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<p class=MsoNormal><font size=2 color=navy face=Arial><span style='font-size:
10.0pt;font-family:Arial;color:navy'>I certainly agree with Pat’s statement
that “</span></font><font size=2 color=blue face=Arial><span
style='font-size:10.0pt;font-family:Arial;color:blue'>most engineers have a
difficult time even estimating what the price of energy will be 15 years from
now, or 5 for that matter</span></font><font size=2 color=navy face=Arial><span
style='font-size:10.0pt;font-family:Arial;color:navy'>”. I would expand this
to fit the more general case:<o:p></o:p></span></font></p>
<p class=MsoNormal><font size=2 color=navy face=Arial><span style='font-size:
10.0pt;font-family:Arial;color:navy'><o:p> </o:p></span></font></p>
<ol style='margin-top:0in' start=1 type=1>
<li class=MsoNormal style='color:navy;mso-list:l0 level1 lfo1'><font size=2
color=navy face=Arial><span style='font-size:10.0pt;font-family:Arial'>It is
difficult for <i><span style='font-style:italic'>anyone</span></i> to predict
the future cost of energy.<o:p></o:p></span></font></li>
<li class=MsoNormal style='color:navy;mso-list:l0 level1 lfo1'><font size=2
color=navy face=Arial><span style='font-size:10.0pt;font-family:Arial'>The
effort required to calculate energy savings can range from relatively simple
to complicated, depending on the technology being evaluated and the
analysis procedure required. But, given enough effort, one can usually
get a pretty good handle on the energy savings.<o:p></o:p></span></font></li>
<li class=MsoNormal style='color:navy;mso-list:l0 level1 lfo1'><font size=2
color=navy face=Arial><span style='font-size:10.0pt;font-family:Arial'>Doing
a life-cycle analysis on those savings to determine present-value $$$
savings is a lot like pushing a rope – the longer the analysis period
(or rope), the more difficult it is to predict the outcome.<o:p></o:p></span></font></li>
<li class=MsoNormal style='color:navy;mso-list:l0 level1 lfo1'><font size=2
color=navy face=Arial><span style='font-size:10.0pt;font-family:Arial'>The
errors in the life cycle assumptions of energy escalation rate, etc., when
extrapolated out 20 years or more, can dwarf the errors in the calculation
procedure used to calculate the annual energy savings.<o:p></o:p></span></font></li>
<li class=MsoNormal style='color:navy;mso-list:l0 level1 lfo1'><font size=2
color=navy face=Arial><span style='font-size:10.0pt;font-family:Arial'>Given
#3, a life-cycle analysis can actually confuse the issue, rather than
clarify it. (Hence the original question posted on this subject.)<o:p></o:p></span></font></li>
</ol>
<p class=MsoNormal><font size=2 color=navy face=Arial><span style='font-size:
10.0pt;font-family:Arial;color:navy'><o:p> </o:p></span></font></p>
<p class=MsoNormal><font size=2 color=navy face=Arial><span style='font-size:
10.0pt;font-family:Arial;color:navy'>For these reasons, I question the validity
of life-cycle analysis. Since the goal of most life-cycle analysis is to
compute a discounted payback, and most financial decision makers then arbitrarily
select a maximum limit on payback, which is typically much less than 20 years, why
not just use simple payback?<o:p></o:p></span></font></p>
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<p class=MsoNormal><b><font size=2 face=Tahoma><span style='font-size:10.0pt;
font-family:Tahoma;font-weight:bold'>From:</span></font></b><font size=2
face=Tahoma><span style='font-size:10.0pt;font-family:Tahoma'>
BLDG-SIM@GARD.COM [mailto:BLDG-SIM@GARD.COM] <b><span style='font-weight:bold'>On
Behalf Of </span></b>Pat Bailey<br>
<b><span style='font-weight:bold'>Sent:</span></b> Friday, May 05, 2006 10:05
AM<br>
<b><span style='font-weight:bold'>To:</span></b> BLDG-SIM@GARD.COM<br>
<b><span style='font-weight:bold'>Subject:</span></b> [BLDG-SIM] life cycle
costing assumptions for non-federal projects</span></font><o:p></o:p></p>
</div>
<p class=MsoNormal><font size=3 face="Times New Roman"><span style='font-size:
12.0pt'><o:p> </o:p></span></font></p>
<p class=MsoNormal><font size=2 color=blue face=Arial><span style='font-size:
10.0pt;font-family:Arial;color:blue'>The escalation assumptions that come from
the Energy Information Administration are, as Renee stated, negative for many
years, and from our perspective very conservative. I think that people
use the EIA numbers because most engineers have a difficult time even
estimating what the price of energy will be 15 years from now, or 5 for that
matter.</span></font><o:p></o:p></p>
<p class=MsoNormal><font size=3 face="Times New Roman"><span style='font-size:
12.0pt'> <o:p></o:p></span></font></p>
<p class=MsoNormal><font size=2 color=blue face=Arial><span style='font-size:
10.0pt;font-family:Arial;color:blue'>We have done a little research to try and
find escalation factors that agree more closely with recent experience.
For California have been using 2% based on a look back at utility rates.
The difficulty is that EIA never projects discontinuities (they can't), but a
lot of the increases over the past 30 years have been in the form of
spikes. For example, next year the price of natural gas may drop, but it
will drop from historic highs which were not captured by any escalation
assumptions in the recent past.</span></font><o:p></o:p></p>
<p class=MsoNormal><font size=3 face="Times New Roman"><span style='font-size:
12.0pt'> <o:p></o:p></span></font></p>
<p class=MsoNormal><font size=2 color=blue face=Arial><span style='font-size:
10.0pt;font-family:Arial;color:blue'>I would be curious to know if any large
corporate entities have an energy cost assumption built into their corporate
budgeting process. I have to believe that energy intensive industries,
certainly the airlines, and probably others have economists or consultants
dedicated to assessing this issue/risk.</span></font><o:p></o:p></p>
<p class=MsoNormal><font size=3 face="Times New Roman"><span style='font-size:
12.0pt'> <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'><!-- Converted from text/plain format -->_____________________________________<br>
Pat Bailey, PE<br>
Green Building Studio, Inc.<br>
444 Tenth Street, Suite 300<br>
Santa Rosa, CA 95401<br>
<br>
707-569-7373 x101 - voice<br>
707-569-7313 - fax</span></font><o:p></o:p></p>
<p class=MsoNormal><font size=3 face="Times New Roman"><span style='font-size:
12.0pt'> <o:p></o:p></span></font></p>
<p class=MsoNormal><font size=3 face="Times New Roman"><span style='font-size:
12.0pt'> <o:p></o:p></span></font></p>
<p class=MsoNormal><font size=3 face="Times New Roman"><span style='font-size:
12.0pt'><o:p> </o:p></span></font></p>
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face="Times New Roman"><span style='font-size:12.0pt'>
<hr size=2 width="100%" align=center tabIndex=-1>
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<p class=MsoNormal style='margin-bottom:12.0pt'><b><font size=2 face=Tahoma><span
style='font-size:10.0pt;font-family:Tahoma;font-weight:bold'>From:</span></font></b><font
size=2 face=Tahoma><span style='font-size:10.0pt;font-family:Tahoma'>
BLDG-SIM@GARD.COM [mailto:BLDG-SIM@GARD.COM] <b><span style='font-weight:bold'>On
Behalf Of </span></b>Renee J. Azerbegi<br>
<b><span style='font-weight:bold'>Sent:</span></b> Thursday, May 04, 2006 7:29
PM<br>
<b><span style='font-weight:bold'>To:</span></b> BLDG-SIM@GARD.COM<br>
<b><span style='font-weight:bold'>Subject:</span></b> [BLDG-SIM] life cycle
costing assumptions for non-federal projects</span></font><o:p></o:p></p>
<p class=MsoNormal><font size=2 face=Arial><span style='font-size:10.0pt;
font-family:Arial'>I was using BLCC for life cycle costing and the end life
cycle cost results were less than if I took the maintenance costs, energy
costs, and first costs and added them together over the 25 year study period I
was examining! Then I noticed the NIST/DOE fuel escalation factors which have
negative values for many of the years. This I believe contributed to this
error. My first question is, doesn’t this seem odd that the fuel escalation
factors are negative at a time like now?<o:p></o:p></span></font></p>
<p class=MsoNormal><font size=2 face=Arial><span style='font-size:10.0pt;
font-family:Arial'><o:p> </o:p></span></font></p>
<p class=MsoNormal><font size=2 face=Arial><span style='font-size:10.0pt;
font-family:Arial'>Also, as this was a non-federal project, I used a default
factor of 2% instead. But my other questions are, for life cycle costing
analysis, what are the most commonly used sources you might have found for
inflation rates, real or nominal discount rates, or fuel escalation rates? I
made some assumptions based on doing some web research but is there an
acceptable method of choice other than using defaults in BLCC which are
designed more for federal projects?<o:p></o:p></span></font></p>
<p class=MsoNormal><font size=2 face=Arial><span style='font-size:10.0pt;
font-family:Arial'><o:p> </o:p></span></font></p>
<p class=MsoNormal><font size=2 face=Arial><span style='font-size:10.0pt;
font-family:Arial'>Thanks in advance for your feedback!<o:p></o:p></span></font></p>
<p class=MsoNormal><font size=2 face=Arial><span style='font-size:10.0pt;
font-family:Arial'><o:p> </o:p></span></font></p>
<p class=MsoNormal><font size=2 face=Arial><span style='font-size:10.0pt;
font-family:Arial'>Renée<o:p></o:p></span></font></p>
<p class=MsoNormal><font size=3 face="Times New Roman"><span style='font-size:
12.0pt'><o:p> </o:p></span></font></p>
<pre><font size=2 face="Courier New"><span style='font-size:10.0pt'><o:p> </o:p></span></font></pre><pre><font
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