SMALL-SCALE HYDROELECTRIC POWER The undeveloped hydroelectric potential at existing dams in the United States is estimated to be in the neighborhood of 27,000 megawatts or about 85 billion kilowatt hours of energy a year. This potential capacity is equivalent to almost 140 million barrels of oil per year-enough to supply the electricity needs of about 8.5 million people. It has been estimated by the Corps of Engineers that as many as 2,000 existing dams across the country could be economically converted to produce smallscale hydro power. An effort to develop small-scale hydro power will have an especially important impact in the New England states where many small dams are located and as much as 1800 megawatts of generating capacity might be developed. Small hydro projects using irrigation flows should also produce significant benefits for irrigated agricul ture. For each of the next several years DOE will administer a program through which communities could conduct feasibility and engineering studies of potential sites. Following an on-site review process including DOE, the Corps of Engineers, the Bureau of Reclamation, and FERC, the most promising sites would be encouraged to submit applications for construction grants, loans, and loan guarantees from EDA, FmHA, REA, CSA, and HUD. Over $300 million in resources have been reserved for this purpose through 1981. The target goal of bringing up to 100 reconstructed rural hydro projects on-line by the end of 1981 through the interagency effort will develop approximately 300 megawatts of additional capacity. NATURAL GAS FROM COAL AND SHALE Over 6,500 rural communities with a population of 10,000 or less are located over coal and shale resources. Many of these communities have existing gas distribution systems. Together with a U.S. Geological Survey estimate that up to 750 trillion cubic feet of gas may be recoverable from coalbeds and shale using conventional gas production technology, these facts make unconventional gas development an exciting prospect. The grant from DOE to the American Public Gas Association is being made to test the technical and economic feasibility of developing this resource for local utilization by rural communities and agricultural and industrial enterprises. Six case studies/sites, each involving a different end use or user for the gas produced, will be selected for the demonstrations. Provided that these demonstrations are positive-that technical and economic feasibility is established and institutional constraints to widespread development can be overcome-the grant, loan, and loan guarantee resources of the Department of Agriculture (FmHA and REA) and the Department of Commerce (EDA) will be made available to enable communities, utilities, and commercial and industrial enterprises to develop and utilize this abundant energy resource. $300 million in federal resources under these authorities are being provisionally reserved for these purposes for fiscal years 1979 through 1981. GASOHOL Large quantities of renewable agricultural products can be converted into alcohol, and this alcohol can be added to unleaded gasoline to produce gasohol (a blend of about 10 percent alcohol and about 90 percent unleaded gasoline). Coupled with a major grass roots effort over the last year to develop alcohol from agricultural products, demand for gasohol is burgeoning. Particularly promising "raw materials" or feedstocks for conversion to alcohol include sugar beets, wheat, grain sorghum, corn, sugar cane, and food processing wastes. Major new incentives for alcohol production, part of the Energy Tax Act of 1978, include: an enhanced investment tax credit of an additional 10 percent which is extended through 1982, and exemption from the 4¢ motor fuels excise tax on fuels containing at least 10 percent alcohol derived from sources other than petroleum, natural gas, or coal through September 1984. In his energy speech on April 5, the President proposed to make the current excise tax exemption permanent, once the Energy Security Trust Fund is established. These overall incentives are complemented by a commitment of federal resources to finance various demonstration activities designed to reduce the cost of gasohol production and test its commercial viability. For example USDA has committed $3.9 million in fiscal year 1980 for experiments conducted by land grant universities and others in the production of alcohol fuel from agricultural products. (An additional $2 million has been committed in fiscal year 1980 for comparable research to perfect on-farm technology for methane digesters and small-scale alcohol distillation.) USDA has also committed $30 million in loan guarantees to help finance construction of a gasohol plant in Florida using sugar cane and one in Texas using grain sorghum as feedstocks. The collaborative effort between DOE, EDA, and CSA—to provide technical assistance and low interest grants, loans, and loan guarantees to farmers, farm cooperatives, and others from the development and construction of small-scale fuel alcohol plants-will provide an important experience base from which to evaluate the viability of small-scale production of alcohol. Over $10 million will be made available in fiscal years 1979-1981 to enable construction of as many as 100 small plants. As a result of the tax inducements and the collaborative DOE/EDA/CSA effort, alcohol production for motor fuel is expected to reach 300 million gallons per year in 1982, an approach 600 million gallons per year in 1985. WOOD Logging residues, growth in non-commercial forests, and undesirable growth in commercial forests produce a large and renewable quantity of fuel for home heating, industrial processes, steam generation, and small electric power plants. The energy equivalent of between 500,000 and 750,000 barrels of oil a day are currently being produced from wood, most of it in the wood products industry, which meets 45 percent of its own energy needs by use of wood. In just the last year, 750,000 wood stoves were purchased for home heating. Aggressive efforts are underway to expand the use of this abundant and renewable resource as a fuel. Special efforts to accomplish this goal include: The President's commitment to seek a tax credit for the purchase of wood stoves, upon enactment of the windfall profits tax and establishment of the Energy Security Trust Fund; Stepped-up federal activities to test and establish standards for wood stoves; Marketing and forest management assistance by the Agricultural Stabilization and Conservation Service (ASCS) to small woodlot owners to increase the production of fuel wood; and Intensified supply and demand studies in DOE and the Forest Service of wood as a fuel. SOLAR ENERGY FOR AGRICULTURAL AND INDUSTRIAL PROCESS HEAT Agricultural and industrial processes consume about 40 percent of the total energy now used in the United States, most of it in the form of fossil fuels to generate hot water, hot air, steam, and other high temperature fluids for industrial processes, and a significant amount in the form of liquified petroleum gas to produce heat for on-farm applications such as crop and grain drying, space heating, and food processing. In DOE's Industrial Process Heat Program, 23 projects are under contract to demonstrate the feasibility of using solar energy for producing industrial process heat. Nearly two-thirds of these projects are located in rural areas and contribute to rural industrial development. These systems, invarious phases of design, construction, and operation, will generate thermal energy for applications such as commercial processing of food, lumber drying, heating green-houses, and use in other industries such as concrete block manufacturing, chemicals, and oil refining. DOE and USDA are cooperating in a program to adapt solar energy for on-farm uses in agriculture. More than 50 experiments are being conducted in 28 states, emphasizing the design of solar systems which can be constructed of materials and equipment readily available to farmers. In order to transfer solar energy technology and systems designs from the research laboratory to the farm site, a pilot program of on-farm demonstrations has been initiated. At present, 91 projects in nine states have been authorized for solar energy heating of swine and poultry houses and dairy buildings, and a similar number of projects is planned in 1980 for crop and grain drying. 25366 Federal Register / Vol. 44, No. 84 / Monday, April 30, 1979 / Proposed Rules methodology will be subpart A of the new Part 436 of Title 10 of the Code of Federal Regulations and will be used in accordance with the guidelines for Federal building plans to reduce consumption of scarce fossil fuels for building energy use and with the rule for solar demonstration project proposals which will be subparts C and D of part 436, respectively. DATES: Comments must be received by June 29, 1979, 4:30 d.s.t., in order to ensure their consideration. Hearings will be held at the places and on the dates indicated below. ADDRESSES: Comments to: Margaret W. Sibley, Office of Conservation and Solar Applications. Department of Energy. 20 Massachusetts Ave., N.W., Washington, D.C. 20585. HEARINGS: Public Hearings will be held in three cities, beginning at 9:00 a.m. local time on the dates and locations specified below: Submit requests to testify to Robert Laffel, DOE, 1111 June 7 Margaret Sibley, DOE, 20 Hearing locations Holiday Inn, Golden Gate Way, 1500 Van Ness Ave., San Francisco, CA Conference Am. 140, 601 E 12th St, Kansas City, MO. Room 2105, 2000 M Street NW, Washington, D.C. E. Possible Special Solar Incentives. IV. Applying the Proposed Life Cycle Cost Methodology: A. Formatting Cost Data, B. "Modes of Analysis-Combining Cost Data and Measuring Cost Effectiveness". V. Retrofit Interdependencies. VI. Sensitivity Analysis. VII. Leased Federal Buildings. VIII. When to Assume Cost Effectiveness Results. IX. Environmental Review: A. NEPA, B. EPA Review. X. Determinations Under Executive Order 12044. XI. Public File. XII. Effective Date. XIII. Comment and Hearing Procedures: A. Written Comments, B. Request Procedures, C. Conduct of Hearing. I. Introduction The Department of Energy (DOE) hereby proposes to add a Subpart A to Part 436 of Chapter II. Title 10 of the Code of Federal Regulations (10 CFR Part 436). Part 436 will eventually comprise the rules for energy conservation and renewable energy (e.g.. solar) programs applicable to Federal buildings. Today's proposal involves a methodology and procedures for the conduct of life cycle cost analyses to evaluate and compare the estimated cost effects of energy-saving investments in existing and new Federal buildings for the purpose of reducing consumption of scarce fossil fuels. The DOE proposes this life cycle costing methodology and procedures 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, as amended. (Executive Order) and Title V of the National Energy Conservation Policy Act (NECPA), 92 Stat. 3275. The DOE has already proposed a Subpart D for Part 436 which is intended to provide the rules for the Solar in Federal Buildings Demonstration Program under Title V, Part 2 of the NECPA. The DOE expects to add to Part 436 a Subpart B for preliminary energy audit procedures and a Subpart C for guidelines for Federal agency plans to reduce building energy use under the Executive Order and Title V, Part 3, of the NECPA. Subsequent to the proposal of Subparts B and C, the DOE intends to propose a Subpart E for Part 436 which will provide rules for monitoring and assessing the performance of photovoltaic solar electric systems to be installed at Federal facilities under Title V. Part 4 of the NECPA. The life cycle costing methodology and procedures of Subpart A will be used to evaluate and compare the estimated cost effects of energy-saving investments during the formulation and execution of Buildings Plans under Subpart C. Subpart A will also be used to evaluate and compare the estimated cost effects of solar demonstration project under Subpart D. It should be emphasized, however, that the result of a life cycle cost analysis will be treated differently under Subparts C and D as required by law. The result will be determinative under the planning guidelines of subpart C. while, under Subpart D, it will merely be a factor to be considered in evaluating a proposed solar demonstration project. Both the Executive Order and Title V of the NECPA set requirements for the methodology and procedures proposed today. Read together, they require that the methodology and procedures be practical, effective, and suitable for estimating Federal Register / Vol. 44, No. 84 / Monday, April 30, 1979 / Proposed Rules ● Whether retrofitting an alternative building system to an existing Federal building is cost effective and tends to minimize the life cycle cost of that building; ● Relative ranking, based on costeffectiveness, of retrofit investments in Building Plans; • Whether an alternative building design for a new Federal Building will minimize the life cycle cost of that building; ● Payback time for solar demonstration projects; and • Present value of net benefits or excess costs of a solar demonstration project in comparision to a substitute conventional, non-solar alternative building system in an existing Federal building or in the design of a new Federal building. In compliance with the Executive Order and the NECPA, proposed § 436.11 defines the term "life cycle cost" to mean "the total costs of owning. operating, and maintaining a building over its useful life, including its fuel and energy costs, determined on the basis of a systematic evaluation and comparison of alternative building systems' [Emphasis added. J. Today's proposed rule defines the term "alternative building system" as "an energy conservation measure as defined by § 436.41. including a renewable energy system, for an existing Federal building, or a primary energy-saving building system, including a renewable energy system, for consideration as part of the design for a new Federal building." The DOE considered defining the term "alternative building system," to include only those systems which can attribute at least 50 percent of their projected overall cost savings to energy cost savings, but chose instead to leave the fixing of a precise cutoff point to agency discretion. Today's proposal was developed in consultation with the Office of Management and Budget (OMB), the National Bureau of Standards (NBS), the General Services Administration (GSA), the Department of Defense (DOD), the Veterans Administration (VA), and other Federal agencies who, among other things, provided information on existing analytical techniques used to estimate life cycle cost. The Director of OMB has concurred in the proposal. Substantial technical assistance was provided by the experts of the NBS who are conversant with the technical aspects of life cycle cost analysis and are established consultants in the field. NBS was instrumental in the development of a manual for Federal agencies to use in applying the rule. The manual is entitled "Life Cycle Cost Manual for Federal Energy Management and Planning Programs." A draft of that manual is available for inspection in the public file. Today's proposed rule, when finalized, will promote standardization in life cycle cost analytical techniques already in use by Federal agencies. The final rule is likely to promote energy conserving investment decisions which are more consistent and rational. It may also influence private sector decisionmakers to balance the importance of initial investment costs with the implications of compensating cost savings over the life cycle of an investment in energy-saving building systems and building designs. II. The Proposed Life Cycle Cost A life cycle cost "methodology" is a set of systematic procedures which makes apparent the tradeoffs between additional dollars invested today and reduced costs tomorrow. The methodology permits an analyst to assess a give investment decision or choose among alternative investment decisions on the basis of the estimated economic consequences (measurable in dollars) over a given period of time. It involves analyzing the net effect of all significant cash flows associated with an investment over a period of time, using an adjustment "technique" to reflect the fact that the future dollar consequences of a present dollar investment can be accurately assessed only by taking account of the influence of time on the value of money. Dollars invested can earn a return over time, and it is this earing potential which determines the time value of money. The DOE considered two closely related "techniques" for accounting for the time value of money: discounting future dollars to present values, and alternatively, converting present and future dollars to uniform annual values. Under certain circumstances, the uniform annual value technique is advantageous due to simplicity in computation. However, that advantage appears to be lost if one systematically escalates energy cost figures to take account of the prospect for long term increases in the price of most fossil fuel energy sources at a rate faster than the rate of increase in the general level of prices. Moreover, proposing a methodology with this technique would result in additional computation for the solar demonstration program authorized by Part 2 of Title V of the NECPA which requires an evaluation of the present value of benefits and costs. The 25367 additional computation would be the arithmetic conversion from annual value to present value. Inasmuch as the DOE considers adjustments to reflect rising energy prices to be essential and in light of the desirability to minimize the required calculation generally and for the NECPA solar demonstration program specifically, the DOE decided to propose use of present values. The methodology proposed today employs the technique of discounting future costs to present values over a period of time referred to as a "study period". It involves different combinations of present value cost data to measure the cost effectiveness of energy-saving investments. The combinations of cost data are referred to as "modes of analysis," and are described as "total life cycle costs," "net savings," and the "savings-toinvestment ratio." In addition to these measures of cost effectiveness, the DOE proposes a procedure for calculating estimated simple payback time. Simple payback is a rough approximate indicator of cost effectiveness. It is not, however, a true measure of life cycle cost effectiveness because the calculation ignores cost savings and costs after the point in the life cycle at which cumulative cost savings equals investment costs. Moreover, although simple payback has the advantage of computational simplicity, it does not take into account the time value of money or anticipated Increases in energy prices. The DOE is Including it in the proposed rule because calculation of payback time is required for the solar demonstration program and may be useful as a rough indicator of cost effectiveness. III. Developing Cost Data and A. Non-Fuel Use Cost Categories Proposed § 436.16 identifies four categories of non-energy costs to be analyzed. These categories are: (1) investment costs; (2) non-fuel operation and maintenance costs; (3) replacement costs, and (4) salvage values. These categories cover the range of non-fuel use costs covered by the definition of the term "life cycle cost" in both the Executive Order and the NECPA. The term "investment costs" is defined by proposed § 436.11 to include the initial costs of design, engineering. purchase and installation (exclusive of "sunk costs," that is to say, costs incurred prior to the life cycle cost analysis). Proposed § 436.14 provides for the assumption that the investment costs represent a lump sum occurring in |