CHAPTER 11. LIFE-CYCLE COST SUBGROUP ANALYSIS

TABLE OF CONTENTS

11.1 INTRODUCTION ......................................................................................................... 11-1

11.2 SUBGROUP DEFINITION........................................................................................... 11-1

11.3 INPUTS TO THE SUBGROUP ANALYSIS FOR SMALL 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 CONSIDERED COMMERCIAL CLOTHES 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

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CHAPTER 11. LIFE-CYCLE COST SUBGROUP ANALYSIS

11.1 INTRODUCTION

Chapter 8 describes the Life-Cycle Cost (LCC) and Payback Period (PBP) Analysis that 

examines impacts of energy efficiency standards on the U.S. population. In analyzing the 

potential impact of new or amended standards on residential 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 evaluates

impacts by analyzing the LCC and PBPs for subgroups commercial consumers. For commercial 

clothes washers, DOE identified one consumer subgroup: small businesses that own commercial 

clothes washers.

DOE determined 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 described in section 11.3.

11.2 SUBGROUP DEFINITION

DOE analyzed the potential 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 SUBGROUP ANALYSIS FOR 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 operating 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 coinoperated or similar self-service laundry and dry cleaning equipment for customer use in places of 

11-1
business 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-Operated Laundries & Dry Cleaners: Number of Establishments 

and Receipts by Non-Employer 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.

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

Meaning of sales/receipts/revenue size categories 

or establishments operated the entire year

Number of 

establishments

Receipts/

Revenue 

($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 $100,000 2,244 140,825 3,776

$100,000 to $249,999 3,750 596,516 11,289

$250,000 to $499,999 1,739 547,216 8,335

$500,000 to $999,999 730 360,393 5,537

$1,000,000 to $2,499,999 350 201,981 2,926

$2,500,000 to $4,999,999* 114 88,630 1,023

$5,000,000 to $9,999,999 204 100,194 705

$10,000,000 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.

Based on the data in Table 11.3.3, approximately 95 percent of establishments (operated 

for the entire year) have receipts/revenues of less than $5 million. But only 61 percent of 

industry receipts/revenues are earned by establishments 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 capture 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 clothes 

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, the 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, historic returns have been significantly higher 

than the CAPM equation predicts. This additional return can be accounted for by adding a size 

premium to the cost of equity for small firms:

ke = Rf + (β × ERP)+ S

ke = Cost of equity,

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

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Rf = Expected return on risk-free assets,

β = Risk 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 – 2012.

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.

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Table 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%

Small Companies 7.15% 2.14% 1.19%

Property Entire Sector 5.12% 0.90%

Small Companies 6.91% 1.92% 1.78%

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 

washer 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

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3, 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-Loading 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

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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

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 subgroups 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 moving to a higher efficiency are less in the case of the 

small business subgroups.

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REFERENCES

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

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, 2013. Washington, DC. 

<http://www.ecfr.gov/cgibin/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, 2007. Washington, DC. 

<http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_20

07_US_00A1&prodType=table>

3 U.S. Census Bureau, 2007 Economic Census. Sector 81: Other Services (Except Public 

Administration): Subject Series - Estab & Firm Size: Legal Form of Organization for the 

United 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 

Establishments 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, 2004-2012. Chicago, IL.

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