels 2, 3, etc.) and the baseline (efficiency level 1) 

equipment ($), 

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

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

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

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

5.7.2 Inputs

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

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

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

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

cost. The PBP analysis uses the same inputs as the LCC analysis described in section 5.2, except 

that fuel price trends and discount rates are not required. Because the PBP is a “simple”

EERE-2008-BT-STD-0013 COMMENT 22
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(undiscounted) payback, the required fuel cost is only for the year in which a new energy 

conservation standard will take effect—in this case, the year 2014. The fuel price used in the 

PBP calculation of fuel cost was the price projected for 2014, expressed in 2008$, but not 

discounted to 2007. 

5.8 LIFE-CYCLE COST AND PAYBACK PERIOD RESULTS

5.8.1 Life-Cycle Cost Results

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

engineering analysis (TSD chapter 3). The results presented here are based on first costs and 

annual operating costs calculated for each combination of State and building type (i.e., defined as 

a market segment), taking into account the estimated shipment weights to all market segments. 

Because the values of many of the inputs vary by market segment in this analysis, DOE

represents them both as a distribution of values and as an average value for the nation. Thus, 

DOE develops the LCC results as a distribution of life-cycle cost savings values from the 

baseline (level 0). 

5.8.1.1 Differences in Life-Cycle Cost Between Baseline and Standard-Level Equipment

DOE develops estimates of LCC savings for each efficiency level higher than the 

baseline (ASHRAE Standard 90.1-2007 equivalent) efficiency level 0. This section presents the 

differences in the LCC of higher efficiency level equipment relative to the baseline level. For 

each efficiency level analyzed, DOE rank orders the LCC savings calculated for each market 

segment from low to high, keeping track of the total weight of shipments to each market 

segment. This results in a cumulative distribution of LCC savings. 

For reporting purposes, these LCC savings are depicted as a distribution of decile values 

of LCC and PBP for the population of commercial packaged boiler sales. Table 5.8.1 shows the 

resulting distribution of LCC savings for small gas-fired commercial packaged boilers. 

Table 5.8.1 also provides the average LCC difference for the population along with the percent 

of the population experiencing at least some level of positive LCC savings compared with the 

purchase of the baseline equipment. Similar tables for all equipment classes are found in 

Appendix 5-A.

Table 5.8.1 Distribution of Life-Cycle Cost Savings from Baseline Level for Small GasFired Commercial Packaged Hot Water Boilers* 

Efficiency 

Level

Decrease in LCC from Baseline (Level 0)

Shown by Percentiles of the Distribution of Results (2008$) Average 

LCC 

Savings

Percent 

of Units 

with LCC 

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

Level 1 (5,981) (2,242) (1,200) (518) (19) 593 1,581 2,187 3,918 6,321 21,688 1,700 59%

Level 2 (10,357) (4,471) (2,430) (1,437) (172) 1,512 3,177 4,256 7,160 11,502 42,448 3,239 60%

Level 3 (17,561) (9,946) (7,314) (5,629) (2,967) (653) 1,704 2,926 6,951 12,689 58,553 1,329 44%

Level 4 (28,369) (18,986) (15,763) (13,963) (9,799) (7,417) (4,814) (2,152) 2,411 10,056 69,254 (4,760) 22%

*values in parenthesis are negative 

As an example of how to interpret the information in Table 5.8.1; the level 2 efficiency

level change in LCC in the zero-percentile column is an LCC savings of -$10,357, or a net life 

EERE-2008-BT-STD-0013 COMMENT 22
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cycle cost to the consumer of $10,357. This means that 100 percent of the market is estimated to 

have LCC savings greater than this value. For 90 percent of the cases studied (90th percentile), 

the change in LCC for level 2 results in an LCC savings of $11,502 or less as compared with the 

ASHRAE baseline level. Consequently, 10 percent of the cases have LCC savings of greater than 

$11,502. The largest reduction in LCC for level 2 is $42,448 at the 100th percentile. The mean 

change in LCC for level 2 is a net savings of $3,239. The last column shows that 60 percent of 

the sample has LCC savings (i.e., reductions in LCC greater than zero) when compared to the 

baseline efficiency level. 

Table 5.8.2 provides the national average life-cycle cost savings calculated for each 

efficiency level when compared to the baseline (level 0) for all product categories.

Table 5.8.2 Average Life-Cycle Cost Savings from Baseline Level (Level 0) by Efficiency 

Level and Equipment Class* 

Equipment Class

National Average LCC Savings 

(2008$)**

Percent of Units with Positive LCC 

Savings

Level

1

Level 

2 Level 3 Level 4

Level 

1

Level 

2

Level 

3

Level 

4

Small Gas-Fired Hot Water 1,700 3,239 1,329 (4,760) 59.3% 59.5% 44.2% 22.5%

Small Gas-Fired Steam All Except Natural Draft (870) (674) (2,423) (3,064) 23.8% 28.5% 21.6% 21.4%

Small Gas-Fired Steam Natural Draft (50) 1,657 2,184 na 36.0% 55.6% 55.3% na

Small Oil-Fired Hot Water 4,902 9,770 11,482 na 83.2% 85.9% 69.8% na

Small Oil-Fired Steam 771 2,626 5,406 na 49.4% 60.7% 62.1% na

Large Gas-Fired Hot Water 6,411 11,303 11,324 13,271 83.9% 80.5% 63.1% 52.8%

Large Gas-Fired Steam All Except Natural Draft 7,876 18,144 27,941 37,065 89.1% 95.2% 95.8% 95.8%

Large Gas-Fired Steam Natural Draft 9,531 19,836 28,016 33,835 95.0% 95.9% 94.2% 89.2%

Large Oil-Fired Hot Water 26,820 35,114 42,551 na 96.5% 90.3% 87.3% na

Large Oil-Fired Steam 13,940 27,598 37,978 59,175 96.8% 96.5% 91.0% 90.4% *

na means that no efficiency level was designated for analysis.

**values in parenthesis are negative.

5.8.2 Payback Period Results 

This section presents PBP results for each efficiency level higher than the baseline level. 

Similar to LCC discussion, the analysis provides a distribution for the simple PBP for higher 

efficiency commercial boilers given the sales to the market segments defined by State and 

building type for each efficiency level. As with the analysis of LCC savings, DOE developed a 

cumulative distribution function of the PBP based on the weights assigned to each market 

segment and the payback results for each market segment. Table 5.8.3 shows the PBP by 

efficiency level for small gas-fired commercial package boilers. Similar tables for all other 

equipment classes are shown in Appendix 5-A of the TSD. Table 5.8.34 shows the national 

average PBP results for each of the 10 equipment classes analyzed. 

EERE-2008-BT-STD-0013 COMMENT 22
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Table 5.8.3 Summary of Payback Period Results by Efficiency Level for Small Gas-Fired 

Commercial Packaged Boilers

Efficiency 

Level

Payback Period from Baseline (Level 0)

Shown by Percentiles of the Distribution of Results (yr)

Average 

Payback 

Period

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (yr)

Level 1 4.5 7.7 10.1 10.7 12.6 13.8 16.7 19.7 26.2 34.1 100.0 25.4

Level 2 3.7 7.5 8.8 9.5 11.5 13.0 14.5 17.4 22.4 30.7 100.0 30.6

Level 3 4.0 9.0 9.9 10.8 14.0 14.9 17.5 20.3 27.1 36.8 100.0 42.7

Level 4 4.9 11.1 12.1 13.1 17.3 18.3 20.2 25.3 34.3 46.1 100.0 56.7

Table 5.8.4 National Average Payback Periods by Efficiency Level and Equipment Class* 

Equipment Class

National Average Payback Period (Years)

Level 1 Level 2 Level 3 Level 4

Small Gas-Fired Hot Water 25.4 30.6 42.7 56.7

Small Gas-Fired Steam All Except Natural Draft 41.6 41.8 50.7 50.8

Small Gas-Fired Steam Natural Draft 30.9 25.4 28.7 na

Small Oil-Fired Hot Water 16.5 17.5 24.0 na

Small Oil-Fired Steam 30.2 29.9 31.9 na

Large Gas-Fired Hot Water 15.3 19.3 28.7 38.3

Large Gas-Fired Steam All Except Natural Draft 11.8 8.8 8.0 7.8

Large Gas-Fired Steam Natural Draft 9.1 8.0 9.0 11.0

Large Oil-Fired Hot Water 8.4 11.8 14.3 na

Large Oil-Fired Steam 8.5 8.4 10.3 11.5 * na means that no efficiency level was designated for analysis.

5.9 ESTIMATES OF IMPACTED CUSTOMERS 

The LCC savings and the estimates of the commercial boiler sales with positive LCC 

savings shown in section 5.8 relate to the purchase of baseline efficiency equipment at the 

90.1-2007 efficiency levels for each equipment class. DOE also considers information regarding 

the current distribution of efficiencies sold into the market. DOE has no direct data on that 

distribution, but as a proxy has considered the distribution of efficiencies of boiler models 

available to the market. DOE developed estimates of the fraction of impact customers and how 

those customers are impacted by making three assumptions: (1) DOE assumed that the current 

distribution of boiler efficiencies sold into the market is equivalent to the distribution of 

efficiency of models available to the market (based on the augmented DOE database of boiler 

models discussed in TSD chapter 2); (2) DOE assumed that the efficiencies sold into the market 

are evenly distributed across all market segments at a national level regardless of the benefits of 

purchase of higher efficiency equipment (i.e., no correlation between the positive benefits of 

higher efficiency levels and the purchase of higher efficiency equipment); and (3) DOE assumed

that the current distribution of shipments of boilers by efficiency levels reasonably approximates 

the likely future shipments distribution by efficiency levels in the absence of standards. 

While each of these assumptions can be argued to be simplistic, together they allow DOE 

to estimate the fraction of customers who would likely experience LCC savings compared with 

EERE-2008-BT-STD-0013 COMMENT 22
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what they would likely purchase in the absence of an amended DOE standard. For example, if 

only 50 percent of the market currently purchases at an efficiency level below level 2, and the 

analysis in section 5.8 suggests that 60 percent of the market has a reduced LCC for purchase of 

equipment at level 2, then by definition at least 50 percent of the market is not impacted by 

standards set at level 2 because it already would be expected to purchase equipment at efficiency 

levels higher than the proposed level 2 standard. Of those that are likely impacted (e.g., current 

customer purchases at efficiency levels below level 2), the fraction benefiting would be expected 

to be no larger than 60 percent based on the national estimate of customers who benefit for 

purchases of level 2 when compared to the ASHRAE baseline (level 0). Forty percent of the 

impacted customers would likely see no LCC benefit, again assuming that the distribution of 

customers benefiting and the distribution of customers purchasing higher efficiency equipment 

are not correlated.

Proceeding in this fashion, DOE estimated the total fraction of customers likely to receive 

LCC benefits assuming that the likelihood of sales into higher efficiency levels represents future 

sales. The results of this analysis are shown in Table 5.9.1. 

Table 5.9.1 Fraction of Customers Impacted by Efficiency Level and Equipment Class*

Equipment Class

Percentage Sales Impacted (%)

Level 1 Level 2 Level 3 Level 4

Small Gas-Fired Hot 

Water

Equipment with Net LCC Increase 9 21 42 64

Equipment with No Change in LCC 77 48 25 18

Equipment with Net LCC Savings 14 31 33 19

Small Gas-Fired 

Steam All Except 

Natural Draft

Equipment with Net LCC Increase 27 58 71 73

Equipment with No Change in LCC 64 19 10 7

Equipment with Net LCC Savings 9 23 19 20

Small Gas-Fired 

Steam Natural Draft

Equipment with Net LCC Increase 44 35 43 na

Equipment with No Change in LCC 32 22 3 na

Equipment with Net LCC Savings 25 43 54 na

Small Oil-Fired Hot 

Water

Equipment with Net LCC Increase 10 10 28 na

Equipment with No Change in LCC 39 27 7 na

Equipment with Net LCC Savings 51 63 65 na

Small Oil-Fired 

Steam

Equipment with Net LCC Increase 29 46 54 na

Equipment with No Change in LCC 58 24 6 na

Equipment with Net LCC Savings 13 30 40 na

Large Gas-Fired Hot 

Water

Equipment with Net LCC Increase 8 15 31 45

Equipment with No Change in LCC 51 23 17 6

Equipment with Net LCC Savings 41 62 52 50

Large Gas-Fired 

Steam All Except 

Natural Draft

Equipment with Net LCC Increase 4 4 3 3

Equipment with No Change in LCC 61 26 23 20

Equipment with Net LCC Savings 34 70 74 77

Large Gas-Fired 

Steam Natural Draft

Equipment with Net LCC Increase 1 2 4 10

Equipment with No Change in LCC 88 42 24 7

Equipment with Net LCC Savings 12 55 72 83

Large Oil-Fired Hot 

Water

Equipment with Net LCC Increase 2 7 10 na

Equipment with No Change in LCC 52 24 24 na

Equipment with Net LCC Savings 46 69 66 na

Large Oil-Fired 

Steam

Equipment with Net LCC Increase 1 2 8 9

Equipment with No Change in LCC 66 41 16 11

Equipment with Net LCC Savings 33 57 77 81 *

na means that no efficiency level was designated for analysis.

EERE-2008-BT-STD-0013 COMMENT 22
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5.9.1 Sensitivity to Fuel Escalation Rate 

The sensitivity to fuel escalation rate was examined using the escalation rates provided in 

the AEO 2009 high-energy price and low-energy price scenarios. Table 5.9.2 and Table 5.9.3 

examine the national average LCC savings for the AEO 2009 low-energy price scenario and 

AEO 2009 high-energy price scenarios respectively. For the high price scenario, while the 

average LCC savings are increased for most efficiency levels above the baseline when compared 

with the reference case, there are no changes in the level showing the highest LCC savings when 

compared with the results using the AEO 2009 reference case. For the low-energy price scenario, 

the average LCC savings is reduced for all efficiency levels above the baseline when compared 

with the reference case (see Table 5.8.2). However, there are no changes in the efficiency level 

showing the highest LCC savings when compared with the results using the AEO 2009 reference 

case 

The PBP is calculated based on first-year energy savings and thus is insensitive to fuel 

escalation rate scenarios.

Table 5.9.2 Average Life-Cycle Cost Savings from a Baseline Level (Level 1) by Efficiency 

Level and Equipment Class – EIA Low Price Scenario* 

Equipment Class

National Average LCC Savings 

(2008$)**

Percent of Units with Positive 

LCC Savings

Level 1 Level 2 Level 3 Level 4

Level 

1

Level 

2

Level 

3

Level 

4

Small Gas-Fired Hot Water 1,362 2,579 362 (6,020) 55% 56% 41% 21%

Small Gas-Fired Steam All Except Natural Draft (1,045) (1,021) (2,937) (3,740) 21% 26% 20% 20%

Small Gas-Fired Steam Natural Draft (234) 1,293 1,644 na 33% 51% 49% na

Small Oil-Fired Hot Water 3,399 6,833 7,176 na 76% 76% 63% na

Small Oil-Fired Steam (8) 1,086 2,398 na 37% 50% 52% na

Large Gas-Fired Hot Water 5,777 10,051 9,468 8,869 83% 78% 62% 50%

Large Gas-Fired Steam All Except Natural Draft 7,218 16,844 26,015 34,529 89% 94% 95% 95%

Large Gas-Fired Steam Natural Draft 8,839 18,469 25,991 31,168 95% 96% 93% 89%

Large Oil-Fired Hot Water 21,182 26,757 31,537 na 92% 87% 85% na

Large Oil-Fired Steam 11,017 21,821 29,417 45,238 94% 93% 88% 87% *

na means that no efficiency level was designated for analysis.

**values in parenthesis are negative.

EERE-2008-BT-STD-0013 COMMENT 22
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Table 5.9.3 Average Life-Cycle Cost Savings from a Baseline Level (Level 0) by Efficiency 

Level and Equipment Class – EIA High Price Scenario* 

Equipment Class

National Average LCC Savings 

(2008$)**

Percent of Units with Positive 

LCC Savings

Level 1 Level 2 Level 3 Level 4

Level 

1

Level 

2

Level 

3

Level 

4

Small Gas-Fired Hot Water 1,450 2,751 614 (5,692) 55% 58% 43% 21%

Small Gas-Fired Steam All Except Natural Draft (1,000) (931) (2,803) (3,564) 21% 27% 20% 21%

Small Gas-Fired Steam Natural Draft (186) 1,388 1,785 na 33% 53% 53% na

Small Oil-Fired Hot Water 4,042 8,089 9,018 na 78% 80% 65% na

Small Oil-Fired Steam 325 1,745 3,685 na 41% 52% 58% na

Large Gas-Fired Hot Water 5,942 10,378 9,952 10,016 83% 79% 62% 52%

Large Gas-Fired Steam All Except Natural Draft 7,390 17,183 26,517 35,190 89% 95% 95% 96%

Large Gas-Fired Steam Natural Draft 9,019 18,825 26,519 31,864 95% 96% 93% 89%

Large Oil-Fired Hot Water 23,594 30,333 36,249 na 95% 87% 86% na

Large Oil-Fired Steam 12,267 24,293 33,080 51,201 95% 96% 90% 88% * na means that no efficiency level was designated for analysis.

**values in parenthesis are negative.

5.10 DETAILED RESULTS

DOE presents more detailed results for the LCC analysis in Appendix 5-A. 

EERE-2008-BT-STD-0013 COMMENT 22
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EERE-2008-BT-STD-0013 COMMENT 22
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EERE-2008-BT-STD-0013 COMMENT 22
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27 U.S. Department of Energy-Office of Energy Efficiency and Renewable Energy. 2008. 

Packaged Terminal Air Conditioners and Heat Pumps Energy Conservation Standard 

Final Rule Technical Support Document and supporting Life Cycle Cost Analysis 

Spreadsheet. Available at: 

http://www1.eere.energy.gov/buildings/appliance_standards/commercial/ptacs_pthps_final

_rule.html. (Accessed September 2008). 

28 U.S. Department of Energy-Office of Energy Efficiency and Renewable Energy. 2008. 

Refrigerated Beverage Vending Machines Energy Conservation Standard Advance Notice 

of Proposed Rulemaking Technical Support Document and supporting Life Cycle Cost 

Analysis Spreadsheet. Available at: 

<http://www1.eere.energy.gov/buildings/appliance_standards/commercial/ptacs_pthps_fina

l_rule.html.>.> (Accessed September 2008). 

EERE-2008-BT-STD-0013 COMMENT 22
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ABBREVIATED TERMS

ACCA Air Conditioning Contractors of America 

AEO Annual Energy Outlook 

AFUE Annual Fuel Utilization Efficiency

ANOPR Advanced Notice of Proposed Rulemaking 

ASHRAE American Society of Heating, Refrigerating and Air-Conditioning 

Btu British thermal unit(s)

BVM beverage vending machine 

CAPM Capital Asset Pricing Model

CBECS Commercial Buildings Energy Consumption Survey 

DOE U.S. Department of Energy 

EIA (DOE) Energy Information Administration

EPCQ Energy Policy and Conservation Act of 1975 

ERP equity risk premium 

ft foot(feet)

h hour(s) 

HVAC heating, ventilation, and air-conditioning 

HVACR heating, ventilation, air-conditioning, and refrigeration 

IESNA Illuminating Engineering Society of North America

kBtu/h kilo British thermal units per hour 

kWh kilowatt hour(s) 

LCC life-cycle cost

MBtu million British thermal units 

MCC mechanical contractor cost

NOPR Notice of Proposed Rulemaking 

NPV net present value 

PBP payback period

PTAC packaged terminal air-conditioner 

WACC weighted-average cost of capital

yr year(s)

EERE-2008-BT-STD-0013 COMMENT 22