Glossary

Adjusted Internal Rate of Return (AIRR)

Annual yield from a project over the Study Period, taking into account investment of interim amounts.

Alternative Building System

An installation or modification of an installation in a building intended primarily to reduce energy or water consumption or allow the use of renewable energy sources, or a primarily energy- or water-saving building system, including a renewable energy system, for consideration as part of the design for a new federal building.

Amount Financed

Includes Implementation Costs and usually Financing Procurement Costs to comprise the amount borrowed by the Government agency to implement energy conservation measures.

Annually Recurring Costs

Those costs that are incurred each year in an equal, constant dollar amount throughout the Study Period, or that change from year to year at a known rate.

Annual Value (Annual Worth)

The time-equivalent value of past, present, or future cash flows expressed as an Annually Recurring Uniform amount over the Study Period.

Annual Value (Annual Worth or Uniform Capital Recovery) Factor

A discount factor by which a present dollar amount may be multiplied to find its equivalent Annual Value, based on a given Discount Rate and a given period of time.

Base Case

The situation against which an Alternative Building System is compared.

Base Date

The beginning of the first year of the Study Period, generally the date on which the Life-Cycle-Cost analysis is conducted.

Base Year

The first year of the Study Period, generally the year in which the Life-Cycle-Cost analysis is conducted.

Base-Year Energy Costs

The quantity of energy delivered to the boundary of a Federal Building in the Base Year, multiplied by the Base-Year Price of fuel.

Base-Year Price

The price of a good or service as of the Base Date.

Cash Flow

The stream of costs and benefits (expressed for the purpose of this requirement in Constant Dollars) resulting from a project investment.

Compound Interest Factors or Formulas

See Discount Factors or Formulas.

Constant Dollars

Dollars of uniform purchasing power tied to a reference year (usually the Base Year) and exclusive of general price inflation or deflation.

Contract Payments

An agreed-upon payment made annually or non-annually by the agency to repay the loan provided by an ESCO or UC for implementing energy savings measures.

Contract Period or Contract Term

The time period proposed by the contractor for repaying the loan provided to the a Government agency to implement energy savings measures. It begins at the contract award date and includes the Installation Period and the Energy Savings Performance Period.

Cost Adjustment Factor

The average annual rate at which the phased-in cost of a capital component is adjusted to its value in any year of the Planning/Construction/Installation Period. The Cost Adjustment Factor can, for example, be a contractual rate (sometimes equal to zero) or a rate determined by the agency.

Cost Effective

The condition whereby an Alternative Building System saves more than it costs over the Study Period, where all Cash Flows are assessed in Constant Dollars and discounted to reflect the Time Value of Money.

Current Dollars

Dollars of nonuniform purchasing power, including general price inflation or deflation, in which actual prices are stated. (With zero inflation or deflation, current dollars are identical to constant dollars.)

Debt Service

The sum of interest payments and principal payments which comprise or are part of the Contract Payment to an ESCO or UC.

Demand Charge

That portion of the charge for electric service based on the plant and equipment costs associated with supplying the electricity consumed.

Differential Cost

The difference in the costs of an Alternative Building System and the Base Case.

Differential Energy Price Escalation Rate

The difference between a projected general rate of Inflation and the projected rate of price increase assumed for energy.

Discount Factors

Multiplicative numbers used to convert Cash Flows occurring at different times to their equivalent amount at a common time. Discount factors are obtained by solving Discount Formulas based upon one dollar of value and an assumed Discount Rate and time.

Discount Formula

An expression of a mathematical relationship which enables the conversion of dollars at a given point in time to their equivalent amount at some other point in time.

Discount Rate

The rate of interest, reflecting the investor's Time Value of Money (or opportunity cost), that is used in Discount Formulas or to select Discount Factors which in turn are used to convert ("discount") Cash Flows to a common time. Real Discount Rates reflect Time Value of Money apart from changes in the purchasing power of the dollar and are used to discount Constant Dollar Cash Flows; Nominal Discount Rates include changes in the purchasing power of the dollar and are used to discount Current Dollar Cash Flows.

Discounted Payback Period

The time required for the cumulative savings from an investment to pay back the Investment Costs and other accrued costs, taking into account the Time Value of Money.

Discounting

A technique for converting Cash Flows occurring over time to time-equivalent values, at a common point in time, adjusting for the Time Value of Money.

Disposal Cost

See Residual Value

Economic Life

That period of time over which a Building or Building System is considered to be the lowest-cost alternative for satisfying a particular need.

Energy Conservation Measure (ECM)

Defined as the installation of new equipment/facilities, modification or alteration of existing government equipment/facilities, or revised operations and maintenance procedures to reduce energy consumption of facilities/energy systems.

Energy Cost

The annual cost of fuel or energy used to operate a building or building system, as billed by the utility or supplier (including Demand Charges, if any). Energy Costs are incurred during the Service Period only. Energy consumed in the construction or installation of a new building or building system is not included in this cost.

Energy Price Escalation Rate

Annual rate of increase for energy, by region, rate type and fuel type, as a real or nominal rate.

Energy Escalation Rate Calculator (EERC)

An auxiliary software program to calculate an average rate of price increase of a fuel or a combination of fuels for a specified number or years, for use in calculating contract payments for ESPC projects.

Energy Savings Performance Contracts

Contracts authorized by the Energy Policy Act of 1992 (EPACT), which offer alternative financing of energy and water efficiency improvements in federal buildings and allow the Federal Government to retain a portion of the energy savings and all the equipment installed.

Energy Savings Performance Period

The period (typically in years) from the date an ECM is operational and accepted by the Government agency to the end of the Contract Period. The Energy Savings Performance Period may also be referred to as the "service period."

Federal Government

The U.S. Government

Financing Procurement Costs

May be added to Implementation Costs to comprise the total amount financed by an ESCO or UC.

Future Value

The time-equivalent value of past, present, or future Cash Flows expressed as of some future point in time.

Implementation Costs

May include survey costs, feasibility study costs, design expenses, construction costs, which may be paid by agency or included in Contract Payment proposed by ESCO or UC.

Initial Investment Costs

The initial costs of design, engineering, purchase and installation, exclusive of "Sunk Costs," all of which are assumed to occur as a lump sum at the beginning of the Base Year or during the Planning/Construction/Installation Period for purposes of making the life-cycle cost analysis.

Inflation

A rise in the general price level, or, put another way, a decline in the general purchasing power of the dollar.

Installation Period

The period from the date of contract award to the date all contracted energy conservation measures are operational and accepted by the agency. Installation period may also be referred to as "construction period."

Internal Rate of Return

Annual yield from a project over the Study Period, i.e., the compound rate of interest which, when used to discount Cash Flows of an Alternative Building System, will result in zero Net Savings (Net Benefits).

Life-Cycle Cost (LCC)

The total discounted dollar costs of owning, operating, maintaining, and disposing of a building or building system over the Study Period (see Life-Cycle Cost Analysis).

Life-Cycle Cost Analysis (LCCA)

A method of economic evaluation that sums discounted dollar costs of initial investment (less Resale, Retention, or Salvage Value), replacements, operations (including energy and water usage), and maintenance and repair of a building or building system over the Study Period (see Life-Cycle Cost). Also, as used in this program, LCCA is a general approach to economic evaluation encompassing several related economic evaluation measures, including Life-Cycle Cost (LCC), Net Benefits (NB) or Net Savings (NS), Savings-to-Investment Ratio (SIR), and Adjusted Internal Rate of Return (AIRR), all of which take into account long-term dollar impacts of a project.

Liquid Petroleum Gas (LPG)

Propane, butane, ethane, pentane, or natural gasoline.

Market Interest Rate

The nominal loan interest rate (including inflation) applied by the ESCO or UC to the Amount Financed to compute annual Contract Payments.

Measures of Economic Evaluation

The various ways in which project cash flows can be combined and presented to describe a measure of project cost effectiveness. The measures used to evaluate FEMP projects are Life-Cycle Cost (LCC), Net Savings (NS), Savings-to-Investment Ratio (SIR), Adjusted Internal Rate of Return (AIRR). Discounted Payback (DPB) and Simple Payback (SPB) are measures of evaluation not fully consistent with the LCC method but are used as supplementary measures in some federal programs.

Modified Uniform Present Value (Worth) (UPV* or UPW*) Factor

A discount factor used to convert an annual amount escalating at a constant rate to a time-equivalent Present Value. The FEMP UPV* Factor indicates a discount factor from a special set published by the U.S. Department of Energy, Federal Energy Management Program, for computing present value energy costs based on variable energy price projections.

Mutually Exclusive Projects

Projects where the acceptance of one precludes acceptance of the others. Examples are whether to use single-glazing, double glazing or triple-glazing for a window; or R11, R19, or R30 levels of insulation in an attic.

Net Savings (Net Benefits)

Time-adjusted savings (or benefits) less time-adjusted differential costs taken over the Study Period, for an Alternative Building System relative to the base case.

Nominal Discount Rate

The rate of interest (market interest rate) reflecting the time value of money stemming from both inflation and the real earning power of money over time

Nonmutually Exclusive Projects

Projects where the acceptance of one alternative does not preculde the acceptance of the others. Examples are wall insulation and ceiling insulation.

Nonrecurring Costs

Costs that are not uniformly incurred annually over the Study Period.

Nonfuel Operation, Maintenance, and Repair (OM&R) Costs

Labor and material costs required for routine upkeep, repair, and operation, exclusive of energy costs.

Nonmutually Exclusive Projects

Projects where the acceptance of one does not preclude the acceptance of the others. Examples are wall insulation and ceiling insulation. (For contrast, see Mutually Exclusive.)

Performance Period Expenses

May include management/administration costs, operation and maintenance costs, repair and replacement costs, measurement and verification costs, permits and licenses costs, insurance costs, property taxes, and other costs (e.g., "margin"), which may be paid by agency or included in Contract Payment proposed by ESCO or UC.

Planning/Construction Period

The period beginning with the Base Date and continuing up to the Service Date during which only Initial Investment Costs are incurred.

Post-Contract Period

The period between the end of the Contract Period (Contract Term) and the end of the Study Period.

Present Value (Present Worth)

The time-equivalent value of past, present or future Cash Flows as of the beginning of the Base Year.

Present Value (Present Worth) Factor

A discount factor by which a future dollar amount may be multiplied to find its equivalent Present Value as of the Base Date. Single Present Value Factorsare used to convert single future amounts to Present Values. Uniform Present Value Factors and Modified Present Value Factors are used to convert Annually Recurring amounts to Present Values.

Real Discount Rate

The rate of interest reflecting the portion of the time value of money attributable to the real earning power of money over time and not to general price inflation.

Renewable Energy

Energy obtained from sources that are essentially inexhaustible (unlike, for instance, fossil fuels of which there is a limited supply). Renewable sources of energy include wind energy, geothermal energy, hydroelectric energy, photovoltaic and solar energy, biomass, and waste.

Replacement Costs

Future costs included in the capital budget to replace a building system the Study Period.

Resale Value

See Residual Value

Residual Value

The estimated value, net of any Disposal Costs, of any building or building system removed or replaced during the Study Period, or remaining at the end of the Study Period, or recovered through resale or reuse at the end of the Study Period (also called Resale Value or Salvage Value, or Retention Value).

Retention Value

See Residual Value

Retrofit

The installation of an Alternative Building System in an Existing Federal Building.

Risk Attitude

The willingness of decision makers to take chances or to gamble on investments of uncertain outcome. Risk attitudes are generally classified as risk-averse, risk-neutral, or risk-taking.

Risk Exposure

The probability of investing in a project whose economic outcome is less favorable than what is economically acceptable.

Salvage Value

See Residual Value

Savings-to-Investment Ratio (SIR)

A ratio computed from a numerator of discounted energy and/or water savings, plus (less) savings (increases) in Nonfuel Operation and Maintenance Costs, and a denominator of increased Investment Costs plus (less) increases (decreased) Replacement Costs, net of Residual Value (all in present-value terms), for an Alternative Building System as compared with a Base Case.

Sensitivity Analysis

Testing the outcome of an evaluation to changes in the values of one or more system parameters from the initially assumed values.

Service Date

The point in time during the Study Period when a building or building system is put into use, and operating, maintenance, and repair costs (including energy and water costs) begin to be incurred.

Service Period

The period of time starting with the Service Date and continuing through the end of the Study Period.

Simple Payback Period (SPB)

A measure of the length of time required for the cumulative savings from a project to recover the Investment Cost and other accrued costs, without taking into account the Time Value of Money.

Single Present Value (Worth) (SPV or SPW) Factor

The discount factor used to convert single future benefit and cost amounts to Present Value.

Study Period

The length of the time period covered by the economic evaluation. This includes both the Planning/Construction Period and the Service Period.

Sunk Costs

Costs which have been incurred or committed to prior to the Life-Cycle Cost analysis and which therefore should not be considered in making a current project decision since this cannot be changed.

Time-of-Use Rate

The charge for service during periods of the day based on the cost of supplying the service at that particular time of the day.

Time Value of Money

The time-dependent value of money. If project Cash Flows are stated in Constant Dollars, their adjustment to a common time basis is necessary to take into account the real earning potential of investments over time. If project cash flows are stated in Current Dollars, their adjustment to a common time basis is necessary to take into account not only the real earning potential over time, but also price inflation or deflation.

Uniform Present Value (Worth) (UPV or UPW) Factor

The discount factor used to convert uniform annual values to a time-equivalent Present Value.

Useful Life

The period of time over which a Building or Building System continues to generate benefits or savings.

Utility Contracts or Utility Energy Services Contracts

Contracts (Area-Wide Contracts or Basic Ordering Agreements) between a government agency and a utility company, which allow the Federal Government to implement energy and water conservation measures through financing provided by the utility.