Treatment of Inflation in the Development of Discount Rates and Levelized Costs in NEPA Analyses for the Electric Utility Industry

摘要

The report discusses discount rate, present value, escalation, and levelized cost. The objective is to establish a relation between inflation and the cost of money (i.e., discount rate). This will provide a means of maintaining consistency between discount rates and various assumed inflation rates and assurance that cost benefit analysis results are not biased because of inconsistent assumptions concerning inflation and discount rates (assuming that for NEPA analysis for the utility industry the discount rate is synonymous with the cost of money to the utility industry). The relation between the cost of money with and without inflation and the rationale for a discount rate that may be used in cost-benefit analyses relating to the production of electricity is presented. Also, two methods for levelizing present value cost (i.e., in nominal and constant dollars) are discussed.