CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES 

TABLE OF CONTENTS 

8.1 INTRODUCTION .............................................................................................................. 8-1 

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analyses ............... 8-1 

8.1.2 Overview of Life-Cycle Cost and Payback Period Analyses Inputs ................... 8-2 

8.2 LIFE-CYCLE COST ANALYSIS INPUTS....................................................................... 8-5 

8.2.1 Definition ............................................................................................................. 8-5 

8.2.2 Total Installed Cost Inputs................................................................................... 8-5 

8.2.3 Operating Cost Inputs ........................................................................................ 8-12 

8.3 PAYBACK PERIOD INPUTS ......................................................................................... 8-21 

8.3.1 Definition ........................................................................................................... 8-21 

8.3.2 Inputs.................................................................................................................. 8-21 

8.4 RESULTS USING TARIFF-BASED ELECTRICITY PRICES ..................................... 8-21 

8.4.1 Life-Cycle Cost Results ..................................................................................... 8-21 

8.4.2 Payback Period Results...................................................................................... 8-25 

LIST OF TABLES 

Table 8.1.1 Summary Information of Inputs for the Determination of Life-Cycle Cost 

and Payback Period.............................................................................................. 8-4 

Table 8.2.1 Inputs for Total Installed Costs ................................................................................ 8-6 

Table 8.2.2 Products Evaluated for the Beverage Vending Machine Life-Cycle Cost and 

Payback Analyses ................................................................................................ 8-6 

Table 8.2.3 Baseline Manufacturer Prices Per Unit .................................................................... 8-6 

Table 8.2.4 Standard-Level Manufacturer Price Increases (Price Increases Relative to the 

Price of Baseline Efficiency Equipment at Level 1) ............................................ 8-7 

Table 8.2.5 Overall Baseline Markups by Distribution Channel and Overall WeightedAverage, Including the Weighted Average Sales Tax, for Manufacturing 

Facilities............................................................................................................... 8-8 

Table 8.2.6 Overall Incremental Markups by Distribution Channel and Overall WeightedAverage, Including the Weighted Average Sales Tax, for Manufacturing 

Facilities ............................................................................................................... 8-8 

Table 8.2.7 Installation Costs for Baseline Beverage Vending Machine Equipment ................. 8-9 

Table 8.2.8 Installation Cost Indices (National Value = 1.000) ................................................. 8-9 

Table 8.2.9 Costs and Markups for Determination of Average Total Installed 

Costs (Beverage Vending Machine)*

 ................................................................. 8-10 

Table 8.2.10 Average Equipment Price, Installation Cost, and Total Installed Costs for 

Beverage Vending Machine (B-L-IO) at U.S. Average Prices*

 ........................ 8-12 

Table 8.2.11 Inputs for Operating Costs ................................................................................... 8-13 

Table 8.2.12 Estimated Commercial and Industrial Electricity Prices by State ....................... 8-13 

Table 8.2.13 Derived Average Electricity Price Paid by Business Type*

 ................................ 8-14 

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Table 8.2.14 Nominal and Real Discount Rates by Ownership Category .............................. 8-20
 

Table 8.4.1 Distribution of Life-Cycle Cost Savings from a Baseline Level (Level 1) 

for A-L-IN Beverage Vending Machine Equipment Category .................... 8-20 

Table 8.4.2 Summary of PBP Results for A-L-IN Beverage Vending Machine Equipment
 

Category....................................................................................................... 8-27 

Table 8.4.3 Beverage Vending Machine Mean Life-Cycle Cost Savings for Class A 

Equipment With and Without LED-Related Maintenance Savings ............ 8-29 

Table 8.4.4 Beverage Vending Machine Mean Life-Cycle Cost Savings for Class B 

Equipment With and Without LED-Related Maintenance Savings ............ 8-30 

LIST OF FIGURES 

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life-Cycle Cost and 

Payback Period..................................................................................................... 8-4 

Figure 8.2.1 Cumulative Probability Distribution Showing the Electricity Prices Paid 

by All Customers (2008$) .................................................................................. 8-15 

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2057 .................................... 8-16 

Figure 8.2.3 Electricity Price Trends for Industrial Rates to 2057 ......................................... 8-17 

Figure 8.4.1 Effect of the Change in Efficiency Level on Life-Cycle Cost for BottlerOwned A-L-IN Beverage Vending Machine in Manufacturing Facilities 

(2008$) at Average U.S. Conditions (Level 1 is the Baseline Efficiency 

Level) ................................................................................................................. 8-22 

Figure 8.4.2 A-L-IN Beverage Vending Machine, Level 4 Efficiency: Cumulative 

Chart of LCC Savings........................................................................................ 8-24 

Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for A-L-IN 

Beverage Vending Machine Equipment Category, in Manufacturing 

Facilities at Average U.S. Conditions (Level 1 is Baseline) .............................. 8-25 

Figure 8.4.4 A-L-IN Beverage Vending Machine Level 4 Efficiency: Cumulative Chart of 

PBP ..................................................................................................................... 8-26 

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CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES 

8.1 INTRODUCTION 

This chapter describes the methodology for analyzing the economic impacts of possible 

energy efficiency standards being developed for beverage vending machines on individual 

customers. The effect of standards on individual customers usually includes a reduction in 

operating cost and an increase in purchase cost. This chapter describes two metrics used in the 

analysis to determine the economic impact of standards on individual commercial customers: 

	 Life-cycle cost (LCC) is the total customer cost over the life of an appliance or 

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

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

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

	 Payback period (PBP) measures the amount of time it takes customers to recover the 

assumed higher purchase price of more energy-efficient equipment through reduced 

operating costs. 

Inputs to the LCC and PBP analyses of the beverage vending machine equipment are 

discussed in sections 8.2 and 8.3, respectively. Results for each metric are presented in section 8.4. 

Key variables and calculations are presented for each metric. The calculations discussed here were 

performed with a series of Microsoft Excel spreadsheets accessible at www1.eere.energy.gov/ 

buildings/appliance_standards/commercial/beverage_machines.html. 

Details of and instructions for using the spreadsheets are discussed in Appendix E of the 

refrigerated beverage machines final rule technical support document (TSD), User Instructions for 

Life Cycle Cost Spreadsheet. A more complete set of results of the analyses is presented in TSD 

Appendix F, Detailed Life-Cycle Cost Output. 

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analyses 

Recognizing that each commercial building that uses the beverage vending machine 

equipment is unique, the U.S. Department of Energy (DOE) analyzed variability of costs by 

performing the LCC and PBP calculations detailed here for seven types of businesses 

categorized as follows: 

	 Manufacturing facilities 

	 Office/healthcare – a large number of firms engaged in financial and other services, 

headquarters functions, medical and dental offices, outpatient care, nursing homes, longterm care, and assisted care facilities, and hospitals 

	 Retail – most types of retail stores as well as food and beverage service facilities 

	 Schools – primary and secondary, colleges, and universities, and large-group housing 

facilities owned by state governments, such as prisons 

	 Federal – all Federal buildings, including military bases, offices, and housing facilities 

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	 Other – facilities such as hotels and motels, warehouses, airports, sporting arenas, movie 

theaters, exhibition halls, and other miscellaneous facilities 

	 A local bottler or vending machine service company – the most common building type 

that typically leases space in any one of the six types of buildings, provides vending 

services, and splits the profits with the owner of the host site through a contract that splits 

the annual coin box receipts. 

Vending companies do not typically pay the electricity bill associated with their vending 

machines, but some portion of that bill may be shared with the site owner through the coin box 

contract. One beverage vending machine or beverage vending machine unit may serve a 

motel/hotel, an office building, a break room in a factory, a convenience store with gas pumps, or 

a hospital. Beverage vending machines may be located either inside the building or in some cases 

outside, frequently in a kiosk-like setting. 

Aside from energy, the most important factors influencing LCC and PBP analyses are 

related to the State within the United States to which each beverage vending machine unit is 

shipped. These factors include energy prices, installation cost, markup, and sales tax. The LCC 

analysis presented here used the predicted energy consumption based on the engineering analysis 

and reviewed in chapter 7, Building Energy Use Characterization. Energy consumption of 

beverage vending machines located in outdoor settings in this approach is sensitive to climate, so 

energy use varies by geographical location. At the national level, the spreadsheets explicitly 

modeled both the uncertainty and the variability in the model’s inputs using probability 

distributions based on the shipment of beverage vending machine equipment to different states. 

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

baseline efficiency level. Results are presented at the end of this chapter. A variety of graphic 

displays can be created to illustrate the implications of the analysis. Examples of graphic 

displays are (1) a cumulative probability distribution showing the percentage of beverage 

vending machine equipment in U.S. commercial buildings that would experience a net savings, 

and (2) a frequency chart depicting variation in life-cycle cost for each beverage vending 

machine efficiency level considered. 

8.1.2 Overview of Life-Cycle Cost and Payback Period Analyses Inputs 

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

and operating cost (including energy cost). Future operating costs are discounted to the time of 

purchase and summed over the lifetime of the equipment. The PBP is the increase in purchase 

cost of higher efficiency equipment divided by the decrease in annual operating cost (because of 

the lower energy consumption) of the equipment. It represents the number of years it will take 

the customer to recover the increased purchase cost through decreased operating costs. In the 

calculation of PBP, future costs are not discounted. 

Inputs to the LCC and PBP analyses are categorized as follows: (1) inputs for 

establishing the purchase cost, otherwise known as the total installed cost, and (2) inputs for 

calculating the operating cost (i.e., energy, maintenance, and repair costs). 

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The primary inputs for establishing the total installed cost are: 

	 Baseline manufacturer price: The price charged by the manufacturer to either a 

wholesaler or customer for equipment meeting existing minimum efficiency (or baseline) 

standards. The manufacturer price includes a markup that converts the cost to 

manufacture to a manufacturer price. 

	 Standard-level manufacturer price increases: The incremental change in manufacturer 

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

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

manufacturer price to a customer price. The markups and sales tax are described in detail 

in chapter 6, Markups for Equipment Price Determination. 

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

price represents all costs required to install the equipment but does not include the 

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

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

equipment price plus the installation price. 

The primary inputs for calculating the operating cost are: 

	 Equipment energy consumption: The equipment energy consumption is the site energy 

use associated with the use of the beverage vending machine equipment. Although there 

are potentially some interactive effects on the overall heating and cooling of the building, 

the LCC analysis for this final rule includes only the use of electricity by the equipment 

itself. This approach is consistent with most other DOE equipment efficiency 

rulemakings. Chapter 7, Energy Use Characterization, provides complete details on the 

beverage vending machine equipment energy use simulations and their results. 

	 Electricity prices: Electricity prices used in the analysis are the price per kilowatt-hour 

($/kWh) paid by each customer. Electricity prices are determined using average 

commercial and industrial electricity prices in each State, as determined from Energy 

Information Administration (EIA) data for calendar year 2008.1 The two types of 

buildings that use industrial electricity are assumed to pay the average industrial price. 

The 2008 average commercial prices were modified to reflect the fact that the four types 

of buildings pay commercial prices and use beverage vending machine equipment pay 

prices that, on average, are either slightly higher or lower than the average commercial 

prices.2 

	 Electricity price trends: The EIA’s April 2009 update to the Annual Energy Outlook 2009 

(AEO2009) is used to forecast electricity prices into the future.3

 For the results presented 

in this chapter, DOE used the updated AEO2009 reference case to forecast future 

electricity prices. 

	 Maintenance costs: The labor and material costs associated with maintaining the 

operation of the equipment (e.g., cleaning heat exchanger coils, checking refrigerant 

charge levels). 

	 Repair costs: The labor and material costs associated with repairing or replacing 

components that have failed. 

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Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes

Annual Maintenance

Electricity

Consumption Electricity

Consumption

Manufacturer Base 

Price

Total Installed Cost

(Std i Base)

Manufacturer Base 

Price

Wholesaler/ 

Distributor Markup

Electricity Prices

National Account 

Markup

Equipment Prices

Manufacturer Base

Price

Installation Costs

Manufacturer Std 1 

Base Price

Manufacturer Std 1 

Base Price

Manufacturer Price

Standard i= 1...n

Electricity

Consumption Annual Energy Costs

Annual Maintenance

Repair Costs

Annual Operating 

Cost (Std i Base)

Payback 

Period

Discount Rate

Lifetimes

Lifetime 

Operating

Cost (Std 

i Base)

Lifecycle 

Cost

Annual Maintenance

Costs

Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes

Annual Maintenance

Electricity

Consumption

Manufacturer Base 

Price

Manufacturer Base 

Price

Manufacturer Std 1 

Base Price

Manufacturer Std 1 

Base Price 

Annual Maintenance

	 Lifetime: The age at which the beverage vending machine or beverage vending machine 

equipment is retired from service. 

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

value. 

Figure 8.1.1 graphically depicts the relationships between the installed cost and operating 

cost inputs for the calculation of the LCC and PBP. Table 8.1.1 summarizes the various inputs 

used for the calculation of the LCC and PBP. As noted earlier, most of the inputs are 

characterized by probability distributions that capture variability of the input variables. Also 

listed in Table 8.1.1 are chapters in the TSD where more detailed information on the input 

variables can be found. 

–

Sales Tax 

-

–

Electricity 

Consumption 

Total Installed Cost 

Wholesaler/ (Std i –Base)

Distributor Markup 

Electricity Prices 

National Account 

(Bottler) Markup 

Equipment Prices 

Manufacturer Base 

Price 

Installation Costs 

Manufacturer Price 

Standard i= 1...n 

Electricity 

Consumption Annual Energy Costs 

Repair Costs 

Annual Operating 

Cost (Std i - Base) 

Payback 

Period 

Discount Rate 

Lifetimes 

Lifetime 

Operating 

Cost (Std 

i – Base) 

Lifecycle 

Cost 

Annual Maintenance 

Costs 

Figure 8.1.1 Flow Diagram of Inputs for the Determination of Life-Cycle Cost and 

Payback Period 

Table 8.1.1 Summary Information of Inputs for the Determination of Life-Cycle Cost 

and Payback Period 

Factor Value Concept TSD Reference 

Total Installed Cost Primary Inputs 

Baseline manufacturer price Varies with product 

Standard-level manufacturer price 

increases 

Varies with product and efficiency level 

Markups and sales tax Varies with distribution channel and location 

Installation price Varies with location 

Chapter 5 

Chapter 5 

Chapter 6 

Chapter 8 

Operating Cost Primary Inputs 

Equipment energy consumption Varies with product, efficiency level, and location 

Electricity prices Vary with location, business/building type 

Electricity price trends Vary with price scenario 

Maintenance costs Varies with product 

Repair costs Varies with product 

Lifetime Assumed to be 10 years 

Discount rate Varies with type of business 

Chapter 7 

Chapter 8 

Chapter 8 

Chapter 8 

Chapter 8 

Chapters 3, 8 

Chapter 8 

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All of the inputs depicted in Figure 8.1.1 and summarized in Table 8.1.1 are discussed in 

sections 8.2 and 8.3. 

8.2 LIFE-CYCLE COST ANALYSIS INPUTS 

8.2.1 Definition 

Life-cycle cost is the total customer cost over the life of a piece of equipment, including 

purchase cost and operating costs (which comprise energy costs, maintenance costs, and repair 

costs). Future operating costs are discounted to the time of purchase and summed over the 

lifetime of the equipment. Life-cycle cost is defined by the following equation: 

N 

LCC  IC OCt /(1 r)

t Eq. 8.1 t 1 

Where: 

LCC = life-cycle cost ($),
 

IC = total installed cost ($),
 

∑ = sum over the lifetime, from year 1–N, where N = lifetime of equipment (years),
 

OC = operating cost ($), 

r = discount rate, and 

t = year for which operating cost is being determined. 

Because DOE gathered most of its data for the LCC analysis for the year 2008, and 

because 2008 is the last full year before the rule is published, DOE expresses all the costs in 

2008$. Total installed cost, operating cost, lifetime, and discount rate are discussed in the 

following sections. 

8.2.2 Total Installed Cost Inputs 

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

IC  EQP  INST Eq. 8.2 

Where: 

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

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

and materials; $). 

The equipment price is based on how the customer purchases the equipment. As 

discussed in chapter 6, Markups for Equipment Price Determination, DOE defined three types of 

distribution channels to describe how the equipment passes from the manufacturer to the 

customer: (1) the manufacturer sells the equipment to a wholesaler, who in turn, sells it to the 

vending machine operator; (2) the manufacturer sells the equipment to a wholesaler/distributor, 

who sells to a site owner; or (3) the manufacturer sells the equipment to the local vending 

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machine operator through a national account. The remainder of this section provides information 

about the variables DOE used to calculate the total installed cost for beverage vending machine 

equipment. Inputs for the determination of total installed cost are shown in Table 8.2.1. 

Table 8.2.1 Inputs for Total Installed Costs 

Baseline manufacturer price ($)
 

Standard-level manufacturer price increases ($) 

Wholesaler markup 

Mechanical contractor markup 

General contractor markup
 

National accounts markup 

Sales tax (%) 

Installation cost ($) 

8.2.2.1 Baseline Manufacturer Price 

The baseline manufacturer price is the price charged by manufacturers to either a 

wholesaler/distributor or very large customer for equipment meeting existing minimum 

efficiency (or baseline) standards. The manufacturer price includes a markup that converts the 

cost to manufacture (i.e., the manufacturing cost) to a manufacturer price. DOE developed the 

baseline manufacturer prices through an efficiency level analysis supplemented by certain 

design-option considerations. Refer to chapter 5, Engineering Analysis, for details. The LCC and 

PBP have been carried out on a set of six equipment size categories in two equipment classes (A 

and B) identified in chapter 5. The set of six equipment categories evaluated is shown in 

Table 8.2.2. 

Table 8.2.2 Products Evaluated for the Beverage Vending Machine Life-Cycle Cost and 

Payback Analyses 

Equipment Category Symbol 

Class A, Large, Indoor Only 

Class A, Medium, Indoor Only 

Class A, Small, Indoor Only 

Class B, Large, Indoor-Outdoor 

Class B, Medium, Indoor-Outdoor 

Class B, Small, Indoor-Outdoor 

A-L-IN 

A-M-IN 

A-S-IN 

B-L-IO 

B-M-IO 

B-S-IO 

DOE developed the manufacturer selling prices for the baseline efficiency equipment as a 

part of the engineering analysis, which are shown in Table 8.2.3. 

Table 8.2.3 Baseline Manufacturer Prices Per Unit 

Equipment 

Category 

Baseline Manufacturer Price 

2008$ 

A-L-IN 2,426.95 

A-M-IN 2,222.07 

A-S-IN 1,856.20 

B-L-IO 1,779.80 

B-M-IO 1,716.84 

B-S-IO 1,521.33 

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8.2.2.2 Standard-Level Manufacturer Price Increases 

The standard-level manufacturer price increase is the change in manufacturer price 

associated with producing equipment at proposed higher efficiency levels. DOE developed 

manufacturer price increases associated with increases in equipment efficiency levels through a 

combination of efficiency level and design-option analyses. Refer to chapter 5, Engineering 

Analysis, for details. Manufacturer price increases as a function of equipment efficiency were 

developed for each of the six equipment categories. The engineering analysis produced nine 

efficiency levels (Levels 0–8) that were used in the LCC and PBP analyses. Most of the analysis 

presumes at least ENERGY STAR Tier 1 efficiency (Level 1) in the market. As of 2008, most 

currently shipped beverage vending machine equipment meets the ENERGY STAR Tier 1 level. 

By 2012, a large fraction (but not all) is expected to meet the ENERGY STAR Tier 2. DOE often 

establishes the baseline level for the LCC analysis on what best represents the bottom end of the 

efficiencies currently shipped, in this case the ENERGY STAR Tier 1 level. 

The highest (Level 8 for Class A, Level 7 for Class B) is considered the maximum 

technologically achievable efficiency level. Appendix D discusses the selection of efficiency 

levels for the LCC and PBP analyses. 

The efficiency level analysis established a distribution of manufacturer price increases for 

each efficiency level. Table 8.2.4 summarizes the estimated manufacturer price increases for 

beverage vending machine efficiency levels considered in the LCC and PBP analyses. 

Table 8.2.4 Standard-Level Manufacturer Price Increases (Price Increases Relative to 

the Price of Baseline Efficiency Equipment at Level 1) 

Equipment Level 

Type $ 

2 3 4 5 6 7 8 

A-L-IN 27 65 106 136 166 198 1,419 

A-M-IN 47 56 113 157 187 217 1,234 

A-S-IN 37 80 122 147 172 199 1,116 

B-L-IO 23 40 75 87 507 1,660 NA 

B-M-IO 23 44 79 91 511 1,530 NA 

B-S-IO 23 70 70 82 502 1,388 NA 

8.2.2.3 Overall Markup 

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

multiplying all the associated retail markups and the applicable sales tax. Because there are 

baseline and incremental markups associated with the wholesaler and mechanical contractor, the 

overall markup is also divided into a baseline markup (i.e., a markup used to convert the baseline 

manufacturer price into a customer price) and an incremental markup (i.e., a markup used to 

convert a standard-level manufacturer price increase because of an efficiency increase into an 

incremental customer price). 

As discussed in chapter 6, Markups for Equipment Price Determination, overall markups 

are based on one of three assumed distribution channels, as well as whether the equipment is 

being purchased for the new construction or the replacement market. The distribution channel is 

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based on whether equipment is purchased through (1) a wholesaler/distributor; or (2) a national 

account. 

Based on input from equipment manufacturers, for the new construction market it 

appears that 10 percent of equipment is purchased by vendors or local bottlers directly from 

wholesaler/distributors, 5 percent is purchased by site owners from wholesaler/distributors, and 

85 percent is purchased by bottlers and distributors through national accounts. DOE’s 

understanding is that most existing equipment replacements are done as a result of obsolescence 

or failure after one round of machine refurbishment. DOE has assumed that this split of percent 

of equipment purchases among the distribution channels is the same for new and replacement 

equipment, although based on information provided by bottlers and manufacturers, DOE 

assumes that all future sales are for replacement only. With three distribution channels, there are 

a potential total of six overall baseline and incremental markups possible. However, since the 

distribution channel markups for local vendors and site owners through wholesalers are 

essentially the same, the overall markups and their associated components are collapsed in 

Table 8.2.5 and Table 8.2.6 into just four channels for detailed baseline and incremental markups 

for Manufacturing Facilities. Similar tables were calculated for the six other business types. 

Table 8.2.5 Overall Baseline Markups by Distribution Channel and Overall WeightedAverage, Including the Weighted Average Sales Tax, for Manufacturing Facilities 

Baseline Markup Type Wholesaler/Distributor to 

Site Owner or to Vendor 

Manufacturer Direct to 

Vendor 

Overall 

Weighted Average 

Distributor(s) 

Sales Tax 

Total

1.460 

1.071 

 1.564 

1.000 

1.071 

1.071 

1.069 

1.071 

1.145 

Table 8.2.6 Overall Incremental Markups by Distribution Channel and Overall WeightedAverage, Including the Weighted Average Sales Tax, for Manufacturing Facilities 

Baseline Markup Type Wholesaler/Distributor to 

Site Owner or Vendor 

Manufacturer Direct to 

Vendor 

Overall 

Weighted Average 

Distributor(s) 

Sales Tax 

Total

1.200 

1.071 

 1.285 

1.000 

1.071 

1.071 

1.030 

1.071 

1.103 

Based on the percentages of the market attributed to each of the detailed distribution 

channels, weighted-average overall markups are also presented in Table 8.2.5 and Table 8.2.6. 

The overall weighted-average baseline markup for Manufacturing Facilities equals 1.145, while 

the overall weighted-average incremental markup equals 1.103. See chapter 6 for details. 

8.2.2.4 Installation Cost 

The installation cost is the price to the customer of labor and materials (other than the 

actual equipment) needed to install the beverage vending machine equipment. DOE derived 

installation costs for beverage vending machine equipment from data in Foster-Miller, Inc., 

which provides estimates on the person-hours required to install beverage vending machine and 

the labor rates associated with the type of crew required to install the equipment.4

 The 

installation cost was calculated by multiplying the number of person-hours by the corresponding 

labor rate. Labor rates vary significantly from region to region of the country and the U.S. 

Bureau of Labor Statistics (BLS) provides the necessary information to capture this regional 

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variability.5 BLS provides median wage rates for installation, maintenance, and repair 

occupations that reflect labor rates for each individual State and allows the computation of State 

labor cost indices relative to the national average for these occupations. These cost indices were 

incorporated into the analysis to capture variation in installation cost, depending on customer 

location. 

Since data were not available to indicate how installation costs actually vary with 

beverage vending machine or beverage vending machine equipment category or efficiency, DOE 

considered two scenarios: (1) installation costs varied in direct proportion to the cost of the 

equipment; or (2) installation costs remained flat (not varying with cost of the equipment). For 

the former case, the engineering analysis developed linear relationships of installation cost as a 

function of efficiency for beverage vending machine equipment. All baseline equipment, 

however, in a given equipment category, is assumed to have the same baseline installation costs. 

Table 8.2.7 summarizes the nationally representative person-hours and labor rates 

associated with the installation of beverage vending machine equipment as presented in FosterMiller Inc.4

 In Table 8.2.7, both “bare” installation costs (i.e., costs before overhead and profit 

[O&P]) and installation costs including O&P are provided. DOE decided that the installation 

costs that include O&P represent the installation costs for baseline equipment. The installation 

costs are assumed to remain fixed regardless of efficiency level (a “flat” installation cost 

scenario). However, the LCC spreadsheet allows for an alternative scenario; that the installation 

cost increase with higher efficiency levels, and this alternative was implemented in the LCC 

spreadsheet by providing for an installation price that varies in proportion to increased 

manufacturer cost above the baseline efficiency level. DOE did not, however, find a basis for the 

latter assumption. 

Table 8.2.7 Installation Costs for Baseline Beverage Vending Machine Equipment 

Equipment Type Person-Hours Labor Base Costs 

2008$ 

Labor Rate Cost 

All beverage vending machines 2.0 (1 hr  2 workers) 40.34/hr 80.67 

The basis for the installation costs are 2002 labor costs (adjusted to 2008$) for 

installation of mercantile equipment. Daily rates were for a two-person installation crew, 

requiring one hour (including service call driving time) on average to set up a beverage vending 

machine. 

Table 8.2.8 summarizes the BLS labor rates indices described above for installations in 

each of the 50 States, plus the District of Columbia, used to vary the nationally representative 

installation costs in Table 8.2.8. 

Table 8.2.8 Installation Cost Indices (National Value=1.000) 

State Index State Index State Index 

Alabama 0.933 Kentucky 0.936 North Dakota 0.959 

Alaska 1.254 Louisiana 0.915 Ohio 0.991 

Arizona 0.971 Maine 0.929 Oklahoma 0.913 

Arkansas 0.858 Maryland 1.055 Oregon 1.033 

California 1.105 Massachusetts 1.134 Pennsylvania 0.976 

Colorado 1.024 Michigan 1.079 Rhode Island 1.012 

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Connecticut 1.127 Minnesota 1.051 South Carolina 0.903 

Delaware 1.043 Mississippi 0.860 South Dakota 0.889 

Dist. of Columbia 1.154 Missouri 0.963 Tennessee 0.935 

Florida 0.914 Montana 0.943 Texas 0.901 

Georgia 0.962 Nebraska 0.931 Utah 0.971 

Hawaii 1.089 Nevada 1.065 Vermont 0.956 

Idaho 0.906 New Hampshire 1.018 Virginia 1.021 

Illinois 1.091 New Jersey 1.101 Washington 1.119 

Indiana 0.995 New Mexico 0.914 West Virginia 0.862 

Iowa 0.919 New York 1.077 Wisconsin 1.001 

Kansas 0.958 North Carolina 0.956 Wyoming 1.049 

8.2.2.5 Weighted-Average Total Installed Cost 

As presented in Eq. 8.2, the total installed cost is the sum of the equipment price and the 

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

multiplying the baseline manufacturer price by the baseline markup and adding to it the product 

of the incremental manufacturer price and the incremental markup. Because manufacturer prices, 

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

resulting total installed cost for a particular efficiency level will not be a single-point value, but 

rather a distribution of values. 

As an example, the average costs for the B-L-IO equipment category (manufacturer sale 

price of $1,780) are presented for the baseline level at national average markup rates and national 

average installation costs. The section also applies the corresponding incremental values to 

provide an indication of the increase in the total installed cost of the higher efficiency equipment. 

The derivation of the total installed cost is relatively straightforward. The baseline 

manufacturer price and the standard-level manufacturer price increases are the starting points for 

determining the total installed cost (values are taken directly from Table 8.2.3 and Table 8.2.4). 

The baseline and incremental markups, the sales tax, and installation costs are used to convert 

the manufacturer prices into total installed costs for beverage vending machine equipment where 

the incremental installation costs are held flat. Table 8.2.9 summarizes the average or mean costs 

and markups necessary for determining the average baseline and standard-level total installed 

costs. 

Table 8.2.9 Costs and Markups for Determination of Average Total Installed 

Costs (Beverage Vending Machine)* 

Variable Average or Mean Value 

Baseline Manufacturer Sale Price 

Standard-Level Manufacturer Price Increase (Efficiency Level 4) 

Overall Baseline Markup 

Overall Incremental Markup 

Installation Cost–Baseline 

Installation Cost Factor–Incremental 

$1,780 

$75 

1.145 

1.103 

$83 

1.00** 

*

 Incremental installation costs held flat.
 ** National incremental cost index on a population-weighted national basis is equal to 1.00.
 

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

Table 8.2.10, DOE presents the calculation below for the baseline efficiency and higher 

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efficiency (Level 4) beverage vending machine. For baseline product, the calculation of the total 

installed cost at national average conditions is as follows: 

ICBASE BVM = EQPBASE- BVM + INSTBASE- BVM =MFGBASE- BVM  MU BASE- BVM + INST BASE-BVM 

 = $1,780  (1.145) + $83 = $2,038 + $83 = $2,121 Eq. 8.3 

Where: 

IC = total installed cost ($), 

EQP = equipment price ($), 

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

MFG = manufacturer price ($), and 

MU = markup. 

In this specific example, MFG is the national average baseline manufacturer price for the 

beverage vending machine equipment category and MU is the overall baseline markup. The 

calculation of the higher efficiency (Level 4) total installed cost includes the use of a 

manufacturer price adder. In addition, DOE derived an incremental markup. 

Based on incremental equipment price changes, the derivation of the Level 4 total 

installed cost is based on determining the change in equipment price over the baseline equipment 

price. The manufacturer price increment for higher efficiency equipment is multiplied by the 

incremental markup. 

DOE calculated the Level 4 total installed cost (IC BVM LEVEL4) as follows (using rounded 

values): 

IC BVM LEVEL4 = EQP BVM LEVEL4 +∆EQP BVM LEVEL4 + INST BVM LEVEL4  (MFG BVM LEVEL4 

MFG BASE BVM ) = MFG BASE BVM  MU BASE BVM + ∆MFG BVM LEVEL4  MU BVM LEVEL4 + 

INST  ISTINDEX = $1,780  (1.145) + $75  (1.103) + $81  (1.00) = $2,202 Eq. 8.4 

Where: 

IC = total installed cost ($),
 

EQP = equipment price ($), 

ΔEQP = change in the equipment price ($), 

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

MFG = manufacturer sale price ($), 

MU = markup, and 

ISTINDEX = location dependent, but approximately 1.0 at a national average. 

Table 8.2.10 presents the weighted-average equipment price, installation costs, and total 

installed costs for the beverage vending machine equipment category at the baseline level and 

each proposed higher efficiency level. 

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Table 8.2.10 Average Equipment Price, Installation Cost, and Total Installed Costs for 

Beverage Vending Machine (B-L-IO) at U.S. Average Prices* 

Efficiency Cost 

Level 2008$ 

Equipment Installation Total Installed 

$ 

1 2,038 81 2,118 

2 2,063 81 2,143 

3 2,081 81 2,162 

4 2,121 81 2,201 

5 2,133 81 2,214 

6 2,597 81 2,678 

7 3,869 81 3,950 *

 Results may not match totals due to rounding. 

8.2.3 Operating Cost Inputs 

DOE based the operating cost for the LCC analysis on energy consumption data 

developed from whole-building simulations on a sample of buildings from the 2003 Commercial 

Building Energy Consumption Survey (CBECS).2

 After the LCC analysis was performed, DOE 

generated a distribution of LCC differences (i.e., the LCC difference between the baseline 

efficiency equipment and equipment with a higher efficiency level) to determine the mean LCC 

difference, as well as the percentage of customers analyzed that had LCC savings associated with 

more energy-efficient equipment. 

DOE defined the operating cost by the following equation: 

OC = EC+ RC+ MC Eq. 8.5 

Where: 

OC = operating cost, 

EC = energy cost associated with operating the equipment, 

RC = repair cost associated with component failure, and 

MC = service cost for maintaining equipment operation (all of the above expressed in $). 

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

calculate the operating cost for beverage vending machine equipment. 

Table 8.2.11 shows the inputs for the determination of operating costs. The lifetime, 

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

operating cost and for establishing the operating cost present value. The electricity consumption 

for the baseline efficiency and standard cases (efficiency Levels 1, 2, etc.) is used to determine 

the operating costs of the equipment. 

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Table 8.2.11 Inputs for Operating Costs 

Electricity price ($/kWh) 

Electricity price trend 

Repair cost ($) 

Maintenance cost ($) 

Lifetime (years)
 

Discount rate (%) 

Effective date of standard (2012)
 

Baseline electricity consumption (kWh) 

Standard case electricity consumption (kWh)
 

8.2.3.1 Electricity Price Analysis 

Introduction to the analysis of electricity prices. This section describes the electricity 

price (cents/kWh) analysis used to develop the energy portion of the annual operating costs 

(price multiplied by the electricity consumption) for beverage vending machine equipment in the 

hotel/motel sector. 

Subdivision of the country. Because of the wide variation in electricity consumption 

patterns, wholesale costs, and retail rates across the country, it is important to consider regional 

differences in electricity prices. For this reason, DOE divided the continental United States into 

the 50 States and the District of Columbia. DOE used reported average effective commercial 

electricity prices (which apply to four of the six building types) and the lower industrial 

electricity prices (which are assumed to apply to the manufacturing plants and federal facilities) 

at the state level from an EIA database on commercial and industrial electricity prices.1

 The 

latest available prices from this source are for the calendar year 2008. Table 8.2.12 provides data 

on the state electricity prices. 

Table 8.2.12 Estimated Commercial and Industrial Electricity Prices by State 

State Electricity Price 

2008 ¢/kWh 

Comm Indust 

State Electricity Price 

2008 ¢/kWh 

Comm Indust 

State Electricity Price 

2008 ¢/kWh 

Comm Indust 

Alabama 

Alaska

Arizona

Arkansas

California 

Colorado

Connecticut

Delaware

Dist. of Col. 

Florida

Georgia 

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

9.85 6.18 

 13.33 14.04 

 8.86 6.60 

 7.76 6.04 

13.05 10.20 

 8.56 6.65 

 15.93 13.90 

 12.04 10.09 

13.64 11.52 

 10.20 8.36 

9.19 6.76 

 29.72 26.05 

 5.72 4.49 

 8.53 7.83 

 7.81 5.51 

 7.28 4.86 

 7.55 5.79 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Hampshire 

New Jersey 

New Mexico 

New York 

North Carolina 

7.25 4.81 

10.16 7.97 

12.95 11.80 

12.82 10.40 

16.05 14.21 

9.43 6.86 

7.86 5.96 

9.98 6.53 

6.59 4.98 

8.54 5.73 

6.64 5.05 

10.15 7.99 

14.28 13.17 

14.72 12.42 

8.56 6.31 

16.45 11.97 

7.67 5.62 

North Dakota 

Ohio 

Oklahoma 

Oregon 

Pennsylvania 

Rhode Island 

South Carolina 

South Dakota 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

West Virginia 

Wisconsin 

Wyoming 

6.80 5.50 

9.26 6.23 

8.04 6.01 

7.59 4.91 

9.42 7.02 

15.49 14.22 

8.53 5.42 

6.83 5.30 

9.02 6.13 

10.71 8.86 

6.72 4.59 

12.51 9.00 

7.38 5.83 

6.79 5.23 

6.06 4.20 

9.28 6.54 

6.70 4.51 

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DOE recognized that different kinds of businesses typically use electricity in different 

amounts at different times of the day, week, and year, and therefore face different effective 

prices. To make this adjustment, DOE used the 2003 CBECS data2

 set to identify the average 

prices paid by the four kinds of commercial businesses in this analysis compared with the 

average prices paid by all commercial customers (manufacturing and federal facilities are 

assumed to pay the average industrial price). The ratio of prices paid by the five types of 

commercial buildings was used to increase or decrease the average commercial electricity prices 

as shown in Eq. 8.6. 

EPRICECOM BLD I STATE 2008 = EPRICE COM STATE 2008  (EPRICE BLDG I US 2003/EPRICECOM US 2003) 

Eq. 8.6 

Where: 

EPRICECOM BLD I STATE 2008 = average commercial sector electricity price paid by business type I 

in a specific state in 2008, 

EPRICECOM STATE 2008 = average commercial sector electricity price in a specific state in 

2008, 

EPRICEBLDG I US 2003 = national average commercial sector electricity price paid by 

business type I in 2003 CBECS, and 

EPRICECOM US 2003 = national average commercial sector electricity price in 2003 

CBECS. 

Table 8.2.13 shows the derivation of the EPRICE ratios from CBECS. 

Table 8.2.13 Derived Average Electricity Price Paid by Business Type* 

Business Type Manufacturing 

Use 

Industrial 

Office and 

Health 

Care 

Retail School Military 

Use 

Industrial 

Other All 

Commercial 

Buildings 

Electricity Price, ¢/kWh 5.1 7.7 8.5 7.4 5.1 

Ratio of Electricity Price 

to Average Price for All 

Commercial Buildings 

1.000 

Industrial 

0.975 1.074 0.937 1.000 

Industrial 

7.9 

0.996

7.9 

 1.000 

*Source: CBECS 2003. 

Once the building types have prices adjusted, the resulting estimated prices paid are the 

electricity prices used in the analysis. To obtain a weighted average national price, the prices 

paid by each building in each state are weighted by the estimated sales of beverage vending 

machine equipment in each state to each prototype building type, based on population.6

 The 

state/building type weights are the probabilities that a given beverage vending machine or 

beverage vending machine equipment shipped will be operated with a given price. For evaluation 

purposes, the prices and weights can be depicted as a cumulative probability distribution. Taking 

into account the variation among building types, the effective prices range from approximately 

4.2 cents per kWh to approximately 32 cents per kWh. 

Figure 8.2.1 illustrates the results for all customers. 

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Figure 8.2.1 Cumulative Probability Distribution Showing the Electricity Prices Paid by 

All Customers (2008$) 

8.2.3.2 Electricity Price Trend 

The electricity price trend provides the relative change in electricity prices for future 

years to 2030. Estimating future electricity prices is difficult, especially considering that there 

are efforts in many states throughout the country to restructure the electricity supply industry. 

DOE applies a projected trend in national average electricity prices to each customer’s 

energy prices. Of the following four scenarios, the LCC analysis uses the April 2009 update to 

AEO2009 reference price scenario: 

1. Constant energy prices at 2008 values (constant at 1.0 in Figure 8.2.2) 

2. AEO2009, High Growth (“high” in Figure 8.2.2) 

3. AEO2009, Reference Case (“AEO 2009” in Figure 8.2.2) 

4. AEO2009, Low Growth (“low” in Figure 8.2.2) 

Figure 8.2.2 shows the trends for the three AEO 2009 commercial price projections where 

prices are assumed to change. DOE extrapolated the values in later years (i.e., after 2030) from 

their relative sources because AEO 2009 does not forecast beyond 2030. To arrive at values for 

these later years, DOE used the price trend from 2020–2030 of the forecast to establish prices in 

2030–2042. Also, the April 2009 update did not contain an update to the AEO 2009 High 

Growth and Low Growth scenarios. DOE derived the ratios of each year’s price in the high and 

low cases as published in March 2009 forecast to 2030, and applied these ratios to the April 2009 

update of the reference forecast, then calculated the high and low growth rates 2020-2030 and 

extrapolated the high and low growth forecasts. This method of extrapolation is in line with 

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methods currently used by the EIA to forecast fuel prices for the Federal Energy Management 

Program. Because the Reference Case forecast is growing more rapidly than the High Growth 

forecast from 2020–2030, the commercial sector forecast converges toward the High Growth 

forecast after 2030. 

Commercial Electricity Price Projections 

1.30 

1.25 

1.20 

1.15 

1.10 

1.05 

1.00 

0.95 

0.90 

0.85 

0.80 

2002 

Year 

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2057 

As shown in Figure 8.2.3, the industrial Reference Case forecast eventually crosses over 

the High Growth forecast; however the crossover occurs very late and has no impact on the LCC 

calculation. Index (2008=1.00)

High 

AEO 2009 

Low 

2012 2022 2032 2042 2052 

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Industrial Electricity Price Projections 

0.70 

0.80 

0.90 

1.00 

1.10 

1.20 

1.30 

1.40 

1.50 

2002 2012 2022 2032 2042 2052 

Year 

Index (2008=1.00)

AEO 2009 

High 

Low 

Figure 8.2.3 Electricity Price Trends for Industrial Rates to 2057 

The default electricity price trend scenario used in the LCC analysis is the trend from the 

April 2009 update to the AEO 2009 Reference Case,1

 which is the middle line in Figure 8.2.2 and 

Figure 8.2.3. Spreadsheets used in calculating the LCC have the capability to analyze other 

electricity price trend scenarios, namely the AEO 2009 High Growth and the AEO 2009 Low 

Growth trends and constant energy prices. 

8.2.3.3 Repair Cost 

The repair cost is the cost to the consumer for replacing or repairing components in the 

beverage vending machine equipment that have failed. DOE based the annualized repair cost for 

baseline efficiency equipment on the Foster-Miller Inc. 2002 report4

 and were adjusted to 2008 

prices, resulting in a annualized base repair cost of $129. Because data were not available to 

indicate how repair costs vary with equipment efficiency, DOE considered two scenarios: (1) 

repair costs that varied in direct proportion with the manufacturer price of the equipment; and (2) 

repair costs that were kept constant (i.e., did not increase with efficiency). 

DOE used repair costs that increase with manufacturer price (the first scenario above) as 

the default annualized repair cost scenario in the LCC and PBP analysis. Spreadsheets were used 

to calculate LCC and PBP based on the second scenario as well. 

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8.2.3.4 Maintenance Cost 

The maintenance cost is the cost to the consumer of maintaining equipment operation. 

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

that have failed (as discussed above). Rather, it is the cost associated with general maintenance 

(e.g., checking and maintaining refrigerant charge levels, cleaning heat exchanger coils). 

Virtually no data are available on annual maintenance cost per unit. DOE estimated the 

annualized maintenance costs for beverage vending machine equipment. The cost of the basic 

preventative maintenance for an individual beverage vending machine or unit is $90 per year 

(2008$) and the annualized value of the single refurbishment/remanufacturing (one-time cost of 

approximately $550 at the 5-year point in the equipment lifetime) is about $56 (2008$), which 

varies with the discount rate. Total annualized maintenance cost is approximately $146 per year 

for the largest beverage vending machine equipment market segment (bottlers). 

Because data were not available to indicate how maintenance costs vary with equipment 

efficiency, DOE decided to use preventative maintenance costs that remain constant as 

equipment efficiency increases. 

8.2.3.5 Lifetime 

DOE defined lifetime as the age when a beverage vending machine unit is retired from 

service, which is 10 years when buildings are renovated (also about every 10 years) and before 

equipment is physically worn. Furthermore, DOE modeled the lifetime beverage vending 

machine equipment as a Weibull statistical distribution with an average lifetime of 10 years and 

a maximum lifetime of 15 years. Because of this, there is a used-equipment market for these 

products. DOE understands, however, that the salvage value to the original purchaser is very low 

and thus this has not been taken into account in the LCC analysis. Chapter 3, Market and 

Technology Assessment, contains a discussion of equipment life. 

8.2.3.6 Discount Rate 

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

present value. DOE derived the discount rates for the LCC analysis by estimating the cost of 

capital for companies that purchase beverage vending machine equipment. The cost of capital is 

commonly used to estimate the present value of cash flows to be derived from a typical company 

project or investment. Most companies use both debt and equity capital to fund investments, so 

their cost of capital is the weighted average of the cost to the company of equity and debt 

financing. 

DOE estimated the cost of equity financing by using the Capital Asset Pricing Model 

(CAPM). Among the most widely used models to estimate the cost of equity financing, CAPM 

assumes that the cost of equity is proportional to the amount of systematic risk associated with a 

company. The cost of equity financing tends to be high when a company faces a large degree of 

systematic risk and it tends to be low when the company faces a small degree of systematic risk. 

DOE determined the cost of equity financing by using several variables, including the 

risk coefficient of a company (β, beta), the expected return on “risk-free” assets (Rf), and the 

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additional return expected on assets facing average market risk, also known as the equity risk 

premium or ERP. The risk coefficient of a company (β) indicates the degree of risk associated 

with a given firm relative to the level of risk (or price variability) in the overall stock market. 

Risk coefficients usually vary between 0.5 and 2.0. A company with a risk coefficient of 

0.5 faces half the risk of other stocks in the market; a company with a risk coefficient of 2.0 

faces twice the overall stock market risk. 

The following equation gives the cost of equity financing for a particular company: 

ke = Rf + (β  ERP) Eq. 8.7 

Where: 

ke = the cost of equity for a company ($), 

Rf = the expected return of the risk-free asset ($).
 

β = the risk coefficient, and
 

ERP = the expected equity risk premium ($). 

DOE defined the risk-free rate as the yield (January 2007) on long-term government bonds. 

DOE used a 5.5 percent estimate for the ERP based on data from the Damodaran Online site.7 

The cost of debt financing is the yield or interest rate paid on money borrowed by a 

company (for example, by selling bonds). As defined here, the cost of debt includes 

compensation for default risk (the risk that a firm will go bankrupt) and excludes deductions for 

taxes. DOE estimated the cost of debt for companies by adding a risk adjustment factor to the 

current yield on long-term corporate bonds (the risk-free rate). It used this procedure to estimate 

current (and future) company costs to obtain debt financing. It based the adjustment factor on 

indicators of company risk, such as credit rating or variability of stock returns. 

The weighted average cost of capital (WACC) of a company is the weighted average cost 

of debt and equity financing: 

k = ke  we+ kd  wd Eq. 8.8 

Where: 

k = the (nominal) cost of capital (%),
 

ke = the expected rate of return on equity (%), 

kd = the expected rate of return on debt (%), 

we = the proportion of equity financing in total annual financing, and 

wd = the proportion of debt financing in total annual financing. 

The cost of capital is a nominal rate, because it includes anticipated future inflation in the 

expected returns from stocks and bonds. The real discount rate or WACC deducts expected 

inflation (r) from the nominal rate. DOE calculated expected inflation (1.6 percent) from the 

average of the projected change in gross domestic product (GDP) prices in the Economic Report 

of the President.

8 

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To estimate the WACC of beverage vending machine equipment purchasers, DOE used a 

sample of companies involved in large hotel/motel chains drawn from a database of over 7,000 

U.S. companies given on the Damodaran Online website,7

 which includes most of the publicly 

traded companies in the United States. 

DOE divided the companies into the six ownership categories shown in Table 8.2.14 

according to their type of activity. DOE sought financial information for all of the firms in the 

full sample involved in the six lines of business. This resulted in a final sample of about 

4,139 firms. In cases where one or more of the variables needed to estimate the discount rate was 

missing or could not be obtained, DOE discarded the firm from the analysis. Overall, it discarded 

about 20 percent of the firms in the full database for this reason. 

Table 8.2.14 Nominal and Real Discount Rates by Ownership Category 

Ownership Category Number of 

Companies 

Discount Rate 

% 

Weighted Average 

Cost of Capital 

Standard 

Deviation 

Weighted Real 

Cost of Capital 

Bottlers 12 7.15 1.56 

Manufacturing 1,880 8.08 1.37 

Office and Health Care (Financial, Services, 

and Diversified Companies) 

1,760 7.50 1.46 

Retail Trade (Restaurants, Building Supplies, 

Retail Automotive, Retail (Special Lines), 

General Retail, Pharmacy Services) 

250 7.54 1.26 

Schools NA* 3.47 0.0 

Military NA 5.10 0.0 

Other (Arts and Entertainment, Transportation/ 

Warehousing, Wholesale, Hotels/Motels) 

678 7.32 1.58 

5.46 

6.38 

5.81 

5.85 

1.84 

3.44 

5.63 

Source: Pacific Northwest National Laboratory (PNNL) calculations applied to firms sampled from the Damodaran 

Online website.7 

*

NA=Not available. 

Deducting expected inflation from the cost of capital provides the estimates of the real 

discount rate by ownership category shown in Table 8.2.14. The overall weighted average is 

5.54 percent because of the market dominance of bottlers. Although bottlers represent only 10 

companies in Table 8.2.14, they purchase the vast majority of beverage vending machines. 

8.2.3.7 Effective Date of Standard 

The effective date is the future date when a new standard becomes operative. Pursuant to 

42 U.S.C. 6313(a)(6)(c), the effective date of any new energy efficiency standard for beverage 

vending machine equipment will be 3 years after the final rule is published. DOE calculated the 

LCC for all customers as if they each would purchase a new beverage vending machine or unit in 

the year the standard takes effect. Consistent with its published regulatory agenda, DOE assumed 

the final rule issuance in 2009 (and therefore new standards taking effect in 2012) and used these 

dates. It based the cost of the equipment on this year; however, all dollar values are expressed in 

2008$. Annual energy prices are considered for the life of the beverage vending machine 

equipment. 

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8.3 PAYBACK PERIOD INPUTS 

8.3.1 Definition 

The PBP is the amount of time it takes the customer to recover the assumed higher 

purchase cost of more energy-efficient equipment as a result of lower operating costs. 

Numerically, the PBP is the ratio of the increase in purchase cost (i.e., from a less efficient 

design to a more efficient design) to the decrease in annual operating expenditures. This type of 

calculation is known as a “simple” PBP because it does not take into account changes in 

operating cost over time or the time value of money; i.e., the calculation is done at an effective 

discount rate of 0 percent. 

The equation for PBP is: 

PBP =∆IC/∆OC Eq. 8.9 

Where: 

PBP = payback period (years), 

∆IC = difference in the total installed cost between the more efficient standard level 

equipment (2, 3, etc.) and the baseline efficiency equipment, and 

∆OC = difference in annual operating costs. 

PBPs greater than the life of the equipment mean that the increased total installed cost of 

the more efficient equipment is not recovered fast enough in reduced operating costs. 

8.3.2 Inputs 

The data needed for the PBP calculation are the total installed cost of the equipment to 

the customer for each efficiency level and the annual (first year) operating costs for each 

efficiency level. The inputs to the total installed cost are the equipment price and the installation 

cost. The inputs to the operating costs are the annual energy cost, the annual repair cost, and the 

annual maintenance cost. The PBP uses the same inputs as the LCC analysis described in section 

8.2, except that electricity price trends and discount rates are not required. Since the PBP is a 

“simple” (undiscounted) payback, the required electricity cost is only for the year in which a new 

efficient standard is to take effect (in this case, 2012). The electricity price used in the PBP 

calculation was the price projected for 2012, expressed in 2008$ but not discounted to 2008. 

Discount rates are not used in the PBP calculation. 

8.4 RESULTS USING TARIFF-BASED ELECTRICITY PRICES 

8.4.1 Life-Cycle Cost Results 

This section presents LCC results for the efficiency improvement levels specified in the 

engineering analysis (chapter 5) and also presented in section 8.2.2.2, Standard-Level 

Manufacturer Price Increases. The results presented here are based on annual operating costs 

calculated from average annual electricity prices developed for each business type. Section 8.2 

presents the electricity price inputs as well as all other LCC inputs. 

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Because the values of most inputs are uncertain in this analysis, DOE represents them as 

a distribution of values rather than a single point-value. Thus, DOE represents the LCC results as 

a distribution of values. Before proceeding with the presentation of the distribution of LCC 

results, DOE presents average values for total installed costs, annual operating costs, and LCC to 

show how these costs vary with efficiency for each of the beverage vending machine equipment 

categories. 

8.4.1.1 Life-Cycle Cost Breakdown Based on Average Input Values 

For each equipment category, Figure 8.4.1 and Figures F.2.1–F.2.21 in Appendix F of the 

TSD show how on an average basis the total installed costs, annual operating costs, and LCC 

vary with efficiency. Figure 8.4.1 and Figures F.2.1–F.2.21 pertain to each equipment category. 

Owner's Installed Cost-LCC Tradeoff 

 Equipment= A-L-Indoor-Only, Fuel Price=AEO 2009 - Reference Case, Start Year= 2012 

Life Cycle Cost 

$9,000 

$8,000 

$7,000 

$6,000 

$5,000 

$4,000 

$3,000 

$2,000 

$1,000 

$0 

$6,079 $6,028 $6,008 $5,986 $5,970 $5,966 $5,982 

$7,742 

$2,859 $2,889 $2,931 $2,977 $3,010 $3,043 $3,078 $4,425 

Level 1 

(Energy 

Star Tier 

1) 

Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8 

(Max 

Tech) 

Installed Cost and Efficiency Level 

Installed Cost-LCC Tradeoff

Figure 8.4.1 Effect of the Change in Efficiency Level on Life-Cycle Cost for BottlerOwned A-L-IN Beverage Vending Machine in Manufacturing Facilities (2008$) at Average 

U.S. Conditions (Level 1 is the Baseline Efficiency Level) 

DOE divided the figures for total installed cost into equipment price and installation cost. 

DOE divided the figures for annual operating cost into annual electricity, repair, and 

maintenance costs. DOE also divided the figures for LCC into total installed cost and lifetime 

operating cost. Although these figures are based on mean or average values rather than results 

from the Monte Carlo simulation analysis, the figures demonstrate how the various inputs affect 

LCC. In view of the total installed cost results for the equipment categories, the equipment price 

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is the largest contributor to increased total cost since the installation cost remains relatively 

constant across the efficiency levels. 

Annual electricity cost is the largest contributor to the overall operating cost at any 

efficiency level. As efficiency increases, electricity cost decreases. 

The LCC results reveal that as efficiency increases, the lifetime operating cost has more 

of an impact on the LCC than the total installed cost. In other words, the decrease in lifetime 

operating costs offsets the increase in total installed cost that occurs with increased equipment 

efficiency. As a result, the LCC at efficiency levels is lower than that for the baseline level 

(Level 0) at Levels 1–7. 

Again, the results shown in Figure 8.4.1 and the corresponding figures in Appendix F of 

the TSD are based on average input values rather than input distributions. Thus, one can observe 

how the various inputs impact LCC and, in turn, how the resulting LCC changes with efficiency 

for this example. Conclusions, however, should be drawn from the distribution of LCC results 

presented in section 8.4.1.2. 

8.4.1.2 Differences in LCC between Baseline and Standard-Level Equipment 

DOE’s first step in developing LCC results was to establish the baseline LCC for each of 

the equipment categories. The baseline efficiency level for the final rule is the ENERGY STAR 

Tier 1 level (Efficiency Level 1). 

This section presents the differences in the LCC of standard-level equipment relative to 

the baseline efficiency equipment. The LCC differences are depicted as a distribution of values. 

DOE presents the results in a cumulative chart showing the cumulative distribution of LCC 

differences along with the corresponding probability of occurrence for each proposed efficiency 

level. In each chart, DOE provides the LCC difference along with the percent of the population 

for which the LCC will decrease. In this analysis, the population is the number of beverage 

vending machine units in hotels, health care (nursing homes, assisted living, etc.), and small 

offices (mainly medical and dental). 

Figure 8.4.2 presents the LCC results for the case of Efficiency Level 4 in the A-L-IN 

(beverage vending machine) equipment category. Additional cases are shown as Figures F.2.2– 

F.2.22 in Appendix F. In Figure 8.4.2, the 50-percent line shows the median change in LCC 

(a savings of $158 in this example). Half of the purchasers of this beverage vending machine unit 

would save more than $158, while half would save less than $158. The “0” horizontal line is the 

minimum savings value, which in this example is $-45. The maximum LCC savings is $509. 

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Figure 8.4.2 A-L-IN Beverage Vending Machine, Level 4 Efficiency: Cumulative Chart of 

LCC Savings 

Appendix F contains the cumulative charts for all the efficiency levels considered for all 

beverage vending machine equipment categories. These are Figures F.2.2–F.2.22 in Appendix F. 

These charts provide more complete information, but DOE provides a summary of the change in 

LCC from the baseline by percentile groupings (i.e., of the distribution of results) for each of the 

equipment category in Table 8.4.1, which also shows the mean LCC savings and the percentage 

of equipment (units) with LCC savings for each efficiency level. 

Table 8.4.1 Distribution of Life-Cycle Cost Savings from a Baseline Level (Level 1) for 

A-L-IN Beverage Vending Machine Equipment Category Efficiency Level 

Decrease in LCC from Baseline Efficiency (Level 1) 

Shown by Percentiles of the Distribution of Results 

2008$ 

0 10 20 30 40 50 60 70 80 90 100 

Mean 

Savings 

$ 

Units 

with 

LCC 

Savings 

% 

2 -1 32 46 55 65 73 83 95 111 

3 -22 37 62 80 97 113 131 152 181 

4 -45 42 80 106 132 155 182 214 257 

5 -62 45 93 125 157 185 219 259 312 

6 -83 39 94 132 168 201 240 286 348 

7 -112 18 77 118 159 194 236 285 352 

8 -1,886 -1,736 -1,664 -1,616 -1,568 -1,541 -1,487 -1,445 -1,347 

137 

230 

331 

404 

454 

468 

-1,215 

201 

349 

509 

624 

708 

744 

-935 

84 

132 

184 

222 

244 

240 

-1,481 

99 

99 

97 

97 

97 

95 

0 

As an example of how to interpret the information in Table 8.4.1, a review is provided of 

the overall results for the A-L-IN beverage vending machine equipment category. The Level 4 

efficiency level in Table (row 3) shows that the change in LCC (0 percentile column) is a 

minimum savings of -$45. For 90 percent of the cases studied (90th percentile), the change in 

LCC is a reduction of $331 or less. The largest reduction in LCC is $509 (100th percentile). The 

mean change in LCC is a net savings of $184. The last column shows that 97 percent of the 

sample has LCC savings (i.e., reductions in LCC greater than zero). 

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Appendix F Figures F.2.1–F.22 graphically depict the LCC results. The first figure for each 

equipment category shows mean LCCs at U.S. average prices and market conditions, while the 

second figure shows the percentage of equipment at each efficiency level with reduced LCCs. 

8.4.2 Payback Period Results 

This section presents PBP results for the efficiency improvement levels specified in the 

engineering analysis (chapter 5) and also presented in section 8.2.2.2, Standard-Level 

Manufacturer Price Increases. The results presented here are based on annual operating costs 

calculated from state average commercial electricity prices. Section 8.4 describes the tariff-based 

electricity price inputs as well as all other PBP inputs. 

Similar to LCC, the analysis provides an estimate of the simple PBP at different ranges of 

energy prices, sales taxes, and installation costs that prevail across the country for each 

efficiency level and each building type. Figure 8.4.3 shows the effect on PBP as the level of 

efficiency changes from Level 1 (the baseline), for beverage vending machine equipment in 

manufacturing facilities at U.S. national average energy prices, sales taxes, and installation costs. 

Owner's Installed Cost-Payback Tradeoff 

 Equipment= A-L-Indoor-Only, Fuel Price=AEO 2009 - Reference Case, Start Year= 2012 

Payback Period (Years) 

120.0 

100.0 

80.0 

60.0 

40.0 

20.0 

0.0 2.9 

$2,889 

Level 2 

3.9 

$2,931 

Level 3 

4.4 

$2,977 

Level 4 

4.6 4.9 5.5 

100.0 

$3,010 $3,043 $3,078 $4,425 

Level 5 Level 6 Level 7 Level 8 (Max 

Tech) 

Installed Cost-Payback Period Tradeoff

Installed Cost and Efficiency Level 

Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for A-L-IN 

Beverage Vending Machine Equipment Category, in Manufacturing Facilities at Average 

U.S. Conditions (Level 1 is Baseline) 

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Similar to the LCC differences, DOE depicted PBP results as a distribution of values. Thus, 

Thus, it presents the results as a cumulative probability chart showing the distribution of 

with the corresponding cumulative probability of occurrence. Each chart provides the 

mean PBP. 

Figure 8.4.4 is an example of a cumulative probability chart showing the overall 

distribution of PBPs for the increased efficiency levels for the A-L-IN beverage vending 

machine equipment category. Appendix F contains the frequency charts for all the efficiency 

levels considered for all beverage vending machines in this analysis. In 

Figure 8.4.4, the y-axis shows cumulative percent of all beverage vending machine 

equipment (“Probability” at left y-axis). The x-axis is the PBP of a higher efficiency level (in this 

example, Level 4) relative to the baseline efficiency level (Level 1). In 

Figure 8.4.4, a Level 4 efficiency level provides beverage vending machine equipment 

with a median PBP of 3.28 years, a mean PBP of 3.445 years, and a PBP range from just about 

approximately 0.8–6.8 years. (Note that these cannot be read with precision from the chart; 

rather, the analysis output data provides these values in a statistical summary.) 

Figure 8.4.4 A-L-IN Beverage Vending Machine Level 4 Efficiency: Cumulative Chart of PBP 

Table 8.4.2 summarizes the PBP results for the beverage vending machine equipment 

category. Results are summarized for PBP by percentile groupings (i.e., percentile of the 

distribution of results). The chart also shows the mean PBP for each efficiency level. 

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Table 8.4.2 Summary of PBP Results for A-L-IN Beverage Vending Machine Equipment 

Category Efficiency Level 

PBP Shown by Percentiles of the Distribution of Results 

years 

0 10 20 30 40 50 60 70 80 90 100 

Mean Less 

than 

3 Years 

Payback 

% 

2 0.5 1.3 1.5 1.8 1.9 2.1 2.3 2.5 2.8 3.3 

3 0.7 1.7 2.0 2.4 2.6 2.9 3.1 3.4 3.9 4.5 

4 0.8 1.8 2.2 2.7 2.9 3.2 3.5 3.8 4.4 5.1 

5 0.8 1.9 2.3 2.8 3.0 3.3 3.6 3.9 4.5 5.3 

6 0.8 2.0 2.5 3.0 3.2 3.5 3.8 4.2 4.8 5.6 

7 0.9 2.2 2.7 3.3 3.5 3.9 4.3 4.7 5.4 6.3 

8 7.2 29.3 46.4 87.8 100.0 100.0 100.0 100.0 100.0 100.0

4.3 

6.1 

6.8 

7.1 

7.7 

8.7 

 100.0 

2.3 

3.1 

3.4 

3.6 

3.8 

4.3 

83.8 

85 

51 

41 

39 

29 

25 

0 

8.4.3 Lighting Maintenance Sensitivity Analysis 

DOE conducted a sensitivity analysis to estimate the net economic effect of reduced 

maintenance costs for using light-emitting diode (LED) lighting for product or machine 

illumination in place of baseline T8 fluorescent lighting in beverage vending machine 

equipment. The sensitivity analysis estimated the annualized life cycle cost savings for LED 

lighting. The sensitivity analysis used an estimated average nationwide cost of $3.00 (including 

sales tax) per T8 fluorescent lamp.9

 Average fluorescent lamp lifetime was assumed to be 24,000 

hours. Average lamp lifetime is based on today’s fluorescent lamps for use in a commercial 

facility where lamps are cycled on and off every 3 hours. GE (www.geconsumerproducts.com), 

Osram-Sylvania (www.osram.com), Philips (www.lighitng.philips.com) and other lamp 

manufacturers, offer T8 fluorescent lamps with a service life rated at 24,000 to 46,000 hours 

depending upon cycle time (3 hour cycle or 12 hour cycle). Three-hour cycle means that a lamp 

is turned on for 3 hours, turned off for 20 minutes and repeated until the end of the lamp life. For 

a 12-hour cycle, the lamp is turned on for 12 hours, off for 20 minutes and repeated until end of 

lamp life. Lamp suppliers web sites accessed on August 3, 2009. The longer the cycle time 

(period of time between the lamp on and the lamp off), the longer the rated lifetime of the lamp. 

For this analysis, the lower lifetime of the range reported by manufacturers was used and thus the 

lifetime is considered conservative. 

The fluorescent lamp ballast (1 ballast for 3 lamps) lifetime was assumed to be 49,000 

hours1

 (approximately 5.6 years at continuous operation). The analysis also used an estimated 

average nationwide cost of $17.00 for a matching electronic T8 ballast that services 3 T8 lamps 

in a beverage vending machine. The estimated cost of a 3-lamp T8 ballast for the beverage 

vending machine refurbishment industry was determined from ballast cost data provided in 

Appendix 7A of the TSD for the Energy Conservation Standards and Test Procedures for 

General Service Fluorescent Lamps and Incandescent Reflector Lamps.9 

According to the vending industry, manufacturers of LED strips for beverage vending 

machine product illumination in place of fluorescent lighting will guarantee a lifetime of 4 years, 

which is approximately 35,000 hours at continuous vending machine operation.10 Other industry 

sources indicate that LED lifetimes can be up to 100,000 hours (approximately 11 years) 

although the LED brightness will diminish over time before the end of life.11 Based on these 

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data, a conservative lifetime of 50,000 hours (approximately 5.7 years at continuous operation) 

was assumed for LED fixtures for beverage vending machines. Consistent with the final rule, the 

beverage vending machine lifetime was assumed to be 10 years with a machine refurbishment 

undertaken at approximately 5 years of life. 

For beverage vending machines with fluorescent lamps and ballasts, the labor costs were 

estimated to be $75 to visit and replace 3 lamps in a machine.3

 DOE assume that maintenance 

visits for lamps (only) replacement would take place two times during the lifetime of the 

machine; one visit (at approximately 24,000 operating hours or at approximately 2.7 years) 

before refurbishment and one visit (at approximately 24,000 operating hours or at approximately 

2.7 years) after refurbishment. The replacement of the lamp ballast is assumed to take place once 

during the lifetime of the machine during the machine refurbishment. Also during refurbishment, 

3 lamps are replaced. Therefore the equipment cost for lamp and ballast replacement at 

refurbishment (at approximately 5 years or at approximately 44,000 hours) is assumed to be $26 

(cost of 3 lamps plus a ballast) with $0 in maintenance labor cost since this activity is undertaken 

during refurbishment. 

For equipment with LED lighting, no lighting maintenance visits would be required over 

the lifetime of the machine prior to refurbishment as well as after refurbishment. It is assumed 

that replacement of the LED lighting strips would take place during refurbishment at a capital 

cost of $50 each or $150 for 3 strips with $0 labor maintenance costs. 

The lighting-related maintenance labor costs for a beverage vending machine with T8 

lighting is estimated to be $150 over the lifetime of the machine (2 maintenance visits @ $75 

each). The lamps cost is $27 over the lifetime of the machine (3 lamps @ $3.00/lamp replaced 3 

times) plus a ballast replacement during the refurbishment ($17). The total maintenance cost is 

estimated to be $194, versus $150 for LED-equipped machines. Taking into account the timing 

and costs of the various maintenance events at years 2, 5, and 8, the net present value of the 

maintenance savings is $35.37 at the average discount rate of 5.46 percent, or $4.86 per year 

annualized over the 10-year life of the equipment. 

This sensitivity analysis estimated that the annualized net maintenance cost savings is 

$4.86 for LED used to light a machine compared to the beverage vending machine using T8 

lighting. This net annualized maintenance cost savings is small. It increases the LCC savings at 

efficiency levels at efficiency level 5 and above for Class A equipment (a maximum of 16 

percent for Class A units; Table 8.4.3) and at efficiency level 6 and above for Class B equipment 

(a maximum of 6.2 percent; Table 8.4.4). However, the initial cost gap is large enough where 

LED lighting is introduced between efficiency levels 4 and 5 for Class A and between efficiency 

levels 5 and 6 that the savings in maintenance cost does not make Level 5 more cost-effective 

than efficiency level 4 for Class A equipment, nor does it make efficiency level 6 more costeffective than efficiency level 5 for Class B equipment. It also does not have a significant impact 

on relative life cycle cost savings between efficiency levels above or below these efficiency 

levels and does not impact the energy conservation standards for the final rule. 

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Table 8.4.3 Beverage Vending Machine Mean Life-Cycle Cost Savings for Class A 

Equipment With and Without LED-Related Maintenance Savings 

Efficiency A-L-IN A-M-IN A-S-IN 

Level $ $ $ 

With No With No With No 

Maintenance Maintenance Maintenance Maintenance Maintenance Maintenance 

Savings Savings Savings Savings Savings Savings 

2 84 84 162 162 130 130 

3 132 132 207 207 179 179 

4 184 184 235 235 227 227 

5 257 222 331 296 290 255 

6 278 244 340 305 300 265 

7 275 240 330 295 290 255 

8 -1,446 -1,481 -1,148 -1,183 -1,118 -1,153 

Table 8.4.4 Beverage Vending Machine Mean Life-Cycle Cost Savings for Class B 

Equipment With and Without LED-Related Maintenance Savings 

Efficiency B-L-IN B-M-IN B-S-IN 

Level $ $ $ 

With No With No With No 

Maintenance Maintenance Maintenance Maintenance Maintenance Maintenance 

Savings Savings Savings Savings Savings Savings 

2 43 43 41 41 35 35 

3 46 46 49 49 16 16 

4 40 40 36 36 16 16 

5 30 30 26 26 2 2 

6 -510 -545 -523 -558 -577 -612 

7 -2,380 -2,414 -2,195 -2,230 -2,094 -2,129 

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