Specifications

Section 5 Formulation of Alternative Plans
EAA Storage Reservoirs Revised Draft PIR and EIS February 2006
5-28
5.3.12.1 Calculation of Average Annual Cost
Data for initial construction/implementation, land acquisition, monitoring, and
periodically recurring costs for OMRR&R (operation, maintenance, repair,
replacement, and rehabilitation), have been developed through engineering
design and cost estimation, and real estate appraisal efforts. Details of that data
development are explained and discussed elsewhere in this report. For economic
evaluation of alternative plans on a comparable basis, these cost estimates are
further refined through present worth calculations, use of appropriate price
levels, and consideration of the timing of project expenditures.
Costs represent the difference between conditions without any plan (the without
project condition) and conditions with an alternative plan. For purposes of this
report and analysis, NED costs (National Economic Development Costs, as
defined by Federal and Corps of Engineers policy), are expressed in 2005 price
levels based on costs estimated to be incurred over a 39-year period of analysis.
Costs of a plan represent the value of goods and services required to implement,
operate, and maintain the plan.
The timing of when a plan’s costs are incurred is important. Construction and
other initial implementation costs cannot simply be added to periodically
recurring costs for project operation, maintenance, and monitoring. Also,
construction costs incurred in a given year of the Project can’t simply be added to
construction costs incurred in other years if meaningful and direct comparisons
of the costs of the different alternatives are to be made. A common practice of
equating sums of money across time with their equivalent at an earlier single
point in time is the process known as discounting. Through this mathematical
process, which involves the use of an interest rate (or discount rate) officially
prescribed by Federal policy for use in water resource planning analysis
(currently set at 5.125% per year), the cost time streams of each alternative are
mathematically translated into a present worth value. This present worth value,
calculated for this study as of the beginning of the period of analysis (2011), can
then be directly and meaningfully compared between the plans being considered
in this study. An annual value, equivalent to the present worth, can also be
computed for the 39-year period of analysis. This average annual value
represents an equivalent way of expressing the costs of a plan. The various costs
estimated to be incurred over time to put each plan into place and operating
have been computed and expressed as both a present worth value and an
average annual equivalent value. USACE Engineering Regulation 1105-2-100
requires that average annual equivalent costs be used for cost-effectiveness and
incremental cost analyses (CE/ICA).
In general, since all the alternatives provide 360,000 acre-feet of storage, the
difference in costs for the various alternatives are due to different real estate