**2-i** CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

**2.1 INTRODUCTION ........................................................................................................... 2-1 2.2 BACKGROUND ............................................................................................................. 2-4**  **2.3 MARKET AND TECHNOLOGY ASSESSMENT ........................................................ 2-5 2.3.1 Market Assessment .............................................................................................. 2-5**  **2.3.2 Technology Assessment....................................................................................... 2-5 2.4 SCREENING ANALYSIS .............................................................................................. 2-5**  **2.4.1 Technology Screening ......................................................................................... 2-6 2.5 ENGINEERING ANALYSIS.......................................................................................... 2-6**  **2.5.1 Manufacturing Cost Model.................................................................................. 2-6 2.5.2 Energy Consumption Model................................................................................ 2-6**  **2.6 ENERGY USE CHARACTERIZATION ....................................................................... 2-7 2.7 MARKUPS TO DETERMINE EQUIPMENT PRICE ................................................... 2-7**  **2.8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES .................................... 2-8 2.9 SHIPMENTS ANALYSIS ............................................................................................ 2-10**  **2.10 NATIONAL IMPACT ANALYSIS .............................................................................. 2-10 2.10.1 National Energy Savings Analysis..................................................................... 2-10**  **2.10.2 Net Present Value Analysis ............................................................................... 2-11 2.10.3 Efficiency Scenarios and Trends ....................................................................... 2-11**  **2.11 LIFE-CYCLE COST SUB-GROUP ANALYSIS......................................................... 2-12 2.12 MANUFACTURER IMPACT ANALYSIS.................................................................. 2-13**  **2.13 UTILITY IMPACT ANALYSIS................................................................................... 2-14 2.14 EMPLOYMENT IMPACT ANALYSIS....................................................................... 2-14**  **2.15 ENVIRONMENTAL ASSESSMENT .......................................................................... 2-14 2.16 REGULATORY IMPACT ANALYSIS ....................................................................... 2-15**  **2.17 DEPARTMENT OF JUSTICE REVIEW ..................................................................... 2-15**

LIST OF FIGURES

**Figure 2.1.1 Flow Diagram of Analyses for the Beverage Vending Machine Rulemaking Process ...................................................................................................................................................... 2-3** **2-ii 2-1**  CHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION

**Section 6295(o)(3)(B) of Title 42, United States Code (42 U.S.C.), as directed by 42 U.S.C. 6316(a)(1)─(3), requires the U.S. Department of Energy (DOE) to set forth energy**  **conservation standards that are technologically feasible and economically justified, and would achieve the maximum improvement in energy efficiency. This chapter describes the general**  **analytical framework that DOE uses in developing such standards and, in particular, standards for beverage vending machines (BVMs). The analytical framework is a description of the**  **methodology, analytical tools, and relationships among the various analyses that are part of this rulemaking. For example, the methodology that addresses the statutory requirement for**  **economic justification includes analyses of life-cycle cost (LCC); economic impact on manufacturers and users; national benefits; impacts, if any, on utility companies; and impacts, if**  **any, from lessening competition among manufacturers. DOE will also solicit the views of the Department of Justice (DOJ) on any lessening of competition likely to result from the imposition**  **of a proposed standard.**

**Figure 2.1.1 summarizes the analytical components of the standards-setting process. The columns labeled “Key Inputs” and “Key Outputs” show how the analyses fit into the rulemaking**  **process, and how they relate to each other. Key inputs are the types of data and information that the analyses require. Some key inputs exist in public databases; DOE collects other inputs from**  **stakeholders and persons with special knowledge. Key outputs are analytical results that feed directly into the standards-setting process. Arrows connecting analyses show types of**  **information that feed from one analysis to another. 2-2**  Utility Impact Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs Ana l yses Key Outputs

Market and Technology Assessment

Screening Analysis

Engineering Analysis

Markups for Equipment Price Determination Life-Cycle Cost and Payback Period Analyses

National Impact Analysis Energy Use

Revise ANOPR Analyses

Life-Cycle Cost Sub-Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes • Technology Options

• Industry Cash Flow • Sub-Group Cash-Flow • Direct Employment Impacts • Competitive Impacts • Cumulative Regulatory Burden • Cost-Efficiency Relationship

• Life-Cycle Costs • Payback Periods

• National Energy Savings • Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry • Market Segmentation • Non-Regulatory Programs Framework Document

• Efficiency-Level Approach • De s ign Option Approach

• Energy Prices • Installation Costs • Maintenance & Repair Costs

• Accounting Approach
• Backcast and Forecast • Market Saturation

• Stakeholder Comments

• Demographics

• Manufacturer Interviews

• GRIM Analysis

• Emission Rates • National Energy Savings

• Stakeholder Comments • Identify Firms/Products • Historical Shipments

• Define Distribution Channels • Economic Census Data Analysis • Retail Price Collection and Analysis

• Manufacturer Prices • Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail Prices Design Energy/Use

Advance Notice of Proposed Rulemaking (ANOPR) • Efficiency/Performance • Man ufacturing Cost

Candidate Standard Levels • Analysis of Energy Use Data

Environmental Assessment

Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors • National Energy Savings

• Non-Regulatory Alternatives • NEMS-BT

• ImSET

• NEMS-BT • Design Options

• Energy Price Forecasts • Site-to-Source Factors • Energy-Efficiency Levels

Direct Employment Impacts

• National Energy Savings • National Product Costs • National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life-Cycle Costs • Payback Periods • Installation Costs • Maint Costs • Repair Costs • UEC • Energy Prices Annual Energy Use (UEC)

Preliminary Manufacturer Impact Analysis • Manufacturer Prices • Average Costs • Conversion Capital Expenditures • Direct Employment Impacts

• National Energy Savings • Net Present Values • Trial Standard Levels (TSLs)
TSLs • Product Prototypes

Energy-Efficiency Levels

• Department of Justice Review Cost-Efficiency Relationship**2-3**

Figure 2.1.1 Flow Diagram of Analyses for the Beverage Vending Machine Rulemaking Process

**The analyses performed in the Advance Notice of Proposed Rulemaking (ANOPR) stage and reported in this technical support document (TSD) are listed below.** 

• **A market and technology assessment is conducted to characterize the relevant equipment markets and existing technology options, including prototype designs.** 

• **A screening analysis is conducted to review each technology option and determine if it is technologically feasible; is practical to manufacture, install, and service; would adversely**  **affect equipment utility or equipment availability; or would have adverse impacts on health and safety.** 

• **An engineering analysis is conducted to develop the cost-efficiency relationship, which is the increased manufacturer production cost (material, labor, and factory overhead) of**  **more efficient equipment. The increased cost to the customer is determined through an analysis of engineering markups, which convert manufacturer production cost to**  **manufacturer selling price.**

• **An equipment price markup analysis is conducted to convert the manufacturer’s selling price estimates from the engineering analysis to customer prices, which are then used in**  **the LCC and payback period (PBP) analyses and the manufacturer impact analysis (MIA).** 

• **An energy use analysis is conducted to determine the annual energy use characteristics of beverage vending machines located inside and outside of manufacturing facilities and**  **other commercial buildings.**

• **LCC and PBP analyses are conducted to calculate, at the customer level, the discounted savings in operating costs (less maintenance and repair costs) throughout the estimated**  **average life of the covered equipment compared to any increase in the installed cost for the equipment likely to result directly from the imposition of the standard.** 

• **A shipments analysis is conducted which forecasts equipment shipments. This analysis is then used to calculate the national impacts of standards on energy consumption and costs,**  **net present value (NPV), and future manufacturer cash flows.**

• **A national impact analysis is conducted to assess the aggregate impacts at the national level of NPV of total consumer LCC and national energy savings (NES).** 

• **A preliminary MIA is conducted to assess the potential impacts of energy conservation standards on manufacturers such as capital conversion expenditures, marketing costs,**  **shipments, and research and development costs. 2-4** 

**The analyses to be performed in the subsequent Notice of Proposed Rulemaking (NOPR) stage include those listed below. In addition, DOE re-analyzes the work done in the ANOPR**  **stage.**

• **A life-cycle cost sub-group analysis is conducted to evaluate variations in commercial business type characteristics (e.g., energy prices, equipment use patterns, and installation** **and maintenance costs) that might cause a standard to affect particular customer sub populations, such as specific building owners or other customers that purchase and use**  **beverage vending machines differently than the overall population.**

• **A manufacturer impact analysis is conducted to estimate the financial impact of standards on manufacturers and to calculate impacts on competition, employment, and**  **manufacturing capacity.**

• **A utility impact analysis is conducted to estimate the effects of proposed standards on electric utilities.** 

• **An employment impact analysis is conducted to assess the aggregate impacts on national employment.** 

• **An environmental assessment is conducted to provide estimates of changes in emissions of pollutants from electricity generation (i.e., carbon dioxide (CO**  **2 ), oxides of nitrogen**  **(NO x**  **), a**  **nd sulfur dioxide (SO 2**  **).**

• **A reg ulatory impact analysis is conducted to present major alternatives to proposed**  **standards that could achieve substantially the same regulatory goal at a lower cost.**

2.2 BACKGROUND

**As described in chapter 1 of the TSD, the Process Rule outlined procedural improvements to the standards rulemaking process which included a review of the following**  **elements: (1) economic models, (2) analytical tools, (3) methodologies, (4) non-regulatory approaches, and (5) prioritization of future rules. See appendix A to subpart C of Title 10, Code**  **of Federal Regulations, Part 430 (10 CFR Part 430).**

**DOE developed this analytical framework for the BVM rulemaking under the Process Rule. DOE documented this analytical framework in the**  Rulemaking Framework for Refrigerated Bottled or Canned Beverage Vending Machines **, and presented the analytical approach to stakeholders during a public meeting on July 11, 2006. This document**  **is available**
**at http://www.eere.energy.gov/buildings/appliance_standards/commercial/pdfs/**  **vending_machines_framework.pdf. The following sections describe the different analytical components of the rulemaking framework.** **2-5**

2.3 MARKET AND TECHNOLOGY ASSESSMENT

**The market and technology assessment characterizes the relevant product markets and existing technology options, including prototype designs.** 

2.3.1 Market Assessment

**When initiating a standards rulemaking, DOE develops information on the present and past industry structure and market characteristics for the equipment concerned. This activity**  **assesses the industry and equipment both quantitatively and qualitatively, based on publicly available information. DOE addresses the following: (1) manufacturer market share and**  **characteristics, (2) existing regulatory and non-regulatory equipment efficiency improvement initiatives, and (3) trends in product characteristics and retail markets. This information serves**  **as resource material throughout the rulemaking.**

**For this rulemaking, DOE reviewed existing literature and interviewed manufacturers to get an overall picture of the BVM market in the United States. Industry publications and trade**  **journals, government agencies, and trade organizations provided the bulk of the information. The appropriate sections of the ANOPR describe the analysis and resulting information as**  **reported in the TSD.**

**DOE uses the most reliable and accurate data available at the time of each analysis in its rulemakings. All data is available for public review. DOE welcomes any submissions of**  **additional data.**

2.3.2 Technology Assessment

**DOE typically uses information about existing and past technology options and prototype designs to help determine which technologies manufacturers use to attain higher energy**  **performance levels. In consultation with stakeholders, DOE develops a list of technologies for consideration. Initially, these technologies encompass all those it believes are technologically**  **feasible.**

**For this rulemaking, DOE developed a list of technologically feasible design options after consultation with manufacturers of components and systems, and from trade publications and**  **technical papers. Since many options for improving equipment efficiency are available in existing equipment, product literature and direct examination of the BVM equipment provided**  **additional information, as described in chapter 3 of the TSD.**

2.4 SCREENING ANALYSIS

**In the screening analysis, DOE screens out technologies that are not technologically feasible; not practicable to manufacture, install, or service; have an adverse impact on equipment**  **utility or availability; or have adverse impacts on health and safety. In the engineering analysis, DOE further considers design options that remain after the screening process.** **2-6**

2.4.1 Technology Screening

**As described in chapter 4 of the TSD, DOE grouped technologies into the following categories: (1) technologies that do not affect daily energy consumption, (2) screened-out**  **technologies, and (3) remaining technologies that reduce BVM energy consumption under DOE’s test procedure.** 

**Because the energy descriptor for beverage vending machines is daily energy consumption and the test procedure uses a steady state approach, DOE did not include**  **technologies or designs that improve energy consumption under varying ambient conditions (e.g., expansion valves, variable-speed compressors). Therefore, only those technology and**  **design options that improve the daily energy consumption rating were considered viable for review and application in the rulemaking.** 

2.5 ENGINEERING ANALYSIS

**As presented in chapter 5, the engineering analysis establishes the relationship between the cost and efficiency of beverage vending machines. This relationship serves as the basis for**  **cost/benefit calculations for individual customers, manufacturers, and the Nation. The engineering analysis discusses cost-efficiency curves, equipment classes analyzed, representative**  **baseline units, the methodology used to develop manufacturing costs, the methodology used to develop the energy consumption model, and the use of alternative refrigerants.** 

2.5.1 Manufacturing Cost Model

**DOE used a cost model to estimate the core cost of refrigerated beverage vending machines. This cost model is based on work DOE conducted in support of the rulemaking on**  **commercial refrigeration equipment (see http://www.eere.energy.gov/buildings/ appliance_standards/commercial_products.html) for further details on and validation of the cost**  **model. The approach for commercial refrigeration equipment involved the disassembly of a piece of commercial refrigeration equipment, an analysis of the materials and manufacturing**  **processes, and the development of a parametric spreadsheet model. DOE then modified the commercial refrigeration equipment model to analyze the core costs of refrigerated beverage**  **vending machines. DOE obtained input from stakeholders on the refrigerated beverage vending machine manufacturer production cost estimates and assumptions to confirm their accuracy.** 

2.5.2 Energy Consumption Model

**The energy consumption model estimates the daily energy consumption of refrigerated beverage vending machines in kilowatt hours at various performance levels using a design**  **options approach. DOE developed the energy consumption model as a Microsoft Excel spreadsheet. Appendix A provides instructions for using the spreadsheet.** 

**For a given equipment class, the model estimates the daily energy consumption for the baseline and several levels of performance above the baseline. DOE chose ENERGY STAR’s**  **Tier I specification as the baseline for each equipment class and machine size. The model 2-7** 

**calculates each performance level separately. For the baseline level, the cost model calculates a corresponding cost; for each level above the baseline, the cost increases of the various design**  **options are used to recalculate the final cost.**

2.6 ENERGY USE CHARACTERIZATION

**The energy use characterization analysis assessed the annual energy consumption of the refrigerated beverage vending machines that would be located inside and outside industrial and**  **commercial buildings. DOE modified the energy consumption model developed during the engineering analysis to reflect the equipment’s thermal and compressor performance**  **characteristics in order to simulate a realistic performance of the machine exposed to varying temperature and relative humidity conditions. DOE developed another spreadsheet-based model**  **(described in chapter 7 of the TSD) to determine the beverage vending machine’s hourly, and hence annual, energy consumption under varying climate conditions around the country. DOE**  **developed a State-by-State distribution of beverage vending machines using population weights to determine annual energy consumption of machines located outdoors. The machines that are**  **typically located inside industrial and commercial buildings were assumed to be in conditioned spaces, and hence are exposed to the same temperature and relative humidity conditions (75**  **degrees Fahrenheit (°F) and 45 percent relative humidity) throughout the year.**

**Although many beverage vending machines are located inside conditioned spaces, a relatively small number of machines are typically installed outside. Beverage vending machines**  **will add to the cooling load in the summer and reduce the heating load in the winter, but DOE believes these impacts are fairly modest in most cases. DOE also believes that the added**  **complexity of determining the overall impact on building space-conditioning loads is not worth the effort involved in accurately quantifying this effect, particularly given the variety of building**  **types and vending machine locations (e.g., outside, inside, or in vestibules) that would need to be taken into account.** 

2.7 MARKUPS TO DETERMINE EQUIPMENT PRICE

**DOE used manufacturer-to-consumer markups to convert the manufacturer selling-price estimates from the engineering analysis to customer prices, which were then used in the LCC,**  **PBP, and manufacturer impact analyses. Because retail prices are required for the baseline performance level and all other performance levels under consideration, DOE obtained these**  **retail prices by applying manufacturer-to-customer markups to the manufacturer selling-price estimates.** 

**Before it can develop markups, DOE must identify distribution channels (i.e., how the equipment is distributed from the manufacturer to the customer). Once it established proper**  **distribution channels for each of the equipment classes, DOE relied on economic data from the U.S. Census Bureau and input from the industry to determine how much product prices are**  **increased as they pass from the manufacturer to the customer (see chapter 6 of the TSD). 2-8** 

**DOE’s review of the information revealed that a set of three distribution channels would be appropriate, as described below:** 

**1. Equipment Manufacturer**  **Vend ing Machine Operator (e.g., bottler, beverage distributor)** 

**2. Equipment Manufacturer**  **Distributor**  **Vending Machine Operator**

**3. Equipment Manufacturer**  **Distributor**  **Site Owner**
**In the first distribution channel, the equipment manufacturer makes the equipment to**

**mee t**  **machine performance specifications provided by the beverage company (i.e., the vending machine operator) and sells it directly to a bottler or beverage distributor. The vending machine**  **operator owns the machine, places it on site through a “location contract,” maintains the machine and stocks it, and receives a certain percentage of coin-box revenue. The site owner, in this case,**  **allows the machine to be placed on site, receives a percentage of coin-box revenue and/or other remuneration, and most importantly, pays the electric bill.** 

**In the second channel, the vending machine operator purchases the equipment from a distributor instead of directly from the equipment manufacturer.** 

**In the third channel, a site owner (e.g., large retail store chain) may purchase the vending machines from the distributor and install them inside or outside a retail store location. Other site**  **owners (e.g., gas stations) may purchase vending machines from a distributor and stock the machines for the entire coin-box revenue.** 

**The first distribution channel creates a “split-incentive system” where bottling companies or distributors purchase and install a significant portion of the vending machines from equipment**  **manufacturers, but do not pay the utility bills associated with the machines’ operation. The site owner may be paid a commission as part of the location contract to defray part of the electricity**  **bill. Therefore, the equipment purchaser has no economic incentive to purchase a more efficient machine. Nonetheless, there may be a growing market for energy-efficient beverage vending**  **machines because environmentally conscious beverage companies are asking for energy-efficient machines, and certain site owners are demanding that energy-efficient machines be installed to**  **reduce energy costs.**

2.8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES

**New energy conservation standards on equipment usually reduce operating expenses and increase customer prices. DOE analyzed the net effect of new standards on customers by**  **evaluating the net LCC using the cost-efficiency relationship derived in the engineering analysis, as well as the energy costs derived from the energy use characterization analysis. Inputs to the**  **LCC calculation include the installed cost to the customer (customer price plus installation cost), operating expenses (energy expenses and maintenance costs), the lifetime of the appliance, and a**  **discount rate. These inputs are described in detail in chapter 8 of the TSD. 2-9** 

**The installed cost typically increases and operating cost typically decreases in response to new standards. Thus, there is a specific time in the life of higher-than-baseline efficiency**  **equipment when the net operating-cost benefit (in dollars) from the time of purchase is equal to the incremental first cost of purchasing the more efficient equipment. The length of time**  **required for equipment to reach this cost-equivalence point is known as the payback period.**

**For the ANOPR, DOE conducted the LCC and PBP analyses using typical values to reflect the conditions in the field for equipment life, equipment retail price, national or regional**  **energy costs, energy consumption, and discount rates. The life-cycle cost subgroup analysis will be conducted for the NOPR and will include an assessment of impacts on customer subgroups.** 

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

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

**DOE developed discount rates by estimating the cost of capital to companies that purchase beverage vending machines covered under this rulemaking. DOE commonly uses the**  **cost of capital to estimate the present value of cash flows to be derived from a typical company project or investment. Most companies use both debt and equity capital to fund investments, so**  **the cost of capital is the weighted-average cost to the firm of equity and debt financing. This corporate finance approach is referred to as the weighted-average cost of capital.** 

**DOE considered expected changes to maintenance, repair, and installation costs for the equipment covered in this rulemaking. Typically, small incremental changes in equipment**  **efficiency incur no, or only very small, changes in repair and maintenance costs over baseline efficiency products. There is a greater probability that equipment with efficiencies that are**  **significantly greater than the baseline will incur increased repair and maintenance costs since such equipment is more likely to incorporate technologies that are new to the industry and not**  **widely available. DOE relied on input from manufacturers and other stakeholders to develop appropriate repair and maintenance costs. Unless the efficiency increases considered for this**  **rulemaking result in significantly larger or heavier products, DOE determined that more efficient beverage vending machines would not incur increased installation costs.** 

**DOE used information from various literature sources (e.g., Automatic Merchandising and American Society of Heating, Refrigerating, and Air-Conditioning Engineers Refrigeration**  **Handbook) and input from manufacturers and other stakeholders to establish average equipment lifetimes for use in the life-cycle cost and subsequent analyses.** **2-1 0** 

2 .9 SHIPMENTS ANALYSIS

**Sh i**  **pment forecasts are required to calculate the national impacts of standards on energy, NPV, and future manufacturer cash flows. DOE developed shipment forecasts based on an**  **analysis of key market drivers for beverage vending machines (see chapter 9 of the TSD).**

**For each equipment class, DOE developed a set of shipment forecasts for the beverage vending machines for each set of standards analyzed. These standards case forecasts were used**  **to evaluate the impacts of standards on product shipments. Standards case forecasts were derived using the same data sets as base case forecasts. However, because the standards case**  **forecasts take into account the increase in customer price and the decrease in operating costs caused by standards, forecasted shipments typically deviate from the base case. The magnitude**  **of the difference between the standards case and base case shipment forecasts depends on the estimated customer price increase and operating cost savings caused by the standard. Because**  **the customer price tends to have a larger impact than operating cost on equipment purchase decisions, standards case forecasts typically show a drop in product shipments relative to the**  **base case.**

**The data required to develop sensitivities of shipments to customer price and operating cost savings were limited. Therefore, DOE modeled standards case shipments forecasts with**  **scenarios (i.e., specific impacts on product shipments) rather than developing sensitivities to customer price or operating cost savings.** 

2.10 NATIONAL IMPACT ANALYSIS

**The national impact analysis assesses the NPV of total customer LCC and NES. DOE determined both the NPV and NES for the performance levels considered for the equipment**  **classes analyzed. To make the analysis more accessible and transparent to all stakeholders, DOE prepared an NES spreadsheet model in Microsoft Excel to forecast energy savings and the**  **national economic costs and savings resulting from new standards. The NES spreadsheet model does not use probability distributions for inputs or outputs. To assess the impact of input**  **uncertainty on the NES and NPV results, DOE can conduct sensitivity analyses for future analyses by running scenarios on input variables of interest to stakeholders. DOE conducted an**  **assessment of the aggregate economic impacts at the national level for this ANOPR as described in chapter 10 of the TSD.** 

2.10.1 National Energy Savings Analysis

**The inputs for determining NES are (1) annual energy consumption per unit, (2) shipments, (3) equipment stock, (4) national energy consumption, and (5) site-to-source**  **conversion factors. DOE calculated the national energy consumption by multiplying the number of units, or stock, of beverage vending machines (by vintage) by the unit energy consumption**  **(also by vintage). a**  **Then, DOE calculated national annual energy savings from the difference bet**  **w een national energy consumption in the base case (without new efficiency standards) and in** 

**a Vintage represents the age of the equipment.** **2-1 1** 

**e ach higher efficiency standard case. The analysis included estimated energy savings by fuel**  **typ e**  **used for generating electricity. DOE estimated energy consumption and savings based on site energy, and converted the electricity consumption and savings to source energy. Cumulative**  **energy savings are the sum of the annual NES, which DOE determined over specific time periods.** 

**The stock of beverage vending machines depends on annual shipments and equipment lifetimes. DOE conducted shipments projections under the base efficiency case and higher**  **efficiency standards cases for a variety of possible equipment efficiency scenarios and trends. DOE determined that shipment projections under the higher standard efficiency cases were lower**  **than those from the base efficiency case projection, because more efficient equipment has a higher installed cost. Higher installed costs caused some customers to forego equipment**  **purchases. As a result, DOE used the higher efficiency standard case shipments projection and, in turn, the resulting stock of equipment under the higher efficiency standards case, to determine**  **the NES. Calculating the NES in this way avoids including savings resulting from displaced shipments.** 

2.10.2 Net Present Value Analysis

**The inputs for determining NPV are (1) total annual installed cost, (2) total annual operating cost savings, (3) discount factor, (4) present value of costs, and (5) present value of**  **savings. DOE calculated net savings each year as the difference between total operating-cost savings (including electricity, repair, and maintenance cost savings) and increases in total**  **installed costs (including equipment price and installation cost). DOE calculated savings over the life of the equipment, accounting for differences in yearly energy rates. DOE calculated**  **NPV as the difference between the present value of operating cost savings and the present value of increased total installed costs. DOE discounted future costs and savings to the present with a**  **discount factor.**

**DOE calculated increases in total installed costs as the product of the difference in the total installed cost between the base case and standards case and the annual shipments in the**  **standards case. Because costs of more efficient equipment bought in the standards case are higher than the costs of equipment bought in the base case, price increases appear as negative**  **values in the NPV.**

**DOE expressed operating cost savings as decreases in operating costs associated with the lower energy consumption of equipment bought in the standards case compared to the base**  **efficiency case. Total operating-cost savings are the product of savings per unit and the number of units of each vintage surviving in a particular year.** 

2.10.3 Efficiency Scenarios and Trends

**Several of the inputs for determining NES (e.g., the annual energy consumption per unit) and NPV (e.g., the total annual installed cost and the total annual operating-cost savings) depend**  **on the efficiency of the equipment. Thus, DOE developed base case and standards case efficiency trends. The efficiency trends specify the annual historical and forecasted shipment**  **weighted average equipment efficiencies. 2-1**  **2**

**D OE based historical shipment-weighted average efficiency trends for beverage vending** 

**mac h**  **ines on limited BVM efficiency data. Once DOE established historical efficiency trends, it estimated future trends of equipment efficiency, and in turn, annual energy consumption, by**  **extrapolating from the historical trend.**

**DOE based its standards case forecasts (i.e., forecasts of efficiency trends after standards take effect) on the use of a roll-up efficiency scenario and parallel growth trend. Under a roll-up**  **scenario, all equipment at performance levels below a prospective standard are moved or rolled up to the minimum performance level allowed under the new standard. The distribution of**  **equipment at higher efficiency standard levels is unaffected (i.e., this equipment remains at its pre-standard performance levels). The roll-up efficiency scenario dictates how DOE determined**  **efficiency distributions in the first year a new standard takes effect, but does not define how equipment efficiency will be distributed in the future. Under the parallel growth trend, DOE**  **assumes that the standards case efficiency trend parallels the base case efficiency trend. In other words, the initial jump in shipment-weighted efficiency that occurs when the standard first**  **becomes effective is maintained throughout the forecast.**

2.11 LIFE-CYCLE COST SUB-GROUP ANALYSIS

**The LCC sub-group analysis evaluates economic impacts on virtually any group of customers, for example, customers of different business types that might be adversely affected**  **by a change in the national energy efficiency standard levels for beverage vending machines. During the NOPR stage, DOE intends to evaluate the impacts of particular sub-groups of**  **customers in part by analyzing the LCC and PBP for these customers.**

**DOE intends to evaluate variations both in regional energy prices and use that might affect the NPV of an energy-efficiency standard to customer sub-groups. To the extent possible,**  **DOE will seek estimates of the variability of each input parameter and consider this variability in calculating customer impacts. Variations in energy use for a particular equipment type or class**  **depend on factors such as climate, building type, and type of business. DOE intends to perform sensitivity analyses to consider how differences in energy use will affect various sub-groups of** 
**customers.**
**Then, DOE will determine the impact on customer sub-groups using the LCC spreadsheet model. The spreadsheet model used for the LCC analysis can be used with different data inputs.**  **The standard LCC analysis includes various commercial building types that use beverage vending machines. Moreover, DOE can analyze the LCC for any sub-group by using the LCC**  **spreadsheet model and only sampling that sub-group. Details of this model are explained in the section describing the LCC and PBP analyses.** 

**DOE is particularly sensitive to increases in the customer price of more efficient beverage vending machines. DOE aims to avoid a negative economic impact on any identified**  **customer sub-group, such as small businesses with low annual revenues that might not be able to afford a significant increase in the price of beverage vending machines. Increased first costs to**  **customers resulting from energy efficiency standards are especially important to smaller businesses, because this group is most sensitive to price increases. For these types of customers,** **2-1 3** 

**i ncreases in first costs for equipment could preclude the purchase of a new beverage vending** 

**mac h**  **ine. As a result, some customers might keep refrigeration equipment beyond its useful life. These older pieces of equipment are generally less efficient. Also, increases in first cost could**  **preclude the purchase and use of equipment altogether, resulting in a potentially large loss of utility.** 

**Although business income and annual revenues are not identifiable for the business types analyzed in the LCC analysis, the floor space a business occupies may be an indicator of its**  **annual income. If this is generally true, DOE will be able to perform sub-group analyses on smaller businesses. If DOE determines that business income does not correlate with floor space,**  **then DOE may not be able to perform sub-group analyses on smaller businesses. In this event, DOE will seek other sources of data to perform these analyses.** 

2.12 MANUFACTURER IMPACT ANALYSIS

**The MIA focuses on manufacturers of beverage vending machines. Impacts could include both quantitative and qualitative financial effects that might result from new energy**  **efficiency standards, and consequently lead to changes in manufacturing practices. DOE will identify potential impacts through interviews with manufacturers and other stakeholders.** 

**Previously, DOE did not report any MIA results during the ANOPR phase. However, DOE announced changes to the MIA format through a report issued to Congress on January 31,**  **2006 (as required by section 141 of the Energy Policy Act of 2005). b**  **Under this new format, DOE w**  **i ll collect, evaluate, and report preliminary information and data in the ANOPR. Such**  **preliminary information includes the anticipated conversion capital expenditures by efficiency level and the corresponding anticipated impacts on jobs. DOE will solicit this information**  **during the ANOPR engineering analysis manufacturer interviews.**

**During the NOPR stage of the rulemaking, DOE intends to conduct the manufacturer impact analysis in three phases. Phase one consists of preparing an industry characterization and**  **identifying the issues. Phase two addresses the broader industry where DOE would use the Government Regulatory Impact Model to perform an industry cash flow analysis. Phase three**  **involves interviewing manufacturers. The questionnaire for use in phase three is developed in phase two. At the beginning of phase three, DOE will interview manufacturers and adjust the**  **industry cash flow analysis as needed. Thereafter, phase three will entail additional cash flow analyses of the different sub-groups that could be affected by the rulemaking. Phase three will**  **also examine any additional impacts on competition, manufacturing capacity, direct employment, and the cumulative burden of other regulations on manufacturers.** 

**b This report, “Energy Conservation Standards Activities,” is available at**  **http:// www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html.** **2-1 4** 

2 .13 UTILITY IMPACT ANALYSIS

**The u**  **tility impact analysis will include an analysis of the impact of higher efficiency standards on the electric utility industry. DOE is considering adapting EIA’s National Energy** **Modeling System (NEMS) for this analysis. NEMS (EIA 2005) is a large multi-sectoral partial equilibrium model of the U.S. energy sector that has been developed over the past decade,**  **primarily for the purpose of preparing DOE’s** AEO **. In prior rulemakings, a variant of NEMS (currently termed NEMS-BT, BT referring to the DOE’s Building Technologies Program) was**  **developed to better address the specific impacts of an equipment efficiency standard.**

**NEMS produces a widely recognized baseline energy forecast for the United States through 2030. The typical NEMS outputs include forecasts of electricity sales, price, and**  **avoided electric generating capacity. DOE plans on modeling the energy savings impacts from amended energy conservation standards using NEMS-BT to generate forecasts that deviate from**  **the** AEO **reference case.**

2.14 EMPLOYMENT IMPACT ANALYSIS

**The imposition of standards can affect employment both directly and indirectly. Direct employment impacts are changes in the number of employees at the plants that produce the**  **covered equipment and at affiliated distribution and service companies. DOE will evaluate direct employment impacts in the manufacturer impact analysis. Indirect employment impacts**  **may result from expenditures shifting between goods (the substitution effect) and changes in income and overall expenditure levels (the income effect). The combined direct and indirect**  **employment impacts will be investigated in the employment impact analysis using the Pacific Northwest National Laboratory’s “Impact of Sector Energy Technologies” (ImSET) model. The**  **ImSET model was developed for DOE’s Office of Planning, Budget, and Analysis to estimate the employment and income effects of energy-saving technologies on buildings, industry, and**  **transportation. Compared to simple economic multiplier approaches, ImSET allows for more complete and automated analysis of the economic impacts of energy conservation investments.** 

2.15 ENVIRONMENTAL ASSESSMENT

**The primary environmental effects of energy conservation standards for the beverage vending machines covered under this rulemaking will be decreased emissions resulting from**  **reduced electrical energy consumption. The environmental assessment will track the impact of possible standards on CO**  **2 , NO**  **x , and SO**  **2 . DOE intends to base these calculations on the**  **NEMS- B**  **T modeling work proposed for the utility impact analysis. This approach has the advantage of examining the marginal impact of higher efficiency standards for the covered**  **equipment on the utility generation mix and the subsequent environmental emissions.**

**CO 2**  **emissions are tracked in NEMS-BT by a detailed module that produces robust results beca**  **use of its broad coverage of all sectors and inclusion of interactive effects. NEMS-BT also includes a module for SO**  **2 -allowance trading and delivers a forecast of SO**  **2 -allowance prices.**  **Sim u**  **lation of SO 2**  **trading tends to imply that physical emissions effects will be zero. However, 2-1**  **5**

**t here is an SO**  **2 benefit from conservation in the form of a lower allowance price and, if big** 

**eno u**  **gh to be calculable by NEMS, this value can be reported. NEMS-BT also has an algorithm for estimating NOx emissions from power generation.** 

2.16 REGULATORY IMPACT ANALYSIS

**In the NOPR stage, DOE will prepare a regulatory impact analysis (RIA) pursuant to Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (October 4, 1993),**  **which is subject to review under the Executive Order by the Office of Information and Regulatory Affairs at the Office of Management and Budget. The RIA will address the potential**  **for non-regulatory approaches to supplant or augment energy conservation standards to improve the energy efficiency or reduce the energy consumption of the beverage vending machines**  **covered under this rulemaking.**

**Voluntary and other non-regulatory efforts by manufacturers, utilities, and other interested parties can result in substantial improvements to energy efficiency or reductions in**  **energy consumption. DOE intends to consider the likely effects of non-regulatory initiatives on product energy use, consumer utility, and LCC. DOE will base its assessment on the actual**  **impacts of any such initiatives to date, but also will consider information about the impacts that any existing initiative might have in the future.** 

2.17 DEPARTMENT OF JUSTICE REVIEW

**Section 325(o)(2)(B)(i)(V) of the Energy Policy and Conservation Act states that before the Secretary of Energy may prescribe a new or amended energy conservation standard, the**  **Secretary shall ask the Attorney General to make a determination of “the impact of any lessening of competition...that is likely to result from the imposition of the standard.” (42 U.S.C. 6295)**  **Pursuant to this requirement, DOE will solicit the views of the DOJ on any lessening of competition that is likely to result from the imposition of a proposed standard and will give the**  **views provided full consideration in assessing the economic justification of a proposed standard. DOE may consult with DOJ at earlier stages in the standards development process to seek to**  **obtain preliminary views on competitive impacts.**