"Building system” means any portion of the structure of the building or of any energy-using system in the building.

"Component price" means any variable sub-element of the total charge for a fuel or energy, including but not limited to such charges as "demand charges," "peak charges," "off-peak charges" and "seasonal charges."

"Demand charge" means that portion of the charge for electric service based upon the plant and equipment costs associated with supplying the electricity consumed.

"Energy

means an installation or modification of an installation in a building which is primarily intended to reduce energy consumption or allow the use of a renewable energy source, including, but not limited to

(a) Insulation of the building structure and systems within the building;

(b) Storm windows and doors, multiglazed windows and doors, heat absorbing or heat reflective glazed and coated windows and door systems, additional glazing, reductions in glass area and other window and door system modifications;

(c) Automatic energy control systems;

(d) Equipment required to operate variable steam, hydraulic and ventilating systems adjusted by automatic energy control systems;

(e) Solar space heating or cooling systems, solar electric generating systems, or any combination thereof;

(f) Solar water heating systems;

(g) Furnace or utility plant and distribution system modifications including

(1) Replacement burners, furnaces, boilers, or any combination thereof, which substantially increases the energy efficiency of the heating system;

(2) Devices for modifying flue openings which will increase the energy efficiency of the heating system;

(3) Electrical or mechanical furnace ignition systems which replace standing gas pilot lights; and

(4) Utility plant system conversion measures including conversion of existing oil- and gas-fired boiler installa

(h) Caulking and weatherstripping; (i) Replacement or modification of lighting fixtures which increases the energy efficiency of the lighting system;

(j) Energy recovery systems; and

(k) Cogeneration systems which produce steam or forms of energy such as heat, as well as electricity for use primarily within a building or a complex of buildings.

"Existing Federal building" means a Federal building the construction of which was complete by November 9, 1978, or the design of which cannot feasibly be modified after the effective date of Subpart C of this part.

"Facility" means any group of closely located buildings, none of which is individually metered for all energy sources and for which the actual rate of use of all energy sources can be determined.

"Federal agency" means an Executive agency under 5 U.S.C. 105 (1970), the United States Postal Service, and each entity specified in 5 U.S.C. 5721(1) (B) through (H) (1970).

"Federal building" means any building, structure or facility which is constructed, renovated, leased or purchased in whole or in part for use by the United States, and which includes a heating system, or cooling system, or both.

"Investment costs" means the initial costs of design, engineering, purchase, and installation exclusive of sunk costs.

"Life Cycle Cost" means the total cost 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; except that in the case of leased buildings, the life cycle cost shall be calculated over the effective remaining term of the lease. "Liquid gas" means propane, butane, ethane, pentane, or natural gasoline.

the effective date of Subpart C of this part.

"Non-recurring costs" means costs that are not uniformly incurred annually over the study period.

"Non-fuel operation and maintenance costs" means material and labor costs for routine upkeep, repair and operation exclusive of energy cost. "Recurring costs" means costs that are incurred uniformly and annually over the study period.

"Replacement costs" means future costs to replace a building system or any component thereof.

"Retrofit" means installation of an alternative building system in an existing Federal building.

"Salvage value" means the value of any building system removed or replaced during the study period, or remaining at the end of the study period, or recovered through resale at the end of the study period.

"Study period" means the time period covered by a life cycle cost analysis.

"Sunk costs" means costs incurred prior to the year in which the life cycle cost analysis occurs. "Time-of-day rate" means the charge for service during periods of the day based on the cost of supplying services during various times of the day.

[45 FR 5624, Jan. 23, 1980, as amended at 46 FR 56720, Nov. 18, 1981]

§ 436.12 Life cycle cost methodology.

The life cycle cost methodology for this part is a systematic analysis of relevant costs, excluding sunk costs, over a study period, relating initial costs to future costs by the technique of discounting future costs to present values.

§ 436.13 Presuming cost-effectiveness results.

(a) If the investment and other costs for an alternative building system considered for retrofit to an existing Federal building or 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 alternative

building system for retrofit to an existing Federal building is not life cycle cost-effective if the Federal building

is

(1) Occupied under a short-term lease without a renewal option or with a renewal option which is not likely to be exercised;

(2) Occupied under a lease which inIcludes the cost of utilities in the rent and does not provide a pass-through of energy savings to the government; or

(3) Scheduled to be demolished or retired from service within three years.

§ 436.14 Methodological assumptions.

Except in determining estimated simple payback time, each Federal agency shall assume:

(a) That the annual discount rate is 7 percent, without inflation, and shall adjust cost data accordingly by applying the appropriate present worth factors from the tables in Appendices A and B;

(b) That energy prices will rise at rates different from the rate of increase in the general price level, and shall adjust base year energy costs by applying the appropriate modified present worth factors of Appendix B, or by applying the annual compound price growth factors of Appendix C together with the appropriate present worth factors in Appendix A, except that

(1) If the Federal agency is using component prices under § 436.14(c)(2), that agency may use corresponding component real escalation rates provided by the energy supplier.

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

(c) That the price of energy in the base year is the actual price charged for energy delivered to the Federal building except that

(1) If the actual price is not readily available, the price of energy in the base year shall be the price for the appropriate region, sector and fuel type in Appendix C.

(2) A Federal agency may use actual component prices as provided by the energy supplier.

(1) For evaluating and ranking alternative retrofits for an existing Federal building, the study period is the expected life of the retrofit, or 25 years, whichever is shorter.

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

(i) The estimated life of the mutually exclusive alternative having the longest life, not to exceed 25 years, with appropriate replacement and salvage values for each of the other alternatives; or

(ii) The lowest common multiple of the expected lives of the alternatives, not to exceed 25 years, with appropriate replacement and salvage values for each alternative.

(3) For evaluating alternative designs for a new Federal building, the study period is the expected life of the building or 25 years, whichever is shorter.

(e) That the expected life of any building 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. The period of service of a building system shall not be deemed to exceed the expected life of an owned building, or the effective remaining term of a leased building (taking into account renewal options likely to be exercised).

(f) That the investment costs are a lump sum occurring at the beginning of the base year and constituting 90 percent of the actual investment costs;

(g) That energy costs and non-fuel operation and maintenance costs begin to accrue at the beginning of the base year; and

(h) That non-investment costs in any year occur in a lump sum at the end of the year in which they are incurred.

[44 FR 60669, Oct. 19, 1979, as amended at 46 FR 56720, Nov. 18, 1981]

§ 436.15 Formatting cost data.

In establishing cost data under §§ 436.16 and 436.17 and measuring cost effectiveness by the modes of analysis described by §§ 436.19 through 436.22, a format for accomplishing the analysis which includes all the essential elements of the procedure shall be used. Federal agencies are encouraged to use formats such as those set forth in the "Life Cycle Costing Manual for the Federal Energy Management Program."

§ 436.16 Establishing non-fuel cost data. (a) The revelant non-fuel cost categories are

(1) Investment costs;

(2) Non-fuel operation and maintenance costs;

(3) Replacement costs; and (4) Salvage value.

as

(b) The investment costs are sumed to be a present value under § 436.14(g).

(c) The present value of recurring costs is the product of the base year value of recurring costs as multiplied by the appropriate uniform present worth factor for the applicable study period from Table 2 in Appendix A.

(d) The present value of non-recurring costs under § 436.16(a)(2) through (a)(4) is the product of the non-recurring costs as multiplied by appropriate single present worth factors from Table A-1 of Appendix A for the respective years in which the costs are expected to be incurred.

§ 436.17 Establishing energy cost data.

(a) Each Federal agency shall establish energy costs in the base year by multiplying the total units of energy used in the base year by the price per unit of energy in the base year as determined in accordance with

§ 436.14(c).

(b) The present value of energy costs over the study period shall be calculated by multiplying the energy costs in the base year as established under § 436.17(a) by the appropriate modified uniform present worth factor adjusted for energy price escalation for the applicable region, sector, fuel type, and study period from Tables B-1 through B-11 of Appendix B; or, by

using the step-by-step approach detailed in § 436.14(b).

§ 436.18 Measuring cost-effectiveness.

(a) In accordance with this section, each Federal agency shall measure cost-effectiveness by combining cost data established under §§ 436.16 and 436.17 in the appropriate mode of analysis as described in §§ 436.19 through 436.22.

(b) Replacement of a building system with an alternative building system by retrofit to an existing Federal building or substitution in the design for a new Federal building shall be deemed cost-effective if—

(1) Total life cycle costs, as described by § 436.19, are estimated to be lower;

or

(2) Net savings, as described by $436.20, are estimated to be positive;

or

(3) The savings-to-investment ratio, as described by § 436.21, is estimated to be greater than one.

(c) As a rough measure, each Federal agency may determine estimated simple payback time under § 436.22, which indicates whether a retrofit is likely to

be cost-effective under 436.18(b). An alternative system 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 installed.

(d) Mutually exclusive alternatives for a given building 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 tripleglazing for windows, shall be compared and evaluated on the basis of total life cycle costs or net savings over equivalent study periods. The alternative which is estimated to result in the lowest total life cycle costs or the highest net savings shall be deemed the most cost-effective because it tends to minimize the life cycle cost of the Federal building.

(e) Cost-effective alternative building systems shall be ranked in descending order of their savings-to-investment ratios.

(f) Alternative building designs for new Federal buildings shall be evaluat

ed on the basis of total life cycle costs. The alternative design which results in the lowest total life cycle costs for a given new building shall be deemed the most cost-effective.

§ 436.19 Total life cycle costs.

Total life cycle costs are the sum of the present values of—

(a) Investment costs less salvage values at the end of the study period; (b) Non-fuel operation and maintenance costs;

(c) Replacement costs less salvage costs of replaced building systems; and (d) Energy costs.

§ 436.20 Net savings.

Net savings is the difference in the present values of savings and costs of an alternative building system as compared with the existing building system or with the basic design for a new building. For a retrofit project, net savings may be found by calculating the total life cycle costs for an existing building system and the total life cycle costs for the proposed retrofit system, and then subtracting the total life cycle costs for the proposed system from the total life cycle costs for the existing system. For a new building design, net savings is the difference between the life cycle costs of one alternative compared with the system in the basic design.

§ 436.21 Savings-to-investment ratio.

The savings-to-investment ratio is the ratio of the present value savings of an alternative building system to its increase in present value costs during the study period. The numerator of the ratio is the net difference in present value energy and non-fuel operation and maintenance costs between the proposed alternative and the existing building system or basic design alternative. The denominator of the ratio is the net difference between the proposed alternative and the existing building system or the basic design alternative in present value investment and replacement costs less salvage value.