EP 1165-2-1
30 Jul 99
f.
Net Economic Benefit Analysis.
(1) NED Plan. Net national economic benefits, the difference
between average annual benefits and average annual cost, is an
indicator of economic efficiency. The plan which provides for the
maximum net benefits is the NED plan. The Federal objective in water
resources planning other than for environmental restoration purposes
is achieved by maximizing net benefits in plans that are consistent
with protecting the nation's environment. A plan other than the NED
plan may be recommended if it would help respond to other
international, national, state or local concerns. Its acceptance,
however, requires an exception by ASA(CW) to the Federal NED objective
(during processing of the Federal preauthorization report before
submittal to Congress). The NED plan must be formulated, evaluated,
displayed, and carried forward in selectable form, even if it is not
the recommended plan.
(2) Determination of Net Economic Benefits. NED benefits and
costs are calculated at a common point in time, the end of the
installation period. This is accomplished by discounting the
benefits, deferred installation costs, and OMRR&R costs to that date
using the applicable project discount rate and bringing installation
expenditures forward to that date by charging compound interest at the
project discount rate from the date the costs are incurred.
The interest rate for
(3) Interest and Discount Rate.
discounting future benefits and computing costs, or otherwise
converting benefits and costs to a common time basis, is specified
annually by the Water Resources Council, pursuant to Section 80 of
WRDA 1974. Currently, however, HQUSACE obtains the rate directly from
U.S. Treasury Department. Under the existing formula it represents
the average yield during the preceding fiscal year on interest-bearing
marketable securities of the United States which, at the time the
computation is made, have terms of 15 years or more to maturity. The
rate may not be raised or lowered more than one quarter of one percent
for any year. The computation is made as of 1 October each year by
the Treasury Department and the rate thus computed is used during the
succeeding 12 months. Present policy for projects which have received
appropriations for construction is that the interest rates used to
prepare the supporting economic data presented to Congress in
justification of the initial appropriation of construction funds
(including land acquisition) will be retained in making subsequent
evaluations. This is a long standing administrative policy not to be
confused with the statutory "grandfather" clause in Section 80 of the
1974 Act. Section 80 freezes the interest rates at the rate in effect
immediately prior to 24 December 1968 for projects authorized prior to
3 January 1969 provided satisfactory assurances of local cooperation
were received by 31 December 1969. The administrative policy agrees
with the intent and purpose of the grandfather provision of Section
80. It recognizes that local interests may have undertaken financial
arrangements or other actions in anticipation of the project. The
appropriation of construction funds implies a commitment and raises a
strong and reasonable expectation that the project will be built. If
after initiation of construction, reformulation studies indicate that
another alternative solution to the basic problem is desirable, the
current discount rate is applicable to the new solution. Partial
reformulation to consider adding a new purpose or expanding an
existing purpose, to a project under construction, would also use the
current discount rate. An exception would be the addition of fish and
wildlife mitigation to an authorized project, for which it is
permissable to use the discount rate applicable to the authorized
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