(a) Each Federal Agency shall discount to present values the future cash flows established in either current or constant dollars consistent with the nominal or real discount rate, and related tables, published in the annual supplement to the Life Cycle Costing Manual for the Federal Energy Management Program (NIST 85-3273) and determined annually by DOE as follows—

(1) The nominal discount rate shall be a 12 month average of the composite yields of all outstanding U.S. Treasury bonds neither due nor callable in less than ten years, as most recently reported by the Federal Reserve Board; and

(2) Subject to a ceiling of 10 percent and a floor of three percent the real discount rate shall be a 12 month average of the composite yields of all outstanding U.S. Treasury bonds neither due nor callable in less than ten years, as most recently reported by the Federal Reserve Board, adjusted to exclude estimated increases in the general level of prices consistent with projections of inflation in the most recent Economic Report of the President's Council of Economic Advisors.

(b) Each Federal agency shall assume that energy prices will change at rates projected by DOE's Energy Information Administration and published by NIST annually no later than the beginning of the fiscal year in the Annual Supplement to the Life Cycle Costing Manual for the Federal Energy Management Program, in tables consistent with the discount rate determined by DOE under paragraph (a) of this section, except that—

(1) If the Federal agency is using component prices under §436.14(c), that agency may use corresponding component escalation rates provided by the energy or water supplier.

(2) For Federal buildings in foreign countries, the Federal agency may use a “reasonable” escalation rate.

(c) Each Federal agency shall assume that the price of energy or water in the base year is the actual price charged for energy or water delivered to the Federal building and may use actual component prices as provided by the energy or water supplier.

(d) Each Federal agency shall assume that the appropriate study period is as follows:

(1) For evaluating and ranking alternative retrofits for an existing Federal building, the study period is the expected life of the retrofit, or 40 years from the beginning of beneficial use, whichever is shorter.

(2) For determining the life cycle costs or net savings of mutually exclusive alternatives for a given building energy system or building water system (e.g., alternative designs for a particular system or size of a new or retrofit building energy system or building water system), a uniform study period for all alternatives shall be assumed which is equal to—

(i) The estimated life of the mutually exclusive alternative having the longest life, not to exceed 40 years from the beginning of beneficial use with appropriate replacement and salvage values for each of the other alternatives; or

(ii) The lowest common multiple of the expected lives of the alternative, not to exceed 40 from the beginning of beneficial use with appropriate replacement and salvage values for each alternative.

(3) For evaluating alternative designs for a new Federal building, the study period extends from the base year through the expected life of the building or 40 years from the beginning of beneficial use, whichever is shorter.

(e) Each Federal agency shall assume that the expected life of any building energy system or building water system is the period of service without major renewal or overhaul, as estimated by a qualified engineer or architect, as appropriate, or any other reliable source except that the period of service of a building energy or water system shall not be deemed to exceed the expected life of the owned building, or the effective remaining term of the leased building (taking into account renewal options likely to be exercised).

(f) Each Federal agency may assume that investment costs are a lump sum occurring at the beginning of the base year, or may discount future investment costs to present value using the appropriate present worth factors under paragraph (a) of this section.

(g) Each Federal agency may assume that energy or water costs and non-fuel or non-water operation and maintenance costs begin to accrue at the beginning of the base year or when actually projected to occur.

(h) Each Federal agency may assume that costs occur in a lump sum at any time within the year in which they are incurred.

(i) This section shall not apply to calculations of estimated simple payback time under §436.22 of this part.

[55 FR 48220, Nov. 20, 1990, as amended at 61 FR 32650, June 25, 1996; 79 FR 61571, Oct. 14, 2014]