[Federal Register Volume 60, Number 165 (Friday, August 25, 1995)]
[Proposed Rules]
[Pages 44286-44290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21156]
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DEPARTMENT OF ENERGY
Office of Energy Efficiency and Renewable Energy
10 CFR Part 436
[Docket No. EE-RM-95-501]
Federal Energy Management and Planning Programs; Methodology and
Procedures for Life Cycle Cost Analyses
AGENCY: Office of Energy Efficiency and Renewable Energy, DOE.
ACTION: Notice of proposed rulemaking and public hearing and request
for public comment.
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SUMMARY: The Department of Energy (DOE) proposes to amend its Federal
Energy Management Program regulations to include provisions for
applying the life cycle costing methodology when evaluating and
comparing the cost effectiveness of water conservation measures in
Federal buildings.
DATES: Written comments (six copies) must be received on or before
October 24, 1995 in order to ensure their consideration. A public
hearing will be held on October 12, beginning at 9:30 a.m., e.d.t. at
the address indicated below. Requests to speak at the hearing must be
received by 4:30 p.m., e.d.t. on or before October 10. The length of
each oral presentation is limited to 10 minutes.
ADDRESSES: Written comments (six copies) and requests to speak at the
public hearing, are to be submitted to: U.S. Department of Energy,
Office of Energy Efficiency and Renewable Energy, Docket No. EE-RM-95-
501, EE-92, 1000 Independence Avenue, SW., Washington, DC 20585 (202)
586-3012. FAX comments will not be accepted. The public hearing will be
held at the U.S. Department of Energy, Forrestal Building, Room 1E-245,
1000 Independence Avenue, SW., Washington, DC 20585. Copies of the
transcript of the public hearing and public comments received may be
obtained from the DOE Freedom of Information Reading Room, U.S.
Department of Energy, Forrestal Building, Room 1E-190, 1000
Independence Avenue, SW., Washington, DC 20585,(202) 586-6020, between
the hours of 9 a.m. and 4 p.m., Monday through Friday, except Federal
holidays.
FOR FURTHER INFORMATION CONTACT: K. Dean DeVine, P.E., Federal Energy
Management Program, Office of Energy Efficiency and Renewable Energy,
Mail Station EE-92, U.S. Department of Energy, 1000 Independence
Avenue, SW., Washington, DC 20585, (202) 586-6784.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Department of Energy (DOE) today proposes amendments to some of
the provisions in 10 CFR part 436 which are applicable to programs for
the management of energy consumption by Federal agencies. The
amendments are directed principally toward updating the life cycle cost
methodology and procedures in subpart A in light of changes in law
requiring the use of life cycle costing methodology when installing
water conservation measures.
Section 152 of the Energy Policy Act of 1992 (Pub.L. 102-486)
amended the legislatively mandated policies with regard to federal
energy management originally set forth in section 542 of the National
Energy Conservation Policy Act (Act). 42 U.S.C. 8252. This amendment to
section 542 expands the purpose of the federal energy management
program to include the conservation and the efficient use of water, in
addition to non-renewable energy, by the Federal Government.
Section 543 of the Act (42 U.S.C. 8253(a)) ``Energy Management
Goals'' was also amended by Section 152 of the Energy Policy Act by
adding an energy management requirement for Federal agencies that ``Not
later than January 1, 2005, each agency shall, to the maximum extent
practicable, install in Federal buildings owned by the United States
all energy and water conservation measures with payback periods of less
than 10 years, as determined by using the methods and procedures
developed pursuant to section 544''. To implement this statutory
provision, it is necessary to amend the life cycle cost regulations as
set forth in part 436 of the Code of Federal Regulations, pursuant to
section
[[Page 44287]]
544 of the Act, so that the life cycle cost methodology and procedures
can be applied to the installation of water conservation measures which
are implemented by Federal agencies to meet the requirements of the
Act.
Interested persons are invited to participate in the making of this
proposed amendment by submitting such written data, views, or arguments
as they may desire. All communications received on or before the
closing date for comments, specified above, will be considered before
taking action on a final rule.
II. Background of the Life Cycle Cost Methodology
On January 23, 1980, DOE published a final Life Cycle Cost rule
(LCC) (45 FR 5620) which established the methodology and procedures for
calculating and comparing the life cycle cost of proposed investments
to upgrade the economic efficiency of Federal buildings through energy
conservation or substitution of renewable energy sources. The LCC rule
was published pursuant to section 381(a)(2) of the Energy Policy and
Conservation Act, as amended, 42 U.S.C 6361(a)(2), section 10 of
Executive Order 11912, and title V, part 3, of the National Energy
Conservation Policy Act (NECPA).
On November 30, 1990, DOE published final amendments to 10 CFR part
436 (55 FR 48217) to update the guidelines applicable to Federal agency
in-house energy management programs. That rulemaking was directed
principally toward updating the life cycle cost methodology and
procedures in subpart A of 10 CFR part 436 in light of provisions in
the Federal Energy Management Improvement Act of 1988 granting DOE more
discretion in setting discount and energy cost escalation rates (Pub.
L. 100-615).
The principal uses of the LCC rule are determining the cost
effectiveness of proposed investments and assigning priorities among
proposed cost-effective investments. The methodology and procedures of
the LCC rule are amplified in a manual published for DOE by the
National Institute of Standards and Technology (NIST) HB135, revised as
necessary to reflect amendments. It is referred to as the ``Life Cycle
Costing Manual for Federal Energy Management Program.'' The methodology
required by the LCC rule involves a systematic analysis of all
significant costs associated with proposed investments, the principal
purpose of which is to increase energy efficiency on a life-cycle cost
effectiveness basis. This analysis relates investment costs to future
costs associated with a proposed investment. The LCC rule provides for
standardized assumptions for establishing and comparing relevant cost.
See 10 CFR 436.14.
The Energy Policy Act of 1992 (Pub. L. 102-486) amended NECPA by
adding water and the use of renewable energy sources to the purpose of
NECPA (42 U.S.C. 8252) and requiring the use of the life cycle cost
methodology when installing in Federal buildings energy and water
conservation measures with payback periods of less than 10 years (42
U.S.C. 8253(b)). The amendments proposed today relating to water
conservation measures are pursuant to this authority.
III. General Discussion of Amendments
The proposed amendments for the most part insert the term ``water''
in the various provisions of the rule to reflect the fact that the
conservation and efficient use of water are now included within the
purpose and scope of the federal energy management program. The
methodology and procedures for applying life cycle cost analyses to
water conservation measures have been determined to be generally
consistent with the treatment of energy. In those instances where the
nature of water conservation measures require different treatment, a
separate provision is proposed. Overall, only minor changes to the rule
have been proposed to comply with the mandates imposed by the Energy
Policy Act of 1992.
The basic requirements of the life cycle cost methodology and
procedures are not changed by the proposed amendments. Their coverage
is expanded so that they apply to water conservation measures which are
the primary subject of the proposed amendments. To accommodate the
differences found when examining factors which may be unique only to
water or energy, the Department of Energy is proposing new and revised
definitions in Sec. 436.11 to allow for the computation of factors
unique to water conservation measures for the purpose of performing the
life cycle costing calculations. It is the intent of the amendatory
language to make clear that the application of the life cycle cost
methodology and procedures to water conservation measures are treated
parallel, where practicable, to energy conservation measures when
determining life cycle cost effectiveness. For example, the proposed
new definition of ``building water system'' parallels that of
``building energy system.'' The difference is the type of system which
is the subject of the analysis. In many instances, the Department of
Energy is proposing to amend the rule with addition of the terms ``and
water'' or ``or water'', as determined appropriate, to meet the
requirement of the Act to apply life cycle cost methodology and
procedures to water conservation measures.
There are a few minor changes which serve to clarify and facilitate
agency implementation. Section 436.13 presumes that investment in a
retrofit to an existing Federal building is not life cycle cost-
effective if it is occupied under a lease which includes the cost of
utilities in the rent and does not provide a pass through of energy or
water savings to the government. Language was added to be explicit that
this presumption applies only to Federal investment and should not
necessarily be used to determine the cost effectiveness of building
owners' investments in their Federally leased buildings. Such
investments are, in fact, cost-effective and are encouraged. The
assumption in Sec. 436.14 that ``water prices will not escalate'' is
based upon the fact that there are no escalation rates established for
water at the national level. However, agencies are permitted to use
escalation rates when they are available from suppliers. Public comment
is invited as to the availability and impact of such rates. Section
436.23 was modified to allow agencies to include future price changes
when they estimate simple payback time in order to be consistent with
national consensus standards developed by the American Society of
Testing and Materials.
IV. Review Under Executive Order 12866
The proposed rule was reviewed under the provisions of this
Executive Order governing Regulatory Planning and Review. DOE has
determined that the proposed rule does not constitute a ``significant
regulatory action'' and is therefore not subject to the provisions of
Sec. 6 of the Executive Order requiring review by the Office of
Management and Budget (OMB).
V. Review Under the Regulatory Flexibility Act
The proposed rules were reviewed under the Regulatory Flexibility
Act of 1980, Pub. L. 96-354 (5 U.S.C. 601-612). DOE has determined that
this rule will not have a significant economic impact on a substantial
number of small entities, therefore, no regulatory flexibility analysis
has been performed.
VI. Review Under the Paperwork Reduction Act
The Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520) requires
that
[[Page 44288]]
Federal agencies obtain approval from the OMB before collecting
information from 10 or more persons. There are no information
collection requirements in these proposed amendments.
VII. Review Under the National Environmental Policy Act
DOE has determined that promulgation of this proposed rule falls
within the interpreting/amending rulemaking class, Category A5 of
appendix A to subpart D, ``Categorical Exclusions Applicable to General
Agency Actions,'' of the DOE National Environmental Policy Act (NEPA)
regulations. 10 CFR part 1021. It is therefore categorically excluded
from preparation of either an Environmental Assessment or an
Environmental Impact Statement under NEPA (42 U.S.C. 4321, et. seq).
VIII. Review Under Executive Order 12612
Executive Order 12612, 52 FR 41685 (October 30, 1987), requires
that regulations, rules, legislation, and any other policy actions be
reviewed for any substantial direct effects on States, on the
relationship between the National Government and the States, or in the
distribution of power and responsibilities among various levels of
Government. If there are sufficient substantial direct effects, then
the Executive Order requires preparation of a federalism assessment to
be used in all decisions involved in promulgating and implementing a
policy action. The proposed rule will revise certain policy and
procedural requirements applicable only to Federal energy management
programs. Therefore, the Department of Energy has determined that the
proposed rule will not have a substantial direct effect on the
institutional interests or traditional functions of States.
IX. Opportunities for Public Comment
A. Written Comment Procedures
Interested persons are invited to participate in this rulemaking by
submitting data, views, or comments with respect to the proposed
rulemaking.
Six copies of written comments should be submitted to the address
indicated in the ADDRESSES section of this notice and must be received
by the date indicated in the DATES section of this notice. Comments
should be identified on the outside of the envelope and on the
documents themselves with the designation ``EE-RM-95-501''. In the
event any person cannot provide 6 copies, alternative arrangements can
be made in advance with DOE.
All written comments received will be available for public
inspection as part of the administrative record on file for this
rulemaking in the Department of Energy Freedom of Information Office
Reading Room at the address provided in the beginning of this notice.
If informal meetings or other contacts occur during this rulemaking,
DOE may add a memorandum to the record on file summarizing what
transpired.
Pursuant to the provisions of 10 CFR 1004.11, any person submitting
information which that person believes to be confidential and which may
be exempt by law from public disclosure, should submit one complete
copy of the document, as well as two copies from which the information
claimed to be confidential has been deleted. DOE reserves the right to
determine the confidential status of the information and to treat it
according to its determination.
B. Public Hearing
1. Request to Speak Procedures
A public hearing on the proposed rule will be held at the time and
place indicated in the DATES and ADDRESSES Sections of this notice. Any
person who has an interest in the proposed rule or who is a
representative of a group or class of persons that has an interest in
the proposed rule may request an opportunity to make an oral
presentation. A request to speak at the public hearing should be
addressed to the address and phone number indicated at the beginning of
this notice. The person making the request should briefly describe his
or her interest in the proceedings and, if appropriate, state why the
person is a proper representative of the group. The person should also
provide a phone number where he or she may be reached during the day.
Each person selected to be heard will be notified by DOE as to the
approximate time they will be speaking. Six copies of the speaker's
statement should be submitted at the hearing. In the event any person
wishing to testify cannot meet this requirement, alternative
arrangements can be made in advance with DOE.
2. Conduct of the Hearing
DOE reserves the right to select persons to be heard at the
hearing, to schedule their respective presentations, and to establish
procedures governing the conduct of the hearing. The length of each
presentation will be limited to 10 minutes or based on the number of
persons requesting an opportunity to speak.
A DOE official will preside at the hearing. This will not be a
judicial or evidentiary-type hearing. It will be conducted in
accordance with 5 U.S.C. 553 and section 501 of the Department of
Energy Organization Act, 42 U.S.C. 7191.
Questions may be asked only by those conducting the hearing. At the
conclusion of all initial oral statements, each person who has made an
oral statement will be given the opportunity to make a rebuttal or
clarifying statement. The statements will be given in the order in
which the initial statements were made and will be subject to time
limitations.
Any further procedural rules needed for proper conduct of the
hearing will be announced by the presiding officer.
A transcript of the hearing will be made by DOE and made available
as part of the administrative record for this rulemaking. It will be on
file for inspection at the DOE Freedom of Information Reading Room at
the address indicated at the beginning of this notice.
If DOE must cancel the public hearing, DOE will make every effort
to publish an advance notice of such cancellation in the Federal
Register. Actual notice of cancellation will also be given to all
persons scheduled to speak. The hearing date may be canceled in the
event no member of the public requests the opportunity to make an oral
presentation.
List of Subjects in 10 CFR Part 436
Energy conservation, Federal buildings and facilities.
Issued in Washington, DC on August 3, 1995.
Christine A. Ervin,
Assistant Secretary, Energy Efficiency and Renewable Energy.
For the reasons set out in the preamble, 10 CFR part 436, is
proposed to be amended as follows:
PART 436--FEDERAL ENERGY MANAGEMENT AND PLANNING PROGRAMS
1. The authority citation for Part 436 continues to read as
follows:
Authority: 42 U.S.C. 6361; 42 U.S.C. 8251-8261; and E.O. 11912.
2. Section 436.1 is revised as follows:
Sec. 436.1 Scope.
This part sets forth the rules for Federal energy management and
planning programs to reduce Federal energy consumption and to promote
life
[[Page 44289]]
cycle cost effective investments in building energy systems, building
water systems and energy and water conservation measures for Federal
buildings.
3. Section 436.2 is amended by revising paragraph (b) to read as
follows:
Sec. 436.2 General objectives.
* * * * *
(b) To promote the methodology and procedures for conducting life
cycle cost analyses of proposed investments in building energy systems,
building water systems and energy and water conservation measures; and
* * * * *
4. Section 436.10 is revised to read as follows:
Sec. 436.10 Purpose.
This subpart establishes a methodology and procedures for
estimating and comparing the life cycle costs of Federal buildings, for
determining the life cycle cost effectiveness of energy conservation
measures and water conservation measures, and for rank ordering life
cycle cost effective measures in order to design a new Federal building
or to retrofit an existing Federal building. It also establishes the
method by which efficiency shall be considered when entering into or
renewing leases of Federal building space.
5. Section 436.11 is amended by:
(a) Revising the definitions of component price, Federal building,
life cycle cost, replacement cost, retrofit, and salvage value, and (b)
adding definitions for building water system, non-water operation and
maintenance costs, and water conservation measures.
Sec. 436.11 Definitions.
* * * * *
Building water system means a water conservation measure or any
portion of the structure of a building or any mechanical, electrical,
or other functional system supporting the building, the nature or
selection of which for a new building influences significantly the cost
of water consumed.
Component price means any variable sub-element of the total charge
for a fuel or energy or water, including but not limited to such
charges as ``demand charges,'' ``off-peak charges'' and ``seasonal
charges.''
* * * * *
Federal building means an energy or water conservation measure or
any building, structure, or facility, or part thereof, including the
associated energy and water consuming support systems, which is
constructed, renovated, leased, or purchased in whole or in part for
use by the Federal Government. Such term also means a collection of
such buildings, structures, or facilities and the energy and water
consuming support systems for such collection.
* * * * *
Life Cycle Cost means the total cost of owning, operating and
maintaining a building over its useful life (including its fuel and
water, energy, labor, and replacement components), determined on the
basis of a systematic evaluation and comparison of alternative building
systems, except that in the case of leased buildings, the life cycle
cost shall be calculated over the effective remaining term of the
lease.
* * * * *
Non-water operation and maintenance costs means material and labor
cost for routine upkeep, repair and operation exclusive of water cost.
* * * * *
Replacement costs means future cost to replace a building energy
system or building water system, an energy or water conservation
measure, or any component thereof.
Retrofit means installation of a building energy system or building
water system alternative in an existing Federal building.
Salvage value means the value of any building energy system or
building water system removed or replaced during the study period, or
recovered through resale or remaining at the end of the study period.
* * * * *
Water conservation measures means measures that are applied to an
existing Federal building that improve the efficiency of water use,
reduce the amount of water for sewage disposal and are life cycle cost
effective and that involve water conservation, improvements in
operation and maintenance efficiencies, or retrofit activities.
6. Section 436.13 is amended by revising paragraph (a), the
introductory text of paragraph (b) and paragraph (b)(2) to read as
follows:
Sec. 436.13 Presuming cost-effectiveness results.
(a) If the investment and other costs for an energy or water
conservation measure considered for retrofit to an existing Federal
building or a building energy system or building water system
considered for incorporation into a new building design are
insignificant, a Federal agency may presume that such a system is life
cycle cost-effective without further analysis.
(b) A Federal agency may presume that an investment in an energy or
water conservation measure retrofit to an existing Federal building is
not life cycle cost-effective for Federal investment if the Federal
building is--
* * * * *
(2) Occupied under a lease which includes the cost of utilities in
the rent and does not provide a pass through of energy or water savings
to the government; or
* * * * *
8. Section 436.14 is amended by revising paragraphs (b)(1), (c),
introductory text of (d)(2), (e) and (g) as follows:
Sec. 436.14 Methodological assumptions.
* * * * *
(b) * * *
(1) If the Federal agency is using component prices under
Sec. 436.14(c), that agency may use corresponding component escalation
rates provided by the energy or water supplier.
* * * * *
(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) * * *
(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--
* * * * *
(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).
* * * * *
(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.
* * * * *
8. Section 436.16 is amended by revising the section heading,
[[Page 44290]]
redesignating paragraphs (b) and (c) as paragraphs (c) and (d), and by
adding a new paragraph (b) as follows:
Sec. 436.16 Establishing non-fuel and non-water cost categories.
* * * * *
(b) The relevant non-water cost categories are--
(1) Investment costs;
(2) Non-water operation and maintenance cost;
(3) Replacement cost; and
(4) Salvage value.
* * * * *
9. Section 436.17 is amended by revising the section heading and by
adding paragraphs (c) and (d) to read as follows:
Sec. 436.17 Establishing energy or water cost data.
* * * * *
(c) Each Federal agency shall establish water costs in the base
year by multiplying the total units of water used in the base year by
the price per unit of water in the base year as determined in
accordance with Sec. 436.14(c).
(d) When water costs begin to accrue in the base year, the present
value of water costs over the study period is the product of water
costs in the base year as established under Sec. 436.17(a), or as
calculated by computer software provided or approved by DOE and used
with the official discount rate and assumptions under Sec. 436.14. When
water costs begin to accrue at a later time, subtract the present value
of water costs over the delay, calculated using the uniform present
worth factor for the period of delay, from the present value of water
costs over the study period or, if using computer software, indicate a
delayed beneficial occupancy date.
10. Section 436.18 is amended by revising the introductory text to
paragraph (c), paragraph (d), the first sentence of paragraph (e) and
paragraph (f) to read as follows:
Sec. 436.18 Measuring cost-effectiveness.
* * * * *
(c) Replacement of a building energy or water system with an energy
or water conservation measure by retrofit to an existing Federal
building or by substitution in the design for a new Federal building
shall be deemed cost-effective if--
* * * * *
(d) As a rough measure, each Federal agency may determine estimated
simple payback time under Sec. 436.23, which indicates whether a
retrofit is likely to be cost effective under one of the four
calculation methods referenced in Sec. 436.18(c). An energy or water
conservation measure alternative is likely to be cost-effective if
estimated payback time is significantly less than the useful life of
that system, and of the Federal building in which it is to be
installed.
(e) Mutually exclusive alternatives for a given building energy or
water system, considered in determining such matters as the optimal
size of a solar energy system, the optimal thickness of insulation, or
the best choice of double-glazing or triple-glazing for windows, shall
be compared and evaluated on the basis of life cycle costs or net
savings over equivalent study periods. * * *
(f) When available appropriations will not permit all cost-
effective energy or water conservation measures to be undertaken, they
shall be ranked in descending order of their savings-to-investment
ratios, or their adjusted internal rate of return, to establish
priority. If available appropriations cannot be fully exhausted for a
fiscal year by taking all budgeted energy or water conservation
measures according to their rank, the set of energy or water
conservation measures that will maximize net savings for available
appropriations should be selected.
* * * * *
11. Section 436.19 is amended by revising paragraph (d) to read as
follows:
Sec. 436.19 Life cycle costs.
* * * * *
(d) Energy and/or water costs.
12. Section 436.21 is revised to read as follows:
Sec. 436.21 Savings-to-investment ratio.
The savings-to-investment ratio is the ratio of the present value
savings to the present value costs of an energy or water conservation
measure. The numerator of the ratio is the present value of net savings
in energy or water and non-fuel or non-water operation and maintenance
costs attributable to the proposed energy or water conservation
measure. The denominator of the ratio is the present value of the net
increase in investment and replacement costs less salvage value
attributable to the proposed energy or water conservation measure.
13. Section 436.22 is revised to read as follows:
Sec. 436.22 Adjusted internal rate of return.
The adjusted internal rate of return is the overall rate of return
on an energy or water conservation measure. It is calculated by
subtracting 1 from the Nth root of the ratio of the terminal value of
savings to the present value of costs, where N is the number of years
in the study period. The numerator of the ratio is calculated by using
the discount rate to compound forward to the end of the study period
the yearly net savings in energy or water and non-fuel or non-water
operation and maintenance costs attributable to the proposed energy or
water conservation measure. The denominator of the ratio is the present
value of the net increase in investment and replacement costs less
salvage value attributable to the proposed energy or water conservation
measure.
14. Section 436.23 is revised to read as follows:
Sec. 436.23 Estimated simple payback time.
The estimated simple payback time is the number of years required
for the cumulative value of energy or water cost savings less future
non-fuel or non-water costs to equal the investment costs of the
building energy or water system, without consideration of discount
rates.
15. Section 436.24 is amended by revising the last sentence in the
Section as follows:
Sec. 436.24 Uncertainty analyses.
* * * If additional analysis casts substantial doubt on the life
cycle cost analysis results, a Federal agency should consider obtaining
more reliable data or eliminating the building energy or water system
alternative.
[FR Doc. 95-21156 Filed 8-24-95; 8:45 am]
BILLING CODE 6450-01-P
