NAVY AIRCRAFT CARRIERS  - GAO/NSIAD-98-1 - August 1998 NAVY AIRCRAFT CARRIERS
Cost-Effectiveness of Conventionally and Nuclear-Powered Aircraft Carriers
GAO/NSIAD-98-1 -- August 1998

OJECTIVES, SCOPE, AND METHODOLOGY =========================================================== Appendix I The Defense Appropriations Act of 1994 Conference Report directed us to study the cost-effectiveness of nuclear-powered aircraft carriers. Our objectives were to (1) evaluate the adequacy of conventionally and nuclear-powered aircraft carriers in meeting the Nation's forward presence, crisis response, and war-fighting requirements and (2) estimate the total life-cycle costs of conventionally and nuclear-powered aircraft carriers. The conferees noted the study should include (1) a life-cycle cost analysis that includes the cost of processing and disposing of nuclear waste and spent fuel, (2) an estimate of the costs associated with processing and disposing of nuclear fuel and other nuclear material for the existing nuclear-powered fleet, and (3) the implications of an all nuclear carrier force on overseas homeporting. An evaluation of aircraft carrier and/or industrial base issues was not included in our scope of work. In performing our analysis, we reviewed policy directives, planning guidance, strategies, threat assessments, operational histories, statistics, schedules, studies, and assessments on conventionally and nuclear-powered carriers. We reviewed and conducted analyses using the Navy's Force Presence Model to gain an understanding of the various factors that affect the required numbers of carriers to achieve various overseas presence levels, and examined the Navy's assessments of aircraft carrier requirements for presence. We also reviewed several Department of Defense (DOD) and Navy studies, for example, the Naval Forward Presence Report; several historical cost-effectiveness studies, including Nuclear Power for Surface Warships, the Sea-Based Air Platform Cost/Benefit Study, and the Carrier 21 Study; the Report on the Bottom-Up Review; defense guidance; and other documents relevant to understanding how assumptions on key operational and cost factors affect plans, programs, and operations. We consulted with officials of the Joint Staff, the Office of the Secretary of Defense, the Navy, and the Center for Naval Analyses to develop and concur with our proposed measures of effectiveness--peacetime presence, crisis response, and war-fighting. In addition, we met with agency officials to obtain information on new technologies and system improvements and future aircraft carrier requirements, capabilities, and operations. To understand how the Navy has and is using its carrier force during peacetime, crises, and war, we discussed past and current naval operations with U.S. Atlantic Fleet and U.S. Pacific Fleet officials. We also talked with officials of the Joint Staff and the Atlantic, Pacific, and Central Commands to obtain their perspectives on how the conventionally and nuclear-powered carriers support their strategies, plans, and operations. We met with battle group commanders and carrier commanders and their staffs from both conventionally and nuclear-powered carriers and examined briefings on recent deployments to understand the role, use, and missions of the conventionally and nuclear-powered carriers. In addition, we toured both conventionally and nuclear-powered carriers to discuss ship and air wing operations and capabilities with the ships' and air wings' commanders and staff. We also met with the Combat Logistics Fleet Commander for the Atlantic Fleet, the Combat Logistics Fleet Chief of Staff for the Pacific Fleet, and the commanding officer of the U.S.S. Sacramento, a fast combat support ship that directly supports the battle group. To gain an understanding of nuclear propulsion cost, technology, and the nuclear fuel cycle, we talked with officials of the Naval Nuclear Propulsion Program and visited facilities and laboratories dealing with naval nuclear propulsion research and development, test, and evaluation; training; fuel processing; and radioactive waste management. We talked with experts and academicians from both public and private organizations to obtain additional perspectives covered in our visits with U.S. military and defense officials. We performed our fieldwork from February 1995 to February 1997 at the following locations : Washington, D.C., area -- Office of the Secretary of Defense -- The Joint Staff -- Office of the Chief of Naval Operations Naval Nuclear Propulsion Program Bureau of Naval Personnel Deputy Chief of Naval Operations (Plans, Policy, and Operations) Deputy Chief of Naval Operations (Logistics) Air Warfare Division, Deputy Chief of Naval Operations (Resources, Warfare Requirements, and Assessments) Assessment Division, Deputy Chief of Naval Operations (Resources, Warfare Requirements, and Assessments) -- Naval Sea Systems Command Aircraft Carrier Program Management Office Cost Estimating and Analysis Division Engineering Directorate -- Naval Center for Cost Analysis -- Ships History Branch, Naval Historical Center -- Defense Intelligence Agency -- Commission on Roles and Missions of the Armed Forces -- Headquarters, Department of Energy -- Headquarters, Department of State -- Institute for Defense Analyses -- Center for Naval Analyses Norfolk, Virginia, area -- Headquarters, U.S. Atlantic Command -- Headquarters, U.S. Atlantic Fleet -- Naval Air Force, U.S. Atlantic Fleet -- Naval Surface Force, U.S. Atlantic Fleet -- Carrier Group Eight (Theodore Roosevelt Battle Group) (commanding officer/battle group staff) -- Carrier Group Six (America Battle Group) (commanding officer) -- U.S.S. America (CV-66) -- U.S.S. Theodore Roosevelt (CVN-71) -- Commanding Officer, U.S.S. George Washington (CVN-73) -- Commanding Officer, Logistics Group Two -- Naval Doctrine Command -- Naval Safety Center -- Supervisor of Shipbuilding, Conversion, and Repair (Newport News) -- Newport News Shipbuilding and Dry Dock Company Tampa Bay, Florida, area -- Headquarters, U.S. Central Command -- Headquarters, Navy Central Command Seattle, Washington, area -- Commander, Naval Surface Group Pacific Northwest Commander, Task Force 33 Commander, Logistics Group One -- Planning, Engineering, Repairs, and Alterations, Carriers (PERA/CV), Naval Sea Systems Detachment -- Puget Sound Naval Shipyard -- U.S.S. Abraham Lincoln (CVN-72) (commanding officer and staff) -- U.S.S. Sacramento (AOE-1) (commanding officer and staff) Alameda, California, area -- Carrier Group Three (Lincoln Battle Group) (commanding officer/battle group staff) San Diego, California, area -- Naval Air Force, U.S. Pacific Fleet -- Naval Air Station North Island -- U.S.S. Kitty Hawk (CV-63) (commanding officer, air wing, and department heads) -- U.S.S. Constellation (CV-64) (executive officer, air wing, and department heads and chief of staff, Cruiser-Destroyer Group One) Honolulu, Hawaii, area -- Headquarters, U.S. Pacific Command -- Headquarters, U.S. Pacific Fleet -- Pearl Harbor Naval Shipyard -- Former Commanding Officer, U.S.S. John F. Kennedy (CV-67) (Deputy Commander, U.S. Pacific Fleet) Other Locations -- Department of Energy Pittsburg Naval Reactors Office, West Mifflin, Pennsylvania Bettis Atomic Power Laboratory, West Mifflin, Pennsylvania Schenectady Naval Reactors Office, Schenectady, New York Knolls Atomic Power Laboratory, Niskayuna, New York Kesselring Prototype Reactors Site, West Milton, New York Department of Energy-Idaho Operations Office, Idaho Falls, Idaho Idaho National Engineering and Environmental Laboratory, Idaho Falls, Idaho -- Chief of Naval Education and Training, Pensacola, Florida -- TradeTech, Denver, Colorado -- The Uranium Exchange Company, New Fairfield, Connecticut AIRCRAFT CARRIER MAINTENANCE ANALYSIS --------------------------------------------------------- Appendix I:1 Our comparison of operating and maintenance time encompassed the aircraft carriers of the Forrestal- (except for U.S.S. Independence), Kitty Hawk-, Kennedy,- and Nimitz-classes. We excluded the U.S.S. Midway and the U.S.S. Coral Sea because they were designed and built during World War II and we believed their age made them unrepresentative. Additionally, the U.S.S. Midway was homeported in Japan during part of the period and, thus, was not subject to the normal maintenance cycle--the same reason we excluded the U.S.S. Independence. We also excluded the U.S.S. Enterprise because, as the first nuclear-powered carrier, it was a unique design and, thus, we believed its data would not be comparable to the ships of the Nimitz-class. Our comparisons also only include that time the carriers spent undergoing regular depot-level maintenance in a shipyard. Our data also represents the collective experience of the two ship types, not per ship-type averages. That is, we determined the total number of days all conventionally and nuclear-powered carriers were (1) in service during the time period, (2) in a shipyard undergoing depot-level maintenance, and (3) available for operating with the fleet. Our results are based on those totals by propulsion type, not on individual ship, ship class, or ship type averages. We revised our methodology for adjusting service life extension program (SLEP) time as follows. Three conventionally powered carriers, CV-60, CV-66, and CV-67, underwent complete comprehensive overhauls during the period. The mean length of those overhauls was 436 days. Four ships--CV-59, CV-63, CV-64, and CV-67--underwent SLEP during the time period. Using the original start date of each ship's SLEP, we substituted a 436-day overhaul for each SLEP. We further modified each ship's remaining schedule by eliminating the Post Shakedown Availability/Selected Restricted Availability scheduled after the SLEP and scheduled the next SRA 18 months after the SLEP's completion. We then moved each ship's remaining schedule forward to compensate for the reduced length of the availability. We also added an additional SRA and sufficient operating time to CV-59's schedule to allow it to reach its actual deactivation date of September 15, 1992. As in our earlier calculations, when calculating depot-level maintenance time for the period October 1, 1997, through December 31, 2007, we excluded the Enterprise and the conventionally powered carriers homeported in Japan. We also excluded the Ronald Reagan since it will be under construction for about half the period. CONVENTIONALLY AND NUCLEAR-POWERED AIRCRAFT CARRIER COST MODEL --------------------------------------------------------- Appendix I:2 We developed a life-cycle cost model to estimate the life-cycle costs for both a nuclear and a conventionally powered aircraft carrier. For the nuclear ship, we used data available for the Nimitz-class carrier (CVN-68 class). We selected the Kennedy-class\1 as the comparable conventional carrier for several reasons. The U.S.S. John F. Kennedy (CV-67) was the last and largest conventional carrier built, it employs an airwing of comparable size to that of the Nimitz-class, and there were adequate historical data available. Our life-cycle cost model includes the cost of nuclear fuel as part of the investment activity: acquisition, refueling complex overhaul (RCOH), and inactivation. Operating and support costs were generally based on historical data for the two ship classes. Our model also included an assignment of indirect cost when the cost was determined to be significant. In each case, we did not determine the incremental or marginal cost of a support activity, but we did allocate a portion of the total annual cost as an indirect cost for the carrier. All costs are expressed in constant fiscal year 1997 dollars, except as noted. As discussed later in this appendix, we also performed a present value analysis to identify any potential differences when the time value of money was considered. -------------------- \1 For our analysis, the Kennedy-class includes the CV-63, CV-64, CV-66 carriers that are similar in size, displacement, and crew size and other ship characteristics. SHIP ACQUISITION COSTS ------------------------------------------------------- Appendix I:2.1 We developed our own estimate for the cost to acquire a conventional carrier based on the historical acquisition cost per ton to build aircraft carriers. Our methodology was similar to one used in our earlier study\2 and by the Center for Naval Analyses in some preliminary work it did for the Navy as it began to assess its future carrier needs. We determined a ratio between the acquisition cost per ton of the U.S.S. John F. Kennedy (CV-67) and the U.S.S. Nimitz (CVN-68). This ratio was then applied to the Navy's projected acquisition cost per ton of the CVN-76 to provide an estimated acquisition cost per ton for a new conventionally powered carrier. The resulting cost per ton was then multiplied by the Kennedy's displacement to provide a rough order of magnitude acquisition cost. While there are many unknowns involved in estimating the current cost to acquire a ship (conventionally powered carrier) that has not been built for over 25 years, our estimate was based on the best available information we could obtain. For the nuclear carrier, we multiplied the displacement weight for the CVN-76, the most recently authorized Nimitz-class carrier, by the average acquisition cost per ton for the Nimitz-class carriers built. Although research, development, test, and evaluation and military construction costs are normally included in developing an acquisition cost estimate, in contrast to the more limited procurement estimate, our estimate did not include several nuclear-related military construction costs because they were not included in the Selected Acquisition Reports for the Nimitz-class. For example, the costs of nuclear maintenance facilities for the nuclear-powered carriers to be homeported in San Diego, California, have not been captured. -------------------- \2 Navy's Aircraft Carrier Program: Investment Strategy Options (GAO/NSIAD-95-17, Jan. 1995). OPERATING AND SUPPORT COSTS ------------------------------------------------------- Appendix I:2.2 Ship operating and support costs were generally based on the 10-year average cost for the CV-67 and CVN-68 class carriers during fiscal years 1985 through 1994, which were obtained from the Navy's Visibility and Management of Operating and Support Cost (VAMOSC) Management Information System database. Several operating and support cost categories were modified or added because data were not fully captured by the system. The categories we adjusted included personnel, depot maintenance, fossil fuel, indirect training, fossil fuel delivery, and nuclear support structure. We adjusted the VAMOSC baseline data for direct personnel, depot maintenance, and fuel costs. We modified the personnel cost to capture the cost of accrued retirement by adding an additional 30.6 percent, the percentage for DOD's contribution to its retirement fund for fiscal year 1997. We estimated depot maintenance costs using the Navy's notional maintenance plans for each carrier over its lifetime. We did not use the historical depot maintenance costs captured by the Navy's VAMOSC database for several reasons. First, the cost data collected for the nuclear carriers reflected maintenance performed under the Engineered Operating Cycle (EOC) strategy. Since the Navy is changing its maintenance strategy for nuclear carriers and does not intend to use the EOC strategy in the future, we were not confident that the historical costs would provide the best basis for estimating life-cycle depot maintenance costs. We were also concerned that the VAMOSC data, which captured costs for fiscal years 1985-94, would lead to over- or underestimating costs because of the carrier types' average age. Thus, our estimated maintenance cost was determined by the number, type, and cost for the notional maintenance expected over each of the carrier's life time. Using the Navy's notional plans, we determined the number and type of depot maintenance periods that would occur over each of the carrier type's 50-year service life. To estimate the cost for each type of depot maintenance period, we multiplied the number of labor workdays\3 expected for each type of maintenance times the Navy's composite labor workday rates\4 for public and private shipyards. We estimated additional maintenance costs for materials, centrally procured equipment, spare parts, and other miscellaneous items based on our analysis of historical costs for these items. Nuclear fuel cost was provided by the Naval Sea Systems Command's Nuclear Propulsion Directorate. For this analysis, the direct nuclear fuel cost included the procurement of the initial and replacement fuel cores, the uranium used in the cores, and the cost to install and remove the initial and replacement cores. Our estimated cost for fossil fuel was based on the historical average number of barrels a conventionally powered carrier used and the average price per barrel between fiscal year 1991 and 1995 paid by the Navy. We also modified the VAMOSC baseline data to account for several indirect operating and support cost categories that are affected because of the difference in propulsion systems. These categories include indirect cost for training, fossil fuel delivery system, and nuclear power supporting activities. Indirect cost estimates are generally based on an allocation of the annual cost. The indirect training cost was based on the personnel training requirement needed to support the specific enlisted ratings in the engineering department of the U.S.S. John F. Kennedy (CV-67) and the engineering and reactor departments of the U.S.S. Nimitz (CVN-68). We selected four ratings (machinist's mates, electrician's mates, electronics technicians and boiler technicians) because the requirements for rating skills were most affected by the type of propulsion plant. The training requirement for these skills was determined by the number of required billets, annual crew turnover, and attrition rates. Using Navy provided crew turnover and attrition rates and the cost per student for initial and specialized skills training, we developed the cost per student for specialized training received at the moored ships and prototypes. Our estimated cost per student was based on 26 weeks of pay and allowance per student plus an allocated portion of the total cost for instructors and base support personnel and operation and maintenance funding for these facilities. Training cost was estimated by multiplying the annual training requirement by the applicable initial and specialized training cost per student. Indirect fossil fuel delivery cost was based on the Navy's method of determining the fully burdened cost for each barrel of fuel delivered to its fleet of ships. Our methodology allocated a portion of the Navy's total annual cost to operate and maintain its fleet supply activities, service craft, and oilers\5 to each barrel of fuel delivered. For example, the Navy spends about $54 million to operate and support its fleet industrial centers. Since these centers store other fuels, we allocated about 42 percent, or $22.7 million, based on the proportion of fossil fuel to total fuel issued at each center. The $22.7 million was then divided by 10.5 million, the total number of barrels of fossil fuel issued by the Fleet Industrial Supply Centers, to produce an estimated delivery cost per barrel. A similar method was used to allocate the annual cost to operate and support Navy and Military Sealift Command oilers to each barrel of fuel delivered. The estimated indirect nuclear support activities cost was based on an allocation of the total costs for these activities. The Navy-funded activities support operational reactor plants and the funding level are directly influenced by the number of plants being supported. There are eight operating reactor plants types, one of which is for the Nimitz-class. Therefore, we allocated 12.5 percent of the Navy's average funding for the Nimitz-class carriers. Since there are six Nimitz-class carriers in the force, one-sixth (or 2.08 percent) of the funding was used to estimate the cost of this support activity for one nuclear-powered carrier. The estimated indirect cost for DOE-funded nuclear supporting activities was allocated based on the nuclear carriers' demand for power (or energy needs). Based on our analysis of uranium consumed and shaft horsepower needs of the nuclear fleet, we determined that the nuclear carrier accounted for about five percent of the total uranium consumed and shaft horsepower required by naval nuclear ships. We allocated 5 percent of the average funding between fiscal year 1991 and 1997 for Energy's Naval Nuclear Propulsion Program as our estimated annual cost of these support activities. -------------------- \3 The Navy provided labor workdays estimated for both depot maintenance and fleet modernization for each type of depot maintenance period. \4 The Navy provided composite public and private shipyard rates that reflected the average labor and overhead cost of work performed. \5 This includes the AO, AOE, and AOR class ships as well as oilers operated by the Military Sealift Command. INACTIVATION AND DISPOSAL COSTS ------------------------------------------------------- Appendix I:2.3 Our estimate to inactivate and dispose of a conventional carrier was based on the Navy's estimated cost to place the carrier in reduced mobilization status, 3 years maintenance in mobilization status, and final disposal cost less scrap value. We estimated scrap value based on scrap sales of naval ships during fiscal years 1993 and 1995. Our estimate to inactivate and dispose of a nuclear carrier was based on data provided by the Navy and the DOE. The Navy provided a cost range to inactivate and dispose of a carrier. We used the mid-point estimate. In its official comments on our draft report, DOD provided a new estimate for the receipt and annual storage of the spent nuclear fuel (SNF) from a Nimitz-class carrier. This estimate, which is based on the dry storage method, is much less expensive than the estimate for the wet storage method. We were unable to verify the accuracy or the completeness of the new estimate but have included it since the dry storage method is generally much less expensive than the wet method. The dry storage estimate does not include costs for the new dry storage facility or fuel characterization. SNF storage costs include the storage costs of spent nuclear fuel for the first 100 years after a carrier is commissioned. We assumed the initial SNF cores would be removed at a carrier's midlife and sent to storage in its 25th year of service and remain there for 75 years and the replacement cores would be removed at the end of the carrier's service life and sent to storage near its 50th year of service and remain there for 50 years. EFFECTS OF PRICING ALTERNATIVES FOR FOSSIL AND NUCLEAR FUEL ------------------------------------------------------- Appendix I:2.4 The cost of fuel has been of interest throughout the debate over nuclear versus conventional propulsion. Because of the interest, we analyzed the affect of different pricing strategies on the cost of the conventional and nuclear carriers. FOSSIL FUEL ----------------------------------------------------- Appendix I:2.4.1 Crude oil prices were fairly stable during the 1950s and 1960s. Prices rose significantly as a result of the oil crises of 1973 and 1979-80, although they did not remain at these peak levels. Figure I.1 shows the price of crude oil and the price the Navy paid for fossil fuel, as well as the major events affecting U.S. crude oil prices. Table I.1 shows the affect on life-cycle costs for a carrier if the cost of fossil fuel were double the current price. Figure I.1: Crude Oil, Fossil Fuel, and Major Events Affecting U.S. Crude Oil Prices Sources: Navy and Energy Information Administration. The cost estimate of $48 million for the uranium used in a Nimitz-class carrier over its lifetime was provided to us by the Navy. The estimate reflected the cost incurred by DOE when the uranium for the Navy was produced\6 sometime during the late 1980s. Table I.1 Comparison of Life-Cycle Costs for the Conventionally Powered Carrier and the Nuclear-Powered Carrier Using Different Fuel Price Scenarios (Fiscal year 1997 dollars in millions) CVN CV cost CV cost CVN cost alternative if fuel = if fuel = if fuel = fuel = $101 $29.52 $59.04 $48 mil mil ----------------------- --------- --------- --------- ------------ Investment $2,916 $2,916 $6,441 $6,494 Direct operating and support Personnel 4,636 4,636 5,206 5,206 Fuel 738 1,476 0 0 Maintenance 4,130 4,130 5,746 5,746 Other 933 933 724 724 Indirect operating and 688 688 4,290 4,290 support Disposal 53 53 1,031 1,031 Life-cycle cost $14,094 $14,831 $23,438 $23,492 Annual cost $282 $297 $469 $470 ---------------------------------------------------------------------- Note: Numbers may not add due to rounding. Source: Our analysis. DOE stopped all production at its plants capable of producing defense-grade uranium\7 in 1991 because there was a surplus of defense-grade uranium as a result of nuclear weapon agreements. Defense-grade uranium could be blended down to enrichment levels suitable for use in commercial reactors and sold to the private sector. The value of the uranium if sold and not used in a naval reactor is considered an opportunity cost. The uranium from one Nimitz-class carrier has an estimated market value, or opportunity cost, which is more than twice that of our estimate. -------------------- \6 Natural uranium undergoes a number of processes before it is a usable fuel: mining and milling, conversion, and enrichment. All domestic enrichment services were handled by the DOE until 1993, when these operations were transferred to the United States Enrichment Corporation. \7 The difference between fuel used in commercial reactors and for naval reactors is the degree to which the uranium has been enriched. Commercial grade uranium is enriched to about 3-4 percent U-235 where defense grade uranium is enriched to above 90 percent. Uranium used to fuel a naval reactor is a defense grade uranium. METHODOLOGY FOR ALLOCATING INDIRECT COSTS FOR NUCLEAR-POWERED SHIPS USING A DEMAND FOR POWER FACTOR ------------------------------------------------------- Appendix I:2.5 Naval propulsion plants use a pressurized water reactor design that has two systems: a primary system and a secondary system (see fig. I.2). The primary system circulates water in a closed loop consisting of the reactor vessel, piping, pumps, and steam generators. The heat produced in the reactor is transferred to the water. The heated water passes through the steam generators where it gives up its energy. The primary water is then pumped back to the reactor to be reheated. Figure I.2: Diagram of a Pressurized Water Reactor Source: Navy. (See figure in printed edition.) Nuclear and conventional propulsion systems of similar capacity have many common features. Both require heat to produce steam to drive turbines and generators. In the case of a nuclear system, the fissioning of uranium within the reactor replaces the burning of fossil fuel to generate the necessary heat. Inside a reactor, the uranium fuel is assembled in such a way that a controlled chain reaction can be achieved. Control rods can be inserted into or withdrawn from the reactor to create the necessary power level needed. Over time, the uranium is burned and eventually it must be replaced. Size, weight, and operations influence a ship's demand for power as well as the propulsion plant and fuel that supply the power. For example, a Nimitz-class carrier, weighing nearly 100,000 tons, requires far more shaft horsepower from its propulsion plant than is necessary for a submarine or surface ship that weighs about 8,000 tons. Similarly, there is a difference in the amount of nuclear fuel that is burned. We calculated the weighted average for each nuclear ship's demand for power, as measured by: shaft horsepower requirements and uranium burn. We found that one Nimitz-class carrier's demand for power is about equal to that of eight SSN-688s. As shown in figure I.3, in 1995, nuclear carriers accounted for about 35 percent of the nuclear power used by the fleet and are expected to account for nearly 60 percent by 2015 based on current force plans. Figure I.3: Demand for Power by Nuclear-Powered Ships Based on Force Structures in Fiscal Years 1995, 2000, and 2015 Sources: Our analysis and Navy and Jane's Directory of Fighting Ships 1994-1995. PRESENT VALUE ANALYSIS ------------------------------------------------------- Appendix I:2.6 Because investment alternatives normally incur different costs over different time streams it is our policy to compare the alternatives on an equal economic basis using a technique called present value analysis. This analysis, which converts costs occurring at different times to a common unit of measurement, is predicated on the theory that costs incurred in the future are worth less than costs incurred today. Present value analysis also provides a means to transform a stream of costs to a single number so it can be compared to another. Caution should be exercised when discounted dollars are used in performing analyses because discounted numbers are artificially small and can invite misinterpretation both in absolute amount and in comparing alternatives, especially in programs with very long time periods. A concern expressed about long duration projects is that normal discount rates virtually eliminate from consideration any values occurring beyond 25 years into the future. The expenditure streams in our analysis are about 60 years for the conventionally powered carrier and more than 100 years for the nuclear-powered carrier. Our present value analysis used budgetary profiles we developed for each carrier type. The budget profiles included the major investment costs (initial acquisition, midlife modernization, inactivation, and disposal) as well as annual operating and support costs. The timing of the budget profiles was based on the assumption that both carriers would be commissioned in the same year and have 50-year service lives. The notional procurement profile of a nuclear carrier includes advance procurement of long lead nuclear components 2 years prior to full funding of the ship, and the construction period is estimated to be 1 year longer than for a conventional carrier. As a result, the nuclear-powered carrier's investment profile begins 3 years earlier than for a conventional carrier. We also used annualized operating and support costs. The budget profiles were then converted into projected outlay profiles using the Navy's official outlay rates. While a performing present value analysis is a generally accepted practice, there is no generally agreed upon discount rate. However, there is agreement that a range of rates should be used to determine the investment's relative sensitivity to changes in rates. Our policy, in general, is to use the interest rate on marketable Treasury debt with maturity comparable to that of the program being evaluated (adjusted to reflect expected inflation when using constant dollars). We calculated the present value of the two carrier types using three different discount rates--our rate, the Office of Management and Budget rate, and the Congressional Budget Office rate. As table I.2 shows, regardless of the discount rate used, the nuclear carrier's present value was at least 57 percent more than the present value of the conventional carrier. Table I.2 Discounted and Undiscounted Life-Cycle Costs for a Conventionally and Nuclear- Powered Carrier (Dollars in billions) Our rate (4.43\a OMB rate CBO rate Carrier option Outlays percent) (3.6 percent) (2.8 percent) ---------------- -------------- -------------- -------------- -------------- Conventional $14.1 $4.9 $5.8 $6.9 Nuclear 22.2 8.2 9.5 11.1 ================================================================================ Difference $8.1 $3.3 $3.7 $4.2 Percent 57% 67% 64% 61% difference -------------------------------------------------------------------------------- Note 1: Numbers may not add due to rounding. Note 2: CBO is Congressional Budget Office. OMB is Office of Management and Budget. \a Rate of return for 30-year treasury bonds minus the most recent estimate of inflation by Wharton Econometric Forecasting Associates. Source: Our analysis.