CHAPTER 1 1

. LIFE

- CYCLE COST SUBGROUP ANALYSIS

TABLE OF CONTENTS

11.1 INTRODUCTION

................................ ................................ ................................ ......... 11

- 1

11.2 SUBGROUP DEFINITION

................................ ................................ ........................... 11

- 1

11.3 INPUTS TO THE SUBGRO UP ANALYSIS FOR SMAL L BUSINESSES

............... 11

- 1

11.3.1 Small Business Statistics for Commercial Laundry

................................ ....................... 11

- 1

11.3.2 Small Company Discount Rates

................................ ................................ .................... 11

- 3

11.4 RESULTS FOR THE CONS IDERED COMMERCIAL CL OTHES WASHER

SUBGROUP

................................ ................................ ................................ .................. 11

- 5

LIST OF TABLES

Table 11.3.1 Coin

- operated laundries & drycleaners: Number of Establishments and Receipts by Non

- Employer and Employer Status

................................ ............. 11

- 2

Table 11.3.2 Establishment and Firm Size: Legal Form of Organization

.............................. 11

- 2

Table 11.3.3 Establishment and Firm Size: Receipts/Revenue Size of Establishments

......... 11

- 3

Table 11.3.4 Size Premia by Year

................................ ................................ ........................... 11

- 4

Table 11.3.5 Small Company Discount Rates and Small Cap Premium

................................ 11

- 5

Table 11.4.1 Top

- Loading Commercial Clothes Washers : LCC and PBP Results for Small Companies

................................ ................................ ............................... 11

- 5

Table 11.4.2 Summary of Life

- Cycle Cost Savings Relative to the Base Case Efficiency Distribution for Top

- Loading Commercial Clothes Washers, Small Companies

................................ ................................ ................................ .......... 11

- 6

Table 11.4.3 Front

- Loading Commercial Clothes Washers : LCC and PBP Results for Small Companies

................................ ................................ ............................... 11

- 6

Table 11.4.4 Summary of Life

- Cycle Cost Savings Relative to the Base Case Efficiency

Distribution for Front

- Loading Commercial Clothes Washers, Small Companies

................................ ................................ ................................ .......... 11

- 7

11

- iCHAPTER 11. LIFE

- CYCLE COST SUBGROUP ANALYSIS

11.1 INTRODUCTION

Chapter 8 describes the Life

- Cycle Cost (LCC) and Payback Period (PBP) A nalysis that examines impacts of energy efficiency standards on the U

. S

. population. In analyzing the potential impact of new or amended standards on r esidentia l and commercial consumers, DOE

further evaluates the impact on identifiable groups of consumers (i.e., subgroups) that may be disproportionately affected by a national standard level. The LCC subgroup analysis evaluate s impacts by analyzing the LCC and PBPs for subgroup s commercial consumers

. For commercial clothes washers, DOE identified one consumer subgroup : small business es that own commercial

clothes washers

.

DOE determine d the impact on consumer subgroups for commercial clothes washers using the LCC Spreadsheet Model, which allows for the examination of particular consumer subgroups. For the small business subgroup, consumer discount rates different than the general population were used

. The inputs for the considered subgroup are descr ibed in section 1 1 .3

.

11.2 SUBGROUP DEFINITION

DOE analyzed the pot ential effects of standards on one subgroup: small commercial

clothes washer businesses.

For small commercial clothes washer businesses, DOE analyzed the potential impacts of standards by conducting the analysis with different discount rates, as small businesses do not have the same access to capital as larger businesses.

11.3 INPUTS TO THE SUBGRO UP ANALYSIS F OR SMALL BUSINESSES

11.3.1 Small Business Statistics for Commercial Laundry

The small business administration (SBA) defines a small business by its annual receipts or its number of employees. Coin

- operated laundries and drycleaners are considered small if its

annual revenue is less than $ 7 million. 1

This industry is comprised of: (1) establishments primarily engaged in operati ng facilities

with coin

- operated or similar self

- service laundry and dry

- cleaning equipment for customer use on the premises and (2) establishments primarily engaged in supplying and servicing coin

operated or similar self

- service laundry and dry cleaning equipment for customer use in places of

11-1business operated by others, such as apartments and dormitories. Table 11.3.1 provides the

statistics on coin

- operated laundromats and dry cleaners. 2

Table 11.3.1 Coin

- O perated L aundries & D ry C leaners : Number of Establishments and Receipts by Non

- E mployer and Employer Status

All Firms Non

- employers* Employers

Establishments Receipts ($1,000) Establishments Receipts ($1,000) Establishments Receipts ($1,000)

25,087 4,249,811 14,126 896,158 10,961 3,353,653 * Nonemployers are establishments or firms with no paid employees.

Source: U.S. Census Bureau, 2007 Economic Census. Other Services (Except Public Administration): Subject

Series

– Estab and Firm Size: Receipts/Revenue Size of Establishments for the United States: 2007

.

The following two tables provide further detail on the establishment firm size and receipts and revenues. Table 11.3.2 provides the establishment firm size by the type of legal organization. 3 Table 11.3.3 provides the firm size by the amount of sales per year. 4

Table 11.3.2 Establishment and Firm Size: Legal Form of Organization

Legal form of organization Number of

Establishments Receipts/ Revenue ($1,000) Number of employees

All establishments (employers) 10,961 3,353,653 40,309
Corporations 6,871 2,494,268 26,589
Individual proprietorships 2,631

-- -- Partnerships 1,456 456,629 6,001
Other legal forms of organization 3

-- -- Source: U.S. Census Bureau, 2007 Economic Census. Other Services (Except Public Administration): Subject

Series

– Estab and Firm Size: Legal Form of Organization for the United States: 2007

.

11-2Table 11.3.3 Establishment and Firm Size: Receipts/Revenue Size of Establi shments

Meaning of sales/receipts/revenue size categories or establishments operated the entire year Number of

establishments Receipts/

R evenue ($1,000) Number of employees

All establishments (employers) 10,961 3,353,653 40,309
Establishments operated for the entire year 9,396 3,149,554 37,610

Less than $10 0

, 00 0 2,244 140,825 3,776
$10 0 ,000 to $24 9 ,999 3,750 596,516 11,289
$25 0 ,000 to $4 9 9,999 1,739 547,216 8,335

$50 0 ,000 to $9 9 9,999 730 360,393 5,537

$1 ,0 00,000 to $2

, 49 9 ,999 350 201,981 2,926

$2

, 5 0 0,000 to $4 ,9 99,999 * 114 88,630 1,023
$5 ,0 00,000 to $ 9, 999,999 204 100,194 705

$1 0,000,000 or more 265

-- -- * Note that the bins reported by the Census Bureau do not allow DOE to specifically identify establishments with revenues of less than $7 million; $5 million is used as a cut off instead.

Source : U.S. Census Bureau, 2007 Economic Census. Other Services (Except Public Administration): Subject

Series

– Estab and Firm Size: Receipts/Revenue Size of Firms for the United States: 2007

.

B ased on the data in Table 11.3.3 , approximately 95 percent of establishments (operated for the entire year) have receipts/revenues of le ss than $5 million. But only 61 percent of industry receipts/revenues are earned by est ablishments that make less than $5 million. Therefore, even though almost all establishments are small, a significant percent of the revenues are captured by large establishments (i.e., those that earn at least $5 million). Because small

establishments c apture less than 70 percent of total industry revenues, small establishments do not represent the entire industry and should be analyzed as a subgroup.

11.3.2 Small Company Discount Rates

To calculate discount rates for small companies that purchase commercial cl othes

washers , DOE used the same methodology as the general population of commercial clothes washer consumers as presented in Chapter 8, section 8.2.4.3

. Although the methodology is appropriate, t he capital asset pricing model (CAPM) a used in section 8.2. 4 for the general population underestimates the cost of capital for small companies. In CAPM, the risk premium β is used to account for the higher returns associated with greater risk. However, for small companies, particularly very small companies, hist oric returns have been significantly higher than the CAPM equation predicts. T his additional return can be accounted for by adding a size premium to the cost of equity for small firms:



## ( ) S ERP R k f

e + × + = β

k

e = Cost of equity,

a See 8.2.4.3 for more extensive description of CAPM and its parameters.

11-3R f = Expected return on risk

- free assets, β = R isk coefficient of the firm,

ERP = Equity risk premium , and



### S = Size Premium.

DOE obtained size premium data from Ibbotson Associates’ Stocks, Bonds, Bills, and Inflation Yearbook for the years 2004

– 201 2

. 5 DOE uses the “decile 9

- 10” size premia, which represent the smallest companies, also called “microcap” companies. Size premia by year are presented in Table 11.3.4. As the size premium for 2013 was not available, the size premium for 2012 is applied in the calculation for 2013.

Table 11.3.4 Size Premia by Year

Year Size Premium

2004 4.01%

2005 4.02%

2006 3.95%

2007 3.88%

2008 3.65%

2009 3.74%

2010 3.99%

2011 4.07%

2012 3.89%

DOE calculated the real weighted average cost of capital (as described in chapter 8) using the cost of equity including a size premium for small companies instead of the CAPM cost of equity. 2 DOE estimates that small companies have average discount rates 1. 78 % higher than the sector average in the property sector, 1.19 % higher than the sector average in the lodging sector

, and 1.74% higher than the sector average in the personal services sector . Small company discount rates and discount rate premia above sector averages are presented in Table 11.3.4 ). b

b DOE did not estimate a small company discount rate for the education sector because this sector is represented using the discount rate for public institutions.

11-4Table 11.3.5 Small Company Discount Rates and Small Cap Premium

Sector Discount Rate

Average Std Dev Small Company

Discount Rate

Premium

Lodging Entire Sector 5.96% 1.65%

1.19% Small Companies 7.15% 2.14%

Property Entire Sector 5.12% 0.90%

1.78% Small Companies 6.91% 1.92%

Personal

Services Entire Sector 4.67%

-- 1.74% Small Companies 6.41%

--

11.4 RESULTS FOR THE CONSIDERED COMMERCIAL CLOTHES WASHER

SUBGROUP

Table 11.4.1 through Table 11.4.4 below summarize the top

- loading commercial clothes

w asher LCC results for multi

- family establishments and commercial laundries that are defined as

a small business

. For the two efficiency levels for top

- loading washers and the three efficiency

levels for front

- loading washers , the LCC results provide the average or mean LCC, the relative LCC savings or costs, and the percentage of consumers that are burdened with net costs, realize net savings, or incur no impact.

Table 11.4.1 Top

- Loading Commercial Clothes Washers : LCC and PBP Results for Small Companies

TSL Efficiency

Level Average Costs

Simple Payback

years 2013$ Average

Lifetime

Installed

Cost First Year’s Operating

Cost Lifetime Operating

Cost LCC years

Multi

- Family Application

-- 0 1,229 556 4,021 5,250

-- 11.3

1, 2 1 1,229 522 3,755 4,984 0.0 11.3

3, 4 2 1,293 459 3,233 4,526 0.7 11.3

Laundromat Application

-- 0 1,229 678 3,389 4,618

-- 7.1

1, 2 1 1,229 651 3,235 4,463 0.0 7.1

11-53, 4 2 1,293 568 2,748 4,042 0.6 7.1

Table 11.4.2 Summary of Life

- Cycle Cost Savings Relative to the Base Case Efficiency Distribution for Top

- Load ing Commercial Clothes Washers, Small Companies

TSL Efficiency Level Life

- Cycle Cost Savings

% of Consumers that Experience Average Savings 2013$
Net Cost

Multi

- Family Application

-- 0

-- --

1, 2 1 0 266

3, 4 2 0 723

Laundromat Application

-- 0

-- --
1, 2 1 0 154

3, 4 2 0 575

Table 11.4.3 Front

- Loading Commercial Clothes Washers : LCC and PBP Results for Small Companies

TSL Efficiency

Level Average Costs

Simple Payback

years 2013$ Average

Lifetime

Installed

Cost First Year’s Operating

Cost Lifetime Operating

Cost LCC years

Multi

- Family Application

-- 0 1,817 409 2,634 4,450

-- 11.3

1 1 1,817 384 2,435 4,251 0.0 11.3

2, 3 2 1,818 364 2,276 4,094 0.0 11.3

4 3 1,848 381 2,402 4,250 1.1 11.3

Laundromat Application

-- 0 1,817 524 2,285 4,102 7.1

1 1 1,817 493 2,111 3,928 0.0 7.1

2, 3 2 1,818 471 1,988 3,805 0.0 7.1

4 3 1,848 491 2,090 3,939 1.0 7.1

11-6Table 11.4.4 Summary of Life

- Cycle Cost Savings Relative to the Base Case Efficiency

Distribution for Front

- Load ing Commercial Clothes Washers, Small Companies

TSL Efficiency Level Life

- Cycle Cost Savings

% of Consumers that Experience Average Savings 2013$
Net Cost

Multi

- Family Application

-- 0

-- --

1 1 0 199

2, 3 2 0 245

4 3 57

- 6

Laundromat Application

-- 0

-- --

1 1 0 171

2, 3 2 0 198

4 3 67

- 12

The small company subgroup s show a similar trend in average LCC differences and consumer impacts (i.e., percentage of consumers significantly or insignificantly impacted) as the overall sample. In general, the benefits of movi ng to a higher efficiency are less in the case of the

small business subgroup s

.

11-7REFERENCES

1 U.S. Government Printing Office. Title 13: Business Credit and Assistance, Part 121

— Sma ll Business Size Regulations, Section 121.201

— Small Business Size Standards by NAICS Industry, Subsector 812

— Personal and Laundry Services, 812310

— Coin

- Operated Laundries and Drycleaners, 20 13 . Washington, DC.

< http://www.ecfr.gov/cgi

bin/retrieveECFR?gp=&SID=49c0a05ac640b0e9d6f8946ceb23bf45&n=13y1.0.1.1.17.1&r= SUBPART&ty=HTML#13:1.0.1.1.17.1.268.10 >

2 U.S. Census Bureau, 2007 Economic Census. Industry Statistics Sampler, NAICS 81231,

Coin

- operated laundries and drycleaners , 200 7 . Washington, DC.

< http://factfinder2.census.gov/faces/ta bleservices/jsf/pages/productview.xhtml?pid=ECN_20 07_US_00A1&prodType=table >

3 U.S. Census Bureau, 200 7 Economic Census. Sector 81: Other Services (Except Public Administration): Subject Series

- Estab & Firm Size: Legal Form of Organization for the

Un ited States: 2007 . Washington, DC.

< http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN _20 07_US_81SSSZ7&prodType=table >

4 U.S. Census Bureau, 2007 Economic Census. Sector 81: Other Services (Except Public Administration): Subject Series

- Estab & Firm Size: Receipts/Revenue Size of

Establis hments for the United States: 2007 . Washington, DC.

< http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_20 07_US_81SSSZ4&prodType=table >

5 Ibbotsons Associates. Stocks, Bonds, Bills, and Inflation Yearbook, 200 4

- 201 2 . Chicago, IL.

11-8