8 - G - i APPENDIX 8 - G. DISTRIBUTIONS USED F OR DISCOUNT RATES TABLE OF CONTENTS 8 - G.1 INTRODUCTION ................................ ................................ ................................ 8 - G - 1 8 - G.2 DISTRIBUTIONS USED F OR CONSUMER DISCOUNT RATES .................. 8 - G - 1 8 - G.2.1 Distribution of Mortgage Interest Rates ................................ ............................... 8 - G - 1 8 - G.2.2 Distribution of Rates for Debt Classes Considered for Replacement Products .... 8 - G - 2 8 - G.2.3 Distribution of Rates for Equity Classes Considered for Replacement Products . 8 - G - 7 8 - G.3 DISTRIB UTIONS USED FOR COMM ERCIAL DISCOUNT RATE S ........... 8 - G - 13 LIST OF FIGURES Figure 8 - G.2.1 Distribution of New Home Mortgage Interest Rates ................................ . 8 - G - 2 Figure 8 - G.2.1 Distribution of Home Equity Loan Interest Rates ................................ ..... 8 - G - 3 Figure 8 - G.2.2 Distribution of Credit Card Interest Rates ................................ ................. 8 - G - 4 Figure 8 - G.2.3 Distribution of Installment Loan Interest Rates ................................ ......... 8 - G - 5 Figure 8 - G.2.4 Distribution of Other Residence Loan Interest Rates ................................ 8 - G - 6 Figure 8 - G.2.5 Distribution of Other Lines of Credit Loan Interest Rates ........................ 8 - G - 7 Figure 8 - G.2.1 Distribution of Annual Rate of Return on CDs ................................ ......... 8 - G - 8 Figure 8 - G.2.2 Distribution of Annual Rate of Return on Savings Bonds ......................... 8 - G - 9 Figure 8 - G.2.3 Distribution of Annual Rate of Return on Corporate AAA Bonds .......... 8 - G - 10 Figure 8 - G.2.4 Distr ibution of Annual Rate of Savings Accounts ................................ ... 8 - G - 11 Figure 8 - G.2.5 Distribution of Annual Rate of Return on S&P 500 ................................ 8 - G - 12 Figure 8 - G.2.6 Distribution of Annual Rate of Return on Mutual Funds ........................ 8 - G - 13 Figure 8 - G.3.1 Distribution of Commercial Discount Rates: Retail ................................ 8 - G - 14 Figure 8 - G.3.2 Distribution of Commercial Discount Rates: Medical ............................. 8 - G - 14 Figure 8 - G.3.3 Distrib ution of Commercial Discount Rates: Medical ............................. 8 - G - 15 Figure 8 - G.3.4 Distribution of Commercial Discount Rates: Hotel ................................ . 8 - G - 15 Figure 8 - G.3.5 Distribution of Commercial Discount Rates: Food ................................ . 8 - G - 16 Figure 8 - G.3.6 Distribution of Commercial Discount Rates: Office ............................... 8 - G - 16 Figure 8 - G.3.7 Distributio n of Commercial Discount Rates: Education ......................... 8 - G - 17 Figure 8 - G.3.8 Distribution of Commercial Discount Rates: State and Local Governme nt ................................ ................................ .............................. 8 - G - 178 - G - 1 APPENDIX 8 - G. DISTRIBUTIONS USED F OR DISCOUNT RATES 8 - G.1 INTRODUCTION The Department of Energy ( DOE ) estimated discount rate distributions by customer type: commercial and consumer ( i.e. non - commercial residential end user). This appendix describes the distributions used. 8 - G.2 DISTRIBUTIONS USED F OR CONSUMER DISCOUNT RA TES DOE derived consumer discount rates for the life - cycle cost (LCC) analysis using data on interest or return rates for various types of debt and equity. To account for variation among households in rates for each of the types, DOE s ampled a rate for each household from a distribution of rates for each debt and equity type. 8 - G.2.1 Distribution of Mortgage Interest R ates Figure 8 - G.2.1 shows the distribution of real interest rates for new home mortgages. The data source DOE used for mortgage interest rates is the Federal Reserve Board’s Survey of Consumer Finances (SCF) in 1989, 1992, 1995, 1998, 2001, 2004, 2007 , and 2010 . 1 Using the appropriate SCF data for each year, DOE adjusted the nominal mortgage interest rate for each relevant household in the SCF for mortgage tax deduction and inflation. In cases where the effective interest rate is equal to or below the inflation rate (resulti ng in a negative real interest rate), DOE set the real effective interest rate to zero.8 - G - 2 Figure 8 - G.2.1 Distribution of New Home Mortgage Interest Rates 8 - G.2.2 Distribution of Rates for Debt Classes Considered for Replacement Products Figure 8 - G.2.1 through Figure 8 - G.2.5 show the distribution of real int erest rates for different types of debt used to finance replacement clothes dryers and room air conditioners. The data source for the interest rates for home equity loans, credit cards, installment loans, other residence loans, and other lines of credit is the Federal Reserve Board’s SCF in 1989, 1992, 1995, 1998, 2001, 2004, 2007 , and 2010 . 1 DOE adjusted the nominal rates to real rates using the annual inflation rate in each year. For home equity loans, DOE calculated effective interest rates in a similar manner as for mortgage rates, because interest on such loans is tax deductible. 0% 5% 10% 15% 20% 25% 30% 35%Probability

Real Interest Rate8 - G - 3 Figure 8 - G.2.1 Distribution of Home Equity Loan Interest Rates 0% 5% 10% 15% 20% 25% 30%Probability

Real Interest Rate8 - G - 4 Figure 8 - G.2.2 Distribution of Credit Card Interest Rates 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%Probability

Real Interest Rate8 - G - 5 Figure 8 - G.2.3 Distribution of Installment Loan Interest Rates 0% 5% 10% 15% 20% 25% 30% 35% 40%Probability

Real Interest Rate8 - G - 6 Figure 8 - G.2.4 Distribution of Other Residence Loan Interest Rates 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%Probability

Real Interest Rate8 - G - 7 Figure 8 - G.2.5 Distribution of Other Lines of Credit Loan Interest Rates 8 - G.2.3 D istribution of R ates for E quity C lasses Considered for Repl acement P roducts Figure 8 - G.2.1 through Figure 8 - G.2.6 show the distribution of real interest rates for different types of equity used to finance repl acement products . Data for equity classes are not available from the Federal Reserve Board’s SCF , so DOE derived data for these classes from national - level historical data. The interest rates associated with certificates of deposit (CDs), 2 savings bonds, 3 and AAA corporate bonds 4 are from Federal Reserve Board time - series data covering 1977 to 201 2 . DOE assumed rates on checking ac counts to be zero. Rates on savings and money market accounts are from Cost of Savings Index data covering 1984 to 201 2 . 5 The rates for stocks are the annual returns on the Standard and Po or’s (S&P) 500 from 1977 to 201 2 . 6 The mutual fund rates are a weighted average of the stock rates (two - thirds weight) and the bond rates (one - third weight ) in each year from 19 77 to 201 2 . DOE adjusted the nominal rates to real rates using the annual inflation rate in each year. 0% 2% 4% 6% 8% 10% 12%Probability

Real Interest Rate8 - G - 8 Figure 8 - G.2.1 Distribution of Annual Rate of Return on CDs - 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8 - G - 9 Figure 8 - G.2.2 Distribution of Annual Rate of Return on Savings Bonds - 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8 - G - 10 Figure 8 - G.2.3 Distribution of Annual Rate of Return on Corporate AAA Bonds - 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8 - G - 11 Figure 8 - G.2.4 Distribution of Annual Rate of Savings Accounts - 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8 - G - 12 Figure 8 - G.2.5 Distribution of Annual Rate of Return on S&P 500 - 40% - 30% - 20% - 10%

0% 10% 20% 30% 40%Annual Rate of Return

Year8 - G - 13 Figure 8 - G.2.6 Distribution of Annual Rate of Return on Mutual Funds 8 - G.3 DISTRIBUTIONS USED F OR COMMERCIAL DISCOU NT RATES DOE derived commercial discount rates ( i.e. weighted average cost of capital) for the life - cycle cost (LCC) analysis using the capital asset pricing model and firm - level data provided by Damodaran Online. 7 State and local government discount rates were estimated using the rate of return on 20 - year municipal bonds, as provided by the Federal Reserve Board. 3 Separate distributions were constructed for each major industry. Figure 8 - G.3.1 through Figure 8 - G.3.8 show the probability distributions of commercial discount rates by industry . - 30% - 20% - 10%

0% 10% 20% 30%Annual Rate of Return

Year8 - G - 14 Figure 8 - G.3.1 Distribution of Commercial Discount Rates: Retail

Figure 8 - G.3.2 Distribution of Commercial Discount Rates: Medical 0% 5% 10% 15% 20% 25% 30%

1.8% 2.5% 3.6% 4.5% 5.4% 6.5% 7.4% 8.3% 9.3% 10.7%Probability

Discount Rate

0% 5% 10% 15% 20% 25% 30% 35% 40%

1.8% 2.5% 3.6% 4.4% 5.4% 6.3% 7.4% 8.1% 9.7% 10.9%Probability

Discount Rate8 - G - 15 Figure 8 - G.3.3 Distribution of Commercial Discount Rates: Medical

Figure 8 - G.3.4 Distribution of Commercial Discount Rates: Hotel 0% 5% 10% 15% 20% 25% 30% 35%Probability

Discount Rate

0% 5% 10% 15% 20% 25% 30% 35% 40%

1.4% 2.7% 3.7% 4.6% 5.5% 6.5% 7.5% 8.3% 9.4% 10.4%Probability

Discount Rate8 - G - 16 Figure 8 - G.3.5 Distribution of Commercial Discount Rate s: Food

Figure 8 - G.3.6 Distribution of Commercial Discount Rates: Office 0% 5% 10% 15% 20% 25% 30% 35%

3.7% 4.5% 5.4% 6.4% 7.4% 8.6%Probability

Discount Rate

0% 5% 10% 15% 20% 25% 30% 35%

0.6% 1.6% 2.6% 3.5% 4.5% 5.4% 6.4% 7.3% 8.3% 9.5% 10.1%Probability

Discount Rate8 - G - 17 Figure 8 - G.3.7 Distribution of Commercial Discount Rates: Education

Figure 8 - G.3.8 Distribution of Commercial Discount Rates: State and Local Government 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

1.1% 2.1% 3.4% 4.6% 5.4% 6.4% 7.9%Probability

Discount Rate

0% 5% 10% 15% 20% 25% 30% 35%

-1.3% 0.7% 1.5% 2.7% 3.6% 4.2% 5.4% 6.1%Probability

Discount Rate8 - G - 18 REFERENCES 1. The Federal Reserve Board, Survey of Consumer Finances 1989, 1992, 1995, 1998, 2001, 2004, 2007, 2010 . < http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html > 2. The Federal Reserve Board, Federal Reserve Statist ical Release, Selected Interest Rates, Historical Data, Instrument: CDs (secondary market), Maturity: 6 - month, Frequency: Annual, Description: Average rate on 6 - month negotiable certificates of deposit (secondary market), quoted on an investment basis, 201 3. < www.federalreserve.gov/releases/H15/data.htm > 3. The Federal Reserve Board, Federal Reserve Statistical Release, Selected Interest Rates, Historical Data, Instrument: State and local b onds, Maturity: 20 - year, Frequency: Monthly, Description: Bond buyer go 20 - bond municipal bond index, 2013. < www.federalreserve.gov/releases/H15/data.htm > 4. The Federal Reserve Board, Fed eral Reserve Statistical Release, Selected Interest Rates, Historical Data, Instrument: Corporate bonds/Moody’s Seasoned AAA, Frequency: Annual, Description: Moody’s yield on seasoned corporate bonds

— all industries, AAA, 2013. < www.federalreserve.gov/releases/H15/data.htm > 5. Mortgage - X - Mortgage Information Service, Cost of Savings Index (COSI) Index History, 2013. < http://mo rtgage - x.com/general/indexes/default.asp > 6. Damodaran Online Data Page, The Data Page: Historical Returns on Stocks, Bonds and Bills - United States, 2013. Damodaran. < http://pages.stern.nyu.edu/~adamo dar/ > 7. Damodaran Online, Data Page: Costs of Capital by Industry Sector, 2012. Damodaran. (Last accessed July, 2013.) < http://pages.stern.nyu.edu/~adamodar/ >