Existing Home Energy Rating and Disclosure Laws, Programs and Best Practices

Prepared For:

New York State Research and Development Authority

Jennifer T. Manierre, CEM, LEED AP ND

Prepared By:

Emelie Cuppernell, Performance Systems Development,

for The Residential Energy Score Project Team1

CFA #CGC30040/Contract #39504

Submitted: September 14, 2015

1 The Residential Energy Score Project team consists of a representative from the Towns of Danby, Caroline, Ithaca and Ulysses, and City of Ithaca, as well as support from the Tompkins County Planning Department and Cornell Cooperative Extension. For additional information contact Emelie Cuppernell, project manager 607-277-6240 x277.

NOTICE

This report was prepared by Emelie Cuppernell of Performance Systems Development in the course of performing work on the Residential Energy Score Project for the Town of Ithaca, contracted for and sponsored by the New York State Energy Research and Development Authority (hereafter “NYSERDA”). The opinions expressed in this report do not necessarily reflect those of NYSERDA or the State of New York, and reference to any specific product, service, process, or method does not constitute an implied or expressed recommendation or endorsement of it. Further, NYSERDA, the State of New York, and the contractor make no warranties or representations, expressed or implied, as to the fitness for particular purpose or merchantability of any product, apparatus, or service, or the usefulness, completeness, or accuracy of any processes, methods, or other information contained, described, disclosed, or referred to in this report. NYSERDA, the State of New York, and the contractor make no representation that the use of any product, apparatus, process, method, or other information will not infringe privately owned rights and will assume no liability for any loss, injury, or damage resulting from, or occurring in connection with, the use of information contained, described, disclosed, or referred to in this report.

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Contents List of Figures ...... v 1 Introduction ...... 1 2 Types of Energy Disclosure ...... 3 2.1 Asset Rating ...... 3 2.1.1 Detailed Asset Rating ...... 4 2.1.2 Summary Asset Rating ...... 4 2.2 Operational Rating ...... 5 2.3 Utility Bills ...... 5 2.4 Energy Efficient Features ...... 6 3 Existing Rating Systems ...... 7 3.1 RESNET Home Energy Rating Systems Index (HERS) ...... 7 3.2 DOE Home Energy Score (HES) ...... 9 3.3 Energy Performance Score (EPS) ...... 10 3.4 EPA Home Energy Yardstick (HEY) ...... 11 4 Time of Rating Options ...... 12 4.1 Voluntary ...... 12 4.2 Time of Home Performance Audit or Retrofit ...... 12 4.3 Time of Sale ...... 13 4.4 Time of listing ...... 13 4.5 Regular Interval or Scheduled ...... 13 5 Current Programs ...... 14 5.1 Energy Efficient Feature Programs in the United States...... 14 5.1.1 City of Berkeley, CA (Before 12/1/15) ...... 14 5.1.2 Austin, TX ...... 15 5.1.3 Missouri Home Energy Certification Program (MHEC) ...... 16 5.2 Asset Rating Programs in the United States: ...... 17 5.2.4 State of Oregon ...... 17 5.2.5 Berkeley, CA (After 12/1/15) ...... 18 5.2.6 Santa Fe, NM ...... 18 5.2.7 Boulder, CO ...... 18 5.2.8 Burlington, VT ...... 19 5.3 Utility Bill Disclosure Programs in the United States ...... 20 5.3.9 State of Alaska ...... 20 5.3.10 State of Hawaii ...... 20

iii

5.3.11 State of New York ...... 21 5.3.12 Chicago, IL ...... 21 5.3.13 Montgomery County, Maryland ...... 22 5.4 In other Countries ...... 22 5.4.14 Denmark ...... 22 5.4.15 Australia ...... 23 5.4.16 European Union ...... 23 6 Other Considerations ...... 24 6.1 Metrics ...... 24 6.1.1 Source vs. Site Energy...... 24 6.1.2 Public Understanding ...... 25 6.1.3 Variations on Converting Energy Use into a Score ...... 26 6.1.5 Granularity ...... 27 6.1.6 Aggregating and Managing Rating Data ...... 27 6.1.7 MLS and Appraisal ...... 28 6.2 Market Integration ...... 29 6.2.8 Code Compliance ...... 29 6.2.9 Transaction costs by rating type ...... 30 6.2.10 Quality Assurance ...... 30 6.2.11 Low-income impacts ...... 30 6.2.12 Work Completion Certificates ...... 31 6.2.13 Software ...... 31 6.2.14 Incorporation with other labels/certifications ...... 32 7 Conclusion ...... 33 8 Bibliography ...... 34

List of Figures

Figure 1: Types of Energy Disclosure ...... 3 Figure 2: Comparison of National Rating Systems ...... 7 Figure 3: Example display of RESNET HERS Index ...... 8 Figure 4: Example display of DOE Home Energy Score ...... 9 Figure 5: Current Home Energy Score Partners ...... 10 Figure 6: Sample Results of Home Energy Yardstick (HEY) Score from https://www.energystar.gov/index.cfm?fuseaction=home_energy_yardstick.showgetstarted ..... 11 Figure 7: Comparison of Energy Efficient Feature Programs ...... 14 Figure 8: Upgrade Compliance Requirements for RECO at time of sale, rental, or significant renovation (Residential Energy Conservation Ordinance (RECO) Berkeley Municipal Code, Chapter 19.16, Resolution No. 62,181–N.S, A Compliance Guide, July 2008) ...... 15 Figure 9: Comparison of Asset Rating Disclosure Policies in the U.S...... 17 Figure 10: Comparison of Utility Bill Disclosure Programs in the United States ...... 20 Figure 11: Examples of Energy Rating and Disclosure Globally ...... 22 Figure 12: Pathway of Site Energy at a home from its source of natural resources ...... 25 Figure 13: Home Energy Audit Granularity ...... 27 Figure 14: Map of municipalities using the Stretch Code in Massachusets ...... 29 Figure 15: Flow of Rating Data to different Agencies ...... 32

1 Introduction

This report is intended to provide background information and best practices on current home energy rating systems and energy disclosure programs in existence today for the Residential Energy Score Project.

The Residential Energy Score Project (RESP) is working toward meeting the region’s sustainability goals, by increasing energy efficiency in the housing sector of Tompkins County. The RESP team2, a consortium of five (5) municipalities in Tompkins County, received a Grant from New York State Energy Research and Development Authority (NYSERDA) to develop a Home Energy Rating and Disclosure Program, which may include as a key feature, a local ordinance or local law mandating the disclosure of a home energy rating at time-of-listing. The outcomes of the project will generate an energy conscious housing market by empowering consumers to drive demand for efficient housing. Other outcomes include the following: local job development, reduced greenhouse gas (GHG) emissions, increased comfort and safety for homeowners, durability of the housing stock, partnerships with realtors and other key industry professionals, and increased energy and economic security.

As part of this project the team is evaluating local municipal authority to mandate a home energy rating program, developing a home energy rating program implementation strategy, analyzing associated costs and expected benefits, identifying potential resistance and unintended consequences. This paper looks specifically at what is happening currently and what has happened in the market to date with these efforts.

The RESP team is working to create a program that will accomplish the following:

• Drive demand for efficient housing by creating energy-conscious home buyers; • Allow homeowners to recapture the value of their investments in energy efficiency at sale; • Add value to existing program infrastructure (NYSERDA’s Home Performance with ENERGY STAR and EmPower New York Program) by supporting the awareness and value of energy efficiency; • Create local jobs and strengthen the local economy; • Work toward meeting sustainability goals; and • Lessen market confusion around home efficiency.

A number of programs across the country are looking at, or have already implemented, residential energy rating and disclosure programs. In this paper, we look at these programs to see the various ways energy efficiency has been evaluated and how and when this information has been made available to influence consumers.

2 The RESP team consists of a representative from the Towns of Danby, Caroline, Ithaca and Ulysses, and City of Ithaca, as well as support from the Tompkins County Planning Department and Cornell Cooperative Extension. For additional information contact Emelie Cuppernell, project manager, 607-277-6240 x277.

Key Findings: After reviewing these programs and recent research in this area, we found that in order for a program to be successful, the rating system used needs to be: • Simple: Use one value to represent the overall energy efficiency, allowing home to home comparison • Cost effective • Obtainable on a timely basis, to reduce contractor time in the house and the cost of an audit; • Useful and relevant to the potential buyer; • Readily available at time of sale or listing; • Able to effectively represent the savings value of potential energy efficiency investments.

2 Types of Energy Disclosure

Current residential energy disclosure programs use a range of approaches, including detailed asset ratings, summary asset ratings, operational ratings, energy feature lists, utility bill disclosures, or some combination of these approaches. Energy Disclosure refers to the practice of evaluating the relative energy efficiency of a home and making this information available to relevant parties. There are four basic ways that energy information is disclosed in programs around the country. These are summarized in the table below.

Type of Example of Basic Description Major Advantage Major Disadvantage Disclosure Program

Allows easy comparison of Evaluates the physical one home to another, structure and mechanical improvement savings Ordinance in Asset Rating Time Intensive systems to determine the calculations, used for program Boulder, CO relative energy efficiency compliance, often includes a quality assurance program Measures whole building operating performance using Cannot be used to evaluate EPA's Portfolio Operational energy bills. May factor in Drives behavior change, the impacts of proposed Manager/ NYC Rating location, typical weather normalized usage changes to components, no Local Law 84 year, house size, and other quality assurance inputs Cannot be used to evaluate the impacts of proposed New York State Actual occupant energy use Utility Bills Quick and Easy changes to components, no Truth in Heating for a specified period of time quality assurance, no Law normalization City of Austin - A description of key Not comprehensive, no Energy Energy components of the home Provides specific information direct comparison or Conservation Efficient such as attic insulation level, on the home estimation of monthly utility Audit and Features heating system efficiency, costs Disclosure (ECAD) etc. ordinance Figure 1: Types of Energy Disclosure 2.1 Asset Rating

Asset Ratings create a score by evaluating a home’s actual physical structure and mechanical systems using energy simulation tools. Mechanical systems include the homes heating, cooling, and hot water heater, as well as some large appliances. An asset rating removes occupant behavior and use patterns from the assessment, allowing the energy performance of buildings to be easily compared to each other. This is a sum-of-the-parts approach where predicted energy use is built up from the description of the building components and can vary in the degree of detail collected. Asset ratings are often used in

other national labeling and compliance programs and come with third party certification and quality assurance (QA). The Residential Energy Services Network’s Home Energy Rating Systems Index (HERS Index) and the Department of Energy’s Home Energy Score (DOE HES) are examples of two asset ratings in use today. This type of rating is often compared to a car’s miles per gallon (MPG) rating. Here we look at two versions of an asset rating: detailed such as the HERS Index, and summary, such as the DOE HES.

2.1.1 Detailed Asset Rating

A Detailed Asset Rating is commonly delivered by RESNET credentialed Home Energy Raters, or HERS Raters. This score equates a value of “0” with zero energy use, and higher numbers representing more consumption, with no upper limit to the score. Houses built under current/recent code requirements score in the 70s, and poor performing buildings score around 200. There is no real market competition for the RESNET scoring process at the Detailed Asset Rating level of data collection.

The HERS Rating is an example of a Detailed Asset Rating. Detailed Asset Ratings are used by a number of new construction efficiency programs including ENERGY STAR, DOE Zero Energy Ready Homes, Federal Tax Credits, and various utility programs. The key intrinsic value of the Detailed Asset Rating is the ability to model tradeoffs in construction at a time when the cost for installing energy efficiency is simply the difference between the efficient and standard options, not the full cost. For example, the cost of choosing an efficient window is represented by the cost difference between a standard window and the more energy efficient window. This increases the value that the more detailed rating analysis can provide.

RESNET is working with builders nationally to promote the HERS Index — the numeric score awarded by the process. There were roughly 146,000 RESNET Ratings done in the U.S. in 2014, primarily for new construction.

2.1.2 Summary Asset Rating

The Summary Asset Rating uses a reduced data set to produce a score and therefore costs less to deliver than a Detailed Asset Rating. The Summary Asset Rating is intended to provide a simple way for homeowners and buyers to distinguish between high efficiency homes and lower efficiency homes and to provide guidance on the savings potential of various improvements.

The Department of Energy Home Energy Score (HES) is an example of a Summary Asset Rating. The HES tool produces a score between 1 and 10 with 10 representing the best energy efficiency. There is no specific score for a zero energy home. This coarse score granularity (see granularity section for more detail) means, for example, that the difference between installing two different levels of energy efficient windows would not make a difference in the score, making it difficult to cost-engineer choices.

There has been a range of other Summary Asset Rating systems developed but with the introduction of the DOE system these competing systems are fading out or converting to using the DOE scoring tool as the calculation engine for an alternative scoring model.

2.2 Operational Rating

Operational ratings measure whole building operating performance using energy bills, normalizing energy usage for variations in weather, and may attempt to adjust actual usage based on the occupancy of the building. They generally do not use a simulation to evaluate the combined energy performance of building components. The result is a standard energy usage that can be converted into a rating. An example of operational ratings are the EPA’s Portfolio Manager, used to measure and track the energy and water performance of multifamily residential and commercial buildings and compare them to each other. This system of comparing the energy use of one building to another on a regular basis to drive change is known as Benchmarking. These ratings do not take into account the design or actual structure of the building, and instead focusing on how it is being operated. These ratings tend to be effective at driving behavioral change by emphasizing actual changes in energy usage.

Operational ratings cannot be used to evaluate the impacts of proposed changes to components. On the other hand, they are not expensive to generate and generally do not require special knowledge or certification to generate. There is currently no formal quality assurance of scores, or credentialing users of the tools.

The main residential example of an Operational Rating is the EPA Home Energy Yardstick. This simple web tool allows you to enter monthly or annual energy use, and a few occupancy characteristics and zip code. This score is not widely used. In contrast, the EPA Portfolio Manager, used for commercial and multifamily buildings, is very widely used across the country and has been adopted as part of mandates for benchmarking of commercial and multifamily building in a rapidly increasing number of cities such as New York City, Los Angeles and Chicago.

2.3 Utility Bills

Utility Bill disclosure often provides exact copies or a summary of utility bill usage data and costs for a specified period of time. Utility Bill data is one of the easiest and most straightforward forms of energy disclosure, but also one of the least useful at comparing buildings, understanding areas for home improvement, or considering for home value. As opposed to an MPG rating for a car, this type of system could be seen as the actual fuel usage for a given period of time, regardless of the number of miles driven.

2.4 Energy Efficient Features

An Energy Features Inventory includes looking at particular construction properties and characteristics, such as inches of attic insulation, or the presence of “green” products like PV panels. One issue with listing the green features of a building is that energy is not uniformly addressed. For example knowing how much attic insulation various homes have is useful, but it doesn’t allow you to compare overall energy consumption. This makes it difficult to compare one building to another and therefore reduces the value of efficiency to the purchaser and seller. This lack of normalization of energy impacts also affects the comparisons that appraisers rely on.

3 Existing Rating Systems

In this report we considered the following existing rating systems: RESNET Home Energy Rating Systems Index (HERS), DOE Home Energy Score (HES), EPA Home Energy Yardstick (HEY), Earth Advantage Energy Performance Score (EPS), and other some other local variations on these national platforms.

Given the desire to have integration of information with other platforms, and scalability to a larger geographical coverage area with this project, emphasis was placed on National Systems already recognized and incorporated into current labels, codes, and programs. Figure 2 below shows some major components of these systems.

DOE Home Energy Home Energy Yard EPS - Energy Rating System RESNET HERS Index Score Stick Performance Score

Year Developed 1995 2012 2002 2008

Basic Description Asset Asset Operational Combination

Score 0-100+ 1-10 0-10 Energy Use

Lower is better, boundless, can go 10 is best, 1 is worst, Estimated fuel use Score Description negative, 0 = zero 5 is average home in 10 is best, 0 is worst per year energy home, 100 = US. code built home

Number of Homes One Million + 24,387 NA NA Rated Average Inspection 3 2 0 2 Hours Approximate Number of Inputs 100 45 5 32 required

Homeowner/ Inspector RESNET HERS Rater DOE HES Inspector EPS Auditor Anyone

Figure 2: Comparison of National Rating Systems 3.1 RESNET Home Energy Rating Systems Index (HERS)

Residential Energy Services Network (RESNET) created the Home Energy Rating System (HERS) Index as a measurement of a home’s energy efficiency. RESNET was founded in 1995 by members of the mortgage industry, the National Association of State Energy Officials, and Energy Rated Home of America to develop a national standard for home energy ratings. The original initiative was to:

• Establish a way to measure the financial savings generated by energy efficient features in a home; and • Credit that home’s energy efficiency in the mortgage loan (RESNET, 2015).

The result of their efforts was the creation of the HERS Rating or Index. “The HERS Index was created by RESNET in order to give homeowners and buyers a standard by which they could measure the energy efficiency of houses they currently own or are planning to buy” (HERS Index, 2013).

The HERS Index is an asset rating, with a lower score indicating a lower energy use home. To the right is an image of the HERS index scoring scale. A score of 100 is equivalent to a standard built new home and a score of 0 indicates a Net Zero Energy Home. The HERS index is boundless, meaning it can go above 100 as homes become less efficient than a standard home and below 0 (produces more energy than it uses).

An Index score is determined by a Certified Home Energy Rater. In order to become a HERS Rater, an individual must participate in 1-2 weeks of training, complete 5 probationary Ratings with some supervision, pass 3 exams, and enter into a relationship with a third party Provider who will ultimately certify the individual and oversee their certification and quality Figure 3: Example display of RESNET assurance. All homes rated get submitted to this third party HERS Index provider and registered with the RESNET Registry. The results are publicly available online by searching for an individual address.

To generate the index, the Rater collects information from the home and enters it into a software tool. This generally involves 2-5 hours in the home, followed by 2-5 hours in the software/office. In addition to generating an index, a report can be generated from the HERS software including code compliance, greenhouse gas emissions, and estimated monthly energy costs.

There are currently about 4,300 Certified RESNET Home Energy Raters in the United States. “In 2014 there were 146,860 homes in the United States that were energy rated by certified RESNET HERS Raters and issued a HERS Index Score. According to the data from the U.S. Census Bureau, this represents over 33.8% of all new homes sold in the nation. The average HERS Index Score of the homes rated in 2014 was 63” (RESNET, 2015). New York is currently home to 187 certified raters. 2,568 NY homes were rated in 2014 with an average HERS Index of 56, which is more efficient than the national average.

The HERS Index is a national standard currently required for compliance with ENERGY STAR, LEED for homes, Passive House, and certain local codes, and is recognized by the

federal government and the mortgage industry. More than one million homes have been issued a HERS index in the US.

3.2 DOE Home Energy Score (HES)

The Home Energy Score, launched in 2012, is an asset rating developed by the US Department of Energy to show energy efficiency and opportunities for improvement in existing homes. “The Home Energy Score allows homeowners to compare the energy performance of their homes to other homes nationwide. It also provides homeowners with suggestions for improving their homes' Figure 4: Example display of DOE Home Energy Score efficiency” (U.S. Department of Energy, 2015).

The HES tool produces a score between 1 and 10 with a higher number representing a more energy efficient home, as well as an estimation of monthly dollar savings if cost effective improvements are made to the home.

A “Home Energy Score Assessor” generates a HES Score. An assessor performs a data collection visit on the home to gather information on the homes structure, insulation properties, and mechanical systems. This may include diagnostic testing to measure the house infiltration.

The DOE requires assessors using the Home Energy Score (directly or through interfacing software) to obtain a credential. The minimum technical certification accepted is a BPI Building Science Certificate, an online course costing roughly $100. Higher levels of BPI certification and the RESNET Energy Rater certification are also accepted. DOE also requires all users to take and pass an online simulation-based test. Raters are required to register with a DOE approved quality assurance provider who will do quality spot checks.

A DOE Home Energy score collects roughly 40-50 data points during a home visit and then generates the score using the Lawrence Berkeley National Laboratory’s online “Home Energy Scoring Tool.” See the HES Data Collection Sheet in Appendix D. The DOE opted for fewer data points in an effort to keep rating cost low and provide consumers with a simple system, but recognizes the merit of a diversity of approaches. According to the DOE, an average audit to generate a HES can take less than an hour. Cost for delivery varies widely depending on integration with other activities such as home inspection or an energy retrofit. (U.S. Department of Energy, 2015)

Some states are currently developing their own local scores, also using the DOE calculation engine. These have tended to be scoring systems with greater granularity and a zero energy home score of 0. DOE allows the use of their calculation engine for a local rating if the homeowner is also provided with the HES score.

In addition to local governments adopting the DOE scoring system, utility companies have implemented the DOE score to complement their retrofit program delivery, but only for existing buildings to date. As of August 23, 2015, 24,387 homes had received a Home Energy Score. Figure 5 is a map of current partners in the US from DOE’s Figure 5: Current Home Energy Score Partners energy.gov website.

3.3 Energy Performance Score (EPS)

The Energy Performance Score, or EPS, is an asset rating developed by the Energy Trust of Oregon to compare the energy efficiency of newly built homes, specifically in Oregon. The lower the EPS score is (from 0-200), the more efficient the home, with zero being the best possible. This is an example of a custom local rating. The EPS label provides estimated monthly utility costs, a score to compare a home to others, a carbon emission estimate, and some basic energy efficiency features. The program uses a third-party verifier to analyze the features and construction techniques and conduct performance tests such as air leakage and duct tightness. EPS is a voluntary rating that builders request before construction. The Energy Trust of Oregon also developed and markets a “Smart Homebuyer Checklist” to educate buyers about the EPS and prompt them with appropriate questions to ask a builder or real estate professional. (Energy Trust of Oregon)

3.4 EPA Home Energy Yardstick (HEY)

The Home Energy Yardstick or HEY Score is an operational rating developed by the EPA to provide a simple assessment of a home's annual energy use compared to similar homes. This is an online tool available to homeowners who can generate a score by entering the following basic information.

• ZIP code; • Home square footage; • Number of full time home occupants; • A list of all the different fuels used in the home; and • The home's last 12 months of utility bills

After entering this information the homeowner receives a report, such as the one below in Figure 2 below. This is a 1-10 scoring system where 10 is the most efficient and 5 is the average home efficiency.

Figure 6: Sample Results of Home Energy Yardstick (HEY) Score from https://www.energystar.gov/index.cfm?fuseaction=home_energy_yardstick.showgetstarted

A verifier is not required for this operational rating. This is a quick, homeowner input tool. “The Yardstick score is based on data obtained from the U.S. Department of Energy's Residential Energy Consumption Survey (RECS). Since only single−family detached homes, mobile homes, townhouses, row houses, and duplexes are used in the Yardstick analysis, entering apartment energy use data may not result in a valid comparison.” (EPA)

4 Time of Rating Options

A range of options currently exists for integrating energy information into the sale process for residential buildings. While commercial energy disclosure programs have become more popular, residential programs are less common and less uniform. (Cluett & Ribiero, 2014) Voluntary programs have been around for some time, and more recently mandated rating or energy disclosure programs have been emerging. In our research we looked at twelve (12) existing residential disclosure programs in the United States. Programs may use one rating trigger option, or a combination of options. With any of these energy rating and disclosure designs, its critical to develop a consistent rating score, a method for administration and implementation, engagement with local stakeholders, and non-compliance penalties. (Hill & Dunsky, 2013)

4.1 Voluntary

Voluntary rating and disclosure markets already exist in abundance and are expanding with standardization and education. Voluntary disclosure is generally done only on very high efficiency homes, or home with other green features that would be seen as an asset. These voluntary programs are often tied to a utility program and/or incentive.

Multiple Listing Service (MLS) green feature addendums are gaining momentum in the country as a voluntary disclosure for home sales. In Tompkins County for example, a green features addendum is a voluntary summary of "green" characteristics that can be attached to a record in the MLS. Nationally, the Appraisal Institute’s “Residential Green and Energy Efficient Addendum” is currently being used and added to MLS documentation voluntarily. The states of Missouri, Vermont, and Colorado are in the process of developing voluntary labeling programs and incorporating these into the MLS.

4.2 Time of Home Performance Audit or Retrofit

Programs that require a rating in combination with home performance retrofit work may stimulate efficiency improvement investments and provide a low cost way for ratings to enter the market. Ratings at retrofit may be lower in cost as a building professional is already in the building if an energy audit is conducted. Data standardization systems like HPXML (See section on Aggregating and Managing Rating Data) help align some rating types with retrofit data collection. An example of a time of retrofit rating requirement is the Berkeley California program for renovations over $50,000. Connecting homeowners with certified assessors, home performance contractors, and incentives help encourage energy savings in these programs. Not having a clear check-in point for retrofits makes a mandate at this time difficult to track. Most retrofits either do not require a building permit, or contractors do not comply with the requirement for one. NYSERDA is in the process of linking their retrofit incentive and low- income programs with the DOE Home Energy Score.

4.3 Time of Sale

Ratings required “prior to sale” put forward the requirement of a rating but do not require the information to be available when the buyer is actually making a decision. Time of sale is less complicated for the buyer, as it does not require hiring a rater before there is a high probability of a sale. A convenient option for time of sale ratings to be performed is as part of the home inspection. Home inspections occur before the sale commitment has been made where there is still some influence on the sale and opportunity for price adjustments if larger issues are uncovered. Home inspections are often used to negotiate price adjustments so an adverse rating could have an undesired impact on the home seller. Generally home inspections are paid for by the prospective homebuyer.

Time of sale ratings also create a growing record of the relative value of homes with efficiency or lack of efficiency improvements. This record is key to capturing the value of efficiency in the appraisal process. Appraisals do not set price but do control the ability to finance any additional house price above market that may be due to efficiency improvements.

4.4 Time of listing

Ratings completed by time of listing are the gold standard for influencing decisions. This timing influences homeowners to make improvements to homes prior to listing, and allows buyers to readily factor this into purchase decisions because comparisons can be made on all potential purchases, not just the buildings that they actually make an offer on. Time of listing asset ratings require inspection of the building by a qualified energy rater before the home inspection. The home seller would pay for time of listing ratings. 4.5 Regular Interval or Scheduled

A rating and disclosure requirement doesn’t need to be tied to any other transaction. For example a program may look at requiring a rating every 10 or 20 years, or requiring all homes to receive a rating prior to 2030. Many commercial building disclosure programs require annual performance reporting. The annual reassessment of performance encourages regular energy improvements and up to date benchmarking to compare buildings to one another.

5 Current Programs

5.1 Energy Efficient Feature Programs in the United States

Disclosure Year Time of Location Name Inspector Description Type Began Intervention

Building Inspector, Residential New and Community Berkeley, Energy Energy Existing Home - Required - Time of Energy CA (Before Conservation Efficient Prescriptive 1987 Sale, Rental, and Services 12/1/15) Ordinance Features Upgrade Renovation Corporation (RECO) Ordinance (CESC) RECO Auditor Energy Conservation Energy BPI Analyst Existing Home Audit and Austin, TX Efficient or HERS Audit, time of 2009 Required/Ordinance Disclosure Features Rater listing (ECAD) ordinance Missouri New and Home Asset Rating Existing Asset Energy & Energy HERS Rater In Missouri Rating with Voluntary Certification Efficient or DOE HES Development Gold and Silver Program Features labeling (MHEC) Figure 7: Comparison of Energy Efficient Feature Programs

5.1.1 City of Berkeley, CA (Before 12/1/15)

In 1987 the City of Berkeley adopted the Residential Energy Conservation Ordinance (RECO). This time of sale, rental, or renovation prescriptive upgrade ordinance applies to all homes and residential buildings. Currently to comply with RECO, certain prescriptive requirements or upgrades must be met such as installing low flow water fixtures, sealing ductwork, and eliminating incandescent lights. (See Figure 5 below) Once a home is compliant, a city building inspector performs an inspection to ensure compliance, and the property receives a certificate of compliance. The city’s Building and Safety Department maintains a record of each residential property, including RECO compliance.

At time of renovation (work exceeding $50,000 in one year) RECO compliance is the responsibility of the building permit applicant, which in most cases is the property owner. To complete the upgrades, a homeowner may perform the work themselves, or work with an approved contractor in the Energy Upgrade California rebate program. While this ordinance does not yet disclose energy use or efficiency, it is a time of sale efficiency ordinance and is part of an energy disclosure phase in starting next year.

The ordinance requires all homes to meet energy or water requirements for the following eleven (11) items:

Item Requirement

1. Toilet 1.6 gal/flush toilet, or flow reduction devices

2. Showerheads 3.0 gal/min flow rate

3. Faucets 2.5 gal/min flow rate for kitchen and bathrooms

4. Water Heaters Insulation wrap of R-12 value

5. Hot & Cold Water Piping Insulate first two feet from water heater to R-3 value 6. How Water Piping in Pumped, Recirculating Heating Systems Insulate all piping to R-3 value Permanently affixed weather-stripping, and door sweeps 7. Exterior Door Weather-Stripping and door shoes

8. Furnace Duct Work Seal duct joints, add insulation wrap to R-3 value

9. Fireplace Chimneys Dampers, doors, or closures

10. Ceiling Insulation Insulate to R-30 value Replace incandescent with compact fluorescent lamps 11. Common Area Lighting (multi-unit buildings only) (CFL) or at least 25 lumens per watt Figure 8: Upgrade Compliance Requirements for RECO at time of sale, rental, or significant renovation (Residential Energy Conservation Ordinance (RECO) Berkeley Municipal Code, Chapter 19.16, Resolution No. 62,181–N.S, A Compliance Guide, July 2008)

5.1.2 Austin, TX

As of 2009, Chapter 6-7 of Austin City Code includes an Energy Conservation Audit and Disclosure (ECAD) ordinance. This ordinance requires any home or building within the city limits to have an energy audit by either a BPI Analyst or a HERS Rater, and discloses the information prior to sale. The ordinance only applies to homes 10 years or older and, unlike the program in Berkeley or the RECO program in Boulder, does not require any threshold to be met or upgrades to take place.

The assessment provides basic efficiency information about the home (such as level of attic insulation) and opportunities for improving the energy efficiency of the home. The results of the audit are provided to prospective buyers. The Disclosure Report includes the following:

• Condition and estimated R-value of the attic insulation; • Percentage of air leakage from the duct system and the system’s general condition; • Age, efficiency, and overall condition of the heating and cooling equipment; • Air leakage around exterior doors, plumbing penetrations beneath sinks, and attic entries;

• Total square feet of glass and location of windows receiving more than one hour of direct sunlight each day; and • Opportunities for improving the energy efficiency of the home (Austin Energy).

While not a completely comprehensive rating, choosing key features to target relevant to the local building stock allowed the cost of audit to remain low. Research done on labeling and disclosure in VT revealed that $300 is seen as limit for typical audit cost (Faesy, Levin, & Badger, 2013).

Early analysis a few years into this program revealed very low retrofit activity and led to moving the disclosure requirement from closing to contract period in May of 2011. Moving the disclosure to an earlier point in the real estate transaction process can give homeowners increased opportunity to consider efficiency in the decision to purchase and/or price negotiations (Cluett & Amann, Residential Energy Use Disclosure: A Review of Existing Policies, 2013).

5.1.3 Missouri Home Energy Certification Program (MHEC)

Missouri is currently developing a voluntary rating program to “supply homeowners and potential home buyers with information about the energy efficiency of Missouri homes by providing recognition in the form of state-issued Gold certificates to the top performing tier of Missouri homes, and Silver certificates to homeowners who have improved their homes by a significant margin or have completed a majority of cost effective energy efficient measures” (Missouri Home Energy Certification Program Guidelines February, 2015, 2015).

1) Gold Label: a. Uses either DOE HES or HERS Index, and Columbia Water & Light’s Efficiency Score (CWL Efficiency Score) to set threshold for efficiency of a HERS Index less than 65, HES Score greater than 8 Or: b. Recognizes homes that have installed significant assets to the 2012 IECC level.

2) Silver Label: a. Required to have participated in an approved local program or received a qualified audit; b. Uses DOE HES, HERS Index, Columbia Water & Light’s Efficiency Score (CWL Efficiency Score), or other approved modeling software to measure results; c. Homes either have significantly improved their energy efficiency or have completed a majority of the cost effective energy efficiency measures.

5.2 Asset Rating Programs in the United States:

Time of Location Name Inspector Description Year Began Intervention

Creation of "Home Section 12 of House Bill 2014 (In Oregon HERS, HES, EPS Energy Performance Voluntary 2801 development) Scoring System"

New and Existing - Required - Time Berkeley, CA Building Energy Saving Energy Assessment/ Scheduled for DOE HES Verifier of Sale, Rental, (After 12/1/15) Ordinance (BESO) Home Energy Score December, 2015 and Renovation at time of Sale Required - New New Construction - Construction, Residential Green HERS Rating, prior to Santa Fe, NM HERS Rater 2008 Prior to Building Code Certificate of Certificate of Occupancy Occupancy

Green Building and New Construction Required - Linked Boulder, CO Green Points Program, HERS Rater and Remodels - HERS 2008 to permitting Ordinance 7565 Rating threshold

Vermont Act 89 of NA - Incorporating New or Existing Burlington, VT In Development Voluntary 2013 DOE HES labeling program

Figure 9: Comparison of Asset Rating Disclosure Policies in the U.S.

5.2.4 State of Oregon

Section 12 of the Oregon House Bill 2801, was passed by the Oregon Legislative Assembly 2013. This law required the Oregon Department of Energy to adopt a home energy performance score system for use in Oregon. This program currently allows for three types of assessor qualifications: RESNET HERS Rater, DOE Home Energy Verifier, or a Residential Energy Analyst with the Oregon Training Institute. The Assessors must report to the department, at least annually, specific data for each home they assigned a home energy performance score to. The home energy performance score for this program currently accepts the following asset rating systems until January 1st 2016: 1. Energy Trust of Oregon EPS® 2. U.S. Department of Energy Home Energy Score 3. Residential Energy Services Network Home Energy Rating System The assessor must deliver a one page home energy performance report which includes the score, the estimated total annual energy use and cost by fuel type, estimated renewable energy production and a comparison of the home energy performance score that provides context for the range of possible scores. Currently this program is voluntary. (Oregon, Secretary of State, 2014)

5.2.5 Berkeley, CA (After 12/1/15)

The ordinance RECO Program in Berkeley will be replaced on December 1, 2015 with their new law, the Building Energy Saving Ordinance (BESO). Unlike RECO, BESO will require energy assessment and disclosure report and score at time of sale, rental, or significant retrofit, or alternatively, demonstration that the building is a high performer.

The Score for the BESO law is defined as “a measurement of how efficiently a building uses energy and/or water based on modeled simulations or actual energy use of the building over time compared to similar buildings, which can be in the form of a performance score, asset score or other comparable metric that meets standards and formats established by the Administrator.” (Berkeley 2014) It is not yet clear if a particular rating system will be selected; however the DOE Home Energy Score is featured on their new flyer: http://www.ci.berkeley.ca.us/uploadedFiles/Planning_and_Development/Level_3_- _Energy_and_Sustainable_Development/BESO%20flyer_current.pdf

5.2.6 Santa Fe, NM

Since January 1, 2008, the City of Santa Fe New Mexico has been requiring a confirmed HERS Rating, by a RESNET HERS Rater for all new single family homes. The Rating score for each home is posted in the window of the home on a form that compares the score to a home built to the 2006 New Mexico Energy Home requirements.

In 2009, the City adopted a Residential Green Building Code, which requires a specific HERS Score threshold based on the heated square footage of the home. Enforcement is achieved by requiring a projected HERS rating prior to obtaining of building permit, and a final confirmed HERS rating displayed “prominently” in the home prior to issuing a certificate of occupancy.

5.2.7 Boulder, CO

A HERS Rating threshold requirement is in place in Boulder Colorado for all new residential construction, and additions and remodels larger than 500 square feet. The HERS index requirements of their “Green Building and Green Points Program,” which went into effect in January 2008, are based on a certain percentage of savings above the 2006 IECC and vary based on conditioned floor area (Cluett & Amann, Residential Energy Use Disclosure: A Review of Existing Policies, 2013). As an alternative to the HERS Index for remodels, the home can demonstrate compliance with 2009 IECC and meet infiltration requirement with verified performance testing. Compliance is achieved by linking adherence to issuing permits for renovations, building additions, and new construction. The final Certificate of Occupancy cannot be issued until the final HERS Rating is submitted to the city. According to RESNET’s 2014 annual report, about 45% of all new single family homes built in Colorado received a HERS Rating with an average HERS Index Score of 58.

5.2.8 Burlington, VT

Efficiency Vermont and the “Disclosure Tool Working Group” are developing a voluntary residential building energy rating and label program for the entire state. The working group’s report to the State Legislature recommends “a voluntary approach in order to test how energy labeling and better energy information can add value for homeowners, buyers, sellers and renters” (Faesy, Levin, & Badger, 2013). The current suggestion is to “work with OptiMiser and the DOE Home Energy Scoring Tool to set up the software and data transfers required to generate energy scores and labels.”

The work done by this group is meant to satisfy the Vermont Act 89 of 2013 Energy Bill, which called for the creation of a “Disclosure Tool Working Group” to “develop a consistent format and presentation for an energy rating that an owner of a building may use to disclose the energy performance of the building or a unit within the building to another person, including a potential purchaser or occupant” and to develop or select “one or more tools that can be used to generate the energy rating” (Faesy, Levin, & Badger, 2013).

Significant research done by this group was to look at a way to incorporate multiple software tools and existing State programs to uniformly and consistently generate labels. This involves using the DOE HES tool as a plug-in with Vermont’s existing audit software.

“In the end, the Working Group decided to present four primary pieces of information as part of the Vermont Home Energy Score label, which include:

1. An asset- and site-energy-based MMBtu/year total projected energy consumption score; 2. Projected energy costs in total and by fuel type; 3. The U.S. Department of Energy’s Home Energy Score; and 4. A general description of the home.” (Faesy, Levin, & Badger, Vermont Energy Labeling Working Group: Development of a Voluntary Residential Building Energy Label, Report to the Vermont Legislature, 2013)

5.3 Utility Bill Disclosure Programs in the United States

The States of Hawaii, Alaska, and New York, the City of Chicago, and Montgomery County, MD all have some form of a utility bill disclosure program for existing homes. These vary in detail and level of compliance. The majority of these is either only by request, or easily waived, with little data available to track compliance.

Time of Location Name Inspector Description Year Began Intervention BEES - Alaska Average yearly Building Energy utility cost Required - Time of State of Alaska NA 2008 Efficiency disclosed prior to Sale Standard contract signing Hawaii Code 508D - Mandatory Seller Past three months Required - Time of State of Hawaii Disclosures in Real NA 2009 utility bills Sale Estate Transactions

New York State Required upon Past two years of State of New York Truth in Heating NA 1987 request - Time of utility bills Law Sale or Rental

Amendment of Projected annual Required - Time of Chicago, IL Chapter 5-16 of NA and average 1987 Listing Municipal Code monthly cost

Montgomery County Council Bill Past 12 months of NA 2009 Time of Sale County, MD 31-07 utility bills

Figure 10: Comparison of Utility Bill Disclosure Programs in the United States

5.3.9 State of Alaska

In the State of Alaska, a standard form is used to disclose information about a residential property prior to a purchase offer. Energy efficiency is included among other features on this disclosure form with, a checkbox for adhering to Alaska’s Building Energy Efficient Standard, and a section to list average utility costs. Notably this disclosure was incorporated into the existing residential disclosure form used by realtors. This requires disclosure prior to the purchase contract signing.

This disclosure form can be waived if both seller and buyer agree. There is no information currently available on compliance with this law (Cluett & Amann, Residential Energy Use Disclosure: A Review of Existing Policies, 2013).

5.3.10 State of Hawaii

Similar to Alaska, Hawaii has added utility bill disclosure to their standard home seller disclosure form. The “Mandatory Seller Disclosures in Real Estate Transactions” law was

amended in 2009 to require property owners to disclose (without any proof or documentation required) the electricity costs for the most recently occupied three-month period. This law does not currently include rental units. There is no information currently available on compliance with this law.

5.3.11 State of New York

One of the oldest energy disclosure laws in the county, the “New York State Truth in Heating Law” went into effect January 1, 1981. This law requires sellers and landlords to provide buyers and tenants with heating and cooling bill information. The law requires utility data to be provided “upon oral or written request” to a prospective tenant prior to signing a lease. If a written request is made by a prospective buyer prior to signing a purchase contract, the homeowner must provide the following information within fifteen (15) days:

1. Complete set of heating and cooling bills for past two years OR lifetime of the building, whichever is shorter; 2. A statement of the type and areas of insulation installed by the seller; 3. A statement of the type and areas of insulation installed by the previous owner, if known.

This law requires utilities to furnish the utility bill information for a given address within 10 days of the seller or landlords request (New York's Utility Project, 2013).

There was no system put in place for implementing or tracking compliance with this law, and as a result little information is available on compliance rates or whether buyers, renters, or the real estate industry is aware of this opportunity (Cluett & Amann, Residential Energy Use Disclosure: A Review of Existing Policies, 2013).

5.3.12 Chicago, IL

Started in 1987 but not gaining widespread compliance until recently, the Chicago, IL municipal code requires gas and electric utility bill disclosure for the past 12 months when a home is sold or leased. The city recently switched to using a third party system, MyHomeEQ, to aggregate utility data and to provide direct transfer of this data to the regional MLS. “In July 2013, MRED, the City of Chicago, and Elevate Energy worked together to automate the process, making it possible for agents to get this info with a few mouse clicks” (Elevate Energy, 2014). The MyHomeEQ platform is currently only available for single-family homes in Northern Illinois. The system pulls utility data, recommends home improvements based on the data, and connects homeowners with contractors and available incentives. The new ease of access to data and stronger ties to the Retrofit Chicago program will significantly increase compliance. Previous enforcement of this law has been complaint based. A complaint is made to the Chicago Department of Business Affairs and Consumer Protection, who sends a letter to the owner or landlord informing them of the requirement. For an example of the Chicago Home Energy Report see Appendix C.

5.3.13 Montgomery County, Maryland

A law in Montgomery County requires sellers of single-family homes and condos to provide copies of utility bills or a summary of that information for the past 12 months prior to sale. The usage data, along with “opportunities for home energy efficiency improvements,” must be delivered to the buyer before the contract is signed.

Enforcement of this requirement is complaint driven with the Montgomery County Office of Consumer Protection and is not well tracked. The specification to include opportunities for improvement has been met by providing a list of websites with additional information on how to assist homebuyers in making energy efficient decisions (Montgomery County).

5.4 In other Countries

In other Countries such as Denmark and the Australia Capital Territory, residential energy rating disclosure programs have been around for over 15 years. “The most significant evaluations of the effectiveness of residential energy disclosure on home sales and home prices come from studies of these long running programs” (Cluett & Amann, Residential Energy Use Disclosure: A Review of Existing Policies, 2013). Today we can see mandatory rating policies alive in over 30 countries. We highlight just a few of these below.

Disclosure Year Time of Location Name Inspector Description Type Began Intervention

Energy Energy Consultants must New and Performance of hold either an Existing Home Denmark Asset Rating 1997 Time of Sale Buildings in engineering or Energy Rating Denmark (EPBD) architecture (A-G Scale) degree

Australian Energy Greenhouse and Efficiency Australia Energy Minimum Asset Rating Unknown 1999 Time of Listing Rating (EER) 1- Standards (GEMS) 10 stars Legislation

Energy European Performance of New and Time of Sale Asset Rating Unknown 2006 Union Buildings Directive Existing Home upon request (EPBD)

Figure 11: Examples of Energy Rating and Disclosure Globally

5.4.14 Denmark

As one of the first countries in the world to adopt a mandatory energy labeling policy, in 1997 Denmark began requiring all buildings (new, existing, residential, commercial, and public) to obtain and disclose a “Specific Energy Label Certificate,” or energy performance rating. For residential buildings (less than 16,000 square feet), the energy evaluation was performed at

time of sale, by an energy consultant using energy modeling software. In order to be accredited, Energy Consultants must hold either an engineering or architecture degree. Evaluation of this program has revealed that limited enforcement has resulted in low compliance and awareness rates of roughly 50% (Dunsky, Lindberg, Piyale-Sheard, & Faesy, 2009).

5.4.15 Australia

Beginning in 1999 in the Australian Capital Territory (ACT), sellers of residential properties were required to provide an Energy Efficiency Rating (EER) to all potential buyers at time of listing. Once a sale is made a certificate is provided to the buyers which include the EER as well as a list of improvement recommendation for the home. The rating system is a 0-10 star rating with 10 stars being the most energy efficient. This rating looks at thermal performance only, not mechanical equipment. In evaluation of home sales in Australia in 2005 revealed that a higher EER resulted in a higher house sales price by 1.23% for each 0.5 EER star (Cluett & Amann, Residential Energy Use Disclosure: A Review of Existing Policies, 2013).

Since 2010, the building Code of Australia now requires all new homes to achieve a minimum rating of 6 stars using the Nationwide House Energy Rating Scheme (NatHERS)

5.4.16 European Union

All European Union members were required to translate the Energy Performance of Buildings Directive (EPBD) into a law by January 2006, with laws going into effect by January 2009. The Directive requires each state to develop an Energy Performance Certificate (EPC) which must include both a list of cost effective improvements, and a way to compare the energy use to similar buildings.

In the United Kingdom homes are rated on a scale from “A” to “G,” with “A” being the most efficient. These labels are provided to buyers upon request, and must be listed on all advertising materials. EPC can be accessed on a central website along with a listing of accredited Raters.

The Netherlands is using a similar rating scale, with some added granularity. Here “A++” is the most efficient, and “G” the least efficient home. This system uses a combination of an asset score and utility bill information. Early analysis of this program revealed low participation rates that were linked to “uncertainty regarding the consistency and reliability of the label” from consumers and the real estate market (Cluett & Amann, Residential Energy Use Disclosure: A Review of Existing Policies, 2013). This highlights the importance of a trusted rating system and stakeholder buy-in.

6 Other Considerations

When developing an appropriate rating disclosure program, it is important to consider how it fits into the current market and environment. For example who is using this information and in what form is it most useful for them to receive it? Are homeowners primarily interested in a dollar representation? Is carbon footprint a significant motivator?

How will information and data be transferred and tracked, and what type of quality assurance is in place? Can the rating data easily flow to the MLS? Is there a central database? Are other programs already capturing this information? In this section we take a look at some of these additional considerations.

6.1 Metrics

Figuring out which metrics to capture and display is a hot topic at current residential asset scoring program discussions. Finding a label or rating score that is meaningful to all parties (realtors, assessors, home buyers, etc.) is crucial to program success.

6.1.1 Source vs. Site Energy

Site energy is the usage as measured at the meter in the building. Source energy on the other hand, includes all energy used to create and distribute the energy to the site. Another way to think of source energy is including where the energy came from (e.g. New York, Canada, etc.) as well as what form it was in (ex. Wind, coal, oil) before it arrived on site. It takes into account transmission losses or the efficiency of creating that form of energy. For example, electricity use measured at the home (site energy) does not include the raw energy used to create the electricity in the first place. Using site energy, it is hard to compare the impacts of different fuels on costs or climate. The inefficiencies involved in producing and distributing electricity are significant, but electric heat and appliances are nearly 100% efficient at transferring heat within the home. Source energy inputs for electricity include coal, natural gas, nuclear, and various renewable options. These are used to generate electricity that is transmitted to homes, where further losses occur. When we create electrical power, we throw away approximately 2/3 of the power.

Figure 12: Pathway of Site Energy at a home from its source of natural resources

Source energy tends to better reflect energy cost, because it captures the total energy required to deliver usable energy. Ratings are not typically based on cost since cost is highly variable across time and geography. A cost calculation might be done at a specific point in time using the energy usage predicted in rating result but cost will not be used to determine a rating score. On the other hand, cost tends to be most meaningful to potential buyers and homeowners who are interested in monthly operating costs of the home. Some Ratings systems allow easy conversion or estimation of a monthly utility cost by plugging in local fuel rates.

6.1.2 Public Understanding

Everyone has an opinion on what homebuyers and sellers will understand or find helpful. It is important to remember just how overloaded potential homebuyers are with information. Can they relate better to an alphabetic scoring A-F or a detailed numeric scale? Do they primarily care about dollar cost estimations or does a score allow for easier comparisons?

There have been formal studies of consumer reaction to scoring strategies in the last couple years. The Vermont Public Service Department conducted considerable consumer research on reaction to various labels. Feedback included the type of graphical presentation of the score (a wedge was preferred), the orientation of the graphic (0 on the left), and preference for the use of a more detailed scale over a less granular scale. Many homeowners are interested in seeing where they rank on a regional or national scale. Fuel mix and estimated costs were also considered valuable. Participants in the survey also thought that the use of a nationally recognized rating system added credibility.

6.1.3 Variations on Converting Energy Use into a Score

Different rating approaches use different methods to convert a predicted or normalized energy use into a score. Most rating systems that have a fixed scoring range (1-10 or 1-100 for example) use a statistical distribution to create the score, fitting usages into bins. For example, a change in use of X Btus will not necessarily produce the same score if the rating score distribution is based on statistical distribution of usages instead of a direct linear conversion of energy usage into a score.

The DOE Home Energy Score uses a statistical distribution to produce its score, as does the EPA Portfolio Manager. Because the bins are bunched towards the middle to support more change in score for typical homes, a greater change in energy usage at the low and high ends of the score produces less change in the score. This further reduces the usefulness of the DOE Home Energy Score for new construction.

RESNET uses a comparison between two houses that use similar systems but with no upper limit on the score. This approach is similar to how code compliance is calculated. This system allows more detail and differentiation at the low and high ends of the score, but requires collecting more data from the house.

Many of the local labels built on the DOE Home Energy Score use an absolute conversion from usage to a score. This means that a change in usage will always produce the same change in score no matter where the building starts on the scale.

Scores can also be adjusted for square footage of a home or left as an absolute value. RESNET HERS index adjusts for square footage whereas the DOE Home Energy Score (HES) does not. Not adjusting for square footage means the rating provides a stronger signal for potential cost and climate impacts. Adjusting for square footage (HERS Index) means that a large house can have the same rating as a smaller house as long as they have similar components. If size is not adjusted for (as in DOE HES), and other home characteristics and construction are equivalent, a larger house will score worse than a smaller one. Cost and climate change considerations are best served by a score that is not normalized by square footage. Cost considerations, such as differences in utility electricity and gas rates, and climate considerations, such as how the home would perform in different climate zones, can have a large impact on a rating if they are not accounted for or normalized.

6.1.5 Granularity

One of the key points requiring further analysis is the overlap between a Detailed Asset Rating and the Summary Asset Rating. This will be important to understand how to promote very efficient buildings with a score.

It is important to have a rating scale with enough points (e.g. 1-10 or 0-100) to provide sufficiently granular data to indicate the impact of

Figure 13: Home Energy Audit Granularity improvements on the score as upgrades are made. The more data points, the more opportunity for showing the savings with minor building tweaks, such as newer windows, or low flow water devices. A possible downside of too much granularity is the increased amount of time necessary to collect the data. In some situations more granularities are necessary to show detailed levels of performance variations. This is true for Passive House, LEED, or ENERGY STAR certifications. Other times, this level of detail does not provide any additional value for the level of effort required. An un-insulated old leaky farmhouse doesn’t need a detailed assessment to understand where the big opportunities for improvement are. The graph to the left shows the relationship between accuracy and expense with increasing granularity of ratings systems (Glickman, Bourassa, Rainer, & Mills, 2012), (Fairey, 2010).

6.1.6 Aggregating and Managing Rating Data

Management of rating quality and communication of rating results to the homebuyer and real estate community requires aggregation of ratings. A range of mechanisms exist.

One such mechanism, HPXML, developed by the Home Performance Coalition, is designed to make it easier and more cost-effective to collect and transfer data among stakeholders.

If multiple Rating systems are used, then the information needs to be translated into a meaningful comparison across all homes. The Missouri program that is using both HERS Index and DOE HES ratings admits that “it is cost prohibitive to reasonably compare two homes to one another scored with different tools” (Missouri Home Energy Certification

Program Guidelines February, 2015, 2015). In this program, hitting a certain threshold within each rating system results in a “Gold Certificate,” allowing the public to easily group or compare homes.

RESNET has a rating registry for recording ratings and is putting in place simple analytical checks on data submitted.

DOE, through the use of a central calculation engine, has all the data for all the Home Energy Score ratings conducted, even those generated by other tools using the web service connection to Home Energy Score. DOE requires the Quality Assurance (QA) providers to review the quality of these ratings.

DOE has created the open source SEED database to support the management of energy data, especially benchmarking and rating data used as part of local government energy efficiency mandates. PSD has been selected by DOE as one of five firms nationally to support the SEED database. NYSERDA is supporting the testing of SEED for connection to the MLS in Tompkins County and for other uses statewide. SEED could be used to store ratings locally before a home is entered into the MLS system for sale. SEED could also support ratings on building that are being sold by homeowners outside of the MLS system.

PSD is a QA Provider under RESNET and could become a QA provider under DOE Home Energy Score. PSD's Compass tool can import and analyze files from DOE Home Energy Score tools and from the REMRate software tool that is the most common software used for RESNET Ratings. Compass will be connected to SEED for the NYSERDA funded Tompkins County DOE HES Ratings Pilot.

6.1.7 MLS and Appraisal

From Residential Energy Use Disclosure: A Guide for Policy Makers:

“Residential energy rating and disclosure is a promising low cost policy option that can help increase consumer transparency about the costs associated with operating a home, promoting more sound purchasing decisions in a post-mortgage crisis environment. Also, by quantifying building energy use, these policies can inform future policy and program efforts to reduce building energy consumption and track progress toward achieving community- wide climate and/or energy targets” (Cluett & Ribiero, 2014).

Appraisal Institute’s Green and Energy Efficient Addendum offer a standardized list of green and energy efficient features. A simplified list with an excellent set of definitions has been created by the Tompkins County Board of REALTORS.

6.2 Market Integration

6.2.8 Code Compliance

Some rating tools, particularly the RESNET HERS Index, are now being accepted for code compliance. The 2015 International Energy Conservation Code (IECC) contains an Energy Rating Index (ERI) alternative option for code compliance. The RESNET HERS Index is seen as the primary system to meet the ERI requirements. The IECC is a national model code, with States and local jurisdictions allowed to alter the provisions to meet local conditions. Very recently, on March 1, 2015, Vermont became the first state to adopt the 2015 IECC Energy Rating Index option (RESNET, 2015).

Some states are using an optional “Stretch Energy Code” to incorporate an asset rating option to obtain code compliance. An example of this is in Massachusetts where the majority of the municipalities have adopted a Stretch Code. The Stretch Energy Code, if adopted by a municipality, affects the design and construction of new residential buildings of 3 stories or less, and portions of existing residential buildings undergoing renovation or addition. New homes built under the stretch code must have a HERS Rating in order to obtain the certificate of occupancy. “For new homes greater than 3,000 ft2 in size the maximum HERS score is 65 (similar but not identical to Energy Star Tier 2), for smaller homes less than 3,000 ft2 the maximum HERS score is 70.” (Stretch Appendix to the Building Energy Code in Massachusetts, 2001)

Below is a map showing municipalities in Massachusetts that had adopted the stretch code as of October 2014.

Figure 14: Map of municipalities using the Stretch Code in Massachusets

In New York State, “In an effort to ‘out green’ each other, 10 out of the 13 towns in Nassau and Suffolk Counties on Long Island, NY between 2007-2009 adopted ENERGY STAR

Homes as code. With v3 of ENERGY STAR Homes, towns are moving to adopt ‘Home Energy Rating Index’ laws, based on a HERS rating, not ENERGY STAR” (Faesy & Finlayson, Accelerating Energy Efficiency in the New Construction Market with Stretch Codes, 2012)

6.2.9 Transaction costs by rating type

The cost of generating the rating is key to the wide spread use of the rating. Collecting just enough information to affect change is essential to controlling costs. Aligning the rating with existing activities is another important way to reduce costs. The result is that the cost for delivery of ratings varies widely depending on integration with other activities such as home inspection or an energy retrofit. A more expensive rating may be better suited for when a more detailed analysis is required. In high efficiency new homes during design, much or all of a house can be changed to improve performance. A very detailed rating at this point is useful at making design decisions. Post construction this type of rating is critical to show compliance with a high efficiency label like the ENERGY STAR for homes label.

6.2.10 Quality Assurance

There are typically two levels of rating quality assurance. The first level is the review of data submitted for gross errors and inconsistencies. The second level is random field inspection. Both RESNET and DOE HES require both levels of QA. The percentage of field QA is a cost factor in the price of a rating. Energy efficiency programs that award incentives often require higher rates of field QA than required by the rating entity.

6.2.11 Low-income impacts

The impact of a rating mandate on low-income homeowners is an important consideration. Low-income homeowners typically live in higher energy use homes and pay a higher percentage of their income to energy suppliers. A poor energy rating score can potentially reduce the value of their home. On the other hand, homes that have been upgraded by various energy programs, and or the occupant, potentially could be valued higher with a score that captures those improvements in a better than average score.

Options to mitigate this concern could include increased local support for improvements to low-income buildings. Ithaca Neighborhood Housing Services and Better Housing for Tompkins County have had successful loan programs. Tompkins Community Action provides local weatherization services. Outreach to these local groups will provide important input.

The impact of ratings on rental housing is different from the impact on low-income homeowners. A score on a rental house could provide prospective tenants of low-income buildings with clearer understanding of potentially high energy bills. The motivation would then be on the landlord to improve the score by conducting retrofits. Public education on ratings across low-income communities would be key to realizing this impact.

6.2.12 Work Completion Certificates

Work completion certificates attempt to capture the value of individual energy efficient improvements made to a house and communicate that to potential purchasers. BPI and the Home Performance with ENERGY STAR program have both created standard certificates. Because the information varies widely house to house this information does not easily support comparisons across houses. In contrast a home energy rating provides a single number as a normalized representation of the energy performance value of the improvements allowing for easier cross building comparisons. For example a homebuyer could search for homes with a rating better than X. Work completion certificates can still be provided as uploaded documents showing age of equipment and efficient features but the content of the certificate cannot be used in MLS search criteria.

6.2.13 Software

The type, expense, and accessibility of software required to generate a rating or label are important considerations. RESNET approves software that meets their credentialing requirements. Currently, single software, REMRate, does most of the energy rating for RESNET HERS nationally. This is desktop-based software only available to certify HERS Raters. It is a desktop tool, currently moving to an online platform.

The DOE Home Energy Score is generated with a free online tool, by a qualified verifier. A range of third party tools are emerging that use an application programming interface to connect to the DOE calculation engine. These third party tools might be used for conducting an energy audit or a home inspection. This data can be also be used to submit for an energy rating. Adoption of the national HPXML data standard for energy retrofits is rapidly increasing the number of energy audit tools that can produce a DOE HES score. The HPXML data standard is also being mapped to the data standard for the national MLS systems. Additional information is available on the ENERGY STAR website.

Figure 15: Flow of Rating Data to different Agencies

6.2.14 Incorporation with other labels/certifications

RESNET ratings are approved by HUD/FHA and the Mortgage Bankers Association for use in energy efficient mortgages. RESNET approved software is also referenced in some proposed federal legislation on energy incentives. Energy efficient mortgages are not currently widespread, likely because of lack of awareness and of complications in their use.

Labels are awarded by various sponsors for meeting certain construction goals beyond just energy usage. EPA ENERGY STAR is such a label. If a home meets the required thresholds and quality standards, then it gets the label. These labels are generally binary (you get it or you don't) or tiered (e.g. LEED Gold, Silver, or Platinum). A RESNET Rating is currently required for ENERGY STAR, LEED, Indoor airPLUS, DOE Zero-Energy Ready Home, and the Passive House labels. DOE Home Energy Score ratings are gaining increasing acceptance with FHA and other lenders.

7 Conclusion

After looking at numerous evaluations of existing energy disclosure programs, the following are the key recommendations for programs to be most effective:

1. Engage with local real estate agents, and other stakeholders; 2. Create consistent targeted outreach via public communication, education, and marketing; 3. Rely on existing nationally recognized rating system, which ensures QA; 4. Disclose before or at time of listing to allow homeowners and buyers to use the information more effectively; 5. Link participants to appropriate resources to drive efficiency (contractors, incentive programs, DIY); 6. Create a strong implementation plan for confirming compliance and enforcement; 7. Have a quality assurance process in place; 8. Create a written plan for evaluating and updating the program.

There are great advantages to using an existing, nationally recognized, asset rating system for a disclosure program. This allows for third party QA, and better incorporation with other existing labels, programs, and code. Two current national rating models are already in place and widely used: The HERS Index and the DOE HES.

8 Bibliography

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