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CHAPTER 12. PRELIMINARY MANUFACTURER IMPACT ANALYSIS

Table of Contents

12.1 INTRODUCTION ......................................................................................................... 12-1

12.2 METHODOLOGY ........................................................................................................ 12-1

12.2.1 Phase 1: Industry Profile.................................................................................... 12-1

12.2.2 Phase 2: Industry Cash-Flow Analysis and Interview Guide ............................ 12-2

12.2.2.1 Industry Cash-Flow Analysis................................................................... 12-2

12.2.2.2 Interview Guide........................................................................................ 12-2

12.2.3 Phase 3: Sub-Group Analysis ............................................................................ 12-2

12.2.3.1 Manufacturer Interviews .......................................................................... 12-2

12.2.3.2 Revised Industry Cash-Flow Analysis..................................................... 12-3

12.2.3.3 Manufacturer Sub-Group Analysis .......................................................... 12-3

12.2.3.4 Competitive Impact Assessment .............................................................. 12-3

12.2.3.5 Manufacturing Capacity Impact............................................................... 12-4

12.2.3.6 Employment Impact ................................................................................. 12-4

12.2.3.7 Cumulative Regulatory Burden................................................................ 12-4

12.3 PRELIMINARY MANUFACTURER IMPACT ANALYSIS ..................................... 12-4

12.3.1 General Interview Structure............................................................................... 12-5

12.3.1.1 Key Issues ................................................................................................ 12-5

12.3.1.2 Shipment Projections................................................................................ 12-5

12.3.1.3 Profitability............................................................................................... 12-5

12.3.1.4 Product Mix.............................................................................................. 12-6

12.3.1.5 Conversion Costs, Manufacturing Capacity, and Employment 

Levels....................................................................................................... 12-6

12.3.1.6 Market Shares and Industry Consolidation .............................................. 12-7

12.3.1.7 Product Utility and Innovation................................................................. 12-7

12.3.1.8 Impact on Small Manufacturers............................................................... 12-8

12.3.1.9 Cumulative Burden .................................................................................. 12-8

12.4 REFRIGERATED BEVERAGE VENDING MACHINE PRELIMINARY 

MANUFACTURER IMPACT ANALYSIS RESULTS ............................................... 12-8

12.4.1 Key Issues.......................................................................................................... 12-8

12.4.2 Shipments, Profitability, and Product Mix ...................................................... 12-10

12.4.3 Market Share and Industry Consolidation ....................................................... 12-11

12.4.4 Conversion Costs, Manufacturing Capacity, and Employment Levels........... 12-11

12.4.5 Impact on Innovation and Consumer Utility ................................................... 12-11

12.4.6 Cumulative Burdens......................................................................................... 12-12

12.4.6.1 Federal Refrigerant Regulations............................................................. 12-12

12.4.6.2 Standards for Commercial Refrigeration Equipment............................. 12-13

12.4.6.3 Federal Health and Nutrition Standards................................................. 12-13

12.4.6.4 ENERGY STAR .................................................................................... 12-13

12.4.7 Impact on Small Manufacturers....................................................................... 12-13
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CHAPTER 12. PRELIMINARY MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION

The purpose of the manufacturer impact analysis (MIA) is to identify the likely impacts 

of new or amended energy conservation standards on manufacturers. The U.S. Department of 

Energy (DOE) will conduct this analysis with input from manufacturers and other interested 

parties and will apply this methodology to its evaluation of new or amended energy conservation 

standards for refrigerated beverage vending machines (BVMs). DOE will also consider financial 

impacts to the industry and a wide range of quantitative and qualitative impacts that might occur 

following the amendment of an energy conservation standard. For example, a particular energy 

conservation standard level, if adopted by DOE, could require changes to refrigerated beverage 

vending machine manufacturing practices. DOE will identify and come to understand these 

impacts through interviews with manufacturers and other interested parties during the Notice of 

Proposed Rulemaking (NOPR) stage of its analysis.

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 (EPACT 2005)), 

entitled “Energy Conservation Standards Activities.”a Previously, DOE did not report any MIA 

results until the NOPR phase; however, under this new format, DOE has collected, evaluated, 

and reported preliminary information and data during the preliminary phase (the phase preceding 

the NOPR) of this rulemaking.

12.2 METHODOLOGY

DOE conducts the MIA in three phases and further tailors the analytical framework based 

on comments from interested parties. In Phase 1, DOE creates an industry profile to characterize 

the industry and conducts a preliminary MIA to identify important issues that require 

consideration. The preliminary technical support document (preliminary TSD) presents the 

results of the Phase 1 analysis. In Phase 2, DOE prepares an industry cash-flow model and an 

interview questionnaire to guide subsequent discussions. In Phase 3, DOE interviews 

manufacturers and assesses the impacts of amended energy conservation standards both 

quantitatively and qualitatively. Using the government regulatory impact model (GRIM), DOE 

assesses industry and sub-group cash flow and net present value (NPV). Then, DOE assesses 

impacts on competition, manufacturing capacity, employment, and cumulative regulatory burden 

based on feedback received during manufacturer interviews and subsequent discussions. The 

NOPR TSD presents results of the Phase 2 and 3 analyses.

12.2.1 Phase 1: Industry Profile

In Phase 1 of the manufacturer impact analysis, DOE collects pertinent qualitative and 

quantitative financial and market information. This includes refrigerated beverage vending 

machine manufacturer market shares, corporate operating ratios, wages, employment levels, and

 a This report is available on the DOE website at 

www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html.
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production cost ratios. Sources of information may include reports published by industry groups,

trade journals, the U.S. Census Bureau, copies of Securities Exchange Commission (SEC) 10-K 

filings, and interviews with manufacturers. DOE also relies on information from its market and 

technology assessment, engineering analysis, life-cycle cost analysis, markup analysis, and 

analysis of capital expenditure requirements.

12.2.2 Phase 2: Industry Cash-Flow Analysis and Interview Guide

In Phase 2, DOE will perform a preliminary industry cash-flow analysis and prepare

written guidelines for interviewing manufacturers.

12.2.2.1 Industry Cash-Flow Analysis

DOE uses the GRIM to analyze the financial impacts of amended energy conservation

standards on the refrigerated beverage vending machine manufacturing industry. Standards will

likely require additional investment, raise production costs, and affect revenue through higher

prices and, possibly, lower sales. The GRIM uses several factors to determine a series of annual 

cash flows for the year standards take effect and for several years after implementation. These 

factors include annual expected revenues, costs of sales, selling and general administration costs,

and taxes, as well as capital expenditures, depreciation, and maintenance related to new 

standards. Inputs to the GRIM include manufacturing costs, shipments forecasts, and price 

forecasts developed in other analyses. Another input, financial information, will be developed 

based on publicly available data and confidentially submitted manufacturer information. DOE 

compares the results of the GRIM against baseline projections where no standards are in place.

The financial impact of amended energy conservation standards is the difference between the

two sets of discounted annual cash flows.

12.2.2.2 Interview Guide

DOE will conduct interviews with manufacturers to gather information on the anticipated 

effects of standards on revenues and finances, direct employment, capital assets, and industry

competitiveness. Before the interviews, DOE will distribute an interview guide that will provide 

a starting point to identify relevant issues and help identify the impacts of standards on 

individual manufacturers or sub-groups of manufacturers. DOE anticipates that the interview 

guide will cover current organizational characteristics, industry infrastructure, manufacturer 

cash-flow analysis, a competitive impacts assessment, an employment impacts assessment, and a 

manufacturing capacity impacts assessment.

12.2.3 Phase 3: Sub-Group Analysis

Phase 3 activities will take place prior to the publication of the NOPR documents and 

will include manufacturer interviews, revision of the industry cash-flow analysis, manufacturer 

sub-group cash-flow analysis, competitive impact assessment, manufacturing capacity impact, 

employment impact, and cumulative regulatory burden.

12.2.3.1 Manufacturer Interviews

The information gathered in Phase 1 and the preliminary cash-flow analysis performed in 

Phase 2 will be supplemented with information gathered during interviews with manufacturers 
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during Phase 3. The interview process plays a key role in the manufacturer impact analyses, as it

provides an opportunity for interested parties to express their views privately on important

issues, allowing confidential or sensitive information to be considered in the rulemaking process.

DOE will conduct detailed interviews with as many manufacturers as necessary to gain 

insight into the range of potential impacts of standards. During the interviews, DOE will solicit 

information on the expected impacts of standards on sales, direct employment, capital assets, and 

industry competitiveness. Both qualitative and quantitative information are valuable. Interviews 

will be scheduled well in advance in order to provide every opportunity for key individuals to be

available for comment. Although a written response to the questionnaire will be acceptable, DOE 

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

to identify additional issues.

All information transmitted will be considered, as appropriate, in DOE’s decision-making 

process. Interview participants will be asked to identify all confidential information provided in 

writing or orally; no confidential information will be made available in the public record.

Participants will also be asked to identify all information they wish included in the public record,

but do not want to have associated with their interview. This information will be incorporated 

into the public record, but reported without attribution.

12.2.3.2 Revised Industry Cash-Flow Analysis

During the interviews, DOE will seek comment and suggestions regarding the financial 

parameters developed in Phase 1. Upon completion of the interviews, DOE will revise its 

industry cash-flow model based on manufacturer feedback.

12.2.3.3 Manufacturer Sub-Group Analysis

Using average cost assumptions to develop an industry cash-flow estimate is not adequate 

for assessing differential impacts among sub-groups of manufacturers. Smaller manufacturers, 

niche players, or manufacturers exhibiting a cost structure that differs largely from the industry 

average could be more negatively affected. Ideally, DOE would consider the impact on every 

firm individually; however, it typically uses the results of the industry characterization to group 

manufacturers exhibiting similar characteristics. During the interview process, DOE will discuss 

the potential sub-groups and sub-group members that have been identified for the analysis. DOE

will look to the manufacturers and other stakeholders to suggest what sub-groups or 

characteristics are most appropriate for the analysis.

12.2.3.4 Competitive Impact Assessment

Section 342 (6)(B)(i)(V) of the Energy Policy Act of 1992 (EPCA) directs DOE to 

consider any lessening of competition likely to result from imposition of standards. It further 

directs the U.S. Attorney General to determine the impacts, if any, of any decrease in 

competition. DOE will make a determined effort to gather and report firm-specific financial 

information and impacts. The competitive analysis will focus on assessing the impacts on

smaller, yet significant, manufacturers. The assessment will be based on manufacturing cost data 

and information collected from interviews with manufacturers. The manufacturer interviews will 

focus on gathering information that would help in assessing asymmetrical cost increases to some 
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manufacturers, the potential increase in business risks from an increased proportion of fixed 

costs, and potential barriers to market entry (e.g., proprietary technologies).

12.2.3.5 Manufacturing Capacity Impact

One of the significant outcomes of standards could be the obsolescence of existing 

manufacturing assets, including tooling and investment. The manufacturer interview guide will 

have a series of questions to help identify impacts on manufacturing capacity, specifically 

capacity utilization and plant location decisions in North America with and without a standard; 

the ability of manufacturers to upgrade or remodel existing facilities to accommodate the new 

requirements; the nature and value of stranded assets, if any; and estimates for any one-time 

restructuring charges, where applicable.

12.2.3.6 Employment Impact

The impact of amended energy conservation standards on employment is an important 

consideration in the rulemaking process. To assess how domestic employment patterns might be 

affected, the interview will explore current employment trends in the refrigerated beverage 

vending machine industry. The interview will also solicit manufacturer views on changes in 

employment patterns that may result from increased standard levels. The employment impacts 

section of the interview guide will focus on current employment levels associated with 

manufacturers at each of their production facilities, expected future employment levels with and 

without a standard, and differences in workforce skills and issues related to the retraining of 

employees.

12.2.3.7 Cumulative Regulatory Burden

DOE recognizes and seeks to mitigate the overlapping effects on manufacturers of

amended energy conservation standards and other regulatory actions affecting the same products.

DOE will analyze and consider the impact on manufacturers of multiple, product-specific 

regulatory actions. Based on its own research and discussions with manufacturers, DOE 

identified several regulations relevant to refrigerated beverage vending machine manufacturers

such as current or potential regulations for refrigerants, DOE’s conservation standard for 

commercial refrigeration equipment, and standards for food health and nutrition. DOE will study 

the potential impacts of these cumulative burdens in greater detail during the MIA conducted 

during the NOPR phase.

12.3 PRELIMINARY MANUFACTURER IMPACT ANALYSIS 

During the preliminary rulemaking phase, DOE conducted a preliminary evaluation of 

the impact of potential amended energy conservation standards on manufacturer financial 

performance, manufacturing capacity and employment levels, and product utility and innovation; 

the preliminary evaluation will also be used to identify the cumulative burden that industries face

from the overlapping effect of new or recent DOE energy conservation standards and/or other 

regulatory action affecting the same products or industries.

The primary sources of information for this analysis included an interview with 

representatives of a manufacturer trade association, public comments from manufacturers and 
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other stakeholders, and the industry analysis conducted for the 2009 refrigerated beverage 

vending machine standards rulemaking, supplemented with updated market research. DOE did 

not interview any individual manufacturers for the preliminary analysis. However, DOE will 

continue to seek interviews with manufacturers during the NOPR phase of analysis.

For the preliminary MIA, DOE used public comments and interview feedback primarily 

to identify key issues and gain insights into the qualitative impacts of amended energy 

conservation standards. Appendix 12-A contains a copy of the interview guide for refrigerated 

beverage vending machines.

12.3.1 General Interview Structure

The preliminary interview questionnaire included questions relating to the topics outlined 

in sections 12.3.1.1 through 12.3.1.9. These sections summarize information received via 

interviews and public comments from various stakeholders during the preliminary analysis phase 

of this rulemaking as well as during the previous rulemaking.

12.3.1.1 Key Issues

Perhaps the most important aspect of the preliminary MIA is the opportunity to identify 

key manufacturer issues early in the development of amended energy conservation standards.

Key issues, once identified, are added to the list of topics explored during the NOPR phase 

interviews.

12.3.1.2 Shipment Projections

Shipment projections can be a significant factor in determining the impacts of amended 

energy conservation standards. The framework comment period and preliminary interviews 

provide an opportunity for manufacturers and other interested parties to share information that 

can help DOE quantify the magnitude of any changes in shipments resulting from amended 

energy conservation standards. DOE is interested in information relating to the current number of 

product shipments, broken down by product class, capacity rating, and efficiency level. DOE 

also seeks input on the forecast of future shipments absent amended energy conservation

standards.

Manufacturers are asked how they would expect shipments to change for the industry as a 

whole as a function of standard levels and why they expect these changes might occur. More 

specific questions aim to derive a price elasticity estimate for use in the national impact analysis 

(NIA) spreadsheet.

Another aspect of the shipments discussion is to understand the impacts of a reduction in 

shipments on individual manufacturers of refrigerated beverage vending machines.

12.3.1.3 Profitability

DOE requests manufacturers’ views on what they perceive to be the possible impact of 

potential amended energy conservation standards on their future profitability. Amended energy 

conservation standards could affect financial performance in several different ways. For instance,
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the upfront investment in manufacturing capital and product development needed to upgrade 

production lines or redesign products before they have reached the end of their useful life can 

engender significant conversion costs, resulting in reduced cash flow and stranded investments.

Higher energy efficiency standards also can result in higher per-unit costs that may deter some 

customers from purchasing the products, or cause some customers to delay purchase or seek to 

purchase used products, thereby reducing shipments.

12.3.1.4 Product Mix

DOE is interested in understanding if amended energy conservation standards might 

change a manufacturer’s product mix and if this change affects profits. For example, higher 

energy efficiency standards might limit a manufacturer’s ability to differentiate and market 

premium products that command higher profit margins.

The interview guide also investigates how amended energy conservation standards might 

affect a manufacturer’s consumer mix and its distribution channels, and how in turn this might 

change profitability.

12.3.1.5 Conversion Costs, Manufacturing Capacity, and Employment Levels

During the preliminary interviews, DOE asks manufacturers to quantify and explain both 

the capital and product conversion costs necessary to raise the energy efficiency of their product 

lines to the proposed standard levels. In some instances, manufacturers may be able to meet 

proposed standard levels by modifying existing products. In other cases, the necessary changes 

may entail a complete product-line redesign. In these situations, an increase in efficiency 

standards may cause manufacturers to incur one-time conversion capital expenditures and 

product-conversion expenses. Conversion capital expenditures are one-time investments in 

property, plant, and equipment. Product-conversion expenses include one-time investments in 

research, product development, testing, and marketing.

Another possible outcome of amended energy conservation standards is the obsolescence 

of existing manufacturing assets, including tooling and other capital investment. The interview 

guide includes questions to identify impacts on manufacturing capacity. DOE developed these 

questions to understand the impact of potential amended standards on:

• North American manufacturing capacity;

• capacity utilization and plant location decisions in North America both with and without 

standards;

• the ability of manufacturers to upgrade or remodel existing facilities to accommodate a 

new product mix; and

• the nature and value of stranded assets, if any.

The impact of amended energy conservation standards on employment is an important 

consideration in the rulemaking process. DOE uses the interviews to explore current trends in 

production employment and solicit manufacturer views on changes in employment patterns 
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resulting from amended energy conservation standards. Questions regarding employment 

impacts help to understand:

• current employment levels associated with manufacturing at each production facility;

• expected future employment levels both with and without amended standards; and

• differences in workforce skills and issues related to retraining employees.

12.3.1.6 Market Shares and Industry Consolidation

Amended energy conservation standards can alter the competitive dynamics of the 

marketplace. Such alterations can include the prompting of companies to enter the market, exit 

the market, or merge with other companies. The preliminary interview questions ask 

manufacturers to share their perspectives on industry consolidation both in the absence of 

amended standards and assuming standards are amended. Manufacturers are asked to consider 

these effects at various efficiency levels to assess the full range of potential impacts. The 

interview questions focus on gathering information that helps in assessing:

• disproportionate cost increases to some manufacturers;

• increased proportion of fixed costs potentially increasing business risks; and

• potential barriers to market entry (e.g., proprietary technologies).

DOE evaluates the potential of anti-competitive effects arising from proposed standards 

in order to protect the interests of the customer. During interviews, DOE solicits information to 

understand if amended standards could result in disproportionate economic or performance 

penalties for particular customer or user sub-groups.

DOE also asks manufacturers if amended energy conservation standards could result in 

products that will be more or less desirable to customers due to changes in product functionality, 

utility, or other features.

12.3.1.7 Product Utility and Innovation

DOE conducts an assessment of anti-competitive effects of proposed standards in order to 

protect the interests of the customer. During the interviews, DOE asks manufacturers if amended 

energy conservation standards could result in products that will be more or less desirable to 

customers due to changes in product functionality, utility, or other features.

Amended energy conservation standards may require significant investment in 

conversion costs, including research and development (R&D). This required spending may force 

a manufacturer to reduce funding usually allocated to product innovation. Amended energy 

conservation standards may also force manufacturers to eliminate innovative energy-consuming 

features from their products. During the interviews, DOE requests information on the effect of 

proposed standards on innovation.
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12.3.1.8 Impact on Small Manufacturers

DOE will consider the possibility of small businesses being disproportionately affected 

by amended energy conservation standards for refrigerated beverage vending machine. Should 

any small business manufacturers be identified, DOE will study the potential impacts on these 

small businesses in greater detail during the NOPR phase of the MIA.

12.3.1.9 Cumulative Burden

While any one regulation may not impose a significant burden on manufacturers, the 

combined effects of several impending regulations may have serious consequences for some 

manufacturers, groups of manufacturers, or entire industries. Assessing the impact of a single 

regulation may overlook this cumulative regulatory burden.

Expenditures associated with meeting other regulations are an important aspect of DOE’s 

consideration of the “cumulative regulatory burden” the industry faces. The interviews help DOE 

identify the level and timing of investments manufacturers are expecting to incur as a result of 

these regulations. Manufacturers are also asked under what circumstances they might be able to 

coordinate expenditures related to these regulations and efficiency standards.

In addition to the amended energy conservation standards, several other Federal 

regulations may apply to refrigerated beverage vending machines and other products these 

manufacturers make. DOE will investigate these cumulative regulatory burdens in greater detail 

during the NOPR phase of the rulemaking.

12.4 REFRIGERATED BEVERAGE VENDING MACHINE PRELIMINARY 

MANUFACTURER IMPACT ANALYSIS RESULTS

During the preliminary MIA, DOE used public comments and interview feedback

(including from the 2009 BVM rulemaking) to identify key issues and gain insights into the 

qualitative impacts of amended energy conservation standards. DOE summarized the feedback 

below.

12.4.1 Key Issues

The first question asked in the preliminary interview is: “What are the key issues 

regarding this amended energy conservation standards rulemaking for refrigerated beverage 

vending machines?” This section describes the key issues associated with the refrigerated 

beverage vending machine energy conservation standards rulemaking and those that would have 

the most significant impact on the industry.

Refrigerated beverage vending machine manufacturers cited concerns regarding a 

number of issues that are covered in greater detail elsewhere in this TSD chapter. These issues 

include concerns about the impact of amended standards on profitability given current market 

conditions, negative impacts on customer utility, and the cumulative regulatory burden of 

multiple regulations facing the industry. Detailed descriptions of these manufacturer concerns 

are provided in the appropriate sections that follow; only brief descriptions are provided here.
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• Customer Impacts and Performance Requirements: According to manufacturers, 

major customers require their own performance specifications. Manufacturers stated 

that, if their major customers do not accept equipment changes due to standards, it is 

likely that the market would be negatively impacted. Additionally, manufacturers 

noted that their customers want improvements in energy efficiency without 

significant changes to purchase price. Because manufacturers ideally pass on cost 

increases to the customer, many manufacturers expect that their customers could be 

harmed from a new energy conservation standard.

• Current Market Conditions: For the 2009 final rule, manufacturers emphasized that 

industry shipments had been on a decline since the early 2000s due to overcapacity 

and retiring machines not always being replaced. According to manufacturers, the 

combination of these factors is causing vending to be unprofitable, and any increases 

in manufacturing prices could cause shipments to decline further. Public comments 

submitted during the preliminary phase of the current rulemaking echo the sentiment 

that DOE should consider the fact that the market for new refrigerated beverage 

vending machines is still in decline and thus even more vulnerable to increased costs.

• Cumulative Regulatory Burden: Manufacturers expressed concern that the ENERGY 

STAR efficiency levels are effectively no longer voluntary, having become a de facto 

market requirement due to their customers’ specifications. Therefore, meeting the 

ENERGY STAR efficiency level is a requirement to be competitive. Additionally, 

one manufacturer commented that, although technically optional, UL Safety Listings 

are a necessity for practical purposes. Other standards and regulations were 

mentioned in reference to cumulative regulatory burdens and are detailed 

subsequently.

• Split Incentive Problem: Manufacturers cited the split incentive problem as a major 

obstacle to improving efficiency. Because bottlers own the vast majority of all 

beverage vending machines, but typically do not pay the electric bills to operate the 

equipment, improvements in the energy efficiency of beverage vending machines 

have come from efficiency requirements set by bottlers, not from natural incentives. 

Consequently, manufacturers can receive a premium for design changes that are cost 

effective in terms of the servicing cost of the equipment and improving reliability. 

However, there are few opportunities to charge premiums for equipment that exceeds 

the efficiency requirements of the major beverage vending machine purchasers,

because there is little market for those products.

• Profitability: Manufacturers in general are concerned that energy conservation 

standards could lead to lower profit margins. 

• Small Business Impacts: Manufacturer comments indicated that small business

manufacturers of refrigerated beverage vending machines typically have fewer 

research and development and engineering resources than larger manufacturers, while 

absolute compliance costs are generally comparable.
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12.4.2 Shipments, Profitability, and Product Mix

For the 2009 rulemaking, DOE asked manufacturers during the preliminary manufacturer

interviews how amended energy conservation standards would affect their overall shipments,

profitability, and product mix. 

According to manufacturers, the industry has two main customers (bottling companies 

Coca-Cola and Pepsi Co.) that make the majority of all beverage vending machine purchases. 

Manufacturers stated at that time that the combined capacity of each major manufacturer was

many times larger than the current market demand. The overcapacity has been a result of a 

significant decline in shipments from the early 2000s through the 2009 rulemaking due to a 

saturated market. Manufacturers stated that shipments were also in decline due to a slowing of 

the replacement rate for retiring machines. 

In addition to these trends, manufacturers expressed concerns that higher selling prices

resulting from amended standards could harm profitability within the refrigerated beverage 

vending industry. Historically, manufacturers have experienced difficulty in passing cost 

increases along to customers. This relates to what manufacturers referred to as the “split 

incentive problem.” Because these customers (bottling companies) own the vast majority of all 

beverage vending machines but typically do not pay the electric bills to operate the equipment,

there is little opportunity to charge premiums for equipment that exceeds the efficiency 

requirements of these major purchasers. Manufacturers acknowledged that, because all 

manufacturers would be required to make similar equipment changes, there is a chance that these 

higher production costs could be passed through. 

Manufacturers also stated that the increasing costs associated with amended energy 

conservation standards could decrease profitability, because vending machines are only one of 

the available options to their customers. For example, instead of purchasing new beverage 

vending machines, customers could choose to purchase remanufactured equipment, extend the 

lifetime of their installed equipment, or switch to reach-in coolers or fountains. Additionally, 

manufacturers are concerned that the existing overcapacity and limited number of high-volume 

purchasers could harm profits if their manufacturing costs increase.

According to manufacturers, the combination of these factors renders vending 

unprofitable, and even minimal increases in manufacturing costs could cause shipments to 

decline further. Manufacturers are concerned that higher selling prices could lead to lower 

shipments because the limited capital budgets of the major beverage vending machine buyers 

makes purchasers sensitive to first costs. Lower production volumes could increase per unit 

overhead and depreciation, leading to higher prices and, in turn, even lower shipments. 

For the current rulemaking, stakeholders maintain that DOE should consider the market 

trend that indicates a shrinking industry-wide sales volume for new refrigerated beverage 

vending machines, as well as the fact that there are a relatively small number of manufacturers 

active in the refrigerated beverage vending machine market. Stakeholders also maintain that 

profitability for both refrigerated beverage vending machine manufacturers and operators is 

likely to be negatively impacted by an amended standard. 
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12.4.3 Market Share and Industry Consolidation 

Through market research and stakeholder input, DOE believes there has been little in the 

way of entry and exit in the refrigerated beverage vending machine industry since the 2009 

standards rulemaking. One stakeholder noted that Crane Co.−the parent company to refrigerated 

beverage vending machine manufacturer Crane Merchandising–recently acquired MEI Conlux, a 

company that manufactures and sells electronic bill acceptors, coin mechanisms, and other 

unattended transaction systems. This stakeholder also noted that it does not expect additional 

consolidation within the industry in the absence of additional conservation standards.

In the 2009 rulemaking, several manufacturers predicted that the increased cost of 

beverage vending machines could squeeze smaller beverage vending machine operators and 

could cause consolidation within the beverage vending machine operator industry.

12.4.4 Conversion Costs, Manufacturing Capacity, and Employment Levels

New and amended energy conservation standards typically cause manufacturers to incur 

one-time conversion costs to bring their production facilities and product designs into

compliance with the new standards. For the MIA, DOE classifies these one-time conversion 

costs into two major groups. Product conversion costs are one-time investments in research, 

development, testing, and marketing focused on making equipment designs comply with the 

amended energy conservation standard. Capital conversion costs are one-time investments in 

property, plant, and equipment to adapt or change existing production facilities so that new 

equipment designs can be fabricated and assembled under the amended regulation. 

DOE will continue to solicit input from manufacturers regarding estimated conversion 

costs, as well as impacts on manufacturing capacity and employment during the NOPR phase of 

this rulemaking. 

12.4.5 Impact on Innovation and Customer Utility 

Amended energy conservation standards can affect purchasers of refrigerated beverage 

vending machine by increasing or decreasing product innovation and utility. With regards to 

innovation impacts in the industry, Wittern,, a manufacturer, publicly commented that huge 

strides have been made in the energy efficiency of refrigerated beverage vending machines 

compared to 10 years ago, and that now there’s a need to minimize energy-related regulations in 

order to maximize innovations in product development. 

Regarding consumer utility, Automated Merchandising Systems, Inc. (AMS) strongly 

urged DOE to consider the development of a separate equipment class for glass-front multipurpose vending machines. AMS noted that a glass-front is a product feature that carries with it

additional utility. At the same time, glass-front machines have fewer energy saving options (such 

as insulation in the door and zone-cooling), which places manufacturers of this segment of 

products at a disadvantage with regards to an amended standard. 
12-12

12.4.6 Cumulative Burdens

Based on its own research and discussions with manufacturers, DOE identified several 

regulations relevant to refrigerated beverage vending machines, including: 

• current refrigerant regulations;

• DOE conservation standards for commercial refrigeration equipment;

• federal health and nutrition standards; and

• ENERGY STAR.

Complying with such regulations requires corporations to invest both human and capital 

resources. The following subsections discuss in greater detail regulations affecting the 

refrigerated beverage vending machines industry.

12.4.6.1 Federal Refrigerant Regulations

Manufacturers urged DOE to consider both current and potential restrictions on 

refrigerants as part of the cumulative regulatory burden impacting the refrigerated beverage 

vending machine industry. It is possible that a climate change bill regulating the use and 

emissions of greenhouse gases (GHGs) may be passed by Congress in the near future. Such a bill

may further restrict the use of hydrofluorocarbons (HFCs) as refrigerants, potentially phasing 

them out or capping their use at a restricted level. This presents a problem for manufacturers 

because HFC-134a is currently the most common refrigerant used in refrigerated beverage 

vending machines. 

In the United States, there are a series of national and state regulations applicable to 

refrigerants. The use of both carbon dioxide and hydrocarbons as refrigerants is currently

regulated by multiple federal government agencies, including the U.S. Environmental Protection 

Agency (EPA) and the U.S. Department of Labor’s Occupational Safety & Health 

Administration (OSHA). 

Refrigerants must first seek the approval of EPA’s Significant New Alternatives Policy 

(SNAP) program for each application in which the alternative refrigerant will be used. The 

purpose of SNAP is to evaluate and regulate substitutes for current Class I (CFC) and Class II 

(HCFC) ozone-depleting refrigerants used in U.S. industry.b Refrigerants can be approved or 

denied for use in particular applications, and approval can be conditional on meeting certain 

conditions prescribed by EPA. Hydrocarbons have not yet obtained SNAP approval for use as a 

refrigerant in refrigerated beverage vending machines. For equipment using carbon dioxidebased refrigerant, after EPA SNAP approval is secured, equipment must still meet safety 

 b

William Goetzler, Javier Burgos, Hirokazu Hiraiwa, and Timothy Sutherland, “Review of Regulations and 

Standards for the Use of Refrigerants with GWP Values Less Than 20 in HVAC&R Applications: Final Report,” 

ARTI Report No. 09001-01, April 2010.

http://www.ahrinet.org/App_Content/ahri/files/RESEARCH/Technical%20Results/ARTI-Rpt-09001-01.pdf
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standards from OSHA-approved testing laboratories. Equipment must meet safety standards such 

as those set by Underwriters Laboratories (UL), which prescribe requirements on equipment 

using certain refrigerants, as deemed appropriate.c

12.4.6.2 Standards for Commercial Refrigeration Equipment

In addition to the efficiency regulations for refrigerated beverage vending machines, 

Federal efficiency regulations for commercial refrigeration equipment, which includes coverage 

of refrigerated display cases, will impact one manufacturer. In March 2014, DOE published a 

final rule establishing amended energy conservation standards for commercial refrigeration 

equipment. Compliance with amended standards will be required in 2017. Total industry 

conversion costs are expected to be approximately $184.0 million.

12.4.6.3 Federal Health and Nutrition Standards

Manufacturers cited current and potential food health and nutrition standards instituted by 

the U.S. Department of Agriculture (USDA) and Federal Food and Drug Administration (FDA)

as contributing to cumulative regulatory burdens for the refrigerated beverage vending machine 

industry. In June of 2013, USDA published an interim final rule amending the National School 

Lunch Program and School Breakfast Program regulations to establish nutrition standards for all 

foods sold in schools, including snacks sold in vending machines. Some manufacturers expressed 

concerns that restrictions on what can be sold in vending machines will require a change to 

manufacturing processes. Similarly, to implement the vending machine labeling provisions of the 

Patient Protection and Affordable Care Act of 2010 (Affordable Care Act), in 2011, the FDA 

proposed requirements for providing calorie information for certain articles of food sold from 

vending machines. Some manufacturers are concerned that these requirements could require 

costly upgrades to vending machine screens.

12.4.6.4 ENERGY STAR

Some stakeholders have also expressed concern regarding potential conflicts with other 

certification programs, in particular EPA’s ENERGY STAR requirements. However, DOE notes 

that certain standards, such as ENERGY STAR, are voluntary for manufacturers. As such, they 

are not part of DOE’s consideration of cumulative regulatory burden.

12.4.7 Impact on Small Manufacturers

The Small Business Administration (SBA) defines small business manufacturing 

enterprises for North American Industry Classification System (NAICS) code 333318, Other 

Commercial and Service Industry Machinery Manufacturing, as companies with 1,000 or less 

employees. SBA lists small business size standards that are matched to industries as they are 

described in the NAICS. The size standard defines the maximum allowable size of a for-profit 

small business for Federal Government programs. Size standards are generally based on the 

average annual receipts or the average number of employees at a firm.

 c Ibid.
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Manufacturer comments indicated that smaller business manufacturers of refrigerated 

beverage vending machines typically have fewer human and financial resources than their larger 

counterparts. Although small manufacturers often have a more limited product range than larger 

manufacturers, the effort to address some aspects of regulations are relatively fixed and do not 

scale directly with the number of products or product platforms produced. Consequently, the 

cumulative burden of overlapping regulations will tend to place more of a burden on smaller 

manufacturers because of their more limited resources.

In its initial research, DOE identified four small business refrigerated beverage vending 

machine manufacturers. DOE will study the potential impacts to these small businesses in greater 

detail during the NOPR phase MIA.