Text

Intervenor Revised Prefiled Exhibit INT000031, Office of Management and Budget, Icf Consulting (Excerpt)
	ML111361100
Person / Time
Site:	05200012, 05200013
Issue date:	12/31/2010
From:	; US Executive Office of the President, Office of Mgmt & Budget (OMB)
To:	; Atomic Safety and Licensing Board Panel
	SECY RAS
Shared Package
ML111361098	List: ML111361100;
References
	ASLBP 09-885-08-COL-BD01, RAS 20328, 52-012-COL, 52-013-COL, +reviewedgfw
	Download: ML111361100 (4)
	v • d • e

Submitted 5-16-11 INT000031 Circular A-94 Appendix C I The White HOllse lof2 Get Email U pil.

Home

TIle Ac1ministrlltioll

Office of A'fallllYCr1I CI/f 011(1 Budgf!t Search OMS About 1 0MB Blog I The Budget I fvlanugemcnt I Regulation & Information Policy I Legislative Information I Join OMB ABOUT Leadership Bios OMS OrganiZation Chart Open Government Plan OMS News Releases RSS Feeds Intellectual Property Agency Info Bul"tins Circulars Budget State and Local Governments Educational and Non-Profit Institutions Federal Procurement Federal Flnancial Management Federal Information Resources I Data Collection Other Special Purpose Memoranda Privacy Guidance Reports Federal Register FOIA No FEAR OMS Locator Circular A-94 Appendix C Revised December 2010 OMS Circular No. A-g*

Click here for PDF assistance ~

DISCOUNT RATES FOR COST*EFFECTIVENESS, LEASE PURCHASE, AND RELATED ANALYSES Effoctive Date s. This appendix is updated annually. This version of the appendix is valid for calendar year 2011. A copy of the updated appendix can be obtained in electronic form through the OMB home page at

!illp:lI.. wl'.... \\whitehouslMlovlornb/clrculars a0941a94 appx.c/ the text of the main body of the Circular is found at http://whitehouse.gov/omb/clrculars a094/. and a table of past years' rates is located at htlp:llwhitehollse.govfsiles IdcfauJllfiles/omb/assets/(]9Mdlschig,p.Q!. Updates of the appendix are also available upon request from OMB's Office of Economic Policy (202*395-3381).

Nominal Discount Rates. A forecast of nominal or market interest rates for 201 1 based on the economic assumption!

for the Fiscal Year 2012 Budget are presented below. These nominal rales are to be used for discounting nominal flows. which are orten encountered in lease*purchase analysis.

3*Year 1.4 5*Yoar 1.9 Nominal Interest Rates on Treasury Notes and Bonds of Specified Maturities (in percent) 7*Year 2.4 10-Year 3.0 20-Year 3.9 30-Year 4.2 Real Discount Rates. A forecast of real interest rates from which the inflation premium has been removed and based on the economic assumptions from Ihe 2012 Budget Is presented below. These real rates are to be used for discounting conslant*dollar flows, <IS is often required in cost*effectiveness analysis.

3-Year 0.0 5*Year 0.4 Real Intere st Rates on Treasury Notes <lnd Bonds of Specified Maturities (in percent) 7-Year 0.8 10-Ycar 1.3 20-Ycar 2.1 30*Year 2.3 Anatyses of programs with terms different from those presented above may use a tinear interpolation. For example, a four-year project can be evaluated with a rate equal to the average of the three-year and live-year rales. Programs will durations longer than 30 years may use the 30*year interest (ale.

SUBJECT:

Guidelines and Discount Rates for Benefit-Cost AnalYSIS of Federal Programs Table of Contents

,. Purpose

2. Rescission

3. Authority Scope

5. General Pnnciptes

s. Net Present Vatue and Related Outcome Measures b Cost-Effectiveness Anatysis c

Elerrents of Benefit-Cost or Cost*Effectiveness Analysis G. identifYing nnd Measuring Benefits and Co!:ls

a. Identifying Benefils and Costs

b. Measuring Benefits and Costs

7. Treatment of Inflation

a. Real or Nominal Values b Recommended Inflallon Assumption

8. Discount Rate Policy

a. Real IJersus Nominal Discount Rates b Public Investrroent and Regulatory Analyses

c. Cost* Effectiveness, Lease-Purchaso,lnternllt Government Investment. and Asset Sale Analyses

9. Treatment of UncertaInty

3. Characterizing Uncertainty

b. Expected Values

c. Sensillvity Analysis

d. Othor Adjustments for Uncertainty

10. InCIdence And Distnbutional Effects

a. AlternaUve Classifications

b. Economic Incidence

11. Special Guidance for Public Ilwesimeni AnalYSIS

a. Analysis of Excess Burdens

b. Exceptions

12. Specml Guidance for Regulatory Impact AnalYSIS

13. Specl;)! Gllidance for Lease*Ptlrchase Analysis 5/6/20113:29 PM

Circular No. A-94 Revised I The White House 50fl4

3. Multiplier Effects. Generany. analyses should treat resources as If they were likely to be fully employed.

Employment or output multlp1ie18 that purport (0 measure the secondary effects of govemment expenditures on employment and output stlould not be included In measured social benefits or costs.

7. Treatment of Inflation. Future inflation Is highly uncertain. Analysts should avoid having to make an assumption about the general rate of inflation whenever possible.

a. Real or Nominal Values. Economic analyses are often most readily accomplished using real or consiant-clollsf vafues. i.e., by measuring benefits and costs in units of stable purchasing power. (Such estimates may reflect expected future changes in relative prices, however, where there Is a reasonable basis for estimating such changes.) VVhere future benefits and costs are given In nomlnsl terms, i.e., in terms of the future purchasing power of the dollar, the analysis should use these values rather than convert them to constant dollars as, for example, in the case of lease--

pu1Chase analysis.

Nominal and real values must not be combined in the same analysis. Logical consistency requires that analysis be conducted either in constant dollars or in terms of nominal values. This may requlre converting some nominal values to real values, or vice versa.

b. Recommended Inflation Assumption. When a general inflation assumption Is needed, the rate of Increase in the Gross Domestfc Product deflator from the Administration's economic assumptions for the period of the analysis Is recommended. For projects or programs that extend beyond the six-year budget horizon, the inllatlon assumption can be m4ended by using the Inflation rate for the silclh year of the budget forecast The Administration's economic forecast Is updated twice annually, at the lime the budget Is published In January or February and at the time of the M'ICI-Sessfon Review of the Budget in July. Alternative inflation estimates, based on c:tedible private sector forecasts, may be used for sensitivity analysis.

8. Discount Rate Policy. In order to compute net present value, it is necessary to discount futute benefits and costs.

ThIs discounting retlects the time value of money. Benefits and costs are worth more If they are 8)Cp8rienced sooner. All future benefits and costs, including nonmonetizad benefits and costs, should be discounted. The higher the discount rate, the lower Is the present value of future cash flows. For typlcallnvestments, with costs concentrated in earty periods and benefits following in later periods. raising the discount rate tends to reduce the net present value.

(Technical guidance on discounting end a table of discount fsclolS are provided in Appendix B.)

a. Real versus Nominal Discount Rates. The proper discount rate to usa depends on whether the benefits and costs are measured In real or nominal terms.

1. A real discount rate that has been adjusted to elfmlnate the effect of expected inflation should be used to discount constant-dollar or real benefits and costs. A real discount rate can be approximated by subtracting upected Inftatlon from a nomfnal interest rate.

2. A nomlnal discount rate that reflects 8lq)ected Inftatlon should be used to discount nominal benefits and costs.

Market Interest rates are nornlnallnterest rates In this sense.

b. PubUc Investment and Regulatory Analyses. The guidance in this sedion applies to benefit-cost analyses of public investments and regulatory programs that provide benefits and costs to the general public. Guidance related to cost-effectiveness analysis of internal planning decisions of the Federal Government Is provided In Section 8.c.

In general, public Investments and regulations displace both private investment and consumption. To account for this displacement and to promote efficient Inveslment and regulatory policies, the foUowIng guidance should be observed.

1. Base.case Analysis. Constant-dollar benefit-c:ost analyses of proposed investments and regulations should report net present value and other outcomes determined using e real discount rate of 7 percent. This rate approldmates the marg!nal pretax rate of retum on an average Investment In the private sector in recent YB8l8. Significant changes In Ihls rate wfll be reflected In future updates of this Circular.

2. Other Discount Rates. Analyses should show the sensitivity of the discounted net present value and other outcomes to variations In the discount rate. The Importance of these altemative cafculations will depend on the specific economic characteristics of the program under analysis. For example. in analyzing a regulatory proposal whose main cost is to reduce business investment, net present value should also be calculated using a higher cflscount rate than 7 percent Analyses may Include among the reported outcomes the IntemsllSte oImtum Implied by the stream of benefits and costs. The internal rate of retum Is the discount rate that sets the net present value of the program or project to zero. Wtile the Intemal rate of return does not generally pmvide an acceptable dec:lslon criterion, it does provide useful Informatfon, partlcularty whon budgets are constrained or there Is uncertainty about the appropriate discount rate.

51612011 3:33 PM

Circular No. A-94 Revised I The White House 60f14

3. Using the shadow price of capital to value benefits and coslS Is the analytically preferred means of capturing the effects of government projects on resource allocation in the private sector. To use this method accurately. the analyst nwst be able to compute how the benefilS and coslS of a program or project affect the allocation of private consumption and investment OMB concurrence is required if this method is used in place of the ba8e case discount rate.

c. Cost-Effectiveness, _ease.purchase, Internal Government Investment, and Asset Salos Analyses. The Treasury's borrowtng rateJ shoukl be used as discount rates In the following cases:

1. Cost-Effectiveness Analysis. Analyses that involve constant-dollar costs shoukl use the real Treasury borrowing rate on marketable securities of comparable maturity to the period of analysis. This rate is computed using the Administration's economic assumptions for the budget. which are published in January of each year. A table of discount rates based on the elq)8ded Interest rates for the fllSt year of the budget forecast is presented In Appendix C of this Citcufat. ~ndlx C is updated annually and Is available upon request from OMB. Real Treasury rates are obtained by removing e)CpeCted inflation over the period of analysis from nominal Treasury Interest rates.

(Analyses that Involve nominal costs should use nominaJ Treasury rates for discounting. as described In the foffowIng paragraph.)

2. Lease.purchase Analysis. Analyses of nomina' lease payments should use the nominal Treasury borrowing rate on martcetable securities of comparable maturity to the pertod of analysis. Nominal Treasury borrowing rates should be taken from the economfc assumptions for the budget A lable of discount rates based on these assumptions Is presented in,6ppendix C of this Circular. which Is updated annually. (Constant doDar lease-purchase analyses should use Ole real Treasury borrowing rate. described in the preceding paragraph.)

3. Internal Govemment Investments. Some Federal investments provide 'ntemar benefits which take the form of Increased Federal"" E!flueS or decreased Federal costs. All wcampte would be an investment In an energy-efflclent building system that r,:luces Federal operating costs. Unlike the case of a Federally funded highway (which provides -e)lfemar ber.efits to society as a whole). It is appropriate to calculate such a project's net present value using 8 comparable-maturity Treasury rate as a discount rate. The rate used may be either nominal or teal.

depending on how benefits and costs are measured.

Some Fedend activities provide a mix of both Federal cost savings and external social benefits. For wcample, Federal Investments In information technology can produce Federal savings In the form of lower administrative costs and Gldemal soda! benefits in the form of faster claims processing. The net present value of such investments should be evaluated with the 7 percent real discount rate discussed in Section S.b. unless the anaJysls is able to allocate the investmenfs costs between provision of Federal cost savings and e)4emal social benefits. Where such an allocation is possible. Federal cost savings and their associated investment costs may be discounted at the Treasury rate. while the extemaJ sodal benefits and their associated Investment costs should be discounted at the 7 pen:ent real rate.

4. Asset Sara Analysis. AnalysIs of possible asset sales should reftect the following:

(a) The net present value to the Federal Govemmant of holding an asset Is best measured by discounUng its future earnings stream using a Treasury rate. The rate used may be either nominal or real. depending on how earnings are measured.

(b) Analyses of gown nent asset values should 8lCPliciUy dedud the cost of 0JCpeCled defaullS or delays In payment from projeded cash fl:ws, atong with government administrative costs. Such analyses should also consider eJCplldtly the probabHJ:i9s of events that would cause the asset to become nonfunctional. Impaired or obsolete. as weU as probabilities of events that would Increase asset value.

(c) Malyses of possible asset sales should assess the gain In social efficiency that can result when a government asset Is subject to market discipline and private incentives. Even though a govemment asset may be used more efficiently In the private sedor. potentia) private-sector purchasers will generally dlscount such an assefs earnings at a rate In mccess of the Treasury rate. In part, due to the cost of bearing risk. VVhen there is evidence that government assets can be used more efflcienUy in the private sector. valuation analyses for these assets should Indude sensitivity comparisons that discount the returns from such assets with the rate of Interest earned by assets of Similar risldnesa In the private sector.

9. Treatment of Uncertainty. Estimates of benefits and costs are typically uncertain because of imprecision In both underlying data and modeUng assumptions. Because such unc::er1alnty Is basic to many analyses. its effects should be analyzed and reported. Useful Information in such a report would Include the key sources of uncertainty; 8lq)8Cted value estimates of outcomes; the sensitivity of results to !mporlant sources of uncerlalnty; and where possible. the probability distributions of benefits. costs. and net benafits.

a. Characterizing Uncertainty. Analyses should attempt to charaderim the sources and nature of uncertainty.

Ideally. probability dlstribuUons of potential benefits. coats. and nat benefits should be presented. It should be 51612011 J:JJ PM

ML111361100

Text

SUBJECT:

Navigation menu

Search