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The original question was generated by the observation that:
"<font size=2>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! "
</font>That is the effect of discounting, independent of fuel price
escalation. The present value of $100 (in constant value dollars)
spent 20 years from now, if the real discount rate is 2% is
$100/[(1.02)^25]=$60.95. The larger the discount rate, the smaller
the PV for a given time period will be. Real, positive escalation
in fuel prices and other annual costs could exceed the impact of
discounting, but need not.<br><br>
The source I use for life cycle cost data is the annual supplement to
NIST Handbook 135 (which is a very good reference on LCC analysis).
Energy escalation rates in the NIST supplement are based on DOE/EIA
data:<br><br>
<a href="http://www.eere.energy.gov/femp/pdfs/ashb06.pdf" eudora="autourl">
http://www.eere.energy.gov/femp/pdfs/ashb06.pdf</a><br><br>
I have compared predictions for electricity from this source for the past
ten years or so and there have been big swings (something like +/- 20%),
particularly in electricity because of expectations relative to
deregulation and their subsequent failure to materialize. The
lesson is that over a period of two or three decades, it's hard to make
pin-point predictions, so sensitivity analysis is essential.<br><br>
Bill Bahnfleth<br><br>
At 01:04 PM 5/5/2006, Pat Bailey wrote:<br>
<blockquote type=cite class=cite cite=""><font size=2 color="#0000FF">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.<br>
</font> <br>
<font size=2 color="#0000FF">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.<br>
</font> <br>
<font size=2 color="#0000FF">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.<br>
</font> <br><br>
<font size=2>_____________________________________<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<br>
</font> <br>
<br><br>
<hr>
<font face="Tahoma" size=2><b>From:</b> BLDG-SIM@GARD.COM
[<a href="mailto:BLDG-SIM@GARD.COM" eudora="autourl">
mailto:BLDG-SIM@GARD.COM</a>] <b>On Behalf Of </b>Renee J. Azerbegi<br>
<b>Sent:</b> Thursday, May 04, 2006 7:29 PM<br>
<b>To:</b> BLDG-SIM@GARD.COM<br>
<b>Subject:</b> [BLDG-SIM] life cycle costing assumptions for non-federal
projects<br>
</font><br>
<font size=2>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?<br>
</font><br>
<font size=2> <br>
</font><br>
<font size=2>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?<br>
</font><br>
<font size=2> <br>
</font><br>
<font size=2>Thanks in advance for your feedback!<br>
</font><br>
<font size=2> <br>
</font><br>
<font size=2>Renée<br>
</font><br>
<font face="Times New Roman, Times"> <br>
</font><br>
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<br>
<div>_________________________________________________</div>
<br>
<div>William P. Bahnfleth, PhD, PE, Fellow ASHRAE</div>
<br>
<div>Professor of Architectural Engineering</div>
<div>Director, Indoor Environment Center</div>
<br>
<div>The Pennsylvania State University </div>
<div>104 Engineering Unit A</div>
<div>University Park, PA 16802 USA</div>
<br>
<div>voice: 814.863.2076 / fax: 814.863.4789 </div>
<div>e-mail: wbahnfleth@psu.edu</div>
<div>
<a href="http://www.arche.psu.edu/faculty/WBahnfleth/" EUDORA=AUTOURL>
www.arche.psu.edu/faculty/WBahnfleth/</a></div>
<div><a href="http://www.engr.psu.edu/ae/iec/" EUDORA=AUTOURL>
http://www.engr.psu.edu/ae/iec/</a></div>
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