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Residential Energy Conservation

July 1979

NTIS order #PB-298410


Library of Congress Catalog Card Number 79-600103

For sale by the Superintendent of Documents, U.S. Government Printing Office


Washington, D.C. 20402 Stock No. 052-003 -00691-0
Foreword
This report is the result of a request from the Technology Assessment Board
that the Office of Technology Assessment (OTA) analyze the potential for conserv-
ing energy in homes in terms of energy and costs. The report reviews existing and
promising technologies, and a broad set of issues affecting why these technologies
are or are not used, how their level of use and effectiveness can be improved, and
related Federal programs and policies.
The choices Congress makes in framing energy conservation policy reflect soci-
ety’s views of the present and the future, its concept of the appropriate role of Gov-
ernment, and its sense of urgency about the changing energy picture. The diverse
nature of residential housing in this country, the many decisions involved in plan-
ning, building, buying, and operating a home, and the basic desire of consumers to
be allowed the maximum freedom of choice– all of these factors make policy deci-
sions in this area difficult.
This study focuses on the demand aspect of residential energy use, specifically
those functions that consume most of a home energy budget— fuel to heat and cool
space and to heat water. A number of related issues are relevant to this topic but go
beyond the scope of the study: land use patterns, transportation habits, protection
of residential customers as purchasers of certain types of energy, centralized versus
decentralized power sources, and cogeneration. While these issues are important,
this study deals only with ways to improve energy efficiency within the 80 million
existing housing units and in housing to be constructed over the next two decades.
Active solar systems are not included, because of the recent publication of OTA’s
Application of Solar Technology to Today’s Energy Needs.
Conservation as discussed in this analysis is the substitution of capital, labor,
and ingenuity for energy, in the form of products that make a home more energy
efficient. This definition relies on making productive investments that provide the
same level of comfort and convenience with less energy. Homeowners and renters
who also choose to change their styles of living could achieve savings beyond those
resulting from conservation technologies alone. This is a conservative definition of
conservation that does not treat ethical arguments or other areas of debate.
Although based on the technology of energy conservation, the report also addresses
human factors that play such a major role in shaping energy consumption. Choices
open to builders, designers, suppliers, local and State officials, lenders, utilities,
owners, renters, and others are examined Thus, this work attempts to address com-
prehensively a problem that at first appears simple, but proves to contain many eco-
nomic, behavioral, and motivational variables, many technical and human un-
knowns, and many possible policy paths.
As this report goes to the 96th Congress, the problems generated by an altered
energy supply situation are clear and dramatic. I n addition to broad policy ques-
tions such as the contribution that conservation can make and the choice between
types of policy approaches, very specific questions—such as standards for new
housing–face the Nation. I believe this report can assist Congress in dealing with
these vital issues.

DANIEL DE SIMONE
Acting Director
iii
Residential Energy Conservation Staff

Lionel S. Johns, Assistant Director


Energy, Materials, and Global Security Division
Richard E. Rowberg, Energy Group Manager
Nancy Carson Naismith, Project Director
David Claridge Steve Plotkin Joanne Seder
Pamela Baldwin Doreen McGirr
Richard Thoreson John Furber Rosaleen Sutton
Lisa Jacobson Lillian Quigg

Contractors and Consultants

Booz, Allen & Hamilton John Bell John Murray McCombs


Consumer Federation of America Richard Bourbon Joseph Mohbat
Design Alternatives Robert D. Brenner Lee Stephenson
Malcolm Lewis Associates Robert Dubinsky Robert Theobald
NAHB Research Foundation Dennis Eisen
Oak Ridge National Laboratory Frederick Goldstein
Technology & Economics C. Alexander Hewes, J r

OTA Publishing Staff

John C. Holmes, Publishing Officer


Kathie S. Boss Joanne Heming
Residential Energy Conservation Advisory Panel

John H. Gibbons, Chairman


Director, Environment Center, University of Tennessee

John Richards Andrews William Konyha


Architect First General Vice President
United Brotherhood of Joiners &
Robert E. Ashburn Carpenters
Manager, Economic Research Department
Long Island Lighting Company W. B. Moore
Vice President Operations/Marketing
Edward Berlin Gulf Reston, Inc.
Leva, Hawes, Symington & Oppenheimer
Donald Navarre
Ellen Berman Vice president, Marketing
Executive Director Washington Natural Gas Company
Consumer Energy Council of America
Harold Olin
Joel Darmstadter Director of Construction Research
Senior Fellow U.S. League of Savings Association
Resources for the Future
David Rickelton
Sherman B. Given Consulting Engineer
President
Morley Construction Company Andy Sansom
Energy Institute
Donald Holtzman University of Houston
President
Holtzman Petroleum Company Samuel Stewart
Car/son Companies, Inc.

Grant P. Thompson
Senior Associate
The Conservation Foundation
Reviewers and Friends

OTA thanks these people who took time to provide information or review part or all of the
study.
Robert Naismith Lee Schipper
Atlantic Research Corporation Lawrence Berkeley Laboratory

Alan Ackerman, Energyworks, Massachusetts


George Amaroli, Public Utility Commission, State of California
Carl Bernstein, Lawrence Berkeley Laboratory
Ed Bistany, Office of Energy Resources, State of Georgia
Ken Bossong, Center for Science in the Public Interest
Mary Love Cooper, Legislative Counsel Bureau, State of Nevada
Alan S. Davis, National Consumer Law Center
Gary DeLoss, Environmental Policy Center
Bruce Hannon, University of IIIinois
Craig Hollowell, Lawrence Berkeley Laboratory
Betsy Krieg, Lawrence Berkeley Laboratory
Sally Cook Lopreato, University of Texas
Ed Meyer, Office of Energy Resources, State of Georgia
Harvey Michaels, Energy Office, State of Massachusetts
David Norris, Energy Task Force, New York City
EIliott Wardlaw, Energy Management Office, State of South Carolina
Edith Woodbury, Woodward East, Detroit
Contents
Volume I
Chapter Page
Executive Summary.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1. Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Il. Residential Energy Use and Efficiency Strategies . . . . . . . . . . . . . . 29

Ill. The Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Iv. Low-lncome Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

v. Housing Decisionmakers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

VI. Utilities and Fuel Oil Distributors . . . . . . . . . . . . . . . . . . . . . . . . . . 119

VIl. States and Localities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

Vlll. Federal Government and Energy Conservation . . . . . . . . . . . . . . . . . . 167

lx. Economic Impacts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211

x. Indoor Air Quality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

xl. Technical Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227

Appendix A–lnsuIation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277


Appendix B–Thermal Characteristics of Single-Family Detached, Single-
FamilyAttached, Low-Rise Multifamily, and Mobile
Homes–1975-76. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
Appendix C– Thermal Characteristics of Homes Built in 1974, 1973, and 1961 . 322

Volume ll—Working Papers


(These working papers will be available from the National Technical Information Service.
PIease contact the OTA Public Affairs Office for details)

1. Low-Income Consumers’ Energy Problems and the Federal


Government’s Response: A Discussion Paper–prepared by
Consumer Federation of America
Il. Description and Evaluation of New Residential Energy
Efficient Technologies—prepared by Technology &
Economics

vii
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY

Page

n Residential Energy Consumption , . . . . . . . . . . . . . 4


-Residential Energy Prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consumer Attitudes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Low-lncome Consumers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Existing Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Building Industry Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Affordability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Design Opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
States and Localities.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
lndoor Air Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Federal Conservation Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Housing Standards. .. . . . . . . . . . . . . :... . . . . . . . . . . . . . . . . . 13
Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Tax Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Federal Housing Programs . . . . . . . . . . . . . . . . . . . . . . . . . . 14

FIGURES

Page

I. Comparative Energy Use Projections. .,.... . . . . . . . . . . . . . . . . . 6


Executive Summary

Americans are responding to a changed amines the underlying problems and what to
energy situation by rapidly curtailing the direct do about them.
use of energy in their homes. The patterns of
energy use established by households in the Following this section, the study’s major
1960’s have changed dramatically, Residential findings are presented. They lead to these con-
energy use, which grew at a rate of 4.6 percent clusions, among others:
per year during the 1960’s, has grown at an
average annual rate of 2.6 percent since 1970. 1. Analysis of data on price and consump-
In 1977, Americans used 17 quadrillion Btu* tion, combined with research on consum-
(Quads) of energy in their homes, 22 percent of er motivation, indicates that the desire to
the total national energy use. Had the growth save money is the principal motivation for
rate of the 1960’s continued, the Nation wouId changes in energy habits (turning down
have used an additional 2.5 Quads–equiva- the thermostat at night) and investment in
Ient to 430 million barrels of oil – in 1977. conservation (purchasing insulation or
having the furnace improved). This report
As impressive as these figures are, they can
outlines the approximate level of energy
be better. Savings of more than 50 percent in
savings that might result from investments
average use by households, compared to the
up to the point where dolIar savings over
early 1970’s, are already being achieved in
the life of the investment are greatest. If it
some new homes, and experiments with exist-
is national policy to encourage energy
ing homes indicate that similar reductions in
savings beyond this point—for example,
heating requirements can be realized through
to the point where investments in energy
retrofit. These savings can be achieved with ex-
savings provide smaller economic return
isting technology, with no change in lifestyle
but greater energy savings– additional in-
or comfort— and with substantial dolIar sav-
centives would be required. The differ-
ings to homeowners. However, more sophisti-
ence between these two points is substan-
cated design, quality construction, and careful
tial in energy terms, because once a dwell-
home operation and maintenance will be re-
ing is efficient, costs of operation are
quired.
relatively insensitive to energy prices.
For the residential sector as a whole, the Such a shift would be analogous to the
potential energy savings can be seen in standards set in 1975 to improve energy
another way. If the trend of the 197o’s were to performance of new cars. In addition to
continue for the balance of the century, the price or economic incentives, regulation
residential sector would use about 31 Quads of could also increase energy savings.
energy in 2000. But if investments were made 2. One of the principal ways to improve en-
in home energy conservation technologies up ergy use Iies in the area of information
to the point where each investor received the and technology transfer. Those who actu-
highest possible dollar savings (in fuel costs) ally implement policy need more training.
over the investment’s life, energy use in the Policy may be made in Washington, but is
year 2000 would be reduced to between 15 and carried out by tradespersons, builders,
22 Quads, depending on the price of energy. local code inspectors, loan officers, ap-
The cumulative savings between now and 2000 praisers, energy auditors, heating techni-
compared to the 1970’s trend would be equiv- cians, State and local officials, do-it-
alent to between 19 biIIion and 29 billion bar- yourselfers — literally thousands of indi-
rels of oil. Despite the sound economic reasons viduals. The essentially human nature of
for achieving these savings, there are reasons the effort is both a strength and a weak-
why they may not be reached. This report ex- ness — many are willing to take some ac-
tion, but there are many obstacles to
*A Quad = 1 quadrillion Btu = 1.055 exajoule (E J). perfect performance.

3
4 . Residential Energy conservation

3. The diversity of the housing stock, num- and localities, the utilities, and Government
ber of persons involved, requirements for programs.
technology transfer, and product avail-
ability all argue for careful pacing of Fed-
Trends in Residential Energy
eral policy, based on setting goals over at
least a decade. For example, short-term Consumption
programs, aimed at one particular solu- The decade of the 1970’s has brought signifi-
tion, appear to constrain the market and cant changes in the historical patterns of
may not encourage optimal solutions. growth in energy consumption in the residen-
This is particularly true of programs tial sector. Earlier, Americans as a group were
aimed at the existing housing stock. Antic- increasing their use of energy in the home at an
ipation of the tax credit for insulation average rate of 4.7 percent per year; in the
caused increased prices and spot short- 1970’s, the annual growth rate has averaged 2.6
ages and may not have produced substan- percent. Moreover, the remaining growth is at-
tial insulation beyond what would have tributable primarily to a growth in the number
occurred in any event. Another reason for of households; the amount of energy used in
deliberate policymaking is that knowl- each household has remained almost constant
edge of the nature of a house as an energy between 1970 and 1977. In 1970, 63.5 million
system is imperfect. Although a good deal households collectively used 14 quadrillion
is already known about saving energy, Btu of energy (Quads) or about 230 million Btu
more remains to be learned. Because apiece. (A Quad is equivalent to 500,000 bar-
choices will vary with climate, local re- rels of oil per day for 1 year—or the annual
sources need to be developed; these re- energy required for the operation of eighteen
sources will include both trained person- 1,000-MW powerplants–or 50 million tons of
nel and improved data. coal. )

Policy choices will reflect the goals for sav- In 1977, residential use of energy accounted
ings and costs. If the current trajectory is ap- for 22 percent of total energy consumption,
propriate, present programs appear to be ade- totaling 17 Quads. By comparison, the com-
quate in number and range. A lower growth mercial sector in 1977 used 11 Quads (1 4.5 per-
rate can probably be accomplished by vigor- cent of total), transportation accounted for 20
ous congressional oversight, some administra- Quads (26 percent), and industry used 28
tive adjustments, review and fine-tuning of Quads (37 percent). Total 1977 U.S. energy use
program operation, and improved information was 76 Quads.
efforts. If the sector is already moving fast
enough, less emphasis could be placed on resi- Many factors have contributed to the
dential energy use. In order to move much slowed growth in residential energy use in this
more rapidly, stronger measures wiII be re- decade. Among them are energy price in-
quired. A great deal of energy could be saved creases, economic fluctuations, demographic
in homes above present levels; these savings trends, the OPEC embargo, and consumers’ re-
would stilI be cost-effective to the consumer. sponses to rising awareness of energy. Demon-
A stronger program approach might reflect na- strating a precise cause-and-effect relationship
tional security goals and a high return on the between any one of these factors and the
housing dollar. lower growth rate is statistically impossible.
Fortunately, isolating and quantifying the con-
The following sections consider the trends il- tribution of each factor is probably of limited
lustrated by this volume and the major factors utiIity to policymaking.
affecting residential energy use and conserva-
tion: price, consumer attitudes, the poor, ex- The rapidity of the slowdown suggests that
isting housing stock, building industry re- actions taken to reduce consumption so far are
sponse, design opportunities, the role of States primarily changes in the ways people use their
Executive Summary ● 5

existing energy equipment — e.g., turning down would be 24 Quads. This trend wouId represent
thermostats and insulating. A longer time an annual growth rate of 1.6 percent, which is
frame is normally required to bring about the household formation rate projected by the
widespread replacement or improvement of Oak Ridge National Laboratory housing
capital stock, including heating equipment model. This modest decline from 1970-77
and housing units. trends would appear to be relatively easy to
achieve under current laws and programs (with
No one can say with certainty whether the improvements in their implementation in some
residential energy growth rate will stabilize at cases) and without sacrificing personal com-
today’s rate, drop still further, or creep back fort, freedom, or social goals that require in-
up toward earlier trends. Countervailing forces creases in energy consumption for those at the
could work in either direction. The current low end of the economic spectrum. Much of
demographic trend toward slower population the decline could be accomplished through re-
growth is expected to continue for the near placement of capital stock and construction of
term, but household formation rates are likely smaller, more efficient housing units to ac-
to exceed population growth rates. Energy use commodate new households.
in the residential sector can be expected to
grow faster than population as long as new An even lower consumption Ievel in 2000
households are forming at a higher rate, could be achieved through an optimal eco-
although construction of highly efficient new nomic response — one in which all residential
housing would alter that presumption. consumers made the maximum investment in
conservation technologies that they could
On the other hand, if energy prices continue
justify through paybacks in reduced energy
to rise, greater investments in conservation
costs over the remaining Iives of their dwelling
(energy productivity) measures will become
units. Such responses would depend on the
cost-effective for consumers. Moreover, while
levels of energy prices over the next two
there will be more households, each is likely to
decades. Using a range of plausible energy
be smaller; having fewer people at home gen-
prices, possible residential energy consump-
erally means smaller dwelling units and lower
tion levels were projected to be between 15
levels of energy consumption in each home.
and 22 Quads in 2000, based on optimal eco-
Very few experts believe that residential ener-
nomic response. Few observers expect the
gy growth rates will ever again approach the lower end of the range to be achieved even
very high pre-1970 rates.
using the highest price assumptions, because
If residential energy use were to continue of imperfections in the marketplace. Circum-
growing by 2.6 percent annually until the year stances requiring especially vigorous public
2000, total residential consumption in that policies could create additional incentives to
year would approximate 31 Quads. This is con- consumers to approach this level of savings.
siderably lower than the 48 Quads American
The middle ground between the 1970’s trend
homes would consume in 2000 if growth pat-
and the optimal economic response trend is
terns of the 1960’s had continued. Yet actual
seen by many as a reasonable public policy
consumption in 2000 might be even lower than
target. Measuring our progress toward this con-
31 Quads, driven down by rising prices and a
servative goal would be relatively easy; each
number of other factors, including improved
year, the goal would be to maintain constant
design and technology as well as evolving con-
national average energy consumption per
sumer awareness of the economic benefits of
household by keeping the growth in residential
conservation.
energy use to a rate determined by the house-
If residential energy growth were to match hold formation rate. This target appears to be
the rate of household formation — that is, if the manageable within our current social, politi-
energy consumption per household were to re- cal, and economic situation. This option would
main constant between now and 2000—total not involve sacrifice, because it would allow
residential sector consumption in that year for a constantly improved level of residential
6 ● Residential Energy Conservation

amenities that can be achieved by means of while the growth slowdown of the 1 97o’s has
improved energy productivity (less energy per concurred with a rise in real prices. The in-
unit of amenity provided). Some critics will crease in energy prices has been especially
view this goal as too easy, too modest; con- marked since 1974, when the embargo reached
sidering depletion of nonrenewable resources, its peak and the Arab oil cartel began a quin-
maximum return on housing dollars, environ- tupling of oil prices. The OPEC nations’ recent
mental quality, and the national security im- decision to raise oil prices in 1979 and other
plications of our oil imports. (Comparative Middle East developments can be expected to
energy use projections showing these Quad affect U.S. energy consumption patterns fur-
levels appear graphically in figure 1.) ther
For the residential consumer, the 1970’s
Figure 1 .—Comparative Energy Use Projections
(Residential sector) have already brought a 65-percent rise in home
oil-heating bills, a 37-percent increase in the
Quads natural gas bill, and a 25-percent rise in the
50
electricity biII (in constant 1976 dolIars). I n cur-
rent dollars, the increases have been far more
40
dramatic Even so, price controls on oil, aver-
age costing of electricity, and Government reg-
ulation of natural gas prices at the wellhead
30
have resulted in subsidized retail prices that
fail to reflect the full replacement cost of oil,
gas, and electricity generated from either nu-
20
clear or fossiI fuels.
It is important that energy prices represent
true replacement costs whether this is higher
10 or lower than current energy prices. It is only
under this circumstance that consumers have a
correct signal to use in determining how much
0 to invest in conservation if they are to achieve
1970 1975 1980 1985 1990 1995 2000
maximum dollar savings. Furthermore, if soci-
Year
ety decides that information on items such as
A— Residential consumption based on simple ex- environmental damage, resource depletion,
trapolation of 1970-77 trend.
B— Residential consumption based on simple ex- and reliance on foreign oil would not be accu-
trapolation of 1960-70 trend. rately given by normal market forces, than it is
C – Residential consumption based on constant level of possible to adjust the replacement cost ac-
energy use per household; growth results from in- cordingly or to provide equivalent financial in-
crease in number of households.
D-E – Range of “optimal economic response” based on centives. I n any case, since dollar savings are
assumption that energy saving devices are installed as the principal motivation for energy conserva-
they become cost-effective. Range is formed by price; tion, it is important that conservation policy be
upper boundary represents response to lowest pro-
jected price, lower boundary represents response to concerned with energy prices.
highest projected price.
Price increases clearly mean less disposable
NOTES: These curves are not given as predictions of the future, but as points of
comparison for discussion See chapter I for detailed information. income for consumers. Stretching the avail-
For SI users. Quads can be substituted using exajoule (EJ) on this able resources through higher productivity of
figure within the accuracy of the calculations. One Quad ~ 1 EJ.
energy use is a less costly approach than devel-
Residential Energy Prices oping new supplies. Improving energy produc-
tivity in household use helps to counter the in-
Rising energy prices appear primarily re- flationary impact of rising costs. A number of
sponsible for reduced residential consumption policy responses are possible between holding
in recent years. Rapid growth in the 1960’s ac- prices steady or allowing them to rise directly
companied a decline in real energy prices, in response to costs; these include matching
price increases with income subsidies for all or It is unreasonable to expect that consumers
some portion of the population, using taxes to will make major housing or behavioral choices
protect against windfall profits, and other based on energy alone. Having adequate space
strategies. Price-based policy will be unaccept- for a growing family, being near schools and
able to those who believe that consumers can- shops, feeling certain that a home is warm
not withstand higher costs, or who believe that enough to ensure health and comfort—these,
price increases do not reflect true scarcity or too, are important consumer values.
rising marginal costs.
Data on attitudes and behavior indicate that
Consumer Attitudes information programs that emphasize the
positive economic benefits of conservation are
The level of energy use in a given home is more likely to show results than those based
greatly influenced by the attitudes, choices,
on ethical urgency. Moreover, public state-
and behavior of its occupants, within a range ments or campaigns that link conservation and
circumscribed by the limitations of the struc- sacrifice, such as suggestions that conserva-
ture itself. Energy consumption in identical tion means residents should be cold in their
houses may vary by as much as a factor of two homes, may be ineffective, if not counter-
depending solely on these variables. productive.

Available research data indicate that con-


More research on actual household energy
sumer motivation to invest in conservation
use patterns, as welI as attitudes and behavior,
measures stems largely from a basic desire to
would improve the policy makers’ ability to
save money and resist rising prices. This is the
select successful motivational strategies.
prime concern of homeowners. Energy costs
are now about 15 percent of the average an-
nual cost of homeownership, and in the heat- Low-Income Consumers
ing and cooling season monthly payments may
approach the level of the mortgage payment. Although rising energy prices provide a
The dramatic increase in fuel costs, over the strong incentive for widespread conservation,
very low costs of the 1960’s and early 1970’s, they present special hardships for low-income
consumers who cannot absorb higher utility
has graphically demonstrated to residents that
reducing direct energy use is a wise invest- and fuel bills, and have Iittle access to invest-
ment capital. For the 37 million persons (17
ment. Early experiments in helping consumers
percent of the U.S. population) with household
to change their energy use patterns suggest
incomes at 125 percent of the poverty level or
that providing feedback, or quick response in-
formation on how much energy a home is below, utility costs typically consume between
using, helps people conserve. Experiments with 15 and 30 percent of the family budget.
special meters, report card billing by utilities
(bills that compare use for a month compared Some low-income families spend as much as
to the same month last year), and similar tech- half their budgets on energy in the heating sea-
niques are now underway. son, yet a significant portion of this heat is lost
because of substandard housing. Poor and
Consumers are frequently unsure about near-poor households in rented housing are
what changes are most effective. Knowledge handicapped with regard to energy, as they
about effective communication argues for im- usually do not control their heating systems or
proving local resources. Consumers have more their dwelling’s maintenance and improve-
ment.
trust in information from their locality or State
than from remote institutions. The information
provided by the Federal Government and by Efforts to relieve the energy-based economic
large oil companies is not well received. problems of the poor have taken two ap-
8 ● Residential Energy Conservation

preaches: first, providing home improvements Existing Housing


intended to reduce energy needs, and second,
providing financial assistance to meet energy Improving energy efficiency in existing hous-
bills. Neither approach has been totally satis- ing wiII be a principal area of policy emphasis
factory or adequately deployed. Although in the next decade, as most of the population
direct aid by “weatherization” appears highly wilI continue to be housed in the 80 million ex-
cost-effective in the long run, it is impossible isting units. Both the largest savings of energy
under current funding to reach more than 3 and the largest amount of protection against
percent of all eligible homes each year. Labor the impact of rising prices will come from “ret-
shortages and other programmatic problems rofitting” existing homes. owner-residents,
have also hampered the Federal weatheriza- rather than builders, are the principal audience
tion efforts, although the basic concept is both for this effort.
sound and popular. Because the poor frequent-
ly cannot reduce consumption and have no ac- Making homes use less energy without
cess to capital to improve their housing, Feder- lowering the level of comfort is not technically
al funds can cause energy savings that would difficult, but it requires careful attention to
not be achieved without such assistance, as the specific needs of the structure, quality
well as improved Iiving conditions. workmanship in improvements, and continuing
attention to the energy use patterns of the
Financial assistance for payment of utility residence. An audit by someone trained in
bills is more controversial. Questions about home energy use is necessary to identify the
this approach reflect a larger issue, which may optimal package of changes for a specific
be described as the “right to energy” doctrine. home. Data on the energy characteristics of
As energy is as necessary as decent housing, the existing stock are inadequate, and this
adequate nutrition, and medical care— al I of complicates policy formulation. While Federal
which the Government subsidizes to some ex- level efforts at data collection may be the
tent— consumer advocates have argued that a most effective, States and localities are in a
basic minimum quantity of energy should also better position to stimulate local conservation
be subsidized for low-income persons. So- efforts and to provide accurate technical in-
called “lifeline” utility rates are one means of formation and guidance to occupants. States
subsidizing energy; early experiences with such and localities, along with trade and profes-
rates suggest, however, that they may provide sional groups, wilI bear major responsibility for
neither conservation incentives nor adequate training and for improving the quality control
financial relief for many of the poor. of retrofit projects. Dissemination of technical
information by the Federal Government and
Federal work on appliance labeling and stand-
Other proposals include energy stamps and ards wiII underpin local efforts.
large programs of emergency financial aid,
legal aid for poor persons dealing with utilities
and fuel providers, and procedures to prevent I n addition to the savings available through
shutoff of heat and power because of nonpay- tightening the thermal shell of the building,
ment during winter months. These programs substantial energy savings can be obtained
meet social needs but do not provide resiliency through retrofit of the heating and cooling
to the problem. Because of a growing concern equipment, and through replacing the heating
among elected officials and the wider public and cooling devices with more efficient sys-
about the inabiIity of financial aid programs to tems.
address basic causes of poverty, weatheriza-
tion and broader housing programs designed Present tax credits will encourage retrofit,
to put all persons in decent homes may offer a although such credits may represent a substan-
better approach. Such a policy subsidizes tial revenue loss while not adding a large incre-
energy efficiency rather than price. ment of investment. (The Congressional Budg-
Executive Summary ● 9

et Office estimates that many persons who in- studs instead of the standard 4-inch studs. This
stall insulation, for example, would have done technique makes it easy to increase the
so without the credit. ) Grants and direct assist- amount of insulation in the walls, and the
ance, such as weatherization, are most respon- distance between the studs allows the change
sive to the needs of low-income persons. Home without economic penalty. Encouraging
improvement loans have not been attractive to change in the industry requires making eco-
those making changes to their homes costing nomic and technical determinations, judging
less than $1,000, but this could change if fuel what will work and what will save money, and
prices continue to rise and pressure to retrofit providing that information to the key actors at
is increased. the right time. Principal actors for the residen-
tial sector are:
As in the case of new housing, lending in-
stitutions that finance mortgage lending could 1. 100,000 builders, who make the basic
play a critical role. If lending institutions re- decisions to build in response to what
viewed energy costs of a home when consider- they perceive market demand to be,
ing a mortgage application, a total cost picture within the requirements of specific build-
would be made available to the prospective ing codes and available materials;
purchaser. Funds available to the buyer to
finance conservation investments through the 2. 21,000 lending institutions, which approve
mortgage would be amortized over a long peri- financing for both builders and buyers;
od and would bring down monthly operating and
costs. A more vigorous policy initiative would
require that existing housing be brought to a 3. homebuyers, who by their purchasing de-
specified standard of energy efficiency prior to cisions determine the demand for housing
sale, or prior to utiIity connection. of varying types and prices, and thus influ-
ence the perceptions and decisions of
builders and lenders.
Building Industry Response
Building standards and codes directly affect
The homebuilding industry appears to be re- new construction. The stringency of codes will
sponding to consumer demand, information, reflect the policymaker’s views of the abilities
and price and taking advantage of opportuni- of the industry and the urgency of the energy
ties to improve energy efficiency. Typical new situation. Performance standards, now being
construction already matches the preliminary drafted by the Federal Government, are
energy standards recently adopted by many needed to allow for flexibility and experimen-
States (ASH RAE 90-75 or Model Code levels). tation in construction. Application of per-
New building reflecting these standards is still formance standards in housing may be partic-
considerably below the level of energy effi- ularly delicate, because of problems of meth-
ciency indicated as cost-effective by OTA odology and the resources of builders. The
analysis. Tighter code requirements, combined average U.S. homebuilder constructs less than
with information targeted at builders and buy- 20 homes a year, does not use sophisticated ar-
ers, will help sustain and intensify the trend to chitects or engineers, and works in a highly
better homes. leveraged market. These builders may prefer a
simple code that can be easiIy followed by car-
Although the design and construction indus-
penters and laborers.
try is fragmented and generally cautious
toward major change, it can respond quickly I n addition to standards and codes, changes
and readily re-adapt its designs and methods in the economics of the market can encourage
once the economic and technical feasibility of energy conservation. Broad interpretation of
new housing features or construction tech- tax credits and use of tax incentives, particu-
niques are proven and accepted in the market- larly tax incentives provided directly to the
place. For example, many builders are now builder, will stimulate greater change in new
altering frame construction to utilize 6-inch housing.
10 ● Residential Energy Conservation

Affordability calculation that includes likely energy costs


would give buyers, and lenders, a more com-
Properly selected conservation choices will plete estimate of total costs and could encour-
lower utility’ costs and thus reduce the total age cost-cutting investments. Federal leverage
costs of homeownership and operation. The could be used to provide additional funding
possible effect of eliminating marginal buyers for conservation improvements at the time of
from the housing market must be weighed sale, subsidize downpayments or interest rates
against the consequences of encouraging these for energy-efficient homes, or deny mortgage
buyers to acquire homes that are likely to have funding to homes not meeting an energy stand-
substantial and rapidly increasing monthly ard. Federal and State energy agencies could
energy bilIs. As fuel costs continue to rise, a help lending institutions determine standards
broader view of “affordability” is necessary. appropriate to local conditions.
Better dissemination of information on cost-
effective opportunities and Iifecycle costs to
builders, equipment suppliers, lenders, and Design Opportunities
buyers may be a promising approach for in-
creasing conservation investments. Energy-conscious design is a paradox: once
the most ancient of the builders’ skills, it is
Energy conservation features often add to being rediscovered as a modern trend. Proper
the initial cost of homes. Builders and lenders orientation of the home on the lot, thoughtful
are cautious about decisions to increase pur- placing and sizing of the windows, and
chase costs, especially in Iight of dramatic in- planned-in natural ventilation combined with
creases in the price of housing in recent years. shading by eaves and trees produce houses
Slightly increased first costs mean that mar- that use astonishingly little energy. Even
ginal buyers may have to scale down their ex- though the ideas are as old as shelter itself,
pectations. First-time homebuyers who have modern materials and design techniques can
limited savings for downpayments are more af- adapt and improve the concepts for urban
fected by increased downpayments than are America. Such homes are neither expensive
previous owners who have an equity to invest. nor outlandishly designed, and need to be en-
On the other hand, a substantial amount of couraged by Government action. However,
energy can be saved without great expense— policy actions are difficult to develop because
typically $1,500 to $2,000--and without com- energy-conscious design is part of the fabric of
plicated or untried devices. Some of the most the building itself. Unlike discrete, technologi-
effective actions involve reducing air infiltra- cal add-ens, energy-conscious design features
tion through caulking and weatherstripping, in- cannot easily be listed in a tax regulation or
vestments in storm windows and insuIation, building code. Special policy focus by Govern-
and improving the energy efficiency of heating ment on such designs may be particularly ap-
and cooling systems. The energy efficiency of propriate because there are few natural mar-
many new homes can be substantially in- ket forces to promote such building choice.
creased by adding enough thermal protection
Even if the full advantages of energy-con-
to allow a reduction in the size of heating and
scious design are not explored, quite conven-
ventilating equipment; in some instances this
tional, off-the-shelf technologies now exist to
choice has actual [y meant lower first costs.
reduce heating and cooling loads at least 50
Lending institutions can improve the flow of percent below those of homes built in the early
information on total costs of homeownership 1970’s. Houses built using these technologies
and operation by including energy costs when will reduce energy use through greater effi-
calculating monthly payments on mortgage ciency with no change in living habits or level
applications. The mortgage transaction is a of comfort. In fact, comfort may be increased
critical intervention point, as buyers are fo- through reduction of drafts and cold spots.
cused on the home and money is being bor- The real bonus results from the low purchased-
rowed to be repaid over a long time period. A energy costs of operating such homes. These
Executive Summary . 11

technological solutions to energy consump- ities of the States in mind are most likely to
tion — such as heat exchangers, “smart” ther- take root and remain effective as Federal pri-
mostats, and draft-excluding devices — can be orities change and Federal funding fluctuates.
easily encouraged by Government action
assisting the market. Localities work most closely with new con-
struction through the building permit process.
Improved data collection is needed on Local code inspection offices may require
homes that use little purchased energy. Con- special help, both technical and financial, to
struction of such homes on a demonstration improve their level of activity. This will cer-
basis, perhaps one in every county, could pro- tainly be the case if Federal actions to man-
vide the type of direct learning experience date energy changes in building codes con-
most valuable and influential for builders and tinue. WhiIe the needs of localities may press a
buyers. State energy office beyond its capabilities,
these off ices must recognize the importance of
Technologies now in the development or providing resources to localities.
commercialization stage will offer opportuni-
ties for energy savings well beyond the options Transfer of information and technology
now available. More efficient furnaces, new from the Federal ‘Government can be im-
approaches for the design and construction of proved. Trained personnel, either from Wash-
walls and windows, and electronic systems to ington offices or regional offices, could greatly
monitor and control the operation of homes assist States in working out technical problems
are now being tested and used experimentalIy. and establishing ground rules for program
As these devices become more reliable and operation.
lower in cost, the options for reducing home
energy use will increase dramatically.
Utilities

States and Localities The ways in which gas and electric utilities
can most effectively stimulate energy conser-
States and localities bear the major responsi- vation in the residential sector are just begin-
bility for implementation of federally author- ning to be understood and exercised. As experi-
ized residential conservation programs. Build- ence with utility-based conservation activities
ing code revision and enforcement, informa- is gained, early concerns about utility involve-
tion and education efforts, quality control, ment in nontraditional activities (such as in-
and regulation of utilities all come within the sulation financing) and uncertainty about the
jurisdiction of States, counties, and towns. The impacts of innovative pricing and service de-
priority assigned to conservation goals by livery options (particularly time-of-use pricing
these levels of government will directly influ- and load management) are being replaced with
ence the level of effort and thus the resources encouraging empirical data.
available to consumers and builders.
Utilities can encourage residential energy
Current Federal policies both help and conservation through information programs
hinder State and local efforts. Central diffi- and home energy audits; financing and/or mar-
culties include rapid pacing of Federal initia- keting insulation and other conservation de-
tives that may not match the capabilities of vices; altering the rate structures to reflect
the locality; failing to involve States and local- costs that vary with time of use; and instituting
ities in preparing guidelines and reguIations; programs of load management in the residen-
placing responsibility for administering a large tial sector. Relatively few utilities have carried
number of complicated programs on State out aggressive conservation programs to date,
energy offices that are frequently small, under- although most electric and gas companies
staffed, and underfunded; and imposing Feder- have undergone some adjustments in their
al priorities that may not match local needs. management and planning functions as a re-
Programs designed with the needs and capabil- suIt of changing circumstances. WhiIe eco-
12 ● Residential Energy Conservation

nomic and social criteria encouraged rapid from present rates, indoor concentrations of
energy growth in the years before 1973, more these polIutants will increase.
recent phenomena — including rising fuel
Control measures currently available to re-
costs, massive increases in capital require-
duce the concentrations include filters and
ments for new capacity, uncertainty about
electrostatic precipitators to reduce particu-
future demand, and changing regulatory re-
late levels; kitchen ventilation to reduce cook-
quirements – have all caused utilities to expect
ing-generated polIutants such as CO, NO, NO 2,
and even encourage diminished growth.
and SO2; spray washing, activated carbon fil-
Activities authorized by the National Energy ters, and oxidizing chemicals to reduce air-
Conservation Policy Act of 1978 should yield borne chemicals and odors; and forced ventila-
usefuI data over the next few years. The effects tion with heat recovery (to minimize heat loss)
of audit programs, cost-based rates, load man- to reduce concentrations of all indoor-gener-
agement, and time-of-use pricing should be ated pollutants. A comprehensive approach
carefully analyzed and the information widely should include reduction of emissions by im-
shared. Following evaluation, Congress may proved maintenance and design of stoves and
wish to consider removal of the prohibition furnaces, reduction in household use of pollut-
against utility involvement in sale or installa- ing chemicals, and similar measures.
tion of residential conservation measures.
Evaluation of these control measures re-
quires an understanding of health effects of
Indoor Air Quality ambient levels of indoor pollutants and the
concentrations of such pollutants with and
Potential health effects of changes in the without controls in different housing situa-
quality of indoor air caused by energy conser- tions. Thus far, the Federal Government does
vation must be carefully monitored, and atten- not appear to have recognized the significance
tion should be given to preventing negative ef- of indoor air quality as a potential health prob-
fects as houses become tighter. As new stand- lem. The Department of Energy (DOE) and the
ards lower the amount of “fresh” air moving Environmental Protection Agency (EPA) have
through homes to reduce heat (and cooling) sponsored some early work in this area, but the
losses, concentrations of undesirable sub- level of support has been very small. As might
stances already present in indoor air will be in- be expected from the scarcity of research con-
tensified. Technological control measures are ducted, the level of understanding of the ef-
available to prevent the buildup of concentra- fects and causes of indoor air quality is insuffi-
tions of pollutants indoors. cient to allow the definition of an optimum
There is strong evidence that concentrations strategy for linking energy saving construction
of several air pollutants tend to be high in- requirements and air treatment requirements.
doors. Existing houses with gas heating and
cooking appliances have been shown to experi- Federal Conservation Programs
ence levels of carbon monoxide (CO) and nitro-
gen dioxide (NO2) that approach or exceed am- Federal programs support housing produc-
bient air quality standards. Other pollutants tion and the maintenance of existing housing
that may be significant in the indoor environ- by providing subsidies to certain classes of oc-
ment include respirable particulate, partic- cupants, as well as mortgage loans, insurance,
ulate sulfur and nitrogen compounds, nitric ox- and guarantees to lenders and property own-
ide (NO), sulfur dioxide (SO 2), radon, and ers. Federal programs affect housing through
various organics. Aside from heating and cook- standards for construction and rehabilitation
ing appliances, the sources of these pollutants of housing, regulation of the lending industry,
include building construction materials, ciga- maintenance of a secondary market for mort-
rettes, aerosol sprays, cleaning products, and gage lending, research and development
other sources. If air exchange rates of new and (R&D), financial assistance for community
existing houses are significantly decreased development, tax credits and incentives, and
Executive Summary ● 13

programs specifically designed to provide in- solicit comments on draft standards, time
formation or technical assistance to encourage pressures generated by the current schedule do
conservation. Direct Federal construction, not allow for adequate review and thoughtful
such as housing provided by the Department analysis. As a result, commitment to the cur-
of Defense, affects the market for housing rent schedule will almost assuredly result in
technology and appliances through the pro- litigation and dissatisfaction by both sup-
curement process and the use of standards. porters and opponents of the standards.
Because of the wide variety of programs in- A substantial period may be needed for
fluencing both housing and conservation, review and field testing of the new standards in
many mechanisms exist to affect energy con- certain areas and markets. Transition to per-
sumption in homes. Recent legislative and ad- formance standards closely tied to existing
ministrative changes will help to save energy. methods of analysis and review wilI increase
Energy conservation has not been a major pri- the Iikelihood of compliance.
ority for most Federal programs, and there has
not been strong coordination of the various
RESEARCH AND DEVELOPMENT
departmental efforts. A stronger commitment
to energy conservation, combined with im- The short-term focus of current DOE conser-
proved technical work and more sophisticated vation R&D ignores some longer term options
cost analysis, could mean a much stronger that also have high returns. The attention to
response to conservation goals from both the commercialization strategies that characterize
public and the private sector. the program is questionable, as rising prices
should enable the private market to absorb
Some of the most important Federal actions
commercialization costs. Research on atti-
are Iisted here.
tudes, energy use patterns, institutional and
legal barriers to conservation, and similar im-
HOUSING STANDARDS portant areas have not received adequate em-
phasis. Research and policy decisions on ener-
As a result of postembargo legislation, the
gy technology do not adequately consider the
Federal Government is now more deeply in-
conservation applications of new technol-
volved than ever in defining energy-based
ogies; the potential of conservation to reduce
housing standards, which will eventually influ-
demand and provide time for shifting to new
ence local building codes. Codes are an effec-
energy systems is not fully appreciated. The
tive mechanism for altering construction prac-
policy appears to reflect an attitude by DOE
tices, but they are implemented at the local
level, and great care is needed to ensure that and the Office of Management and Budget
that conservation should be viewed as a stop
adequate time and resources for training ac-
gap that merits little Federal research funding,
company this new Federal-State-local ap-
in sharp contrast to new production ap-
proach.
proaches.
States have been encouraged through Feder-
al funding and training to adopt codes based
TAX POLICY
on an engineering approach. Existing legisla-
tion calls for the adoption of performance- Federal tax policy is probably the major ele-
based standards by 1980. Performance stand- ment in decisions by owners of rental property
ards offer a unique and valuable way to en- on construction and rehabilitation. Historical-
courage energy efficiency while allowing in- Iy, the tax code has encouraged low first-cost
novation and providing equal market access to (and therefore energy inefficient) housing, and
all types of construction. This type of standard has protected owners to the extent that most
is also a totalIy new method, and there is no program efforts to improve tenant energy use
agreement on the correct methods for calcula- have been futile. Broader use of tax incentives
tion and review, particularly for residential should increase the conservation response. At
buildings. Despite a sincere desire by DOE to least, policies should be examined to ensure
14 ● Residential Energy Conservation

that they do not continue to encourage energy- broadly, and raise special problems for energy-
wasteful construction. conscious design approaches.
Similarly, the tax system can be used to
FEDERAL HOUSING PROGRAMS
reward homeowners for investing in conserva-
tion. Critics of this policy believe that home- Federally owned and subsidized housing
owners are sufficiently rewarded by the sav- represents both a special responsibility and a
ings in fuel bilIs, and that the number of peo- special opportunity for saving energy and
ple who invest because of the credit is small, lowering total costs. Energy conservation has
while the number who claim the credit is large. had very low priority in most of this housing.
This policy does not allow for the fact that Funds and authorizations recently approved
many conservation investments can save much by Congress will help to improve the efficiency
energy but are only a breakeven choice with- of these dwelIings. Improved levels of conser-
out additional incentives. Early Internal Reve- vation wouId demonstrate real Federal com-
nue Service decisions on the eligibility of items mitment, improve the comfort level of the
under the recently authorized conservation tax housing, and save money as utility costs, which
credits show a reluctance to interpret the law are frequently subsidized, continue to rise.
Chapter I

TRENDS
Chapter I.—TRENDS

Page

Trends in Residential Energy Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17


Energy, Demographics, and Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Analysis of Electricity and Natural Gas Use as Functions of Weather
and Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Projections of Future Residential Demand . . . . . . . . . . . . . . . . . . . . . . 22
Discussion of Projections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Technical Note—Residential Energy Consumption Analysis. . . . . . . . . 26

Page

I. Residential Energy Use by Fuel . . . . . . 17


2. National Average Annual Heating Bills by Fuel :::: :: :::::.. 19

FIGURES

Page

2. Fuel Prices 1960-77. . . . . . . . . . . . . . . . . . . ...... . . . . . . . . . . . . . 19


3. Energy Use per Household . . . . . . . . . . . . . ...... . . . . . . . . . . . . . 21
4. Comparative Energy Use Projections . . . . . . . . . . . . . . . . . . . . 22
5. Comparative Price Projections. . . . . . . . . . . . . . . . . . . . . . . . . 23
Chapter I
TRENDS

TRENDS IN RESIDENTIAL ENERGY USE


This chapter analyzes residential energy use since 1960, gives energy use projections to
the year 2000, and discusses the potential for energy savings in the residential sector. Aided
by computer analysis of residential electricity and natural gas use since 1968, consumer re-
sponse to changing prices is examined. Finally, computer projections are made of energy de-
mand over a range of possible future energy prices assuming ideal economic behavior.

ENERGY, DEMOGRAPHICS, AND PRICES

Table 1 shows aggregate energy use for the Table 1 .–Residential Energy Use by Fuel (Quads)
residential sector, adjusted for annual weather
differences and broken down by fuel use and 1960 1970 1977
by function, for 1960, 1970, and 1977. From Electricity. . . . . . . . . . 2.41 5.36 7.80
1960 to 1970, adjusted residential energy use Oil . . . . . . . . . . . . . . . . 2.37 2.81 2.98
Natural gas. . . . . . . . . 3.34 5.31 5.83
increased at an average rate of 4.7 percent, Other. . . . . . . . . . . . . . 1.00 0.90 0.60
while from 1970 to 1977 it grew by only 2.6 per- Total . . . . . . . . . . . . 9.12 14.38 17.21
cent. This substantial reduction has not been
NOTE: The 1960 and 1970 figures are from “Residential Energy Use to the Year
spread evenly through the 1970’s, however. Be- 2000: Conservation and Economics,” ORNL/CON-13, September 1977.
tween 1970 and 1972, the average annual The 1977 figures are from the Energy Information Administration, De-
partment of Energy.
growth rate for weather-adjusted residential
energy use was 3.4 percent; from 1972 to 1975 1977 Components of Residential Energy Use (Quads)
consumption declined by 1.8 percent; and
from 1975 to 1977 it leapt back up to a 3.7-per- Space Water
cent average annual growth rate. heating Cooling heating Other*
Electricity. . . . . . . . . . 1.55 1.13 1.16 3.96
Electricity use is growing fastest. From 1960 Oil . . . . . . . . . . . . . . . . 2.67 0.31
to 1970 electricity use grew at an average an- Natural gas. . . . . . . . . 3.97 1.03 0.83
nual rate of 8.3 percent; from 1970 to 1977 the Other. . . . . . . . . . . . . . 0.55 – 0.04 0.01
increase was about 5.5 percent. In 1977, elec- Total percent
of national
tricity represented 45 percent of all the energy consumption . . . . . 11.8 1.5 3.4 6.5
used in the residential sector. Unlike total
“Includes cooking, clothes drying, refrigeration and freezing, lighting, ap-
energy use, however, the growth rate in elec- pliances, TV, etc.
tricity use since the embargo has not departed NOTE: These are estimated from the 1977 figures using the relative breakdown
for 1975 given by ORNL/CON-13.
from that over the entire 1970-77 period. 1 Quad = 1.055 EJ.

Even though growth rates have declined for increased. This is a result of rapid expansion in
both electricity and total energy use for electric heating over the period; about 50 per-
1970-77 compared with 1960-70, the ratio of cent of new homes have been constructed with
electricity growth to total energy growth has electric heat since 1974, compared with less
than 30 percent in 1970. The proportion of new
‘Data for total residential energy use are corrected for electrically heated homes using heat pumps is
weather differences by assuming that 50 percent of the
rising rapidly. This trend toward electric heat-
total is for heating, and is therefore weather-sensitive,
and by adjusting that portion using a ratio of the average ing may be slowing, however, as there appears
number of annual degree days between 1960 and 1970 to be a resurgence of gas space-heating in new
(4,869) to the actual number in each year. homes.

17
18 . Residential Energy Conservation

Many variables have contributed to the percent. At the same time, the average number
gradual reduction in residential energy growth of persons in each household has declined.
in this decade, but it is difficuIt to demonstrate One- and two-person households increased
a cause-and-effect relationship between demo- their share of total households from 45.8 to
graphic trends, prices, and other economic 51.2 percent between 1970 and 1976, while
fluctuations on the one hand, and energy con- households with four or more persons dropped
sumption statistics on the other. The sharp dip from 21.1 to 15.9 percent. The high rate of
to an absolute decline in weather-adjusted household formation and smaller household
residential energy use between 1972 and 1975 size result from the “coming-of-age” of baby-
can probably be attributed to the dominant boom children and, to a lesser extent, higher
events of that period —the Arab oil embargo divorce rates, greater longevity, and the in-
and the 1974-75 national bout with “stagfla- creasing tendency of older persons to live
tion,” or combined recession and double-digit alone.
inflation. Beyond that, however, it becomes
Smaller households, typically occupying
more difficult to isolate causes of reduced
smaller homes, use less energy. But each addi-
consumption.
tional household adds more energy consump-
Demographic contributions to reduced tion to the total than the same number of per-
home energy use can be glimpsed by reducing sons would use in a combined larger house-
the consumption statistics to the individual hold, as each new household normally means
household level. Between 1960 and 1970, an additional furnace and water heater and ad-
energy consumption grew rapidly in each ditional appliances. Therefore, while energy
household–that is, total residential energy use per household does not grow, total house-
use grew considerably faster than either the hold energy use does increase faster than
population or household formation growth popuIation.
rates. While total weather-adjusted residential
Projections of future population growth and
energy use grew by 4.7 percent annualIy, popu-
household formation suggest that the demo-
lation increased at an annual rate of only 1.3
graphic trends of the 1970’s are likely to con-
percent and the number of households rose by
tinue. The Bureau of the Census medium-
only 1.9 percent annually. The rapid increase
growth projection (Series 11) for population in
in each household’s energy consumption can
2000 is 260 million, or an average annual
be attributed to the trend toward saturation in
growth of 0.8 percent between 1976 and 2000.
major energy-consuming home appliances
A housing model developed by the Oak Ridge
such as air-conditioners, dishwashers, and
National Laboratory (ORNL)3 predicts a house-
clothes dryers, and to increased energy-inten-
hold formation rate that continues to outstrip
siveness in such appliances as frost-free re-
population growth; ORNL projects an average
frigerators.
growth of 1.6 percent in the housing stock be-
The trend toward higher per-household ener- tween 1975 and 2000. The highest growth (2.1
gy consumption has been halted in the 1970’s. percent annually) will occur in the 1975-85
A recent study by the General Accounting Of- period, with a drop to 1.3 percent per year be-
fice reports that total energy use per house- tween 1985 and 2000. Households in 2000 are
hold has remained essentially constant in this expected to total approximately 106.5 million.
decade. 2 Demographic trends help to explain Combined with the Series I I population projec-
this reversal: as population growth has slowed tion, this would mean an average household
to an annual increase of 0.6 percent, the rate size of 2.40 persons, compared to 2.95 persons
of household formation has picked up to 2.4 in 1976.

3
‘The Federal Government Should Establish and Meet “An Improved Engineering– E c o n o m i c Model of
Energy Conservation Goals, Comptroller General of the Residential Energy Use,’’ Oak Ridge National Laboratory,
United States, June 30,1978, Washington D.C. Oak Ridge, Tennessee.
Ch. I—Trends . 19

Most observers agree that the price of ener- Since 1970, real oil prices have increased an
gy, and particularly dramatic changes in price, average of 7.6 percent per year (with a 35-per-
affect residential (and other) energy use. cent increase from 1973 to 1974); real natural
Again, however, documenting the exact rela- gas prices increased 4.9 percent annually; and
tionship between price changes and reduced electricity prices rose 3.4 percent per year. Be-
household energy consumption is virtually im- tween 1960 and 1970, by contrast, all these
possible, given the scanty data collected dur- prices decreased in real terms.
ing the short period of time when price in-
Viewing these price changes in another way,
creases have occurred. Figure 2 shows prices
table 2 presents national average annual heat-
for electricity, natural gas, and heating oil
ing bilIs (in 1976 dollars) for electricity, fuel oil,
from 1960 to 1977 in constant 1976 dollars (to
and natural gas, for the years 1960, 1970, 1975,
remove the effects of inflation). The figure
and 1977. These figures show that the real cost
shows that all energy prices, in real terms, have
of heating dropped substantialIy from 1960 to
increased dramatically in the last few years.
1970 for all three fuels before beginning to
grow. The greatest increase has occurred in the
oil heating bill, which has increased 65 percent
since 1970. Natural gas and electric heating
Figure 2.— Fuel Prices 1960.77
bills have increased 37 percent and 27 percent
(in constant 1976 dollars)
respectively since 1970.
Table 2.—National Average Annual
Heating Bills by Fuel (1976 dollars)

Year Electricity Oil Natural gas


1960 . . . . . . . . . . . . . . $690 $280 $220
1970 . . . . . . . . . . . . . . 450 260 175
1975 . . . . . . . . . . . . . . 510 400 200
1977 . . . . . . . . . . . . . . 570 430 240
NOTE These estimates of electricity and natural gas were obtained by using
the heating energy requirements for 1970, 1975, and 1977 shown in
figure 3 and prices for all years from figure 2. The 1960 estimate of use
per household is assumed equal to 1970 and the heating energy re-
quirement for oil is assumed to be equal to that for natural gas. Keep in
mind that oil heat is used largely in the coldest parts of the country.

The relative costs of the three fuels are also


instructive. As expected, electricity is the most
expensive, about 2.3 times that of gas in 1977
and about 32 percent higher than oil. In 1970,
however, electric heat was about 73 percent
more expensive than oil and 2.6 times higher
than gas. If electricity prices continue to grow
at a slower rate than oil and gas, and heat
pumps capture a greater share of the electric
1960 1965 1970 1975 1977 heat market, these price differentials should
Year continue to narrow substantially and could
SOURCE: U.S. Energy Demand: Some Low Energy Futures, Science, contribute to increased electrification of the
vol. 200, Apr. 14, 1978, p. 144. residential heating market.
20 . Residential Energy Conservation

ANALYSIS OF ELECTRICITY AND NATURAL GAS USE


AS FUNCTIONS OF WEATHER AND PRICE

I n an effort to isolate the impact of price in- has likely been a result of price. The non-
creases on residential use of electricity and heating use of gas shows an even greater cor-
natural gas, OTA employed regression anal- relation to price in that the decline has ac-
yses that separated weather-related and non- celerated in the last 2 years, when price in-
weather-related use of each energy source on a creases have been the greatest. The principal
per-household basis. The analysis covered conclusion here is that some price response is
1967-77 for natural gas and 1970-77 for elec- evident but it is complex and extremely dif-
tricity. The results of these analyses are shown ficult to demonstrate conclusively or quan-
graphically in figure 3. Major conclusions from titatively.
the analyses are:
1. The per-household use of natural gas for Electricity use shows a much weaker correla-
heating, measured in 1,000 ft3 per degree tion to price. It must be noted that real elec-
day, declined by about 10 to 15 percent tricity prices have increased the Ieast among
between 1967 and 1977. (Similar results the residential energy sources—only 14 per-
were obtained in a study by the American cent since 1973. In fact, the real price of elec-
Gas Association.) tricity in 1977 was just equal to that in 1965.
2. Similar changes have occurred in non- Therefore, one would not expect to see as
weather-related household use of natural much change in electricity use as in other
gas (such as cooking) over the decade ex- energy sources. There has been a substantial
amined. Interesting shorter term trends increase in weather-related electricity use per
are also evident: consumption in this household since 1974 while non-weather-re-
category rose about 10 percent through lated uses have declined about 25 percent.
1973, and dropped by about 25 percent While these trends are correct, it is possible
between 1973 and 1977. that the size of the changes which have oc-
curred is smaller than shown in figure 3. Ef-
3. Per-household weather-related use of
fects due to changed thermostat settings and
electricity, measured as kilowatthours
weatherproofing could cause the linear model
consumed per heating and/or cooling de-
used to overstate the actual changes. Perhaps
gree day, dropped sharply from 1971 to
these changes indicate that the modest elec-
1974, but has been rising over the last 3
tricity price increases that have occurred have
years.
motivated users to conserve where conserva-
4. Conversely, non-weather-related uses of
tion involves the least discomfort— in lighting,
electricity per household increased steadi-
cooking, and use of appliances — but not in the
ly from 1970 to 1974 and then dropped
basic amenities of heating and cooling.
sharply from 1974 to 1977.
The linear model used in OTA’s analysis was The ability of any model to document a rela-
not able to indicate a quantitative relationship tionship between price and consumption in a
between those consumption changes and price decade or less– and particularly in the post-
changes over the same periods. This does not embargo period of sharp changes in both vari-
mean that the price effect can be dismissed, ables — is Iimited. Analysis over a longer period
however, as the above results do track with in- should shed further light on the price effects,
creasing prices in most cases. In the case of especially since a longer period is required to
natural gas, real prices have increased by 35 test for, the most significant response to price,
percent since 1973 (see figure 2). The drop in a replacement of energy-consuming durable
gas use per degree day that occurred in 1974 goods such as furnaces, refrigerators, water
was probably caused largely by the embargo, heaters, and other appliances. While short-
but the continued downward trend since then term behavioral changes such as setting back
Ch. l—Trends ● 21

Figure 3.—Energy Use per Household

Non-weather-related uses

1968 1970 1972 1974 1976 1970 1972 1974 1976

Weather-related uses

1968 69 70 71 72 73 74 75 76 77 1970 71 72 73 74 75 76 77
Year Year
SOURCE: Office of Technology Assessment. See Technical Note—Residential Energy Consumption Analysis, at the end of this chapter.
22 ● Residential Energy Conservation

the thermostat and lowering the water heater the potential of a new and more efficient fur-
temperature have some effect on total con- nace or water heater.
sumption, this effect is small compared with

PROJECTIONS OF FUTURE RESIDENTIAL DEMAND

This section presents a series of projections Figure 4.—Comparative Energy Use Projections
of residential energy demand — not to indicate (Residential sector)
what is likely to happen, but to establish the Quads
potential for residential energy conservation. 50
Demand is projected to 2000 along two curves
as if 1960-70 and 1970-77 trends were to con-
40
tinue. Another projection shows potential de-
mand if all consumers behave in an economi-
cally optimum manner. The latter case is ap-
30
plied to a range of possible future energy
prices.
The results of these projections are shown in 20
figure 4. The upper curve, showing residential
use reaching 48.4 quadrillion Btu* (Quads) by
2000 if the growth rate resumes its 1960-70 10
value, is for illustrative purposes only and is
not considered likely to occur. Although the
growth rate has picked up over the last 3 years, 0
1970 1975 1980 1985 1990 1995 2000
it still does not approach the 1960-70 levels,
and it is unlikely to do so because energy Year
prices are unlikely to fall and saturation is A – Residential consumption based on simple extrapolation
of 1960-70 trend.
being reached in a number of energy-intensive
B – Residential consumption based on simple extrapolation
appliances in the residential sector. of 1970-77 trend.
c– Residential consumption based on constant level of
The second trend curve, reaching 31.3 energy use per household; growth results from in-
Quads in 2000, is more realistic because it rep- crease in number of households.
resents continuation of the 1970-77 growth rate D-E – Range of “optimal economic response” based on
assumption that energy saving devices are installed as
of 2.6 percent per year. This projection implies they become cost-effective. Range is formed by price;
that future response to increased prices and upper boundary represents response to lowest pro-
supply uncertainty would follow 1970-77 pat- jected price, lower boundary represents response to
highest projected price. (See figure 5—Price)
terns, and energy prices would not increase
relative to income for the remainder of the 1 Quad= 1.055 EJ.

century. Because the last 3 years have shown a increase, it is probable that actual residential
marked increase in the growth rate, a continua- energy demand will fall below 31.3 Quads.
tion of the 1975-77 trend until 2000 would How far below is the key question, To test
result in substantially more actual energy use. the conservation potential of hypothetical
It is important to remember, however, that the consumer behavior based on maximum eco-
trends of the last few years do not yield nomic self-interest, projections were calcu-
enough information, especially in light of the lated from the residential energy demand
enormous price changes that have occurred, to model developed by ORNL. The projections
be considered accurate forecasts of the future. assume that consumers make selected in-
Because energy prices are, in fact, expected to vestments designed to increase residential
energy efficiency to a point where their
*A Quad = 1 quadrillion Btu = 105 exajoule (EJ) marginal cost equals marginal savings — that is,
Ch. l—Trends 23

the point where an additional dollar invested Figure 5.—Comparative Price Projections
(All prices in 1975 dollars)
would return less than a dollar over the life of
the investment— and then no more is invested.
The resulting consumption levels range from
15.4 to 21.8 Quads in 2000.
Certain assumptions about future energy
prices, available equipment, and financial vari-
ables are inherent in the projections; the range
of future energy prices used is displayed in
figure 5. The low price projections correspond
to the 1977 Department of Energy price projec-
tions. These curves from 1975 to 2000 show a
growth rate for prices in 1975 constant dollars
of 4.0 percent per year for natural gas, 1.0 per-
cent per year for electricity, and 1.7 percent
per year for fuel oil. The Department of Energy
is currently revising its price projections up-
ward. The high price projections are placed
somewhat above the high Government projec-
tions prepared by the Brookhaven National
Laboratory (BNL). The rationale for doing this
is explained in the OTA report Application of
Solar Technology to Today’s Energy Needs,
Volume II, September 1978. According to this
price range calculation, between 1975 and
2000 the average annual rate of increase in
constant dollars is 5.0 percent for natural gas,
4.7 percent for electricity, and 4.8 percent for
fuel oil. The 1978 prices (in 1975 dollars) are
shown for each of these three fuels for easier
comparison.
This analysis assumes that a residential
customer would decide to invest his money in
a manner calculated to realize a maximum
return while meeting his future energy needs.
The customer would divide his available funds 1975 1980 1985 1990 1995 2000
between energy conservation technologies and ■ 1978 price (1975 dollars).
Low = 1977 DOE projections.
fuel purchases to minimize the amount of High = Arbitrary upper limit (see OTA Solar Report, vol. II)
money spent over the useful life of his invest-
ment. Therefore the amount spent on the con- ing load by improving thermal integrity of new
servation technologies would be less than the single-family homes (e. g., insulation, storm
cost of energy saved. windows). This calculation shows that an ini-
Another way of seeing this tradeoff is to con- tial investment of $550 in selected measures
sider the equivalent cost of a barrel of oil would reduce the combined heating and cool-
saved by an investment in residential conserva- ing load for a new home by about 52 milIion
tion and compare it to the cost of the energy Btu per year in an average climate. Over a 20-
purchased in the absence of the investment. year period (the life of the technologies pur-
This computation may be made using the chased with the investment) the total energy
ORNL model, which considers investments in savings wouId amount to 1.04 million Btu or
technologies that reduce the heating and cool- the equivalent of 180 barrels of oil. Therefore
24 ● Residential Energy Conservation

the investment is equivalent to paying a little also assumes that investors will discount
over $3.00 per barrel in 1977 dollars— a price future investments and savings using a dis-
far lower than retail consumers actually pay count rate of 10 percent, after inflation. This,
for oil. Thus, a clear advantage exists for in- too, is a conservative choice and tends to
vestments in conservation as long as fuel understate the potential for conservation.
prices stay above this value. Finally, the model accounts for the effect of
legislation enacted prior to 1978 in carrying
Even though the dollar savings in the above out the computations. It has not, however, ac-
example would be substantial, investments in counted for the tax credits granted in the Na-
improvements to the building shell alone may tional Energy Act of 1978. The effect of these
not be the best way to maximize return from measures in this calculation would be to
residential conservation investments. By put- change the ruIes governing computation of the
ting some money into more efficient equip- optimal investment level. With the credit, the
ment (e. g., appliances, air-conditioners, space investor wilI realize a greater return for a given
heaters) an even greater return may be real- investment than without the credit. Therefore
ized. Other calculations using the ORNL he can go to a higher level of thermal protec-
model indicate this result. tion before the marginal costs and savings
become equal. In essence, Congress decided
The model also assumes that only technol- by enacting the tax credit that our national
ogies now available will be purchased for in- energy situation requires energy savings
creasing efficiency of buildings and equipment greater than those that could be achieved
for the remainder of the century. In this sense through market price considerations without
the model is quite conservative. The model Government intervention.

DISCUSSION OF PROJECTIONS

The range of projections based on the eco- The economically optimal projections do
nomic optimum case shows annual residential show, however, what one could expect if con-
energy growth rates of – 0.5 to 1.0 percent, sumers had access to all necessary information
considerably below any value that could be and no other constraints existed. A residential
verified as a present trend, and probably too consumer would then presumably make the in-
low to be realistic future projections. Residen- vestment decisions assumed in the model, as
tial consumers often fail to make economi- doing so would maximize economic return. Al-
cally optimum investments in energy conserva- though these projections should not be consid-
tion for many reasons, which are discussed ered as predictions of what will happen, they
elsewhere in this report. Also, the model uses are a valid target, and a valid basis for policy
as a payback period for each investment the measures to reinforce private decisions.
entire life of the technology being purchased,
while most residential conservation “inves- It is worthwhile putting these projections in
tors” have a time horizon considerably shorter, another perspective. If one assumes that na-
typically no more than 5 years. Finally, these tional average household energy use in 1977
projections assume continued energy price in- does not change for the remainder of the cen-
creases at higher rates than inflation; if this tury, then the residential sector would use 24.7
should not occur, energy use in 2000 would fall Quads in 2000. This is based on the ORNL pro-
between the economic optimum path and the jection of about 106 million residences in 2000.
1970-77 trend curve. (A thorough discussion of Therefore the 31.1 Quad projection from the
the plausibility of future energy price increases 1970-77 trend line implies an increase in the
is given in the OTA solar report previously average amount of energy used per household.
cited.) From another point of view, energy use can be
Ch. l—Trends Ž 25

estimated in 2000 if space-heating and cooling still more than 30 percent compared with the
requirements were cut in half from the value extrapolation of 1970-77 experience. This sav-
projected by the 1970-77 trends. A reduction of ings represents 9.2 to 15.6 Quads in 2000, or
this size is reasonable as shown in the section the equivalent of about 4.6 million to 7.8 mil-
on current technology, chapter II. In 1977 lion barrels of oil per day. The cumulative sav-
about 57 percent of residential energy went for ings that couId be achieved from now until the
space heating and cooling. Continuation of end of the century, compared to the 1970-77
that percentage, coupled with the 1970-77 trends extrapolation, range from 96.7 to 167.8
trends projection, would mean that about 18 Quads for the equivalent of about 16.7 billion
Quads would be needed for heating and cool- to 28.9 billion barrels of oil — roughly com-
ing in 2000. Reducing heating and cooling by parable to two to three Alaskan oilfields of the
50 percent to 9 Quads would give a total resi- size discovered in 1967.
dential consumption of 22.3 Quads. Therefore,
It is apparent that large savings are possible
the projections made under the optimal invest-
in the residential sector, and that they can con-
ment assumption are not as far from reach as
tribute substantially to reducing imported
they may at first seem.
energy needs. Although the potential savings
may be too optimistic, because consumers are
Going back to these latter projections, one not now likely to behave in a strict economi-
can see a substantial potential for savings in cally optimum manner, they are not impossi-
residential energy use. I n the highest price pro- ble and are worth reaching for. This study
jection, a 50-percent reduction in energy use discusses many reasons why a gap between ac-
from the 1970-77 trend is possible. For the tual and optimum savings exists and what
lower price projection, the savings potential is might be done to narrow the gap.
26 . Residential Energy Conservation

TECHNICAL NOTE–RESIDENTIAL ENERGY


CONSUMPTION ANALYSIS

Regression analyses was applied to total res- Gas usage was treated similarly except cool-
idential consumption of gas and electricity to ing was not included in the regression. Data
obtain figure 3. used was obtained from the following s o u r c e s :
Residential electric usage was separated Monthly electric sales: Edison Electric Institute, “An-
nual Report, ” 1970-77
into weather-related and non-weather-related
EIectric customers: Edison EIectric Institute,
consumption by regressing consumption Electric heating customers: Bureau of the Census,
against heating and cooling degree days in the “Characteristics of New One-Family Homes: 1973”
form: and a “Characteristics of New Housing: 1977. ”
EIectrlc cooling customers: Bureau of the Census.
S = C + Bh Ceh Dh/Ce + Bb Cec Dc/Ce Monthly gas sales: American Gas Association, “Month-
ly Bulletin of Utility Gas Sales," 1967-77.
where S is total electric sales per residential Gas Customers: American Gas Association, “Gas
customer; C is the non-weather-related use per Facts “
residential customer; Dh and Dc are heating- Gas heating customers: American Gas Association,
and cooling-degree-days respectively; Ce, Ceh, “Gas Facts. ”
Monthly heating degree-days: “Monthly State, Re-
and Cec are total residential electric, electric
gional, and National Heating Degree Days Weighted
heating, and electric cooling customers, re- by Population, ” U.S. Department of Commerce,
spectively; Bh is the electric heating use per NOAA Environmental Data Service, National
residential electric heating customer per Climatic Center, Asheville, N.C.
heating degree day; and Bc is the electric cool- Monthly cooling degree-days: Monthly State, Region-
ing use per residential electric cooling custom- al, and National Cooling Degree Days Weighted by
Population,” N a t i o n a l C l i m a t i c C e n t e r , A s h e v i l l e ,
er per cooling degree day. Monthly data was N C
used to determine C, Bh, and Bc for each year.
Annual customer data was interpolated to
estimate customers on a monthly basis.
Chapter H

RESIDENTIAL ENERGY USE


AND EFFICIENCY STRATEGIES

Chapter II.-- RESIDENTIAL ENERGY USE AND


EFFICIENCY STRATEGIES

Page Page
Heat Losses and Gains . . . . . . . . . . , . . 30
The Thermal Envelope . . . . . . . . . . . . . . 30
insulation Effectiveness . . . . . . . . 37 The ACES System . . . . . . . . . . . . . . . . 44
Heating, Ventilation, and Air-Condition- Energy Savings in Existing Homes —
ing Systems . , . . . . . . 39 Experiments . . . . . . . . . . . . . . . . . . . 46
Furnaces . . . . . . . . . . . . . . 39 Integrating Improved Thermal Envelope,
Furnace Retrofits . ., . . . . . . . . . . . . 39 Appliances, and Heating and Cooling
Heat Pumps. . . . . . . . . . . . . . . 41 Equipment . . . . . . . . . . . . . . . . . . . . . . . 50
Air-Conditioners . . . . . . . . . . . . . . . . 41 Lifecycle Costing . . . . . . . . . . . . . . . . . . . . 52
Appliance Efficiency and Integrated Technical Note on Definitions of Performance
Appliances . . . . . . . . . . . . . . . . . . 42 Efficiency ..,...... . . . . . . . . . . . . . . . 54
TABLES 20. Specifications and Disaggregate
Loads for “1973” Single-Family
Page Detached Residence . . . . . . . . . . . . 57
3. Disaggregate! Cooling Loads for a 21. Specifications and Disaggregate
Typical 1,200 ft2 “1 973” House in Loads for “1976” Single-Family
Three Different Climates. . . . . . . . . . . . 34 Detached Residence . . . . . . . . . . . . 58
4. Sources and Amounts of Internal Heat 22. Specifications and Disaggregate
Gain During the Cooling Season for Loads for Low-Energy Single-Family
Chicago and Houston . . . . . . . . . . . . . . 34 Detached Residence . . . . . . . . . . . . . 59
5. R-Value of Typical Building Sections 23. Disaggregated Energy Consumption
and Materials . . . . . . . . . . . . . . . . . . . . 35 for Different Combinations of
6. Performance Comparison for Three Thermal Envelope and HVAC Equipment
Thermal Envelopes in Three Different for Houses in Houston, Tex. . . . . . . . . . 60
Climates . . . . . . . . . . . . . . . . . . . . . . . . 36 24. Disaggregated Energy Consumption
7. Effective R-Values for Different Walls for Different Combinations of
in a Range of New Mexico Climates . 38 Thermal Envelope and HVAC Equipment
8. The Impact of a 100 kWh/Year Reduc- for Houses in Baltimore, Md. . . . . . . . . 61
tion in Appliance Energy Usage on 25. Disaggregated Energy Consumption
Total Energy Consumption . . . . . 44 for Different Combinations of
9. Energy Consumption of Improved Thermal Envelope and HVAC Equipment
Appliances for the Prototypical Home 44 for Houses in Chicago, Ill.. . . . . . . . . . . 62
10. Full-Load Performance of the
ACES System. . . . . . . . . . . . . . . . . . . . . 44 FIGURES
11. Actual Space- and Water-Heating
Energy Requirements of the ACES Page
Demonstration House. . . . . . . . . . . . . . 46 6. Residential Energy Use in the United
12. Comparison of Reductions in Heat- States . . . . . . . . . , . . . . . . . . . . . . . . . 29
Loss Rate to Reductions in Annual 7. Disaggregate Energy Usage in the
bleating Load. . . . . . . . . . . . . . . . . . . . . 49 “Typical 1973” House Located in
13. Preretrofit Steady-State Winter Heat- Baltimore, Md., for Three Different
Loss Calculations . . . . . . . . . . 49 Heating and Hot Water Systems . . . . . 32
14. Postretrofit Steady-State Winter Heat- 8. Heat Losses and Gains for the Typical
Loss Calculations . . . . . . . . . . . 49 1973 House in Chicago and Houston ––
15. Primary Energy Consumption for Heating Season . . . , . . . . . . . . . . . 33
Different House/Equipment 9. Heating Load/Cost Relationship––
Combinations . . . . . . . . . . . . . . 50 Kansas City . . . ... , . . . . . . . . . . . . . . . 36
16. Equipment Used in Prototypical 10. Residential Heating Systems. . . . , . . . . 40
Baltimore Houses . . . . . . . . 51 11 Performance of Installed Heat Pumps . 42
17. Levelized Monthly Energy Cost in 12, Handbook Estimates of Loss Rates
Dollars for Energy Price Ranges Before and After Retrofit . . . . . . . . . 48
Shown (All electric houses) . . . . . . . . . . 53 13. Disaggregated Point of Use Energy
18. Levelized Monthly Energy Cost in Consumption for the Low-Energy House
Dollars for Energy Price Ranges With Heat Pump in Baltimore, Md. . . . . 51
Shown (Gas heated houses). . . . . . . . . . . 53 14. LifecycIe Cost Savings vs. Conservation
19, Structural and Energy Consumption Investment for a Gas-Heated and
Parameters for the Base 1973 Single- Electrically Air-Conditioned House in
Family Detached Residence . . . . 56 Kansas City . . . . . . . . . . . . 54
Chapter II
RESIDENTIAL ENERGY USE
AND EFFICIENCY STRATEGIES

Technologies available now can substantially reduce home energy use with no loss in
comfort. This chapter demonstrates that total energy use in new and existing homes can
typicalIy be reduced by 30 to 60 percent and that these energy savings produce a large dollar
saving over the life of the home. The review focuses on the “thermal envelope” —the insula-
tion, storm windows, and other aspects of the building shell —the equipment used to heat
and cool the home, and energy uses of the principal home appliances.
This chapter presents calculations showing how new homes can be built that use sub-
stantialIy less energy than those built just prior to the embargo. It then discusses experiments
on existing houses which indicate that simiIar savings are possible through retrofit measures.
Cost analyses are given that show these energy saving packages significantly reduce the cost
of owning and operating these homes.

There is little measured data on energy use


in a “typical” home. Experiments are difficult
to perform because of individual variations in
construct ion, equipment, and appliances;
moreover, the living and working patterns of
the occupants can change energy use by a fac-
tor of two.
Most of the data on residential energy use is
based on the interpretation of aggregate con-
sumption data. Monthly gas sales are analyzed
to determine the weather-dependent portion
that is used for heating; information on light
bulb sales is combined with the average bulb
lifetime to determine the average household
use of energy for Iighting; and simiIar deter-
minations are made for other appliances and
uses. The average residential use pattern as
determined by Dole’ after reviewing previous
studies and performing additional analysis is
shown in figure 6. This figure shows “primary”
energy usage, which accounts for distribution
losses for all fuel types and for electric genera-
tion losses.
Calculations based on aggregate consump-
tion do not show the interactions that occur Residential primary energy consumption, 1970—13 quadrillion Btu
between appliance usage and heating and
SOURCE: Stephen H. Dole, “Energy Use and Conservation in the Residential
cooling needs, nor do they show the sources of Sector: a Regional Analysis,” RAND Corporation, R-1641-NSF, June
1975, p. vi.
heat loss that greatly influence total energy
usage. It is necessary to consider a particular ‘Hlttman Associates, Inc. , “Development of Residen-
tial Buildings Energy Conservation Research, Develop-
‘Stephen H. Dole, “Energy Use and Conservation in ment, and Demonstration Strategies, ” H IT-681, per-
the Residential Sector: A Regional Analysis, ” (RAND Cor- formed under ERDA Contract No EX-76-C-01-2113,
poration, June 1975),R-1641 -NSF August 1977

29
30 ● Residential Energy Conservation

HEAT LOSSES AND GAINS

The first calculation is based on a single- Chicago and Houston cases. Internal heat gain
story, three-bedroom, 1,200 ft2 home in Balti- comes from cooking, lighting, water heating,
more, Chicago, or Houston. Identified as the refrigerator and freezer operation, other ap-
“1973 house,” it has a full, unheated basement pliances, and the occupants themselves. Al-
and is constructed of wood frame with brick though none of these internal gains is large,
veneer. Insulation levels and other char- they combine to provide nearly one-fifth of the
acteristics are shown in tables 19 through 25 at heat in the colder climates. Heat available
the end of this chapter. It is sufficiently from sunlight depends primarily on the win-
characteristic of the existing housing stock to dow area and orientation and can be consider-
iIlustrate typical energy use patterns. ably Increased if desired.
The energy use patterns of the 1973 house Everything (except the floor) that contrib-
are shown in figure 7 for a variety of fuel sys- utes to the heating load also contributes to the
tems. Figures 7(a), (c), and (d) show the energy cooling load. (The floor helps cool the house in
used at the home and do not include losses in summer. ) Internal gains and solar gain from
generation or production and transmission of windows that reduce the heating load require-
energy. If these are included so that primary ments add to the cooling load, but in very dif-
energy is shown instead, the percentage distri- ferent proportions. As shown in table 3 internal
bution is changed dramatically. This is il- heat gains constitute about half the cooling
lustrated in figure 7(b) for the fuel case cor- load There is less infiltration in summer than
responding to figure 7(a). in winter, because of lower wind speed and
smalIer indoor-outdoor temperature differ-
Heat loss or gain through the building shell
ences, but humidity removal requirements in-
results primarily from heat conduction through
crease. Thus, infiltration contributes about as
the walls, windows, ceiling, and floors, and by
much fractionally to the cooling effort as it
infiltration through cracks around windows,
does to heating. Additions to cooling load
doors, and other places where construction
from windows are much larger than to heating
material is joined. Figures 8 (a) and (b) show,
because their conductive heat gain adds to the
for the typical house in two climates (Chicago
solar radiation gain when cooling is consid-
and Houston) that heat losses are well distrib-
ered Other parts of the building shelI con-
uted across the various parts of the thermal
tribute only 9 to 13 percent of the cooling load
envelope (as are infiltration losses). Thus, ma-
in the three simulated locations. The floor,
jor reduction in heat loss will require that more however, does reduce cooling requirements
than one part of the shell be improved. Houses
significantly.
will vary widely in this regard. For example, if
the house used in figure 8 had been built with- Table 4 shows internal gains for the proto-
out any attic insulation, roof losses would typical house in Chicago and Houston. Major
have accounted for about 40 percent of total sources are the occupants, hot water, cooking,
heat loss rather than the 12 to 14 percent lighting, and the refrigerator/freezer. All other
shown. Even though substantial reduction in appliances together contribute about as much
heat loss would occur if the attic were insu- as any one of the major sources.
lated, there would still be room for substantial
improvement in other parts of the shell as well.
The Thermal Envelope
Mechanical or electrical heating systems are
generally the principal source of heat to make Current practice in residential energy con-
up for these losses to keep a home at a com- servation often begins with attempts to reduce
fortable temperature. Other sources of heat, the normal tendency of a house to lose heat
however, are also significant. Figures 8 (c) and through the structure. The rate at which a par-
(d) show the distribution of heat gain for the ticular component of a building loses heat
Ch. II—Residential Energy Use and Efficiency Strategies ● 31

Information dissemination centers were set up in each city. The trained specialist would utilize the conventional daytime
photography to locate a particular family’s home on the IR pictures; would interpret the prints, pinpointing areas of needed
roof insulation, and discussed many effective energy conservation options that would help the consumer. The cost was
estimated to be approximately 30¢ per home. Thousands of Minnesota homeowners were reached through this program and
informed on what they can best do to save energy and dollars.

Photo credits: U.S. Department of Energy

Since heat rises, poorly insulated attics usually result in situations like the one shown above
32 ● Residential Energy Conservation

Figure 7.— Disaggregated Energy Usage in the “Typical 1973” House Located in
Baltimore, Md., for Three Different Heating and Hot Water Systems
Ch. II— Residential Energy Use and Efficiency Strategies ● 33

Figure 8.— Heat Losses and Gains for the Typical 1973 House in Chicago
and Houston— Heating Season

Heat losses

(b) Houston
(a) Chicago

Heat gains

c) Chicago

1 MMBtu = 1.05 gigajoule (GJ).


SOURCE: Based on tables 19-25
34 ● Residential Energy Conservation

Table 3.—Disaggregated Cooling Loads for across the component. Different parts of a
a Typical 1,200 ft2 “1973” House in house have R-values differing by a factor of 10
Three Different Climates
or more, as shown in table 5(a). Tables 5(b) and
Baltimore Chicago Houston 5(c) show the R-values of a variety of common
percent percent percent building materials and how they are added to
Structural heat gains
Roof . . . . . . . . . . . . . . . . . . . . . 4 4 5
obtain the R-value of a specific wall.
Doors. . . . . . . . . . . . . . . . . . . . 1 1 1
Infiltration is described in terms of air
Floor. . . . . . . . . . . . . . . . . . . . . — — 2
Walls . . . . . . . . . . . . . . . . . . . . 4 4 5 changes per hour (ACPH)— and 1 ACPH corre-
Window conduction and sponds to a volume of outside air, equal to the
radiation . . . . . . . . . . . . . . . 18 17 19
Infiltration . . . . . . . . . . . . . . . . 22 19 24
volume of the house, entering in 1 hour. The
rate of infiltration is affected by both the wind
Total structural gains . . . . . 49 45 56
and the difference between indoor and out-
Internal heat gains . . . . . . . . . 51 55 44
door temperatures; it increases when the wind
Total heat gains . . . . . . . . . 100 100 100
rises or the temperature difference increases.
Heat losses
Floor . . . . . . . . . . . . . . . . . . . . . 33 40 — Less is understood about how to measure
Cooling system . . . . . . . . . . . . 67 60 100 and describe infiltration than about heat flow.
Heat removed by cooling It is clear that specific actions can help lower
system (MMBtu) . . . . . . . . . 18.0 14.0 56.9
infiItration such as using good-quality win-
1 MMBtu = 1.05 GJ dows and proper caulking and sealing. It is also
SOURCE: Based on table 20.
clear that the general quality of craftsmanship
Table 4.—Sources and Amounts of Internal Heat throughout construction is important, and that
Gain During the Cooling Season for Chicago there may be factors at work that are not yet
and Houston (1973 House) welI understood. Half an air change per hour is
considered very tight in this country, although
Chicago Houston
rates below 0.2 have been achieved in build-
Percent Percent
of total of total ings in the United States and Sweden. Many
MMBtu heat gain MMBtu heat gain U.S. houses have winter air change rates of two
Hot watera . . . . . . . . . 2.5 10 4.6 8 or more. Tightening houses must be combined
Occupants . . . . . . . . 2.8 12 5.2 9 with attention to possible increases in the in-
Cooking . . . . . . . . . . . 1.3 5 2.4 4
Lighting . . . . . . . . . . . 2.3 10 4.3 7
door moisture level and quality of the indoor
Refrigerator/freezer . 2.0 8 3.6 6 air (see chapter X).
Miscellaneous . . . . . . 2.3 10 4.2 7
What can be done to reduce the heating and
1 MMBtu = 1.05 GJ
aHot water gains were assumed to be jacket losses PIUS 25 percent of the heat cooling energy use? As an example, the 1973
added to the water.
boccupant heat gains were assumed to be 1,020 Btu Per hour for 3.75 months
home has been subjected to a number of
and 7 months respectively based on an average of 3 people in the house. changes in the building shell by computer sim-
cThe remaining categories are based on usage levels shown in table 18 for 3.75
and 7 months for Chicago and Houston, respectively. ulation.3 Two levels of change have been
‘%his category includes the TV, dishwasher, clothes washer, iron, coffee maker,
and miscellaneous uses of table 17. The clothes dryer input is neglected since
made, one improves the thermal envelope so it
it is vented outdoors. is typical of houses built in 1976 and another
SOURCE: OTA.
uses triple glazing and more insulation — it is
described as the “low-energy” house. Each
through conduction (and conversely, gains modification was done in the three climate
heat in hot weather) is governed by the re- zones represented by Baltimore, Chicago, and
sistance to heat flow (denoted by the R-value) Houston.
and the indoor/outdoor temperature dif-
ference. Engineers and designers commonly The 1973 house uses R-1 1 wall insulation and
express the R-value of various components in R-1 3 ceiling insulation and has no storm win-
Btu per hour per ft2 per 0 F, which means the dows or insulating glass. The 1976 house in-
number of Btu of heat that wouId flow through creases ceiling insulation to R-19 and features
1 ft2 of the component in an hour when a tem- weather-stripped double-glazing and insulated
perature difference of 10 F is maintained ~ Ibid
Ch. II—Residential Energy Use and Efficiency Strategies ● 35

Table 5.—R-Value of Typical Building Sections and Materials


a) R-value of typical building sections
Building section R-value Building section R-value
Exterior frame wail. . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Attic with 6“ blown fiberglass . . . . . . . . . . . . . . . . . 15.0
Exterior wall with 3½" fiberglass batts. . . . . . . . . . 13.0 Attic with 12” fiberglass batts . . . . . . . . . . . . . . . . . 40.0
Exterior wall with 5½” blown cellulose. . . . . . . . . . 22.0 Single-glazed window (excl. frame) . . . . . . . . . . . . . .9
Uninsulated frame floor . . . . . . . . . . . . . . . . . . . . . . 4.6 Double-glazed window (excl. frame) . . . . . . . . . . . . 1.6
Uninsulated attic . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0

b) Calculation of the R-value for an exterior wall

Resist- Resist-
Construction ance Construction ance
1. Outside surface (15mph wind) . . . . . . . . . . . . . . . 0.17 5.½" gypsum board . . . . . . . . . . . . . . . . . . . . . . . . . 0.45
2. Brick veneer (4 in. face brick) . . . . . . . . . . . . . . . . 0.44 6. Inside surface (still air) . . . . . . . . . . . . . . . . . . . . . 0.68
3. I/2” insulation board sheathing . . . . . . . . . . . . . . 1.32
A.S1/2“ fiberglass batt — R-1 1, 2x4 stud— R-4.53

(insulation w/studs on 16” centers)* . . . . . . . . . . 10.34 R-value of complete wall. . . . . . . . . . . . . . . . . . 13.40

‘The R-value of the studlinsuiation wall section IS the weighted average (1 518” width, 14 318” Insulation width) of the two component R-values.

c) R-values of other common building materials


Component R-value Component R-value
1/2“ Plywood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.62 5½" fiberglass batt . . . . . . . . . . . . . . . . . . . . . . . . . . 19.0
1x8 wood siding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.79 3½" blown cellulose. . . . . . . . . . . . . . . . . . . . . . . . . 13.0
4“ common brick . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.80 3½" expanded polystyrene foam . . . . . . . . . . . . . . 17.5
Single-glazed window . . . . . . . . . . . . . . . . . . . . . . . . 0.94 3/4” still air space (nonreflecting surfaces) . . . . . . . 1.01
Double-glazed window (¼” air space). . . . . . . . . . . 1.54 4" still air space (nonreflecting surfaces) . . . . . . . . . 1.01
Single-glazed window plus storm window . . . . . . . 1.85

NOTE: The R-values given here are based on the values and methodology given in the ASHRAE Handbook of Fundarnenfa/s, Carl MacPhee, cd., American Society of
Heating, Refrigerating, and Air-Conditioning Engineers, Inc., New York, N Y., 1972, chs. 20,22.

doors. The low-energy house is very heavily in- changed. ) Fractional savings for the 1976
sulated, with R-38 ceilings, R-31 walls, and R-30 house are even larger in Houston, for the same
floors. It is carefully caulked and weather- reason. The “1976” summer heat gains are 8 to
stripped to reduce infiltration and has triple- 10 percent lower than the 1973 house, and
glazing and storm doors. Results of the com- cooling system loads are reduced by about 10
puter simulation of these houses are shown in to 12 percent. Reduction in the cooling load
table 6. Detailed thermal properties and between the two houses is less than the reduc-
energy flows are given in tables 19 through 25. tion in heating load, because the thermal im-
(The computer program did not provide hourly provements do not affect the internal heat
simulation; if it had, it is likely that the low- gains.
energy house in Houston would have required
Modifications in the low-energy house cut
a smalI amount of heating. )
the heating requirements dramatically. Ther-
mal losses are cut by more than 50 percent.
Heat losses in winter are about 16 percent When this is done, the low-energy Houston
less for the 1976 house than the 1973 house in house no longer needs a heating system (one
Chicago and Baltimore, but the calculations burner of an electric range at high heat would
show that the heat that must be supplied here keep this house warm in the coldest Houston
by the furnace is reduced by more than 20 per- weather), and the heating requirements for
cent. This is because the newer house receives Chicago and Baltimore are reduced by 75 and
a higher proportion of its heat gain from sun- 82 percent from the 1973 levels. Cooling re-
light, appliances, and other internal gains. (Ex- quirements in Baltimore and Chicago increase,
tra glazing slightly reduces heat gain from as the heavily insulated floor no longer loses as
sunlight, but other internal gains are un- much heat to the relatively cool ground. In
36 ● Residential Energy Conservation

Table 6.—Performance Comparison for Three Thermal Envelopes in Three Different Climates

Winter heat losses Heat system load Summer heat gains Cooling system load
Percent of Percent of Percent of Percent of
City MMBtu 1973 losses MMBtu 1973 losses MMBtu 1973 losses MMBtu 1973 losses
Baltimore
“1973” house . . . . . . . . 794 — 554 — 269 — 180 —
“1976” house . . . . . . . . 661 83 437 79 247 92 158 88
Low-energy house . . . . 287 36 99 18 219 81 204 113

Chicago
“1973” house . . . . . . . . 1,057 — 811 — 236 — 140 —
“1976” house . . . . . . . . 887 84 647 80 218 93 123 88
Low-energy house . . . . 405 38 202 25 195 83 179 128
I

Houston
“1973” house . . . . . . . . 211 — 84 — 569 — 569 —
“1976” house . . . . . . . . 153 73 52 62 513 90 513 90
Low-energy house . . . . — — 0 0 434 76 434 76
1 MMBtu = 1.05 GJ.
SOURCE: Summarized from tables 19-21.

Houston, however, the cooling load is still Figure 9.— Heating Load/Cost Relationship—
.
lower for the low-energy home, as floor heat Kansas City
losses do not aid cooling in this climate.
A similar analysis was performed by Hut-
chins and Hirst of ORNL.4 This study used the
NBS heating and cooling load program to cal-
culate changes in these loads for “typical”
new construction of a 1,200 ft 2 home in 11
cities of differing climates. The results of that
analysis are in substantial agreement with
those discussed here. Figure 9 shows the
heating load reduction for a home in Kansas
City, Kans. as more and more improvements
are made to the building shell. The cost scale
refers to the additional investment needed to
instalI these improvements in a new home. It is
a net investment in that it accounts for the 0 $500 $1,000 $1,500 $2,000
added cost of the additional materials (insula- Additional initial costs (1 975– $)
tion, storm windows, etc. ) as well as the re- SOURCE Paul F. Hutchins, Jr., and Eric Hirst, “Engineering-Economic Analysis
duced heating equipment cost that occurs be- of Single-Family Dwelling Thermal Performance, ” Oak Ridge National
Laboratory, ORNL/CON-35, November 1978, p. 16.
cause the heating system size is reduced as the
heating load decreases. It is important to re-
member that these costs are for new homes; The Kansas City results show a possible heat
similar changes for existing homes wilI be more load reduction of up to 70 percent with an in-
expensive in some cases (e. g., adding walI in- vestment of less than $2,000. (The baseline
sulation). house for the case had no insulation.) These
dollar levels compare well with those calcu-
lated for the two houses discussed above. In
this case it was estimated that the low-energy
‘Paul F. Hutchins, J r., and Eric Hirst, “Engineering-Eco-
nomic Analysis of Single-Family DwelIing Thermal Per-
house would cost about $3,200 more than the
formance” (Oak Ridge National Laboratory, November 1973 house while the 1976 house would be
1978), ORNL/CON-35. about $600 more expensive. I n nearly all cases,
Ch. Il—Residential Energy Use and Efficiency Strategies ● 37

however, this added cost would be more than much attention when dealing with winter heat
recovered in reduced fuel bills over the life of loss. When sunlight strikes a wall or roof, par-
the home. ticularly a dark-colored one, it will be heated.
If the wind is blowing hard, the solar heat will
The results from these two models show
be removed so rapidly that it will have a very
that, within the limits of computer simulation,
small effect on the surface temperature of the
a substantial reduction in heating load is possi-
walI and hence on the heat flowing from inside
ble from homes built in the early 1970’s. When
to outside. If the wind is relatively calm, the
cooling is considered, additional energy is
surface can be heated considerably, and if the
saved in most cases.
outdoor temperatures are mild enough, the
flow will be greatly reduced and can even be
Insulation Effectiveness
reversed so that heat is flowing into the house
What is possible for new homes based on when the outdoor temperature is below the
computer simulation and the stated character- house temperature.
istics of materials used to increase the efficien-
The heat loss through building components
cy of the building shell has been shown. A key
and the economic value of insulation are gen-
assumption is that the materials perform at
erally calculated from the R-values discussed
their specifications. For most of the items used
earlier and the winter temperatures as ex-
in improving the shell —weather-stripping,
pressed in degree-days. (A measurement of the
storm doors, and windows — the assumption is
relative coldness of a location. ) [f the effect of
a safe one. With insulation, however, prob-
the Sun on a roof or wall as just described is
lems, may arise.
accounted for over the entire winter, the total
Researchers have only recently begun to try heat loss can be much smaller than a calcula-
determining the actual field effectiveness and tion based only on temperature. This led van
durability of insulating materials. (For informa- der Meer and Bickle 7 to propose the use of an
tion on health and safety questions about in- effective R-value (reference discusses an effec-
sulation, see appendix A). Van der Meer5 and tive U-value, which is the inverse of R-value; R-
McGrew 6 contend that insulation is often less value is used here for consistency with the
effective than commonly believed, owing to earlier discussion). If a wall had an R-value of 5
degradation over time, and to the effect of but lost only half as much heat as expected
solar heat gain on the net heat loss through a over the course of the winter because of solar
wall or attic over a heating season. It appears effects, it would have an effective R-value of
from their work that uninsulated south walls or 10.
attics, in particular, tend to collect significant Van der Meer and Bickle calculated effec-
amounts of solar heat in the climates of Colo- tive R-values for a variety of different types of
rado and New Mexico. The absorbed sunshine wall construction for 11 different climatic
can offset a larger fraction of the heat lost regions of New Mexico, which ranged from
through a wall if the entire winter season is 2,800 to 9,300 degree-days and received dif-
considered. ferent amounts of sunshine. Their results are
Sunshine striking the roof or walls of a build- summarized for three wall types in table 7.
ing can significantly change the energy flows. Results are shown for north- and south-facing
This is the basis for the use of “Solair” walIs and for Iight and dark colors. (Results for
temperatures to calculate summer heat gains. other colors and orientations will be inter-
However, similar concepts have not received mediate among those shown.) Clearly color is
very important. The effective R-value of a
5Wybe van der Meer, j r,, “Energy Conservation Hous- light-colored south wall is very close to the lab-
7
ing for New Mexico, ” Report No. 76-163, prepared for the Wybe van der Meer, Jr., and Larry W. Bickle, “Effec-
New Mexico Energy Resources Board, Nov. 14,1977. tive “U” Factors— A New Method for Determining Aver-
‘George Yeagle, Jay McGrew, and John Volkman, age Energy Consumption for Heating BuiIdings, ” pre-
“Field Survey of Energy Use in Homes, Denver, Colo. ” pared for the New Mexico Energy Resources Board, Con-
(Applied Science and Engineering, Inc., July 1977). tract Nos. 76-161 and 76-164, Nov. 10, 1977.
38 ● Residential Energy Conservation

Table 7.—Effective R-Values for Different Walls in a Range of New Mexico Climates

Wall orientation
North I
I
South
Light Dark Light Dark
Brick veneer wall with 3%” insulation (R = 13.3) 11.6 -13.0 14.5 -17.2 12.8 -14.1 20.8 -90.9
Uninsulated frame wall (R = 3.7). . . . . . . . . . . . . . 3.7- 4.0 4.5- 5.3 3.9- 4.4 6.3- 41.7
Brick veneer wall with 6“ insulation (R = 19.2) . . 16.4 -18.5 20.8 -23.8 17.9 -20.0 29.4-111

oratory value for all three walls shown. How- the insulation. The R-values of the mineral
ever, the dark north walls all have an effective fiber (fiberglass and rock wool) insulation
R-value slightly higher than the laboratory varied from 2.35 to 4.25 Btu -1 hr ft2 0 F; but the
value. The effective R-values of dark south- wide variation was due to differences in the
facing walls show dramatic increases above material itself rather than to differences in age
the theoretical values. The extremely high ef- or thickness. McGrew9 measured the R-values
fective values for uninsulated walls occur only of insulation installed in several houses and
in the warmer parts of New Mexico. found that while thin layers of insulation had
R-values corresponding to their laboratory
Several caveats must be applied to the inter-
values, thicker layers fell below their labora-
pretation of this work. Effective R-values in
most parts of the country will be closer to the tory values. Three inches of rock wool with a
lab value of R-11 had a measured value of 9.9,
steady state values than for the sunny New
Mexico climate. These results consider only and 6 inches of fiberglass with a lab value of
R-1 9 had a measured value of 13.4. These are
the winter heating season, and unless over-
consistent with the general trend of his other
hangs or other shading measures are em-
field measurements.
ployed, increased heat gain in summer could
offset much of the benefits of the winter gain. Neither of these studies can be regarded as
definitive since both sample sizes were small
This is another illustration of the need to
and limited to particular geographic areas. It is
make standards responsive to the site. Al-
also possible that the moisture content and R-
though increased amounts of insulation almost
value wilI vary throughout the year in a signifi-
always reduce the total heat loss of a house, it
cant manner. More work is needed to establish
will not have as large an effect as anticipated
in some cases, and hence will be less cost ef- the long-term performance of different types
of insulation in various climates.
fective than calculated using standard values.
A related problem, which seems to have re-
Insulation can also degrade in several ways
as it ages. Loose-fiII insulation in attics can set- ceived very little attention, is provision of
vapor barriers for insulation retrofits, par-
tle, foam insulation can shrink and crack, and
moisture buildup can reduce the effectiveness ticularly walls. With the exception of foamed
plastics, the insulations used to retrofit wall
of different types of insulation. The Minnesota
cavities are degraded by the absorption of
Energy Agency recently measured the proper-
water vapor. Exterior walls that were built
ties of retrofitted insulation in 70 homes where
without insulation seldom include a vapor bar-
the insulation ranged in age from a few months
rier. This problem is now being investigated.
to 18 years (with an average age of 2½ years).8
One solution may be the development and use
The R-values of the cellulose and urea-formal-
of paints and wallpapers that are impervious
dehyde insulation were 4 percent lower on
average than expected based on the density of
‘Jay L. McGrew and George P. Yeagle, “Determination
‘Minnesota Energy Agency, “Minnesota Retrofit In- of Heat Flow and the Cost Effectiveness of Insulation in
sulation In-Site Test Program, ” HCP/W 2843-01 for U.S. Walls and Ceilings of Residential and Commercial Build-
Department of Energy u n d e r C o n t r a c t N o . E Y - ings” (Applied Science and Engineering, Inc., October
76-C-0202843, June 1978. 1977)
Ch. II--Residential Energy Use and Efficiency Strategies “ 39

to water vapor. While some paints are mar- burned in home heating systems by 50 percent.
keted with vapor barrier properties, most of DOE also determined that it would be possible
the work on coatings impervious to water t o a c h i e v e a n industry-wide production-
vapor appears to have been done by the paper weighted average seasonal efficiency of 81.4
industry for use in food packaging. Applica- percent by 1980. ” These improved furnaces
tion of this work to products for the housing in- would incorporate stack dampers and im-
dustry appears desirable. proved heat exchangers. While the efficiencies
cited by DOE do not include duct losses, these
Heating, Ventilation, and losses can be eliminated by placing the fur-
nace and the distribution ducts within the
Air-Conditioning Systems
heated space.
The efficiency of heating and air-condition- The average seasonal efficiency of gas fur-
ing systems varies widely depending on the nace installations is 61.4 percent. This is much
quality of the equipment and its installation closer to the seasonal efficiencies that DOE
and maintenance, but the average installation found for 1975 gas furnaces –61.5 percent–
is less efficient than generally realized. This is
than would be expected. While gas furnaces
partially due to the fact that efficiencies listed do not require as much maintenance as oil fur-
by the manufacturer are those of the furnace naces and can be made more easily in small
or air-conditioner operating under optimum sizes, duct losses would be expected to in-
conditions. These estimates do not include the troduce a larger discrepancy than observed.
losses from the duct system that distributes DOE estimates that use of stack dampers,
conditioned air to the house. The confusion power burners, improved heat exchangers, and
between potential and actual efficiency is in- the replacement of pilot lights with electric ig-
creased by the fact that the performance of nition systems can improve the average sea-
different equipment is defined in different sonal efficiency of new furnaces to 75.0 per-
terms —the “efficiency” of a furnace, the cent. 2
“coefficient of performance” (COP) for heat
pumps, and the “energy efficiency ratio” (EER) Steady-state and seasonal efficiencies above
for air-conditioners. These different ap- 90 percent have been measured for furnaces
proaches are explained in a note at the end of and boilers employing the “pulse combustion”
this chapter. For purposes of comparison, this principle, A gas-fired pulse combustion boiler
discussion will emphasize the seasonal system will be marketed in limited quantities during
performance, which attempts to measure the the latter part of 1979 and an oil-fired unit has
actual performance of the system in a real been developed by a European manufacturer
home situation. who has expressed interest in marketing it in
the United States. Research on a number of
Furnaces fossil fuel-fired heat pumps is underway and is
sufficiently advanced that gas-fired heat
The average seasonal efficiency of oil fur- pumps with coefficients of performance of 1.2
nace installations is about 50 percent (in- to 1.5 may be on the market in as little as 5
cluding duct losses) as shown in figure 10. years. These furnaces and heat pumps are dis-
However, the Department of Energy (DOE) has cussed in chapter Xl.
determined that the seasonal efficiency of a
properly sized and installed new oil furnace of Furnace Retrofits
1975 vintage is 74 percent, ’” which suggests
that inadequate maintenance, duct losses, and A number of different organizations are con-
oversizing may be increasing the amount of oil ducting tests of the improvements in furnace
efficiency that can be achieved by retrofits, in-
‘“Department of Energy, “Final Energy Efficiency lm-
provement Targets for Water Heaters, Home Heating cluding the American Gas Association (AGA),
Equipment (Not Including Furnaces), Kitchen Ranges and
Ovens, Clothes Washers, and Furnaces,” Federal Register, 1 I Ibid.
vol. 43, no. 198 (Oct. 12, 1978), 47118-47127. “[bid.
40 ● Residential Energy Conservation

Figure 10.— Residential Heating Systems

(20 – new. laboratory test conditions)


(429 – well maintained)
(72 – as found

(conversion)

(MIT) I
(Univ. of Wise

(62 — as foun

Average 61 .4%

Brook haven National Laboratory (BNL), NBS, the data sample is small and not adequate for
and the National Oil Jobbers Council. Only a generalizations. The savings provided by the
few results are available now, but these in- adjusted system apparently depended on the
dicate that meaningful savings can be initial condition of the heating system, the
achieved by retrofits. degree of oversizing, the location, and the vent
system design.
The AGA program, which is known as the
Space Heating System Efficiency improve- Northern States Power Company (Minne-
ment Program (SHEIP), involves tests in about apolis, Minn. ) is participating in SHEIP and has
5,000 homes in all parts of the country. Prelimi- monitored 51 homes that had been retrofit
nary findings based on the installations that prior to the winter of 1977-78.14 A variety of
were retrofitted prior to the 1976-77 winter different retrofits were installed ranging from
found that adding vent dampers, making the simply derating the furnace and putting in a
furnace a more appropriate size, and other vent restrictor to replacement of the furnace.
combinations all saved energy. 13 The size of While the sample is too small to draw conclu-
‘American C-as Association, “The Gas Industry’s
Space Heating System Efficiency Improvement Pro- 14
Northern States Power Company, “1977-78 S e a s o n
gram — 1976/77 Heating Season Status Report." SHE I P Report “
Ch. II—Residential Energy Use and Efficiency Strategies ● 41

sions about most of the individual retrofits, it seasonal performance factor16 and four others
is interesting to note that the retrofits resulted had a seasonal performance factor at least 90
in an average reduction in fuel use (adjusted percent of the theoretical value. Six of the
for weather) of 14. I percent for a cost savings systems that performed near or above speci-
of $42. The average installation cost of the fication were located in climates with less than
retrofits was $163, but did not include the 3,000 heating degree-days, including all three
markup on the materials, which would have that exceeded the theoretical value. (Duct
added $20 to $25 per installation on average. losses were not included in either measure-
These results were achieved on furnaces that merit. )
were all in good enough condition that they
The deviation between the measured and
were expected to last for at least 5 years, so it
the theoretical performance did not correlate
is Iikely that their annual efficiencies were
with the age or size of heat pump model, but
sIightly higher than average. Thus, it seems
there was some indication that the theoretical
probable that seasonal efficiencies of 70 per-
performance underestimated the defrost re-
cent can be achieved in gas furnaces that are
quirements. Measurements made by NBS17 on
in condition adequate for retrofitting. These
a single heat pump installation found a dif-
retrofits did not include duct system insula-
ference between measured and calculated
tion, which is clearly effective if the exposed
seasonal performance factors virtually iden-
ducts are in unconditioned space.
tical to that given by the equations on figure
Heat Pumps 11 for Washington, D.C. Much of this dif-
ference was due to inadequate consideration
The seasonal performance factor for 39 dif-
of defrost requirements in the calculated
ferent heat pump installations was recently
seasonal performance factor. While it was not
measured in a study conducted by Westing-
possible to place a quantitative measure on in-
house. ” The heat pumps studied were made by
stallation quality, there seemed to be a
several different manufacturers and were in-
qualitative correlation between the experience
stalled in 8 different cities. Figure 11 shows the
of the installer and the performance of the in-
actual performance of the installations (O and
stalIation. 18 Inadequate duct sizing and im-
6) measured over two winters and the solid
proper control settings appeared to degrade
line represents the average measured seasonal
the performance. Thus, it seems plausible that
performance factor as a function of the heat-
a combination of improved installer training
ing degree-days. Manufacturers performance
and experience and modest technical im-
specifications were used together with the provements in heat pumps can result in more
measured heating demands of each house to instalIations that achieve the theoretical per-
calculate the theoretical seasonal perform- formance levels.
ance factor for each installation, and the re-
sults were averaged to obtain the broken Iine
Air-Conditioners
shown in the figure. The horizontal dotted line
represents the performance of an electric fur- The average COP of air-conditioners on the
nace. The figure shows that the average instal- market in 1976 was 2.0 under standard test
lation achieves 88 percent of the expected
electricity savings in a 2,000 degree-day cli-
mate, but only 22 percent of the expected sav-
ings in an 8,000 degree-day climate. “Insufficient data was available to calculate the theo-
retical performance factor for one of these cases, but the
The study also found that of the 39 installa- measured performance exceeded the theoretical per-
tions, only three exceeded the theoretical formance of any other installation in that location.
‘ ‘George E. Kelley and John Bean, “Dynamic Per-
‘sPaul J. Blake and William C. Gernert, “Load and Use formance of a Residential Air-to-Air Heat Pump,” Na-
Characteristics of Electric Heat Pumps in Single-Family tional Bureau of Standards, NBS Building Science Series
Residences,” prepared by Westinghouse Electric Cor- 93, March 1977.
18
poration for EPRI, EPRI EA-793, Project 432-1 Final Paul Blake, Westinghouse Electric Corporation, per-
Report, vol. 1, June 1978, pp. 2,1-12,13, sonal communication, December 1978.
42 . Residential Energy Conservation

Figure 11 .—Performance of Installed Heating Systems

conditions. 9 However, some units were on the tional Energy Act, air-conditioners with larger
market that had COPS of 2.6. California will condensers and evaporators, more efficient
not allow the sale of central air-conditioners compressors, two-speed compressors, multiple
with a COP below 2.34 after November 3, 1979, compressors, etc., are coming into the market.
and 11 5-volt room air-conditioners must have a
COP of at least 2.55 after that date. It is
estimated that the cost of increasing the COP Appliance Efficiency and Integrated
of air-conditioners from 2.0 to 26 is about $10 Appliances
per MBtu of hourly cooling capacity. 20 T o
meet these standards and the Federal stand- Although the discussion so far has concen-
ards to be developed as directed by the Na- trated on the building shell and heating and
cooling equipment, large savings can be
“George D Hudelson, (Vice President-Engineering,
achieved in other parts of residential use. I n
Carrier Corporation), testimony before the California
State Energy Resources Conservation and Development
figure 7, it was seen that appliances, Iighting,
Commission, Aug. 10,1976 (Docket No 75; Con-3). and hot water account for 36 percent of the
bid. energy for the 1973 house. Therefore the
Ch. II--Residential Energy Use and Efficiency Strategies “ 43

potential is great, particularly for retrofit, formance levels. A British study has estimated
because of the accessibility of appliances that the average energy use of the appliances
compared to some components of the buiIding shown in table 9 (other than water heaters)
shell, such as the walls. could be reduced to 41 percent of present con-
sumption. 23
The effect of appliances includes the energy
used to operate them and changes in the As water heating is the second largest use of
house’s internal heat gains that change the home energy (after heating) in most locations,
heating and cooling load. As most appliances a number of methods are under study to re-
are used in conditioned space, they exhaust duce this demand below the incremental im-
some heat into that space. As with any other provements reflected in table 9. Heat pumps
change in the house, a careful examination of designed to provide hot water are in the works,
the system interaction must be made to deter- and proponents expect they may be able to
mine the overalI effect of an apparently simple operate with an annual water heating COP of 2
change. to 3.24 Because a heat pump removes heat
from the air around it, a typical heat pump
The overall effect of an improved appliance
water heater will also provide space cooling
that consumes 100 kWh per year less than the
about equal to that of a typical small window
unimproved version is illustrated in table 8. air-conditioner (one-half ton) in summer. Such
This figure shows the effect of such a change
a heater is expected to cost about $250 more
on two electric homes, one with resistance
than a conventional water heater.
heating and one with a heat pump, in two
climates. I n Chicago, where heating is the Other approaches to the problem of heating
largest need, the improved appliance reduces water include use of heat rejected from the
total consumption only by half of the appli- condenser of an air-conditioner, refrigerator,
ance savings when resistance heat is in use, but or freezer, or the recovery of heat from drain
by 79 percent when a heat pump is used. This water. Air-conditioner heat pump recovery
results from a drop in the appliance contribu- units now on the market cost $300 to $500 in-
tion to heat gain, due to greater appliance effi- stalled. Estimated hot water production ranges
ciency. I n Houston, where cooling is more im- from 1,000 to 4,600 Btu per hour per ton of air-
portant, total savings are greater than the sav- conditioning capacity. 25 The air-conditioner
ings of the appliances alone, since internal heat recovery unit is identical in concept to
heat gain is reduced. the heat pump water heater, but is fitted to
existing air-conditioners or heat pumps. A unit
The Department of Energy has published
installed on a 3-ton air-conditioner in the Balti-
what it has determined to be the maximum
more area would reduce the electricity used
feasible improvements, technically and eco-
for heating hot water in a typical home by
nomically, for major appliances by 1980.2’ 22 If
about 26 percent. 26
appliances in the prototypical home were im-
proved according to these estimates, the con-
sumption of the improved appliance would be
that shown in table 9. These target figures do “Gerald Leach, et al., A Low Energy Strategy for the
not represent final technological limits, but United Kingdom (London: Science Reviews, Ltd., 1979),
pp. 104,105.
only limits the Department believes can soon
“R. L. Dunning, “The Time for a Heat Pump Water
be achieved industry-wide. Some appliances Heater,” proceedings of the conference on Major Home
now on the market equal or exceed these per- Appliance Technology for Energy Conservation, Purdue
University, Feb. 27- Mar. 1,1978 (available from NTIS).
*’David W. Lee, W. Thompson Lawrence, and Robert P.
2’Department of Energy, “Energy Efficiency Improve- Wilson, “Design, Development, and Demonstration of a
ment Targets for Nine Types of Appliances, ” Federal Promising Integrated Appliance,” Arthur D. Little, Inc.,
Register, vol. 43, p. 15138 (Apr. 11, 1978). prepared for ERDA under Contract No. EY-76-C-03-1209,
“Department of Energy, “Energy Efficiency Improve- September 1977.
ment Targets for Five Types of Appliances,” Federal “Estimate by the Carrier Corporation for a family
Register, vol. 43, p, 47118 (Oct. 12, 1978), using 80 gal Ions of hot water per day.
44 . Residential Energy Conservation

Table 8.—The Impact of a 100 kWh/Year Reduction in Appliance Energy Usage


on Total Energy Consumption

Chicago Houston
Resistance Efficient Resistance Efficient
heat heat pump heat heat pump
Appliance savings. . . . . . . . . . . . . . . . . . . . . . . . . . 100 100 100 100
Cooling savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 12 39 22
Additional heating . . . . . . . . . . . . . . . . . . . . . . . . . 69 33 37 14
Total savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 79 102 108
NOTE: It is assumed that the resistance heating system has an efficiency of 0.9 (1O-percent duct losses) and a system cooling COP of 1.8. The heat
pump system has a heating COP of 1.9 in Chicago and 2.36 in Houston with a cooling COP of 2.6. The heating season is assumed to be 7
months in Chicago and 4 months in Houston. The cooling season is assumed to be 35 months in Chicago and 7 months in Houston.
SOURCE: OTA

Table 9.—Energy Consumption of Improved heat pump in conjunction with a large ice bin
Appliances for the Prototypical Home that provides thermal storage. During the
winter, the heat pump provides heating and
Appliance Energy consumption
hot water for the house by cooling and freez-
Hot water heater -Gas. . . . . . . . . . . . . . . . 216 therms
-Electric. . . . . . . . . . . . . 3,703 kWh
ing other water. The ice is stored in a large in-
Cooking range/oven . . . . . . . . . . . . . . . . . 1,164 kWh sulated bin in the basement and used to cool
Clothes dryer. . . . . . . . . . . . . . . . . . . . . . . 950 kWh the house during the next summer. After the
Refrigerator/freezer. . . . . . . . . . . . . . . . . . 1,318 kWh
Dishwasher . . . . . . . . . . . . . . . . . . . . . . . . 290 kWh heating season, the heat pump is normally
NOTE: One therm = 29.3 kWh operated only to provide domestic hot water.
SOURCE: OTA. However, if the ice supply is exhausted before
the end of the summer, additional ice is made
As knowledge of home energy use increases
by operating the heat pump at night when off-
and prices of purchased energy rise, the use of
peak electricity can be used.
appliance heat now wasted should become
more common. Some building code provisions The efficiency of the system is higher in all
may have to be adjusted to encourage these modes of operation than the average efficien-
uses. cy of conventional systems. The “heat source”
for the heat pump is always near 320 F so it is
never necessary to provide supplemental re-
The ACES System sistance heating and the ACES operates with a
The Annual Cycle Energy System (ACES) is measured COP of 2.77 as shown in table 10.
an innovative heat pump system that uses When providing hot water, the system has a
substantially less energy than conventional COP slightly greater than 3, which is com-
heat pump systems. ” A demonstration house
incorporating the ACES system has been built Table 10.— Full-Load Performance of the
near KnoxvilIe, Term., and uses only 30 percent ACES System
as much energy for heating, cooling, and hot ——
water as an identical control house with an Function Full-load COP
electric furnace, air-conditioner, and hot water Space heating with water heating . . . . . . . . . . 2.77
Water heating only . . . . . . . . . . . . . . . . . . . . . . 3.09
heater. Space cooling with stored ice . . . . . . . . . . . . . 12.70
Space cooling with the storage
The ACES concept, which was originated by > 32° F and < 45° F. . . . . . . . . . . . . . . . . . . 10.60
Harry Fischer of ORNL, uses an “ice-maker” Night heat rejection with water heatinga. . . . . 0.50
(2.50)
27A, s, Holman and V. R. Brantley, “ACES DemonWa- aln the strict accounting used here, only the water heating is calculated as a
tion: Construction, Startup, and Performance Report, ” useful output at the time of night heat rejection because credit is taken for
the chilling when it is later used for space cooling. This procedure results in
Oak Ridge National Laboratory report ORNL/CON-26, a COP of 0.5. If the chilling credit and the water-heating credit are taken at
October 1978. the time of operation, then a COP of 2.5 results.
Ch. II--Residential Energy Use and Efficiency Strategies ● 45

Photo credit: Oak Ridge National Laboratory

The Annual Cycle Energy System (ACES) design is passive energy design utilizing, as its principal component, an insulated
tank of water that serves as an energy storage bin

Photo credit: U.S. Department of Energy

Energy-saving constructed home in California utilizing solar energy


46 ● Residential Energy Conservation

parable to the heat pump water heaters under nace with no duct losses and an electric hot
development and much better than the con- water heater. It used 35 percent less energy
ventional electric hot water heater COP of 1. than the theoretical requirements of a conven-
The system provides cooling from storage with tional heat pump/electric hot water heater
a COP of more than 10. system. These measurements combined with
estimates of the summer cooling requirements
The ACES demonstration house is a 2,000-
show that the ACES system will use only 30
ft 2, single-family house. It is built next to the
percent of the energy for heating, cooling, and
control house that has a simiIar thermal enve-
lope so both houses have nearly identical hot water that would be used by the control
house with a conventional all-electric system.
heating and cooling loads. Both houses are
This is only 21 percent of the energy that
well insulated although not as highly insulated
would be used for these purposes by this house
as the “low energy house” of this chapter. The
if constructed to HUD minimum property
thermal shell improvements reduce the annual
standards (This is nearly identical to the reduc-
heating requirements (20.3 MMBtu) to less
tion shown for the low-energy house. )
than half those of a house insulated according
to the Department of Housing and Urban De-
velopment (HUD) minimum property stand- Table 11.— Actual Space- and Water-Heating Energy
ards (43.8 MMBtu) but increase the seasonal Requirements of the ACES Demonstration Housea
cooling requirement from 22.7 to 24.1 MMBtu. ——. —
Elec. furnace, Heat pump,
The use of natural ventilation for cooling when elec. water elec. water
practical lowers the cooling requirements of ACES heater heater
Load consumption consumption consumption
the ACES house to 17.1 MMBtu. (kWh) (kWh) (kWh) (kWh)
-
Heating . 10,546 10,546 5,021
The actual space- and water-heating energy Hot water 2,657
4,960
2,657 2,657
requirements for the ACES house are shown in Total. . 13,203 4,960 13,203 7,678
table 11 for a 5-month period during the acovers period from Oct. 31, 1977 through Mar. 26, 1978.
1977-78 winter. The ACES system used 62 per- SOURCE: A. S. Holman and V. R. Brantley, “ACES Demonstration: Construc-
tion, Startup, and Performance Report,” Oak Ridge National Labora-
cent less energy than wouId have been re- tory, Report ORNUCON-26, October 1978, pp. 43,47.

quired if the house had used an electric fur-

ENERGY SAVINGS IN EXISTING HOMES–EXPERIMENTS

Although the calculations of heating and townhouses in an area known as Twin Rivers,
cooling loads discussed above were given for N.J. The results of this work suggest that large
new homes, they hold as welI for retrofit of ex- savings are possible on real houses through
isting homes to the extent retrofit is feasible. careful work but that much field work is
As the majority of the housing stock between needed before the full impact of changes is
now and the year 2000 is already built, how- understood.
ever, it is important to examine the potential
for savings by retrofit in more detail. To im- Thirty townhouses near Princeton, N. J., were
prove the thermal qualities of the shell, con- improved with different combinations of four
sumers are urged to weatherstrip, caulk, in- options thought to be cost-effective. The
sulate the attic, and add storm windows, often houses were constructed with R-11 insulation
in that order. This is correct for most homes, in the walls and attic, and some units had dou-
but resulting savings will vary. Princeton Uni- ble glazing. Thus, they were more energy effi-
versity and NBS have conducted extensive and cient than the average existing house built up
thoroughly monitored “retrofits” of houses, to that time. Improvements used by the Prince-
and Princeton has undertaken an extensive ton researchers were: 1 ) increasing the attic in-
project involving retrofit and monitoring of 30 sulation from R-11 to R-30; 2) sealing a shaft
Ch. II—Residential Energy Use and Efficiency Strategies ● 47

around the furnace flue, which ran from the This experience suggests that retrofit will be
basement to the attic and released warm air most effective when based on an energy audit
past the attic insulation; 3) weatherstripping by someone who can identify specific charac-
windows and doors, caulking where needed, teristics of the structure, and it further suggests
and sealing some openings between the base- the need for more carefully monitored experi-
ment and fire walls that separate the houses; ments to identify other common design
and 4) insulating the furnace and its warm air defects.
distribution system and adding insulation to Princeton researchers also conducted an in-
the hot water heater.28 tensive retrofit on a single townhouse with
These retrofits showed winter heating sav- careful before-and-after measurements. Attic
ings averaging about 20 percent for the two at- insulation was increased to R-30 as in the
tic retrofits and up to 30 percent for the total group retrofit, and the hole around the flue
package. 29 30 Savings varied considerably; this and gaps along the firewall were plugged as
was due to changes in temperature and sun- before. For this experiment, however, the old
light combined with changing living patterns insulation was lifted and additional holes
of the occupants (al I houses were occupied). around pipes and wires entering the attic were
plugged. More holes along the partition walls
The savings measured are consistent with at the attic were filled; the joint between the
the reduction in heating required in 600 houses masonry and the wood at the top of the foun-
that received attic insulation retrofit through dation was sealed, and basement walls were in-
the Washington Natural Gas Company (Seat- sulated. Careful caulking and weather-strip-
tle) in autumn 1973. These houses indicated an ping was used, and a tracer test to locate small
average reduction of gas consumption of 23 air leaks identified tiny holes. Total labor in-
percent. 31 volved in reducing infiltration was 6 worker-
While the Twin Rivers retrofits were conven- days, and the final infiltration rate was less
tional, there were some choices the average than 0.4 air changes per hour, even with winds
homeowner would have missed. These choices higher than 20 mph.
were important. Plugging the space around the Different treatments were used for windows.
flue and the spaces along the firewall stopped Sliding glass doors were improved through
heated air from bypassing the insulation. (Clos- adding a storm door. Windows not used for
ing openings in the basement also contrib- visibility were covered with plastic bubble
uted. ) Engineering analysis indicated that up to material placed between two sheets of glass.
35 percent of the heat escaping from the town- This type of window covering created an R-
houses as built occurred via the insulation value of 3.8, compared with 1.8 for single glass
bypass–heated air was flowing up and out of plus a storm window. The living room windows
the house by direct escape routes! 32 were equipped with insulating shutters, to be
closed at night.
28Davld T, Harrje, “Details of the First Round Retrofits
at Twin Rivers,” Energy and Buildings 1 (1977/78), p. 271. Figure 12 shows engineering estimates of the
*’Robert H. Socolow, “The Twin Rivers Program on losses through various parts of the house,
Energy Conservation in Housing: Highlights and Conclu- before and after retrofit. Largest reductions
sions,” Energy and Buildings 1 (1977/78), p. 207. came from lowered infiltration, but it is clear
JoThomas H. Woteki, “The Princeton omnibus Experi-
that total reduction in thermal losses was pro-
ment: Some Effects of Retrofits on Space Heating Re-
quirements” (Princeton University Center for Environ- duced by many small adjustments. Thermal
mental Studies, 1976), Report No. 43, 1976. losses were reduced to 45.5 percent of their
3’Donald C. Navarre, “Profitable Marketing of Energy- preretrofit value, and annual heating re-
Saving Services, ” Utility Ad Views, July/August 1976, p. quirements (calculated considering internal
26.
heat gain and sunlight) showed the heating
“Jan Beyea, Bautam Dutt, and Thomas Woteki, “Criti-
cal Significance of Attics and Basements in the Energy system would have only one-third the load of
Balance of Twin Rivers Townhouses, ” Energy and Bui/d- the original system. These impressive numbers
ings 1 (1 977/78), p, 261. are especially significant because the house
48 ● Residential Energy Conservation

Figure 12.— Handbook Estimates of Loss Rates


Before and After Retrofit
Loss rate: W/” C
o 20 40 60

Through attic
Outside walls Front
Back
Front door

South windows:
Living room
Bedroom
North windows:
Family room
Bedrooms

Basement:
Walls above grade
Walls below grade
Floor

Air infiltration:
Basement
1st & 2nd floors
L 1 1 I i1 1 1 1 I 1 1 1
0 50 100
Loss rate: Btu/° F-HR
SOURCE: F. W. Slnden, “A Two-Thirds Reduction (n the Space Heat Require-
ment of a Twin Rivers Town house,” Energy and Bu//dirrgs 1,
243,
1977-78.
Shaded areas indicate loss rate following retrofit

was built in 1972, and thus had lower thermal sulation, and uninsulated walls and floors.
losses as built than most existing stock. Windows were single-glazed except for a Iiving
room picture window. The house is surrounded
The materials cost $425 and required some
20 worker days for installation. Some items by trees on all sides and has dense shrubbery
were hand built, so labor requirements were along the north wall. It showed evidence of
high. Since this work, additional loss mecha- above-average craftsmanship in construction.
All these factors combined to produce air in-
nisms have been discovered in the party walls
filtration rates ranging from one-quarter to
of adjoining townhouses,33 and correction of
two-thirds air change per hour in extreme con-
these flaws should reduce the heating require-
ment to 25 percent of the original value. ditions; this is unusually low.

The National Bureau of Standards moni- First retrofits were planned to reduce infil-
tored the heating requirements of a 2,054 ft 2 tration — careful caulking, weather-stripping,
house (commonly called the Bowman house) in replacement, or reglazing of window panes.
the winter of 1973-74, and continued to The fireplace damper was repaired, a spring-
monitor during a three-stage retrofit the Ioaded damper was installed on the kitchen
following winter.34 A single-story wood-frame vent-fan, and the house was painted inside and
house with unheated half basement and crawl out. There was no measurable difference in in-
space, the house was buiIt with R-11 attic in- filtration after the retrofits.

“ R o b e r t H Socolow, “1 ntroduction, ” Energy a n d


The next step was to install wooden-sash
~ui/dif?gS 1 (1977/78), p. 203. storm windows, which cut the heat loss of the
“D. M Burch and C M Hunt, “Retrofitting an Existing house by 20.3 percent.
Wood-Frame Residence for Energy Conservation – An Ex-
perimental Study,” NBS Building Science Series 105, July Finally, blown cellulose insulation was
1978. added to increase the attic to R-21, al I exterior
Ch. Il—Residential Energy Use and Efficiency Strategies “ 49

walls were insulated (with blown fiberglass, Table 14.—Postretrofit Steady. State Winter
blown cellulose, and urea-formaldehyde foam Heat-Loss Calculations
in different walls), R-11 insulation was placed
Heat-loss Heat-loss-rate Percent of
under the floor over the basement, and R-1 9 path Btu/h total
over the crawl space. The addition of this in-
sulation cut the heat loss from the house by
another 23 percent, but actually resulted in a
slight increase in the infiltration rate, a result
not fulIy understood.
Table 12 shows the resulting reduction in
thermal losses of the house, based on an
assumed occupancy pattern. Thermal losses
went down 43.3 percent, and the annual heat-
ing system load was reduced by 58.5 percent.
Tables 13 and 14 show calculated steady-state
heat losses before and after retrofit.
Table 12.—Comparison of Reductions in Heat-Loss
Rate to Reductions in Annual Heating Load

Reduction in Reductions in
heat-loss rate annual heating The summer cooling load was slightly in-
Retrofit stage % load, %. creased. Insulation added to the walls and
Preretrofit (and Stage 1) . . 0 0 attic reduced heat gain and a polyethylene
Stage 2 . . . . . . . . . . . . . . . . 20.3 25.2
Stage 3 . . . . . . . . . . . . . . . . 23.3 33.3
sheet placed in the crawl space reduced the
Combination . . . . . . . .’. . . 43.3 58.5 moisture entering the house, but these reduc-
SOURCE: D. M. Burch and C. M. Hunt, “Retrofitting an Existing Wood-Frame tions were offset by the reduction in cooling
Residence for Energy Conservation-an Experimental Study,” NBS
Building Science Series 105, July 1978. resulting from the passage of air through the
floor to the basement space.
Table 13.—Preretrofit Steady-State Winter
Heat-Loss Calculations
The experiments at NBS and Princeton sug-
Heat-loss Heat-loss-rate Percent of gest possible heating savings of at least 50 per-
path Btu/h total cent through straightforward improvements,
Walls. . . . . . . . . . . . . . 9,617 ; 28.0 even in well-constructed houses. They also
Ceiling . . . . . . . . . . . . 4,020 11.7
Floor
show that these levels will be reached only
Over crawl space. . 3,201 9.3 through careful examination of the structure,
Over basement . . . 292 } 3,493 0.9 and that our general knowledge of the dynam-
Windows ics of retrofit is not very sophisticated. Addi-
Single pane . . . . . . 8,395 ,0 2 7 2 24.4
Insulating glass. . . 1,877 ‘ 29.9 tional careful monitoring of actual houses is
} 5.5 }
Doors . . . . . . . . . . . . . 924 2.7” needed. Such data will help us to obtain better
Air Infiltration . . . . . . 6,010 17.5
(1 = 0.51 h-l) a
values for public and private investments.
Total . .........34,336 100
aBased on Preretrofit air-infiltration correlation, indoor temperature of 68° F
and outdoor temperature of 32” F.
SOURCE: D. M. Burch and C. M. Hunt, “Retrofitting an Existing Wood-Frame
Residence for Energy Conservation-an Experimental Study,” NBS
Building Science Series 105, July 1978.
50 ● Residential Energy Conservation

INTEGRATING IMPROVED THERMAL ENVELOPE, APPLIANCES,


AND HEATING AND COOLING EQUIPMENT
The overall reduction in household energy the baseline 1973 performance. The low-
use is not determined solely by the thermal energy, all-electric house starts with a well-in-
envelope improvements; it is also influenced sulated and tight thermal shell, uses a heat
by the type and efficiency of heating, cooling, pump installed to meet predicted perform-
and water heating equipment used as well as ance, and improved appliances. The only
the other appliances. This can be seen in table equipment not now commercialIy available in
15, which shows the total primary energy con- residential sizes is the heat pump providing the
sumption for five different sets of equipment hot water. This house uses 36 to 39 percent of
in the three different simuIation houses dis- the energy of the 1973 house. The low-energy
cussed earlier. gas-heated house is comparably equipped, ex-
cept that it uses an improved furnace, air-con-
The equipment packages assumed range in
ditioner, and hot water heater as shown in
performance from that typical of many ex-
table 16. It uses about 55 percent of the energy
isting installations to systems with above
of the baseline gas-heated house. The reduc-
average but still below many existing commer-
tion is smaller than for the all-electric house,
cial facilities. Gas and electric heating equip-
as heating represented a much larger fraction
ment is used to illustrate around the country.
of the primary energy consumption in the
Price, availability or other considerations lead
baseline all-electric house than in the gas-
to the choice of oil, wood, or solar in many
heated house.
new homes.
In Houston, the qualitative changes ob-
The effect of the thermal envelope or equip- served are similar, but the absolute and frac-
ment improvements is rather similar in Chi- tional reductions observed are generally con-
cago and Baltimore. The extra attic insulation, siderably smalIer since heating and cooling are
storm windows, and insulated doors of the initialIy a smaller fraction of the total con-
1976 house reduce consumption by 12 to 14 sumption. For the 1976 house, the heating load
percent. Replacing the electric furnace with a is already small enough that the heat pump
heat pump cuts consumption to 72 percent of cuts only 3 percent from total consumption. It

Table 15.—Primary Energy Consumption for Different House/Equipment Combinations


(in MMBtu)

Chicago Bait i more Houston


Percent of Percent of Percent of
Consumption 1973 use Consumption 1973 use Consumption 1973 use
All-electric houses
“1973” house with
electric furnace. . . . . . . . . . 491 100 400 100 294 100
“1976” house with
electric furnace. . . . . . . . . . 424 86 351 88 271 92
“1976” house with
heat pump . . . . . . . . . . . . . . 353 72 286 72 261 89
Low-energy house
with heat pump. . . . . . . . . . 176 36 154 39 161 55

Gas-heated houses
“1973” house . . . . . . . . . . . . . 311 100 271 100 252 100
“1976” house . . . . . . . . . . . . . 277 89 244 90 240 95
Low-energy house . . . . . . . . . 168 54 150 55 160 63
NOTES: Primary energy consumption is computed assuming that overall conversion, transmission, and distribution efficiency for electricity is 0.29 and that
processing, transmission, and distribution of natural gas is performed with an efficiency of 0.89
1 MMBtu = 1.05 GJ.
SOURCE: OTA
Ch. II--Residential Energy Use and Efficiency Strategies ● 51

Table 16.—Equipment Used in Prototypical Baltimore Houses


— — . .
Cooling Hot water Appliances
House Heating system -. system
— ——
All electric
“1973” house with electric
furnace. Electric resistance furnace Central electric air-condition- Electric hot water Appliances and usage
with 90°/0 system efficiency ing system with COP = 1.8 heater with 800/0 effi- as shown in table 19.
incl. 10°/0 duct losses. incl. 10% duct losses. ciency.
“1976” house with electric
furnace. . . . . . . . . Same as above. Same as above Same as above. Same as above.

“1976” house with


heat pump . . . . . . . . . . Electric heat pump with Electric heat pump with Same as above. Same as above.
seasonal performance factor COP = 18 incl. 10% duct
of 1.26 (Chicago), 1.48 losses,
(Baltimore), or 1.88 (Houston)
incl. 1OO/. duct losses.
Low-energy house with
heat pump. . . . . . . . . . . . . Electric heat pump with sea- Electric heat pump with Electric heat pump with Same as above except
sonal performance factor of COP = 2.6 and no duct losses. COP =2. Hot water sup- usage given by
1.90 (Chicago), 2.06 (Balti- plied by heat recovery table 9 for
more), and no duct losses. from air-conditioner appliances listed
Houston has no heating during cooling season. there.
— system. — ——
Gas heated
“1973” house . . . . . . . . . . . . . . . Gas furnace with 60% Central electric air-condi- Gas hot water heater Appliances and usage
seasonal system efficiency. tioning system with with 44% efficiency. as shown in table 19.
COP = 18.

“1976” house . . . . . . . . . . . . . . Same as above. Same as above Same as above. Same as above

Low-energy house . . . . . . . . . Gas furnace with 75% Central electric air-condi- Gas hot water heater Same as above except
seasonal system efficiency, tioning system with COP = 2.6 with 55% efficiency. usage given by
and no duct losses. table 9 for appli-
ances Iisted there.

is also interesting to note that in all three Figure 13.—Disaggregated Point, of Use Energy
Consumption for the Low-Energy House With Heat
cities, the primary energy requirement for the Pump in Baltimore, Md.
gas-heated low-energy house is almost the
same as that of the one with the heat pump.
The changes that have been incorporated in
the low-energy house vastly alter the fraction
of total consumption that goes to each end
use. Figure 13 shows that appliances and
lighting now use 61 percent of the total (in
Baltimore) while they used only 25 percent of
the total for the 1973 house. Appliance use has
been reduced slightly, but the total for other
uses has been reduced by 80 percent. The dis-
aggregate use for each house is shown in
tables 23, 24, and 25.
Part of the reductions shown in table 15 are
due to the use of improved heating and cool-
ing equipment. The low-energy gas-heated
house uses a furnace with a seasonal efficien-
cy of 75 percent while the 1976 house has an
efficiency of only 60 percent. The improved
1 MMBtu = 105 gigajoule (GJ)
furnace is equivalent to thermal envelope im- Source Based on tables 19-25
52 . Residential Energy Conservation

provements that reduce the heating load by 20 Cooling requirements could be reduced by
percent, which points out that the retrofit of using outside air whenever temperatures and
equipment needs to be considered for existing humidity are low enough. South-facing win-
housing. It may pay to consider an improved dows could easily be increased to reduce the
furnace before retrofitting wall insulation. heating requirements and it might be possible
Each case must be decided separately, but to reduce the hot water requirements by lower-
where insulation already exists in accessible ing the water temperature or using water-con-
places (attic, storm windows) the heating sys- serving fixtures. Appliance usage could clearly
tem offers considerable potential. be cut because no fluorescent lighting is used,
and the “efficient” appliances used represent
A number of additional steps— not con-
only the industry-weighted average perform-
sidered in the computer simulation — could be
ance, which can be achieved by 1980.
taken to reduce consumption even further.

LIFECYCLE COSTING
Dramatic savings in energy consumption est rate” assumes that three-quarters of the in-
have been shown to be readily achievable vestment is financed with a 9-percent mort-
through existing technology. However, most gage and that the homeowner will receive a 10-
consumers are more interested in saving percent after tax return on the downpayment.
money than saving energy. Comparison of It also considers payments for property taxes
two alternative purchases— buying additional and insurance and the deductions from State
equipment now and making smaller operating and Federal taxes for interest payments. Future
payments versus paying less now but assuming operating expenses include fuel costs, equip-
larger operating cost– is always difficult. Few ment replacement, and routine equipment op-
homeowners resort to sophisticated financial erating and maintenance costs, all of which
analysis, but they may consider the “payback” assume that inflation occurs at a rate of 5.5
time required for operating savings to return percent. The present value of these expenses is
the initial capital investment. This figure is fre- calculated using a discount rate of 10 percent.
quently calculated without considering future It is generally agreed that future energy costs
inflation in the operating costs— and hence in will not be lower than now (in constant dol-
operating savings —or interest on the money lars), but beyond that projections differ as a
invested. result of the different actions possible by the
Government, foreign producers, and consum-
A more sophisticated approach involves
ers. This study calculates Ievelized monthly
“lifecycle costing,” which can be useful for
costs for three different energy cost assump-
policy purposes even if individual homeowners
tions: 1) no increase in constant dollar prices;
do not use it. Lifecycle costing, as used in this
2) oil and electricity prices increase by about
section, combines the initial capital invest-
40 percent, while gas prices double (in cons-
ment with future fuel and operating expend-
tant dollars) by the year 2000 as projected by a
itures by computing the present value of all
Brook haven National Laboratory (BNL) study;
future expenditures. The Ievelized monthly
and 3) a high projection where prices approx-
energy cost is then computed as the constant
imately triple by the year 2000 (see figure 4,
monthly payment that would amortize over 30
chapter l). The detailed assumptions about the
years a loan equal to the sum of the initial in-
energy costs are given in volume 11, chapter I I
vestment and the present value of al I future ex-
of the OTA solar study above.
penditures. The methodology and assumptions
used are described in detail in volume 11, The Ievelized monthly costs for each of the
chapter I of the OTA solar study .35 The “inter- houses described in table 15 are presented in
35
Application of Solar Technology to Today’s E n e r g y tables 17 and 18 for each of the energy price
Needs (Washington, D. C.: U.S. Congress, Office of increase trajectories described above. Two dif-
Technology Assessment, September 1978), vol. 11. ferent starting prices are assumed, correspond-
Ch. II--Residential Energy Use and Efficiency Strategies . 53

Table 17.—Levelized Monthly Energy Cost in Dollars for Energy Price Ranges Shown
( A l l e l e c t r i c h o u s e s ) ‘-

Primary energy —
Price range 1976-2000 in 1976 dollars b

3.22-7.03 3.22-10.60
All-electric houses 4.4 4.4-6.4 4.4-14.4

Chicago
“1973” house with
electric furnace. . . . . . 491 183 492 293 398 828
“1976” house with
electric furnace. . . . . . 424 170 442 268 362 743
“1976 house with
heat pump. . . . . 353 175 408 260 341 668
Low-energy house
with heat pump. . . 176 138 273 192 240 435

Baltimore
“1973” house with
electric furnace. . . . . . 400 158 416 252 341 703
“1976” house with
electric furnace. . . . . . 351 150 381 235 315 641
“1976” house with
heat pump . . . . . . . . . . 286 156 351 230 297 573
Low-energy house
with heat pump. . . . . . 154 136 257 185 229 407

Houston
“1973” house with
electric furnace. . . . . . 294 129 328 204 273 556
“1976” house with
electric furnace. . . . . . 271 128 315 199 264 530
“1976” house with
heat pump . . . . . . . . . . 261 150 331 218 282 541
Low-energy house . . . . . 161 123 248 173 219 403
aprimaw ~nerqY ~On~umption is Computed assumina that overall conversion, transmission, and distribution efficiency fOr electricity is 0.29 and that processing
transm”ission~and distribution of natural gas is perfor-med with an efficiency of 0.89
bGas prices in $/h.frd Btu and electricity in dkWh.

Table 18.— Levelized Monthly Energy Cost in Dollars for Energy Price Ranges Shown
(Gas heated houses)

Primary energy Price range 1976-2000 in 1976 dollarsb


-
consumption Gas: 1.08 1.08-2.40 1.08-3.52 3.22 3.22-7.03 3.22-10.60
Gas-heated houses (MMBtu) Electricity: 2.5 2.5-3.6 2.5-8.2 4.4 4.4-6.4 4.4-14.4

Chicago
“1973” house . . . . . . . . . 311 111 160 272 204 323 553
“1976” house . . . . . . . . . 277 111 155 261 193 298 511
Low-energy house . . . . . 168 117 144 232 168 225 387

Baltimore
“1973” house . . . . . . . . . 271 106 148 257 188 288 507
“1976” house . . . . . . . . . 244 107 145 249 181 270 475
Low-energy house . . . . . 150 110 135 221 157 206 364

Houston
“1973” house . . . . . . . . . 252 114 151 280 186 261 501
“1976’ ’house. . . . . . . . . . 240 115 150 274 184 254 484
Low-energy house . . . . . 160 117 142 238 169 217 397
aprimary energy consumption is computed assuming that overall conversion, transmission, and distribution efficiency for electricity is 0.29 and that Processing,
transmission, and distribution of natural gas is performed with an efficiency of 0.89
bGas prices in $lMMBtu and electricity in ~lkwh
1 MMBtu = 1.05 GJ.
54 “ Residential Energy Conservation

ing to prices in different parts of the country. was done for the BNL fuel cost projection, and
The price ranges shown at the top are those in if one used the higher price range, the invest-
1976 and in 2000, both expressed in 1976 dol- ment for minimum Iifecycle cost would be
lars. Only in the case of gas-heated homes and much greater than $500 — meaning greater
constant energy prices for low-priced gas energy savings.
($1.08/MMBtu) does it appear not to pay to go
to the low-energy home. Thus, not only can in- Figure 14.— Lifecycle Cost Savings vs.
vestment in conservation provide substantial Conservation Investment for a Gas-Heated and
energy savings but also significant dolIar sav- Electrically Air-Conditioned House in Kansas City
ings as well. It is interesting that heating re- =
quirements for the 1976 house in Houston are
so small that the added capital investment for
a heat pump is not justified.
It is important that although the low-energy
home reduces Iifecycle costs it does not
necessarily represent the combination of im-
provements that would have the lowest possi-
ble Ievelized monthly costs for a given set of
economic assumptions. Although such a calcu-
lation has not been performed for this set of
houses, one has been done for the houses mod-
u o
eled by ORNL discussed above. The ORNL cal- $500 $1,000 $1,500$2,000
culations show only improvements to the Investment dollars
building shell, rely on an uninsulated baseline IMMBtu = 105 glgajoule (GJ)
house, and require a higher return on invest- SOURCE Paul F Hutchins, Jr., and Eric Hlrst, “Engineering-Economic Analysis
ment than the OTA calculations. Figure 14 of SI ngle-Family DwelIing Thermal Performance, ” Oak Ridge National
Laboratory Report ORNL/CON-35, November 1978, tables 7 and 8.
shows the combined heating and cooling ener-
gy savings relative to the base case, and total
costs (investment and fuel) over the life of the Although one could not reasonably expect a
house plotted against the initial investment. person to go beyond the point that gives a
While energy savings continue to increase as minimum Iifecycle cost (indeed, this is the
investments grow, the total dollar savings point assumed in the projections discussed in
reach a maximum (corresponding to minimum chapter l), additional energy savings are possi-
lifecycle cost) at an investment of about $550. ble. If these savings are desirable from soci-
After that the increase in investment to get ety’s point of view, then other economic incen-
more energy savings grows faster than the in- tives, such as tax credits, are called for to
crease in fuel cost savings. This calculation make the additional investments attractive.

TECHNICAL NOTE ON DEFINITIONS OF PERFORMANCE


EFFICIENCY

At least eight different terms are used to a home installation. The Energy Policy and
describe the energy efficiency of furnaces, Conservation Act (EPCA– Public Law 94-163)
heat pumps, and air-conditioners, and the list as amended by the National Energy Conserva-
could grow. Manufacturers have traditionally tion Act (NEPCA — Public Law 95-619) required
used efficiencies based on operation under DOE to establish testing standards for the
specified steady-state conditions, but there has determination of estimated annual operating
been growing interest in seasonal measures costs and “at least one other measure which
that would more nearly reflect performance of the Secretary determines is likely to assist con-
Ch. II—Residential Energy Use and Efficiency Strategies ● 55

sumers in making purchasing decisions” for procedures37 but has also adopted the use of a
heating and cooling equipment and a number seasonal energy efficiency ratio (SE E R) for cen-
of appliances. Manufacturers are required to tral air-conditioners.38 The seasonal energy
use these test procedures as the basis for any consumption of an air-conditioner is increased
representations they make to consumers about by cycling the machine on and off since it does
the energy consumption of their equipment. not operate at full efficiency for the first
The test procedures developed by DOE em- minute or so after it is turned on. An offsetting
phasize the use of seasonal efficiency meas- factor is provided by the increase in EER that
ures. These should eventually be more useful occurs as the outdoor temperature drops. The
to consumers but are likely to lead to in- seasonal energy efficiency ratio incorporates
creased confusion at first. both of these effects and is defined on the
basis of a typical summer use pattern involving
The performance of furnaces is customarily
1,000 hours of operation, Use of the SEER
described in terms of efficiency. The “steady
became effective January 1,1979.
state efficiency” of a furnace refers to the frac-
tion of the chemical energy available from the A final word should be added about heat
fuel (if burned under ideal conditions), which is pumps and their air-conditioning mode. The
actually delivered by the furnace when it is proposed DOE standards for heat pumps de-
properly adjusted and all parts of the system fine tests for the heating seasonal performance
have reached operating temperature. An ac- factors (HSPF) in each of six different broadly
tual home installation is seldom in perfect ad- defined climatic regions of the country. Cool-
justment, heat is lost up the chimney while the ing seasonal performance may be specified by
furnace is not operating, and the duct systems a cooling seasonal performance factor (CSPF)
that distribute heat always have some losses or an SEER. In addition, an annual perform-
unless they are completely contained within ance factor (APF) is defined as a weighted
the heated space. Thus, the “seasonal system average of the HSPF and the CSPF based on
efficiency” is typically much lower than the the number of heating and cooling hours in dif-
steady state efficiency. DOE has developed ferent parts of the country.39
procedures for determining a seasonal effi-
Since heat pumps, as their name implies,
ciency, which is called the “annual fuel utiliza-
pump heat into the house from outdoors, they
tion efficiency. ”
can provide more heat to the house than
Air-conditioners “pump” heat out of the would be provided if the electricity were
house and are able to remove more than a Btu “burned” in an electric heater or furnace. The
of heat for each Btu of electrical input. The Coefficient of Performance (COP) is the ratio
usual measure of air-conditioner performance of the heat provided by the heat pump to that
has been a somewhat arbitrary measure called which would be provided by using the same
the “energy efficiency ratio” or EER, which is amount of electricity i n an electric heating ele-
defined to be the number of Btu of cooling ment. The COP of a heat pump decreases as
provided for each watt-hour of electric input. the outdoor temperature drops, and the Air
The standard conditions for determining the Conditioning and Refrigeration Institute has
EER have been 800 F dry bulb and 670 F wet specified two standard rating conditions for
bulb indoors and 950 F dry bulb and 750 F wet
bulb outdoors.36 DOE has retained the use of
the EER for room air-conditioners in its test “’’Test Procedures for Room Air Conditioners, ”
Federal Register, vol. 42, 227, Nov 25, 1977, pp. 60150-7
and federal Register, vol. 43, 108, June 5, 1978, pp.
24266-9.
‘8’’Test Procedures for Central Air Conditioners, ”
Federal Register, vol. 42,105, June ~, 1977, pp. 27896-7.
JGAir-Conditioning and Refrigeration Institute, “Direc- “’’Proposed Rulemaking and Public Hearing Regard-
tory of Certified Unitary Air-Conditioners, Unitary Heat ing Test Procedures for Central Air Conditioners In-
Pumps, Sound-Rated Outdoor Unitary Equipment, and cluding Heat Pumps, ” Federal Register, vol. 44, 77, Apr.
Central System Humid ifiers,” 1976 (Arlington, Va.), p. 85. 19, 1979, pp. 23468-23506.
56 “ Residential Energy Conservation

heat pump heating performance. ’” Both spe- are usually sized so that part of the heating
cify indoor temperature of 700 F dry bulb and load must be met by supplementary resistance
600 F wet bulb with outdoor temperature for heat at lower temperatures, lowering the over-
the “high temperature heating” condition all COP still further. A useful measure of the
being 470 F dry bulb and 430 F wet bulb, and total heating performance is the “seasonal per-
specifications for “low temperature” being formance factor,” which is the average COP
170 F dry bulb and 150 F wet bulb. Heat pumps over the course of the winter for a typically
sized unit in a particular climate. The seasonal
performance factor includes the effects of sup-
40
Air-Conditioning and Refrigeration Institute, op. cit., plementary resistance heating and cycling but
pp. 8,85. does not include any duct losses.

Table 19.—Structural and Energy Consumption Parameters for the


Base 1973 Single-Family Detached Residence
———

Structural parameters: Patio door(s):


Type Aluminum, sliding
Basic house design 3-bedroom rancher, one story, 8-ft Glazing Double
stories. Area, ft2 40 Sq. ft.
Foundation Full basement, poured concrete.
Construction Wood frame, 2x4 studs 16“ on ctr.
Energy consumption parameters:a
Exterior walls:
Composition Brick vener, 4"
½" insulation board Energy consuming equipment:
3½” fiberglass batts Heating system Gas, forced air
½" gypsum board Cooling system Electric, forced air
Hot water heater Gas (270 therms/year)
Wall framing area, ft2 203 sq. ft. Cooking range/oven Electric (1 200 kWh/year)
Clothes dryer Electric (990 kWh/year)
Total wall area, ft 2 935 Sq. ft. Refrigerator/freezer Electric (1 830 kWh/year)
Lights Electric-incandescent
Roof: (21 40 kWh/year)
Type Gable Color TV Electric (500 kWh/year)
Composition Asphalt shingles, 3/8” plywood Furnace fan Electric (394 kWh/year)
sheating, air space, 6“ fibreglass Dishwasher Electric (363 kWh/year)
loose-fill insulation, ½” gypsum Clothes washer Electric (103 kWh/year)
board Iron Electric (144 kWh/year)
Coffee maker Electric (106 kWh/year)
Roof framing area, ft2 78 sq. ft. Miscellaneous Electric (900 kWh/year)
2
Total roof area, ft 1,200 Sq. ft.

Floor:
Total floor area, ft2 1,200 Sq. ft. Heating/cooling load parameters:

Windows: People per unit Two adults, two children


Type Double hung, wood
Glazing Single Typical weather year 5 yr. average (1 970-75)
Area, ft2 105 Sq. ft. Monthly heating degree
b
days
Exterior doors: Monthly cooling degree
Type Wood frame days b
Number Two Monthly discomfort
Area, ft2 40 Sq. ft. cooling indexb
aFigure~ ~h~~n in parentheses represent energy input to Structure for each aPPliance.
—————
b~ependent On IOCdiOn.
SOURCE: Hittman Associates, Inc., “Development of Residential Buildings Energy Conservation Research, Development, and Demonstration,” HIT-681, performed
under ERDA Contract No. EX-76-C-01-21 13, August 1977, p. III-4.
Ch.!!– Residential Energy Use and Efficiency Strategies ● 57
..

Table 20.—Specifications and Disaggregate Loads for “1973” Single-Family Detached Residence

‘Therm = 1 x Btu = 106 megajoule (MJ)

SOURCE: Hlttman Associates, Inc “Development of Residential Energy Research Development, and Demonstration Strategies, ” HIT-681,
performed under ERDA Contract No EX-76-C-01-21 13, August 1977 p IV 9
58 . Residential Energy Conservation

Table 21 .—Specifications and Disaggregated Loads for “1976” Single-Family Detached Residence

5
“Therm = 1 x 10 Btu = 106 megajoule (MJ)

SOURCE: Hittman Associates, Inc., “Development of Residential Buildings Energy Research, Development, and Demonstration Strategies,” HIT-681,
performed under ERDA Contract No EX-76-C-01-2113, August 1977, p IV-9
Ch. II--Residential Energy Use and Efficiency Strategies ● 59

etached Residence
Table 22.—Specific

5
“Therm = 1 x 10 Btu = 106 megajoule (MJ)

SOURCE Hittman Associates, lnc. “Development of Residential Research Development and Demonstration Strategies, ” HIT-681
performed under ERDA Contract No EX 76-C-01 -2113, August 1977 p
60 • Residential Energy Conservation
. —.— —

Table 23.—Disaggregated Energy Consumption for Different Combinations of Thermal Envelope and
HVAC Equipment for Houses in Houston, Tex. (in MM Btu*)

consumption IS computed assure ng that overal I Conversion efficiency for electricity IS O 29 and that
and of natural gas has an r? of O 89
bTh I on the electricity used t hot heat Pum P hot IV I heat recovery from the heat pump which heats and cools the
house
s the gas by the hot heater hot water IS provided b very from the alr-conditioner
‘1 MMBtu = 105 (GJ)
Ch.II--Residential Energy Use and Efficiency Strategies ● 61
— . .

Table 24.—Disaggregated Energy Consumption for Different Combinations of Thermal Envelope and
HVAC Equipment for Houses in Baltimore, Md. (in MM Btu*)

efficiency for IS and that p r o c e s s i n g ,


and of natural gas has an efficiency of O 89
figure only the hot water heat provided by heat recovery from the pump which heats and cools the
house
figure the hot heater hot water j heat recovery from the air-conditioner
= 105 (GJ)
62 ● Residential Energy Conservation
— —.—— . —

Table 25.—Disaggregated Energy Consumption for Different Combinations of Thermal Envelope and
HVAC Equipment for Houses in Chicago, Ill. (in MM Btu*)

aprlmary energy ~on~umpt Ion Is computed as<u m I nq I hat overal I Conversion t ransmls< 10’ arl[’ I I I lbutlon efflc Iency for electricity Is O 29 and that processl ng,
transmlsslon, and dlstrlbut Ion of natural gas h~s a F>f f If ncy of O 89
bThls fl g u r e ,nclud~~ only the e l e c t r i c i t y USerj ~ f ‘h’ ~1 1, A ~t~c heat pump Some hot wate t< I rI )V d( t ‘ I ~ heat recovery from the heat pump which heats and cools the
house
cTh ,s figure in~(udes only the gas used by the hot ~ ~fer heater Some hot water IS prov(ded t ! hear r,+ {very from the alr-cond itloner
‘1 MMBtu = 105 glgajoule (GJ)
*
Chapter III-- CONSUMER

Page

Lack of Reinforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Disparity of Effects and Opportunities by Income Groups . . . . . . , . 68
Conflicts Between Conservation and Other Coals. . . . . . ., . . . . . . . 69
Distrust of Information Providers and Disbelief in Reality of Shortages 70
Lack of Specific Knowledge About How to Conserve . . . . . . . . . . . . 70
Faith in “American Technological Know-How” to Solve the
Energy Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Consumers and the Building Industry . . . . . . . . . . . . . . 71
Consumer Behavior and Energy Conservation in Home Operation . 73
Conclusions . . . . . . . . . . . . . . . . ................ 74

TABLES

26. Homebuyers Willing to Spend $600 or


More at Outset to Save $100 or More Annually on Energy,
by Family Income and House Price Range . . . . . . . . . . . .. 72
27. Percent of Homebuyers Desiring Energy-Saving Features in
Five Major Housing Markets, 1978 . . . . . . . . . . . . . . . . . . .. 73
Chapter Ill
THE CONSUMER

Americans want to own their homes. Few social phenomena have been more influential
in shaping present-day American society than this strong and widespread desire for a home —
particularly for a detached single-family home— that has swept the country since World War
11. The result has been a profound impact on land use, transportation, community develop-
ment, family life, and many other areas. Our present concern, however, is with the rapid
growth in residential energy consumption that has accompanied the growth in household for-
mation, population, and homeownership.
Energy use in the home accounts for approximately 20 percent of our total energy use,
and of that amount, about 60 percent is used for heating and cooling. Residential energy use
grew about twice as fast as the number of households between 1950 and 1970, reflecting the
increase in use within each household. Household consumption of fossil fuels and electricity
grew from 7 quadrillion Btu* in 1950 to 16 quadrillion Btu in 1974; with the number of
households increasing from 43 million to 70 million, this represents an increase of 65 MMBtu
per household between 1950 and 1974.
The relationships between homeowners and consumer tastes have generally failed to catch
other housing decisionmakers such as lenders, on and left builders with financial losses. Con-
builders, architects, manufacturers of building sumers appear to be conservative in their hous-
supplies, and contractors for heating and cool- ing tastes, resisting radical changes in the
ing equipment installation, are very complex. design, comfort, or space of a home. The ma-
No single group determines the ultimate ener- jor trade associations and publications of the
gy consumption in a home. It is clear, however, building industry spend considerable time and
that consumers are in control of a significant money surveying the attitudes and preferences
portion of the decisions that affect consump- of buyers, with the result that builders, too, are
tion directly or indirectly. Homeowners pay often conservative about major innovations
the utility and fuel bills and adjust their con- that affect buyer perceptions. Efforts to lead,
suming behavior when prices rise. They main- rather than follow, consumer tastes have not
tain the heating and cooling equipment in their always succeeded. For example, the recent
homes. They control thermostat settings and movement to buiId “no frilIs” housing in an at-
window and door openings, and they choose tempt to bring families of modest means into
appliances. They make— or fail to make— in- the new home market is now considered a fail-
vestments to improve the energy efficiency of ure by the building industry. It appears that
their homes, through structural or equipment buyers would rather wait a year or two longer,
changes. In short, within the very real limits of if necessary, to buy the kind of house they real-
finances, technical capabilities, and comfort, ly want–one with amenities such as a fire-
they control the operational aspects of home place, a family room, a garage, and an extra
energy consumption. bathroom.
In a less well-recognized area, home con- In light of the rapid turnover of houses in the
sumers affect residential energy use levels current-day real estate market, some of this
through their influence on the homebuilding buyer conservatism can be attributed to pur-
industry. There is evidence that builders ignore chasers’ concern with resale value. Homeown-
consumer preferences at their peril, for at- ership represents the single largest financial in-
tempted innovations that have run counter to vestment made by most families, and its at-
tendant risks can be minimized by investing in
*One Btu is equivalent to 1 kW-per-second or 1 kilo- “safe” properties— those with the largest ap-
joule. peal. If the buyer decides to invest in extras, he

65
66 . Residential Energy Conservation

wants to be sure that value will be easily ack- mistrust both Government and industry—es-
nowledged by potential future buyers. pecially the oil industry–as sources of in-
formation about energy issues.
This concern about resale values has impli-
cations for decisions about energy-conserving One major study by Jeffrey S. Milstein, of
features. Until recently, homeowners would the Department of Energy’s (DOE) Office of
undoubtedly have been correct in deciding Conservation and Solar Applications, indicates
that extra insulation was not a feature likely to that although a majority of Americans in 1977
“turn on” later buyers. Now, however, with ris- did not believe that fuel shortages were real,
ing energy prices and occasional spot short- an even larger majority did believe it was im-
ages of some fuels, prospective buyers have portant to conserve energy. 2 More than one-
begun to demand information about utility half of the respondents in Milstein’s national
costs, and to insist on more efficient houses. survey believed that fuel shortages were ar-
tificial, but 50 percent said the need to con-
It is important to bear in mind, however,
serve energy was “very serious” and another 33
that energy is only one of several items about
percent believed it was “somewhat serious. ”
which consumers are concerned. Efforts to
Perhaps consumers find it important to con-
conserve energy through design or construc-
serve because of high energy costs rather than
tion methods often conflict with other val-
because energy shortages require it.
ues–for example, the desire to take advan-
tage of a fine view by installing large amounts Unfortunately, most consumer studies re-
of north-facing glass. In determining which veal that even when the energy crisis is per-
energy-conserving technologies will be attrac- ceived and accepted as real, this attitude does
tive to consumers, builders and policy makers not necessarily lead to conservation behavior.
need to keep these conflicting values in mind. Marvin E. Olsen of the Battelle Human Affairs
Research Center concluded from his surveys
Just as important as consumer attitudes
that “with only a few minor exceptions, all the
toward housing are their attitudes toward the
research conducted thus far has found little or
energy problem generally, and toward its
no relationship between belief in the reality or
causes, effects, and remedies as these relate to
seriousness of the energy problem and any ac-
their own lives. Social scientists have carried
tual conserving behavior.” 3 However, Olsen
out considerable research on consumer atti-
points out that consumers’ belief in the seri-
tudes and behavior.
ousness of energy problems may make them
Many studies have been collected and ana- more accepting of Government policies requir-
lyzed by Sally Cook Lopreato and her col- ing conservation.
leagues at the University of Texas Center for
A number of factors appear to contribute to
Energy Studies. ’ Several of these studies indi-
consumer inaction: a lack of practical knowl-
cate that many consumers have serious doubts
edge about what to do; a lack of sense of per-
about the severity of our energy problem, and
sonal involvement in the problem, a “them
are more concerned about issues like inflation,
first” approach to potential sacrifices, and a
crime, and unemployment. Most people do not
confIict with other personal goals such as com-
share the official views of either Government
fort and convenience. Not surprisingly, when
or business regarding the causes of the prob-
queried about their willingness to undertake
lem. In fact, it appears that most consumers
specific conservation measures, consumers in-
dicate their highest levels of support for the
‘Compilations and analyses by Lopreato et al. are
found in Sally Cook Lopreato and Marian Wossum Meri- 2Jeff rey Milstein, “How Consumers Feel About Energy:
wether, “Energy Attitudinal Surveys: Summary, Annota- Attitudes and Behavior During the Winter and Spring of
tions, Research Recommendations” (unpublished: 1976), 1976-1977” (unpublished: 1977).
3
and in William H. Cunningham and Sally Cook Lopreato, Marvin E. Olsen, “Public Acceptance of Energy Con-
Snergy Use and Conservation Incentives: A Stucfy of the servation, ” in Seymour Warkov, Energy Policy in the
Southwestern Unitecf States (New York: Praeger Publish- United States: Social and Behavioral Dimensions, p p .
ers, 1977). 91-109.
Ch. Ill—The Consumer ● 67

easiest measures (like turning out lights), and “conserving energy saves money.”7 The Gal I up
lowest support for measures that call for major Organization, in conducting a series of group
changes in lifestyles. Governmental and discussions on energy during 1976 for the
media-oriented public relations efforts, using Federal Energy Administration (FEA) (now part
catchy slogans such as “Don’t Be Fuelish,” ap- of DOE), found widespread agreement that
pear to result in passive responses (“Something monetary incentives are the critical conserva-
should be done . . .“ ) rather than active ones tion motivator.8 A Texas study reached the
(“1 will do the following . . ").4 same conclusion after surveying about 800
households before and after the oil embargo. 9
Studies also show that consumers often de-
ceive themselves (and policy makers) about Adding insulation is the most widely docu-
conservation steps they claim to be taking or mented conservation action taken by cost-con-
be willing to take. For example, the Gallup Or- scious consumers. About 80 percent of U.S.
ganization sampled households nationwide in households were found to be insulated to
February 1977 and found that the average tem- some extent in Milstein’s 1977 survey— up
from 70 percent in 1976 and 62 percent in 1975.
perature at which consumers said they set their
home thermostats was 66° F during the day A Gallup survey conducted in January 1978
and 640 F at night. But pollsters for Gallup and found that 17 percent of those surveyed had
for Louis Harris who actually measured tem- added some attic or crawl-space insulation
peratures of homes 1 month later found aver- and 11 percent had added wall insulation in
age temperatures were 700 F (plus or minus 20, the previous 12 months; less than one-third of
during the day and 690 F (plus or minus 20, at the Gallup respondents had failed to take ac-
night. Reflecting on this finding, Milstein con- tion to improve the energy efficiency of their
cludes that the discrepancy “indicates a feel- houses in 1977. ’0
ing on the part of people that they ought to Studies suggest a wide variety of reasons for
have lower temperatures.” He also notes that some consumers’ failure to take conservation
many thermostats may be miscalibrated.5 actions, including: 1 ) lack of social pressure or
reinforcement for conserving behavior; 2) dis-
Many consumer studies indicate that the
parity in effects of the energy problem, as well
prospect of real cost savings is the most effec-
as in opportunities to conserve, among differ-
tive factor in moving people to conserve ener- ent income groups; 3) conflicts between con-
gy in their personal lives. Other motives, such
servation objectives and other goals such as
as altruistic concerns about the Nation’s future
comfort, convenience, and “fairness;” 4) dis-
energy supply, independence from OPEC car- trust of information providers and disbelief
tel manipulation, or the quality of the environ- that shortages are “real;” 5) lack of practical
ment are less successful in generating conser- knowledge about how to conserve; 6) compla-
vation action. b cency caused by faith in a technical solution
W. B. Doner, Inc., determined in a study to future energy supply problems.
done for the Michigan Department of Com- ‘W. B. Doner, Inc. and Market Opinion Research,
merce that among Michigan consumers the “Consumer Study– Energy Crisis Attitudes and Aware-
ness” (Lansing, Mich.: Michigan Department of Com-
single most powerfuI motivator for conserva- merce, 1975), cited in Cunningham and Lopreato, op. cit.,
tion is represented by the statement that p. 130.
8Gaiiup Organization, Inc., “Croup Discussions Re-
garding Consumer Energy Conservation” (Washington,
D. C.: Federal Energy Administration, 1974), cited in Cun-
ningham and Lopreato, pp. 131-132.
‘Kenneth Novic and Peter Sandman, “How Use of ‘David Gottlieb, Socia/ Dimensions of the Energy Crisis
Mass Media Affects Views on Solutions to Environmen- (Austin, Tex.: State of Texas Governor’s Energy Advisory
tal Problems,” journalism Quarterly, vol. 51, no. 3, pp. Council, 1974), cited in Cunningham and Lopreato, pp.
448-452, cited in Cunningham and Lopreato, op. cit., p. 22 134-135.
and p. 29. ‘°Ca[lup Organization, Inc., “A Survey of Homeown-
sMi Istein, op. cit., p. 5“
ers Concerning Home Insulation” (Washington, D. C.: U.S.
‘Cunningham and Lopreato, op. cit., p. 20. Department of Energy, 1978).
68 ● Residential Energy Conservation

LACK OF REINFORCEMENT
Robert Leik and Anita Kolman of the Minne- and conservation can enhance people’s efforts
sota Family Study Center maintain in a 1975 to conserve. Summertime electricity consump-
paper that social pressure could serve to rein- tion among households studied was reduced
force conservation behavior. Without a strong by 10.5 percent when people were provided
national ethic to conserve energy, little or no with almost daily feedback on their consump-
social pressure for conservation exists. Conse- tion performance and were exhorted to con-
quently, consumers rely almost exclusively on serve. In a separate study, residents given a
economic reinforcement. However, Leik and goal of a 20-percent reduction in electricity
Kolman maintain that much of the potential use actually cut back by 13 percent when pro-
for economic reinforcement is lost because vided with frequent feedback. In still a third
consumers pay for energy not as they use it but experiment, use of a light that flashed when-
monthly or even less often. Also, because bills ever cooling could be achieved through open
are usually paid by one member of a house- windows rather than air-conditioners led peo-
hold, other members are not aware of econom- ple to conserve 15.7 percent of their electrici-
ic savings or penalties unless informed by the ty. While these were relatively short-term ex-
person who pays the bill. ’ periments (3 to 4 weeks), they do suggest that
frequent feedback to the consumer could pro-
Field studies conducted at Twin Rivers, N. J., vide substantial savings of energy. 2
revealed that feedback about consumption
‘ 2 Clive Seligman, John M. Darley, and Lawrence J.
Becker, “Behavioral Approaches to Residential Energy
“Robert Leik and Anita Kolman, “Isn’t It More Ra- Conservation,” Energy and Bui/dings, April 1978, pp.
tional to be Wasteful ?,” in Warkov, op. cit., pp. 148-163. 325-337.

DISPARITY OF EFFECTS AND OPPORTUNITIES BY INCOME GROUPS


A 1975 Ford Foundation study, since con- household energy users varied sharply by in-
firmed by several other consumer surveys, come group. Upper income households in-
found that household energy use (including creased consumption despite rising prices; the
transportation) rises with income and that the small impact on total household budgets was
largest gaps in consumption between income not sufficient motivation for most to conserve.
groups are accounted for by elective or luxury Lower income households showed very little
uses. At the same time, the percentage of change in consumption because, the research-
household income that is used for energy ers concluded, they are already at the mini-
drops sharply as income rises. While the poor mum consumption level they can manage for
spent 15.2 percent of their household income reasonable comfort in homes that lack ade-
on direct energy use in 1972-73, the more af- quate insulation and efficient appliances.
fluent spent only 4.1 percent. This means that Only among middle-income families were con-
while lower income households have the great- sumption declines widespread in response to
est need to conserve, they also suffer from a price increases. The authors conclude that the
lack of opportunities to do so. There is very lit- middle-income group offers the greatest po-
tle fat in the poor family’s energy budget. ’3 tential for conservation, since this group has
both a margin for conserving and economic in-
An Austin, Tex., study found that short-term
centive to do so. 4
response to electricity price increases among
“Nolan E. Walker and E. Linn Draper, “The Effects of
‘3 Dorothy K. Newman and Dawn Day, The American Electricity Price Increases on Residential Usage by Three
Energy Consumer: A Report to the Energy Po/icy Project Economic Groups: A Case Study,” Texas Nuc/ear Power
of the Ford Foundation (Cambridge, Mass.: Ballinger Pub- Po/icies 5 (Austin, Tex.: University of Texas Center for
lishing Company, 1975), cited in Cunningham and Lopre- Energy Studies, 1975), cited in Cunningham and Lo-
ato, pp. 145-146. preato, pp. 155-156.
Ch. Ill—The Consumer b 69

CONFLICTS BETWEEN CONSERVATION AND OTHER GOALS

A number of studies suggest that the energy sick or elderly people in the house. In the Twin
crisis—at least at recent levels of severity— is Rivers study, concern with health and comfort
not a sufficient incentive to deter consumers correlated closely with levels of summer ener-
from their pursuit of comfortable lifestyles. gy consumption; the stronger the respondent’s
Participants in the Gallup Organization’s 1976 perception that energy conservation led to
group discussions on energy represented a discomfort and illness, the greater was his
cross-section of consumers, varying by income, energy consumption. The Twin Rivers research-
education, place and type of residence, age, ers also found that participants who believed
and sex. Summarizing the attitudes Gallup dis- that the effort involved in saving energy was
cerned regarding Iifestyles, values, and conser- too great for the cost savings achieved —for
vation, Cunningham and Lopreato wrote: example, that it was too much trouble to turn
off the air-conditioner and open the windows
Participants hear ‘Deny yourself’ as the im-
plicit theme in most conservation communica- whenever it got cool enough outside— also
tions and are answering with ‘1 have earned the had higher consumption levels. The third sig-
right to indulge’ . . Convenience and imme- nificant predictor of energy consumption
diate gratification are primary goals, limited found in the Twin Rivers research was the per-
only by financial pressure. Saving energy when ception that the actions of individual home-
it is ‘convenient’ provides a sense of contrib- owners could have only a negligible effect on
uting and helps relieve guiIt.15 national energy consumption. 7
This factor of “convenience” does appear to Milstein’s respondents believed strongly that
limit personal support for conservation meas- conservation policies must be “fair” to be ac-
ures and actual conservation behavior. An Illi- ceptable. Sometimes, this concern with equity
nois survey found that consumers, both before appeared to lead to support for contradictory
and after the embargo and accompanying policies. For example, only 30 percent believed
price increases, placed “high value emphasis that “consumers have the right to use as much
on privacy, autonomy, and mobility.” The energy as they want to and can afford to, ” and
researchers conclude that conservation cam- only 10 percent believed that “people should
paigns affecting “deeper lifestyles” cannot be allowed to drive their cars and heat their
succeed at present. ’b The fact that consumers homes as much as they want to even if we all
value convenience and comfort, plus the fact become dependent on foreign countries.”
that energy costs are still a small portion of the While these attitudes might suggest support
cost of operating a home, indicates that prices for a strong regulatory approach, the same
may need to rise much more dramatically respondents overwhelmingly believed that the
before they will outweigh these competing best way to get people to save energy is by “en-
values. couraging voluntary conservation” (70 per-
Family welfare was also mentioned often by cent) rather than “passing and enforcing laws”
consumers as a reason for not conserving. (20 percent). Nor did Milstein’s participants
When Milstein asked certain consumers why favor a free-market approach: 70 percent
they had not turned down their thermostats, agreed with the statement that “raising [the]
many mentioned that their families would be price of fuel is not fair, because rich people
uncomfortable or that there were babies or wiII use all they want anyway.’” 8

‘Cunningham and Lopreato, p. 132.


“Stanley E. Hyland, et al., The East Urbana Energy
Study, 1972-1974: Instrument Development, Methodo-
logical Assessment, and Base Data (Champaign, Ill.: Univ-
ersity of Illinois College of Engineering, 1975), cited in ‘7 Milstein, op. cit., p. 5
Cunningham and Lopreato, p. 141. ‘81 bid., pp. 12-13.
70 . Residential Energy Conservation

DISTRUST OF INFORMATION PROVIDERS AND DISBELIEF


IN REALITY OF SHORTAGES
In February 1977, a month with widespread A number of other studies also found that
natural gas shortages, three-fifths of the con- consumers blame the energy problem on oil
sumers in Milstein’s national sample believed companies, utilities, “big business,” and Gov-
that fuel shortages were “real. ” By March, ernment. In one public opinion survey, re-
however, fewer than half the sampled popula- spondents blamed “oil company actions” and
tion thought so; this percentage has been con- “Government favoritism to the companies”
sistent most of the time since the end of the most for fuel shortages, but also placed some
Arab oil embargo. One-third of Milstein’s re- blame on “wasteful energy consumption. ”
spondents said they believed shortages are Very few believed the world was running out
contrived by vested interests for economic or of fossil fuel. z’ Nine out of ten in Milstein’s
political gain. ’9 1977 survey agreed with the statement that the
Government should investigate oil and natural
The National Opinion Research Center at
gas companies to make sure they do not hold
the University of Chicago found in a year-long
back production.22
series of weekly surveys that consumers held a
widespread belief that the Federal Govern-
ment and the oil industry—two major sources
of advertising campaigns urging conserva-
tion —were actually responsible for the energy
crisis through mismanagement and/or design. 20 “Gordon L. Bultena, Pub/ic Response to the Energy
‘gIbid., p. 5. Crisis: A Study of Citizens’ Attitudes and Adaptive /3ef-tav-
‘“James Murray, et al., “Evolution of Public Response iors (Ames, Iowa: lowa State University, 1976), cited in
to the Energy Crisis,” Science 184:257-63, cited in Cun- Cunningham and Lopreato, pp. 124-125.
22
ningham and Lopreato, pp. 144-145. Milstein, op. cit., p. 12.

LACK OF SPECIFIC KNOWLEDGE ABOUT HOW TO CONSERVE


Adding to this general mistrust of govern- though Milstein’s 1977 survey found that 20
mental and business advocates of conserva- percent of all homes had no insulation at all
tion is the disincentive created by lack of con- and many more were inadequately insulated.
sumer understanding about how to save ener- Consumers do know that lowering thermostats
gy. Milstein found that 36 percent of the re- saves energy and money, but MiIstein found in
spondents to a 1976 survey did not know that 1977 that half the public believed that thermo-
lower wattage light bulbs use less electricity, stats must be turned down 50 or more to save
and 59 percent thought that leaving a light energy. 24
burning used less energy than switching it on
Government efforts to help consumers de-
and off as needed. Although water-heating is
termine savings potential and to provide prac-
the second largest energy-consuming activity
tical “how to” information have either been
in the home (after heating and cooling), only 42
too complex or not been made widely avail-
percent knew where to find their water heater
able, owing to funding problems. The informa-
controls or how to set them. Only 13 percent of
tion problem is particularly challenging be-
respondents to the 1976 survey believed their
cause of regional variations in prices, heating
houses needed additional insulation, 23 al-
requirements, and fuel mixes, as well as infi-
23jeffrey S. Milstein, Attitudes, Knowledge and nite variations in the thermal characteristics of
Behavior of American Consumers Regarding Energy con- the current housing stock.
servation With Some Implications for Governmental Ac-
tion (Washington, D. C.: Federal Energy Administration,
October 1976), p. 6. Z4Mi Istein, How Consumers Feel (1977), P. 5.
Ch. IlI—The Consumer ● 71

FAITH IN “AMERICAN TECHNOLOGICAL KNOW-HOW”


TO SOLVE THE ENERGY PROBLEM

Americans are proud of the Nation’s techno- Bultena found consumers favoring “techno-
logical achievements, especially in producing logical solutions” much more strongly than
“modern conveniences” and in glamorous ac- policies to reduce demand or promote effi-
complishments such as putting men on the ciency. 26 This optimistic view may dampen
moon. A 1975 study by Angell and Associates consumers’ motivation to conserve, as it
found respondents optimistic about prospects places the burden of a remedy on others, spe-
for solving the energy problem through Ameri- cifically the U.S. scientific community.
can technological “know-how.” 25 Similarly,
ZsAngell and Associates, Inc., A Qualitative StuCfY of
Consumer Att;tu~es Towarcf Energy Conservation (Chica-
go, Ill.: Bee Angell and Associates, 1975), cited in Cun-
ningham and Lopreato, pp. 121-122. 2’Bultena, op. cit.

CONSUMERS AND THE BUILDING INDUSTRY

The preceding discussion focused on con- aware of energy considerations as part of the
sumer attitudes and behavior relative to the choice process, and are expressing willingness
overalI energy problem and to conservation in to alter their buying habits somewhat to
particular. It is appropriate now to turn to the realize cost savings in energy .27
area of the consumer’s role in the energy con-
It has become commonplace to argue that
servation aspects of decision making on hous-
builders and buyers alike tend to look only at
ing.
first costs and ignore lifecycle costs when de-
As noted earlier in this chapter, families pur- termining what features to include in a house.
chasing new homes typically make a series of The Professional Builder survey suggests that
judgments and comparisons, weighing such this may no longer be the case when it comes
factors as attractiveness, size, location, con- to energy conservation.
venience, comfort, and — not insignificantly—
In querying families currently in the market
affordability. Since very few homes are likely
for newly constructed homes, Professional
to be regarded as one’s dream house, buyers
Builder asked this question in 1975,1976,1977,
must weigh the pluses and minuses of each
and 1978:
potential choice.
What role does energy conservation play in Suppose you were interested in a new home
and a builder told you that by spending $600
these choices? Until recently, it would have more at the time of construction, he could cut
been safe to say little or none. The presence of your heating and cooling bills by $100 per
a fireplace, a family room, wall-to-wall carpet- year. What would be your reaction?
ing, a picture window, a powder room —fac-
tors like these, along with external attractions In answering the question, respondents were
such as convenience to schools, shopping, and given four choices:
transportation dominated the choice of a new 1. I would spend the additional $600.
home. Indeed, these factors remain very im-
portant in buyers’ perceptions. But a 4-year “Data from the Profession/ Builder Annual Consum-
er/Builder Surveys of Housing can be found in the follow-
series of surveys conducted by Professional
ing issues of the magazine: 1975 data, January 1976; 1976
Builder magazine suggests that families enter- data, January 1977; 1977 data, December 1977; and 1978
ing the market for new homes are increasingly data, December 1978.
72 ● Residential Energy Conservation

2. I’d be willing to spend even more to save Table 26.—Percent of Potential Homebuyers Willing
more. to Spend $600 or More at Outset to Save $100 or
More Annually on Energy, by Family Income and
3. I would not spend the $600 because the House Price Range
savings take too long to recover.
4. I would not spend the $600 because the 1975 data 1976 data
savings are not believable. By family income
Less than $15,000 . . . . . . . . . . . . . . 89.2 87.9
Results were tabulated according to type of $15,000-$ 19,000. .., . . . . . . . . . . . . 89.7 89.2
home sought (detached single-family, attached $20,000 or more. . . . . . . . . . . . . . . . 89.1 92.3
single-family, or multifamily), economic status By house price range
(measured by family income and by price Under $25,000 . . . . . . . . . . . . . . . . . 90.2 88.8
range of home to be purchased), and geograph- $25,000-$34,999 . . . . . . . . . . . . . . . . 90.8 90.1
$35,000-$44,999! . . . . . . . . . . . . . . . 88.9 85.5
ic region. The results, described below, suggest $45,000-$54,999 . . . . . . . . . . . . . . . . 84.6 84.1
that buyer attitudes are not an impediment to $55,000-$64,000 . . . . . . . . . . . . . . . . 90.6” 94.7
energy conservation, even when long-range $65,000 or more. . . . . . . . . . . . . . . . — 95.5
conservation requires an increased initial in- ‘1975 data available only as “$55,000 or more.”
SOURCE: Statistical data on Professional Builder survey provided to OTA by
vestment. Cahners Publishing Company. 1977 and 1978 data not available by in-
come group and house price range.
Among 248 potential buyers of single-family
homes in 1975, 80.5 percent expressed their seriously in the future. Told that solar space
willingness to spend $600 to realize an annual heating might cost them $7,000 in additional
saving of $100 in energy costs, and another 8.8 first costs but could reduce fuel bills by 30 to
percent said they would spend even more if 70 percent, only 8.4 percent of respondents
the saving would be increased as well. In 1976, said they would purchase the solar option;
the percentage willing to spend $600 or more another 35.6 percent indicated they would
remained nearly constant (89.1 percent), but of consider purchasing it; 35.1 percent would not
that fraction, a larger group than before (1 5.1 do so now but might in the future; and 20.4
percent of the total sample of 596) expressed a percent said a flat no to solar heat. Consumers
willingness to pay even more than $600 for a were also asked to consider a solar water heat-
greater annual saving. In 1977, 93.2 percent of ing system that would cost $1,200 and save be-
respondents were willing to spend $600 or tween 50 and 80 percent of water heating
more to save $100 or more in annual energy costs. Among those responding, 7.1 percent in-
costs. In 1978, the fraction of willing energy dicated they would purchase the system; 37.7
savers returned to its 1975-76 level of 89 per- percent would consider the option; 39.5 per-
cent. cent might do so later; and 14.0 percent would
not be interested, period.
It is particularly interesting to note that this
willingness on the part of new-home consum- Looking at six major housing markets in
ers to increase their first costs to save money mid-1 978, l-lousing magazine surveyed buyers
on energy over the long run can be found in to learn what energy-saving options (among
similar percentage of every income group and other housing choices) they wanted in the
every house price-range group. This is shown in homes they would purchase. Costs for the op-
table 26. tions varied from city to city; in showing the
results in table 27, cost ranges are provided.
In its 1977 survey, Professional Builder asked
potential buyers whether they would purchase, Given the complex interplay between build-
or consider purchasing either now or in the ers and buyers in determining what features
future, solar heating and water heating sys- and designs will be included in new homes, it is
tems in order to reduce their fuel bills. The re- useful to look not only at buyers’ opinions, but
sults indicate that solar is an idea whose time also at builders’ perceptions of buyers’ opi-
has not yet come, in terms of public accept- nions. Builders remain the primary decision-
ability, but that homebuyers are keeping an makers in new construction, but their decisions
open mind and might well consider solar more refIect what they find to be the dominant char-
Ch. Ill—The Consumer ● 73

Table 27.—Percent of Homebuyers Desiring Energy-Saving Features in Five* Major Housing Markets, 1978

Market area
Energy-saving feature Cost range Wash., D.C. Miami Chicago San Fran. San Diego
Upgraded insulation. . . . . . . . $500-1,500 97 88 95 95 83
Double-glazed windows. . . . . $750-2,000 91 70 86 68 34
Solar water heater. . . . . . . . . . $1,800-2,000 34 58 25 41 36
Solar space and water . . . . . . $7,000-13,000 32 48 21 42 24

“Phoenix, surveyed only with regard to upgraded insulation, is excluded from the table.
SOURCE: “What Home Shoppers Seek in Six Major Markets,” Housing, October 1978.

acteristics of market demand. In early 1978, or “very important, vital to buying decision”
Professional Builder asked housing contrac- (44 percent). Given this overwhelming evi-
tors, “How important is energy conservation to dence, it is safe to say that purchasers of new
your customer?” Ninety-seven percent said it housing are indeed energy-conscious, and that
was either “somewhat important” (53 percent) builders are sensitive to this concern.

CONSUMER BEHAVIOR AND ENERGY CONSERVATION


IN HOME OPERATION

Does consumer behavior really make a sig- Even more dramatic are certain observa-
nificant difference in energy consumption? If tions about variable energy use levels in
not, consumers will have Iittle incentive to cut houses of similar or identical design. Wybe
back. But if so—and if the answer is measur- observed two houses, built by the same con-
able in dollars and cents — a residential energy tractor, which were expected to have identical
conservation campaign will find a receptive thermal characteristics. One used 2.2 times as
audience. much heat and 75 percent more total energy
than the other.28 Jay McGrew observed in a re-
Data on the direct impact of behavior on
lated analysis that the occupants’ knowledge
energy consumption have only recently be-
of proper energy management was generally
come available—and the early returns, based
more important in achieving low energy con-
on utility bills and other records, along with
sumption than the quality of the construc-
the experience of fuel suppliers— indicate that
tion. 29
the way a home is used makes a substantial
difference in how much energy is used. There Princeton University researchers found simi-
are savings to be had — and while they will not, lar evidence in the Twin Rivers Project. In a
in the long run, compare with the vast savings sample of nine identically constructed town-
derived from a house designed to save houses, each with similar orientation, con-
energy—the savings are real and can play a sumption of gas for heating varied by as much
large role in reducing energy use in existing as a factor of 2 to 1. When occupants changed,
housing. gas consumption also changed. In the nine
townhouses where gas consumption was moni-
Thermostat and air-conditioner settings are
tored from 1972-76, one house moved from the
an obvious example. The use of hot water can
highest consumer (1975) to the lowest consum-
be a major energy drain. Opening or closing
shades and curtains, using natural or mechani-
2’Wybe J. van der Meer, “Energy Conservative Housing
cal ventilation, opening and closing doors,
for New Mexico,” report 76-163, prepared for the New
leaving windows open at night–all these and Mexico Energy Resources Board, 1977, p. 19.
other choices combine to affect the total ener- *’Jay McGrew, President, Applied Science and Engi-
gy consumption for any given family. neering, Inc., private communication.
74 ● Residential Energy Conservation

er (1976) when occupancy changed, dropping Although it is clear that the way people live
almost 50 percent. When these nine houses is important in residential energy consump-
were retrofitted, the gas consumption of each tion, it is more difficult to determine how
fell by an average of approximately 30 per- much energy could be saved by behavioral
cent, but the ranking of the houses remained change, because the major determinants of
essentialIy the same. 30 use are the number and age of occupants,
combined with living and working patterns,
Also, large savings reflecting purely behavioral
30R. H. ‘jocolOW, “The Twin Rivers program on Energy effects should drop as houses are better con-
Conservation in Housing: Highlights and Conclusions,” structed and more energy sensitive from the
Energy and Buildings, vol. 1, no. 3, April 1978, p. 225. beginning.

CONCLUSIONS

Using data from the large number of studies 3. Consumers are most easily motivated by
that have been completed in the area of con- the prospect of monetary savings. Exhor-
sumer attitudes and behavior with respect to tations about the need to reduce imports
energy conservation, it is possible to state the or prevent energy-related environmental
following general conclusions with policy im- problems do not move most people to
plications: take conservation steps,
1. Consumer decisions on housing are com-
4. Consumers are undertaking minor adjust-
plex, and it would be unrealistic to pro-
ments (lights out, thermostats down) to
pose energy conservation options that fail
their energy-consuming practices, but are
to recognize this. Homebuyers look for
displaying reluctance about major invest-
many things besides energy efficiency in a
ments or lifestyle changes.
home. They are conservative about dras-
tic changes in house design or in home
5. There are significant discrepancies in ac-
lifestyles. There is, however, great latitude
tual conservation opportunities (as well as
for efficiency improvement in the struc-
incentives) among different income
ture and operation of the home within the
groups. Low-income consumers have little
confines of consumer tastes and needs.
latitude to conserve, and upper income
2 Consumers are becoming more aware of families lack the financial incentive, leav-
the need for conservation, but this ing conservation mostly in the hands of
awareness does not necessarily lead to the middle-income householders.
conservation behavior. Many consumers
lack practical knowledge about how to 6. Impediments to consumer conservation
accomplish conservation and harbor a include inadequate information, conflicts
degree of mistrust about Government and with other goals, lack of perceived finan-
industry as information sources. Much of cial reward, doubts about others’ motiva-
the available technical information ap- tions and commitments, and complacen-
pears to be too complicated or inaccessi- cy about forthcoming technological solu-
ble for consumer use. tions
Chapter IV

LOW-INCOME CONSUMERS
Chapter IV.– LOW-INCOME CONSUMERS

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Weatherization . . . . . . . . . ............... 81
Low-Income Tenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Emergency Financial Assistance for Utility Payments.. . . . . . . . . . . 83
Utility Policies for the Poor and Near-Poor . . . . . . . . . . . . . . . . . . . 85
l-lousing, Energy, and the Poor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

TABLES

Page
28. Consumption of Electricity and Natural Gas in U.S.
Households by lncome Group, 1975. . . . . . . . . . . . . . . . . . . . 86
Chapter IV
LOW-INCOME CONSUMERS

INTRODUCTION

Energy problems hit hardest in low-income households. About 17 percent of the U.S.
population — or 35 million Americans— have incomes below 125 percent of the official pov-
erty line, ’ and this group feels the most severe effects of inflation, unemployment, and high
energy bills.2
Utility costs erode the meager budget of a low-income family. Utility costs account for
15 to 30 percent of the total available income for the low-income family,3 depending on the

‘This 17-percent figure includes approximately 25 mil- tion in poverty since then. See Statistical Abstract of the
lion people whose incomes are below, and approximate- United States 1977, U.S. Bureau of the Census, 98th edi-
ly 10 million people with incomes no more than 25 per- tion, Washington, D. C., 1977, table 733, p. 453.
3
cent above, the poverty level, as based on a poverty in- These figures on average household expenditures for
dex developed by the Social Security Administration in home fuels as a percentage of disposable income were
1964, modified by a Federal Interagency Committee in submitted by the Federal Energy Administration (FEA) to
1969, and revised in 1974. For a nonfarm family of four in the U.S. Senate’s Special Committee on Aging. The
1978, the poverty line was set at an income level of figures were taken from FEA’s Household Energy Expend-
$6,200 per year. iture Model (HE EM). The H E E M data shows:
Zusing Consumer price Index (C PI) data as a measure
Table B.—Average Annual Household Expenditures on Home Fuels as a
of inflation, gas, electricity, fuel oil, and coal costs rose Percent of Disposable Income by Age of Household Head, United States
at rates 1.6 to 3.0 times the rate at which the CPI rose be-
tween 1972 and 1977. No other major CPI item had rates Household head
under 65 65 and over
of increase as high.
Disposable income 1973 1976 1973 1976
Table A.—Consumer Prlce Index Increases, 1972-77 Less than $2,000 ..., . . . . . . . . . 34.1 50.1 34.5 50.7
$2,000-$5,000 . . . . . . . . . . . . . . . . . . . . . . . . 10.1 15.9 10.3 15.1
Ratio of increase
Increase in CPI of all items:
1972-77 to each item According to U.S. Census figures, 17.9 percent of all
All items. . . . . . . . . . . . . . . . . . . . . . . . . . . 55.3 — households have total incomes of $5,000 or under (1976).
Food . . . . . . . . . . . . . . . . . . . . . 68.2 1.2
Rent . . . . . . . . . . . . . . . . . . . . ., 33.0 .6
In other words, the first two brackets up to $5,000 in-
Home ownership. . . . . . . . . . . . . . . . . . . . . 62.2 1.1 come correspond reasonably well to the 20 percent of
Fuel oil and coal . . . . . . . . . . . . . . . . . . . . 164.1 3.0
Gas and electricity . . . . . . . . . . . . . . . . . . . 90.4 1.6
the population at poverty line or below. Thus, a range of
Apparel and upkeep . . . . . . . . . . . . . . . 31.1 .6 15 to 50 percent would seem to be justified. However,
Transportation, public . . . . . . . . . . . . ., 38.1 .7 the percentages in the above tables were calculated
Transportation, private. . . . . . . . . . . . . 60.3 1.1
Medical. . . . . . . . . . . . . . . . . . . . . . . . 68.0 1.2 assuming the mean household incomes within each in-
come bracket was equal to the midpoint of the bracket,
i.e., that the mean household income within the less than
The costs of food and medical care, for example, in- $2,000 bracket is $1,000. Given that welfare payments for
creased at rates only 1.2 times greater than did the over- a single person are $177 per month or $2,124 per year, the
all CPI, while the costs of rent, apparel, and public trans- number of households subsisting on $1,000 per year is
portation increased at rates less great than did the over- probably very small.
all CPI. (Ratios of increases in gas, electricity, fuel oil, Thus, only a small percentage of households within
and coal costs from 1972-77 derived from table 770, p. that bracket are paying 50 percent of their incomes for
478. Statistical Abstract of the United States 1977.) energy. Twenty-five percent would be a more statistical-
It is interesting to note the course of progress in the ly meaningful figure, giving a range of 15 to 25 percent.
reduction of poverty since 1959. I n that year there were Middle-income families typically pay less for utility
approximately 55 million persons below 125 percent of cost partly because most utility companies use some
the poverty level, constituting about 31 percent of the variation of the declining-block rate structure; the first
total population. The greatest reduction occurred in the block of energy consumed is charged the highest price,
1959-68 period, at the end of which 35.9 million persons per unit price additional increments of energy con-
or 18 percent of the population, were below 125 percent sumed, the lower the average price that is paid.
of the poverty level. There has been no significant reduc- (Continued)

77
78 ● Residential Energy Conservation

type of housing and the cost of different forms of energy in various parts of the country. Mid-
dle-income Americans, on the other hand, spend only about 5 percent of their total available
income on utility bills. Further, increases in welfare payments and other assistance tied to the
Consumer Price Index have not kept up with escalating energy costs. In 1972-79, fuel oil
prices rose 197.3 percent, and gas and electricity prices rose 134 and 78 percent; meanwhile,
the Consumer Price Index rose only 68.6 percent.4 Hence the substantial and growing propor-
tion of a low-income family’s budget that goes for utilities affects the family’s ability to pay
for other essentials such as food, rent, and clothing. Data from crisis intervention and weath-
erization programs sponsored by the Community Services Administration (CSA) have shown a
large number of poor families spending 40 to 50 percent of their household budgets on fuel
and utility costs during the heating season. 5 Some of these families face a choice between
paying for food and having their utilities shut off. Low-income families lack discretionary in-
come that they couId divert from other expenses to meet escalations in energy costs.

Nearly half (49 percent) of all low-income


(Continued) households live in the Northeast and North-
(See The Impact of Rising Energy Costs on Older Ameri- Central regions, where winters are cold and
cans, Hearings before the Special Committee on Aging, prices for electricity and natural gas are high.6
U.S. Senate, 95th Cong., Apr. 7, 1977 (Washington, D. C.:
More than half (54 percent) of all low-income
U.S. Government Printing Office), stock #052-070-04230-
3), 1977, pt. 5, p. 259. families occupy single-family detached dwell-
For corroborating information placing current U.S. ings, which require more energy to heat than
low-income energy costs in the 15 to 25 percent of dis- apartments or rowhouses. Fifty-five percent of
posable income range, also see Hollenbeck, Platt & the poor and near-poor rent their housing
Boulding, An Analysis of the Effects of Energy Cost on
Low-lncorne Households, table 2 submitted to the
units; this tends to diminish their opportunities
Bureau of Applied Analysis, Regional Impact Division, to control residential energy requirements or
Department of Energy, on Apr. 6, 1978, in response to a to make conservation-related home improve-
request by OTA; and Dorothy K. Hewman and Dawn ments. I n the colder Northeast, 59 percent of
Day, The American Energy Consumer, ch. 5 and 7 (Cam- low-income families live in apartments, reduc-
bridge, Mass.: Ballinger, 1975).
ing their energy needs (relative to occupants of
‘See note 1. In 1973 (the last year for which data was
available) before taxes, the poorest half of the U.S. low- free-standing homes) but also reducing their
income population (those making less than $3,400 yearly) control over energy consumption.
spent an average of 52.1 percent for food: an estimated
20.0 percent for rent; 21.4 percent for gas, electricity, and Forty-two percent of all low-income house-
other fuels; and had 6.5 percent left for apparel, medical holds live in rural areas or in small towns. For
care, and other expenditures. these 5.9 million families, home is often a
Energy costs (see note 2) have risen at rates three times small, old, substandard, uninsuIated, and poor-
that of other costs. Projections of energy costs for people
with disposable income below the poverty line indicate
ly heated single-family house. Only 51 percent
that energy costs, which represented 20.5 percent of a have central heating, and 28 percent use sup-
poor household’s disposable income in 1974, may repre- plementary room heaters. The large number of
sent 31.8 percent by 1985 (Hollenbeck, Platt, Boulding, poor and near-poor families living outside met-
op. cit., tables 2 and 8). Any little discretionary income ropolitan areas accounts for the fact that per-
low-income people have will be eliminated and substitu-
sons in this income group are five times as Iike-
tions must be made from other cost categories, like food.
(Derived from table 9.26, p. 472, Social Indicators: 1976 Iy as those in the middle and upper groups to
(Washington, D. C.: U.S. Department of Commerce, 1977), use wood, kerosene, coal, or coke to heat their
and communication with Eva Jacobs, Bureau of Labor homes instead of the more common oil, gas, or
Statistics.) electricity.
5
From testimony given by Mr. Tony Majori, Associate
Director, Community Relations-Social Development ‘All statistics in this section describing energy-related
Commission of Milwaukee County, Milwaukee, Wis., characteristics of low-income households are from
before the U.S. House Select Committee on Aging, Sub- Eunice S. Crier, Colder. . . Darker: The Energy Crisis and
committee on Housing and Consumer Interest, Sept. 26, Low-Income Americans (Washington, D. C.: Community
1978. Services Administration), #B6B5522, June 1977.
80 ● Residential Energy Conservation

About 37 percent of all low-income house- proportion of the poor and near-poor popula-
holds are headed by elderly persons; converse- tion, are more susceptible than the general
ly, about 37 percent of all elderly households population to health problems that are aggra-
are classified as poor or near-poor. Just over vated by cold (e. g., respiratory ailments, arthri-
half of these elderly low-income households tis, or hypothermia) and by heat, because their
live in the Northeast and North-Central re- bodies are less able to adapt to extreme tem-
gions. They tend to use more natural gas than peratures. 8
other low-income households — and to pay a
higher portion of their incomes for it–while Three types of policy questions emerge:
consuming much less electricity. This means ● How can it be ensured that the energy
that a bigger share of the low-income elderly problems of the poor and the elderly are
household’s energy use can be attributed to not overwhelming in either a financial or a
space heating, the most essential use. health sense? Because low-income citi-
The poor and the elderly are usually not in a zens are normally the last to move into
position to lower fuel bills by reducing con- newer and more energy-efficient housing,
sumption. Available data show that the aver- their proportion of residential energy con-
age low-income household in 1975 used 55.4 sumption could actualIy increase over
percent less electricity and 24.1 percent less time.
natural gas than the average middle-income ● How can the financial hardships faced by
U.S. household. In the aggregate, low-income the poor and elderly in purchasing ade-
households used only 11 percent of total U.S. quate energy supplies be addressed with-
residential energy, although they accounted out creating a dependency on long-term
for 17 percent of population. These figures are Federal financial subsidies or relief pro-
especially significant because at least 43 per- grams? How can a self-reliant approach be
cent of low-income households have no insula- encouraged?
tion, and 58 percent have no storm doors or ● How can low-income persons participate
storm windows — factors that drive up the best in solving their energy problems,
amount of home fuel use required to maintain perhaps acquiring skills and preparing
minimum conditions of health and comfort. themselves for future jobs at the same
Moreover, 39 percent of low-income house- time?
holds have no thermostat or valve with which
The questions are especially challenging
to control their heat, and among low-income
because policy makers face difficult choices.
renters 49 percent lack such control. Given
Given limited Government financial resources,
these circumstances, recent increases in utility
what criteria should be used to ensure that the
and fuel bills severely penalize poor people
neediest are reached first? How many Federal
who cannot significantly cut consumption
dollars should be directed toward helping poor
without enduring health hazards in their
households reduce energy consumption, and
drafty, uninsulated homes. Similarly, lack of
how many to help to pay utility and fuel bills?
funds to pay for air-conditioning in hot cli-
How should energy-related needs be coordi-
mates has resulted in death from heat prostra-
nated with other social needs such as day care
tion for some low-income citizens. According
centers, job training, or medical care? How
to a newspaper account, the 20 persons who
8
died from heat in Dallas, Tex., in July 1978 See K H Collins, et al., “Accidental Hypothermia and
were elderly, poor, and without air-condition- Impaired Temperature Homostasis in the Elderly,”
British Medical Journal, 1977, 1, 353-356; G. L. Mills, “Ac-
ing. 7 The elderly, who comprise a substantial cidental Hypothermia in the EIderly,” British Journal of
‘See Crier, ibid., p. 3; The Washington Post, “Life and Hospital Medicine, December 1973; Robert D. Rochelle,
Death in the Heat,” July 22,1978, p. A8; and A. Henschel, “Hypothermia in the Aged,” Institute of Environmental
et al., Heat Tolerance of Elderly Persons Living in a Sub- Studies, University of California, Santa Barbara; Fred
Tropical Climate (Washington, D. C.: DHEW, Bureau of Thumin and Earl Wires, “The Perception of the Common
Disease Prevention and Environmental Control, National Cold, and Other Ailments and Discomforts, as Related to
Center for Urban and Industrial Health, Occupational Age, ’ International Journal of Aging and Human Devel-
Health Program, February 1967). opment, vol. 6(1), 1975.
Ch. IV—Low-income Consumers ● 81

does a national goal of raising energy prices to persons. Tax incentives and penalties also dis-
levels that reflect true costs affect the poor? criminate against the poor. Direct subsidies,
How could the Federal Government mitigate such as energy stamps patterned after food
these adverse side-effects of an otherwise stamps, could address some of the problems
desirable policy? the poor face in paying utility bills—at least
temporarily. However, critics argue that such
Price mechanisms that encourage conserva-
subsidies fail to get at the sources of the prob-
tion through the marketplace do indeed exac-
lem and tend to become self-perpetuating.
erbate the financial problems of low-income

WEATHERIZATION

The most effective way to cope with higher cent of all low-income housing in need of
prices is to reduce energy requirements by weatherization to be retrofitted with conserva-
“weather i zing” homes. Federally sponsored tion materials through October 1978.9
weatherization grant programs have demon-
Several other problems also emerged in the
strated the benefits of this approach. The
first 2 years of Federal weatherization efforts,
Federal Government operates three separate
particularly in the DOE program. Among them
but similar weatherization grant programs– in
were overly restrictive Iimits on expenditures
the Department of Energy (DOE), the Commu-
for weatherization materials and transporta-
nity Services Administration (CSA), and the
tion of workers and equipment to the work
Farmers’ Home Administration (FmHA). Before
site, a firm Iimit of $400 in expenditures on
passage of the National Energy Conservation
each housing unit, and exclusion of all me-
Policy Act of 1978 (NECPA), these three pro-
chanical devices costing more than $50 from
grams operated under varying eligibility re-
the list of conservation materials to be in-
quirements and other administrative rules. The
stalled. A labor shortage plagued the pro-
new law unifies the programs, all of which are
grams; without special funding for labor, both
designed to provide direct assistance to low-in-
DOE and CSA relied almost exclusively on
come homeowners and occupants by sending
CETA workers, who were often unavailable.
workers into the field to install insulation,
Finally, because families had to be at the
storm windows, and other conservation de-
poverty level or below to be eligible for DOE
vices. Recipients pay nothing for this service.
weatherization services, many near-poor
Labor is provided primarily through the De-
households with substantial need for energy-
partment of Labor’s Comprehensive Employ-
saving improvements were excluded from the
ment and Training Act (CETA) program.
program.
The weatherization program of FmHA was
The recent National Energy Conservation
limited, until passage of NECPA during the
Policy Act of 1978 and Comprehensive Em-
final days of the 95th Congress, to loans of up
ployment and Training Act Amendments of
to $1,500 at 8-percent interest to rural home-
1978 have remedied some of these difficulties.
owners; no outright grants were available to
those unable to afford to go into debt in order
to save energy. The new energy law adds grants ‘This determination of the “total need,” or the total
to FmHA programs on the same terms as those number of poor and near-poor housing units that could
be weatherized, is based on the fact that there are ap-
in the DOE and CSA programs, except that
proximately 14 million households below 125 percent of
FmHA provides extra funds for labor when the poverty level. Sixty percent are single-family dwell-
CETA workers are unavailable. ings and 22 percent are apartments of eight units or less,
thus yielding approximately 11,480,000 potentially
Unfortunately, low funding levels during the weatherization units. According to the Community Serv-
early years of the weatherization grant pro- ices Administration, approximately 400,000 units had
grams in DOE and CSA permitted only 3.5 per- been weatherized by October 1978,
82 . Residential Energy Conservation

The eligibility ceiling for DOE weatherization The chief difficulty in using CETA workers
has been raised to 125 percent of the poverty for weatherization has centered on community
line to include all those households generally action agencies’ inability to marshall the
considered to be low-income. The legal defi- needed manpower when and where it was
nition of weatherization materials has been ex- needed. Because CETA jobs have been statu-
panded to include replacement burners for fur- torily limited to short periods of time, and be-
naces, flue dampers, ignition systems to re- cause the CETA program as a whole has had to
place pilot lights, clock thermostats, and other function with only 1-year lifespans (until ex-
items that may be added by regulation. The tended by the new legislation), it has been vir-
new law also calls for development of proce- tually impossible to plan ahead for adequate
dures to determine the most cost-effective labor supplies.
combination of conservation measures for
Along with the difficulty of training and
each home, taking into account the cost of
materials, the climate, and the value of the scheduling CETAs, lack of authorization to use
funds to hire supervisors as well as inadequate
energy to be saved by the materials. The limit
funds for training have resulted in limited
on allowed expenditures for each dwelling has
been raised to $800, an amount that includes skills. Program analyses at the local level have
shown that little effective training has oc-
materials, tools, and equipment; transporta-
curred, and that the more extensive skills that
tion; onsite supervision; and up to $100 in
the trainee might have been able to Iearn and
repairs to the house that are needed to make
use in construction industry jobs (e. g., basic
the energy improvements worthwhile. Most im-
carpentry) have not been taught. Such factors
portant, the DOE program funding authoriza-
have limited the trainee’s effectiveness on the
tions have been increased to $200 million an-
job and eventual desirability as an employee.
nually for FY 1979 and 1980. The new FmHA
grant program is authorized at $25 million for The 1978 CETA Amendments direct the Sec-
FY 1979. retary of Labor to facilitate and extend proj-
Weatherization programs are especially ap- ects for work on the weatherization of low-in-
pealing because they can help low-income per- come housing, providing adequate technical
sons not only to save energy, but in some cases assistance, encouragement, and supervision to
also to obtain job training and improve their meet the needs of the weatherization program
permanent employment prospects. Title VI of and the CETA trainees. According to Gaylord
CETA authorizes county and local govern- Nelson, chairman of the Senate Subcommittee
ments or private nonprofit “prime sponsors” to on Employment, Poverty, and Migratory Labor,
hire unskilled, underemployed, or hardcore un- the weatherization provisions of the CETA bill
employed labor for public service work, in- were needed to prevent three-quarters of the
cluding weatherization. The primary objective 1,000 active weatherization projects in the Na-
of the program is to facilitate private employ- tion from shutting down for lack of workers.
ment for CETA workers after a 6-month or 1- In spite of the difficulties confronting CETA
year training experience. Marriage between the weatherization, some programs have been ef-
weatherization and CETA programs, born of fective if not outstanding. For many others,
convenience and fraught with difficulties, however, continued effort by the Department
nonetheless has the potential to make some of Labor, DOE, and CSA will be necessary if
headway against two of the Nation’s most the program is to effectively meet its several
pressing problems –the energy crisis (includ- goals.
ing inflation in energy prices) and unemploy-
ment. More than 30,000 low-income unem- Weatherization is not a panacea; this ap-
ployed persons had received training in weath- proach offers little help to those beyond the
erization skills— installation of home insula- program’s reach who face immediate hardship
tion, storm windows, and other conservation trying to pay high utility bills. Those least like-
devices– by the end of 1978. ly to receive weatherization assistance are the
‘“Public Law 95-524, sec. 123 (c). 55 percent of all low-income families who live
Ch. IV—Low-income Consumers ● 83

in rental housing and those living in severely cost-effective use of Federal funds. But given
deteriorated housing for which bandaid im- the emphasis that Federal assistance programs
provements cannot be justified. For these per- usually place on ownership as a precondition
sons, a number of additional policies may be to any housing development activity, perhaps
required. programs in individual or cooperative owner-
ship might be developed. In any event,
What additional policy options might be
whether these, or other options for renters
considered? The development of weatherized
such as continuing emergency financial
and rehabilitated public and private housing is
assistance are chosen, some action should be
one possibility. Or, if the rehabilitation of
taken to address the problems of low-income
some housing is too costly, considering its
renters in housing whose energy inefficiency is
useful life, the construction of new energy-
continually increasing.
efficient housing for the poor might be a more

LOW-INCOME TENANTS

The problems of low-income families living Energy costs, along with property taxes and
in rental housing are especially difficult to ad- escalating maintenance costs, contribute in a
dress. Those whose units are metered and major way to the tendency of slum landlords
billed individually have reason to seek ways to to abandon substandard buildings. Tenants are
reduce energy consumption, but their opportu- seldom well-enough organized to pressure mu-
nities to do so are limited. Even if they can af- nicipal governments into enforcing building
ford to invest in conservation measures– codes or retrofitting and renovating buildings
which most cannot—their investments bring that cities acquire through tax liens.
them no personal benefits unless they con-
Federal weatherization programs have of-
tinue living in the unit for a long time. Most
fered little help to low-income renters, particu-
tenants are understandably reluctant to im-
larly those living in apartments. CSA regula-
prove properties they do not own. Many ten-
tions prohibited use of the agency’s funds for
ants cannot even control the thermostats or
retrofitting multifamily housing until recently.
water heaters that serve their units. Individual
The laws governing DOE and FmHA weather-
tenants’ relatively low levels of energy con-
ization require that multifamily weatheriza-
sumption mean that they pay the highest rates
tion projects be designed to benefit tenants
in the standard declining-block rate design.
rather than landlords and direct the program
(See chapter VI.) Landlords who pay utility
managers to ensure that rents are not raised as
bills for their properties and pass the cost
a result of weatherization improvements and
along to tenants through rent have little incen-
that no “undue or excessive enhancement” of
tive to invest in weatherization improvements.
the property results from weatherization ac-
When they do make such investments, they
tivities. While these provisions are laudatory,
pass those costs along, too--so that tenants
implementing them is difficult.
who move before the payback period is com-
plete fail to receive the financial benefit of the
lower utility bills.

EMERGENCY FINANCIAL ASSISTANCE FOR UTILITY PAYMENTS

Because of the slow pace of weatherization ant choice of either sacrificing other necessi-
efforts and the severity of recent winters, many ties to meet utility and fuel costs or finding
low-income families have faced the unpleas- their gas, oil, or electricity cut off. To avoid
84 ● Residential Energy Conservation

these difficulties, three Federal programs have come persons for payment of utility and fuel
been used to help low-income consumers pay bills in emergencies. This provision has been
utility bills. They are the Department of controversial because HEW officials have ex-
Health, Education, and Welfare’s (HEW) Emer- pressed a concern that utility payments could
gency Assistance and Title XX programs, and consume such a great portion of title XX funds
the much larger CSA Special Crisis Interven- that too little would remain for more tradi-
tion Program (SCIP). tional social services. 3 Furthermore, at Ieast
one State– North Dakota–found title XX an
HEW’s Emergency Assistance (EA) Program
impractical tool for utility payments because
is available to poor families with one or more
of the requirement that bills be paid in full
children through the welfare system in 22
before reimbursement funds are released. ”
States. Emergency assistance payments are
These problems, particularly the issue of com-
made to prevent imminent hardship, such as
peting needs for limited funds, may jeopardize
loss of fuel services. Close to 90 percent of the
the availability of title XX funds for energy-re-
EA caseload is carried by only seven States,
lated financial assistance.
however. The Federal Government provides a
matching share of 50 percent to States that of- The Community Services Administration’s
fer the program. Some States find the required SCIP was initially funded by a supplemental
50-percent non-Federal share too expensive. appropriation of $200 million in March 1977.
Welfare officials often find it difficult to The program was intended to make available a
document the legitimacy of emergency needs variety of financial assistance mechanisms
claimed by applicants. ’ Litigation in some that included grants, loans, fuel vouchers, or
States has resulted in court rulings that some stamps; payment guarantees, mediation with
State restrictions on the use of EA funds are il- utility companies or fuel suppliers, and finan-
legal; State response has sometimes been to cial counseling; and maintenance of emergen-
stop offering emergency assistance. 2 cy fuel supplies, warm clothing, and blankets.
In practice, assistance was limited to emergen-
Other factors have also limited this pro- cy grants in most cases.
gram’s effectiveness. The program is available
only to families with children, and only to Although funded for $200 million, SCIP did
public-assistance recipients. Further, a family not come close to helping all those in need.
may not receive EA payments for more than 1 The maximum payment to individuals or fam-
month during any 12-month period. ilies, limited to $250 by Federal regulations,
was often too low to cover the total bill, and
Funds available through title XX of the some States set lower ceilings because the
Social Security Act of 1975 may also be used number of applications was too high for the
to permit low-income consumers to pay fuel available money. When consumers could not
bills. Title XX funds have traditionally been meet their entire bills with SCIP payments,
used for such social-service purposes as pro- utilities sometimes failed to establish deferred-
viding clothing and groceries for needy fam- payment plans and proceeded instead to shut
ilies, or for meeting the needs of handicapped, off gas or power. Some utilities reportedly
mentally ill, retarded, or other poor persons failed to reduce their customers’ bills to reflect
with special problems. HEW regulations were SC I P payments.
amended in January 1978 to permit the use of
title XX funds for reimbursement of low-in- SCIP’s major problems in the first year re-
sulted from poor timing. Congress’ action in
appropriating funds in March was aimed at
‘ ‘Consumer Federation of America, Low-Income Con-
sumer Energy Problems and the Federal Government’s Re- assisting with bills accumulated during the
sponse, report to the Office of Technology Assessment, winter just ending, yet funds did not become
1978, p. 135. available to community action agencies for
‘zSee, for example, Kozinski v. Schmidt, D.C. Wis.,
1975, 409 F. Supp. 215; Williams v. Woh/gemuth, D.C. Pa., ‘3Consumer Federation of America, op. cit., p. 139
1975,400 F. Supp. 1309. “ibid., p 138.
Ch. IV—Low-income Consumers ● 85

distribution until late summer. By then, many ating informally—for example, farmers who
poor families had already had their utilities sold wood to their neighbors to earn extra win-
shut off or had sacrificed other essential needs tertime income— and failed to provide such
to pay their bills. When funds finally became notice. Their customers were therefore ineligi-
available, they had to be distributed in the ble for SC I P assistance.
short time remaining in the fiscal year or else
revert to the CSA weatherization program, a Many local SCIP coordinators objected to
worthy program but one that could not meet the program because they felt it forced their
the immediate and critical financial needs of agencies into an uncomfortable role: handing
many poor families. Of the amount appropri- out money (like a social service agency) to try
ated in FY 1977, 82 percent was actually dis- to alleviate the effects, rather than the causes,
tributed to the needy population. of a problem. They saw this as restraining them
from focusing their efforts to do something
Community action agencies functioned with about the causes of the local energy problem,
a frenzy of activity in order to handle SCIP and as providing local people with an errone-
funds in August and September 1977. With no ous perception of the agencies’ role in their
funds provided for administration of the pro- communities: that is, as surrogate welfare de-
gram, the agencies operated with staff hastily partments rather than as organizations which
borrowed from other community action proj- help people become more self-sufficient.
ects. They undertook efforts to communicate
with eligible persons through newspaper, Some local antipoverty workers also took of-
media, and poster advertising, but some failed fense at the practice of making payments from
to reach enough people to use all available Federal CSA funds to private utility companies
funds, despite evidence of a large target popu- and fuel oil distributors. They saw SCIP as a
lation. Others succeeded in their public rela- continuing subsidy to utilities, and not as a
tions efforts but found potential recipients help to the poor. ”
discouraged by long waiting lines for applica- CSA’s second-year financial assistance pro-
tion processing and lack of transportation gram, also funded at $200 million, was known
assistance, particularly in rural areas. as the Emergency Energy ‘Assistance Program
To be eligible for SCIP payments, utility and (EEAP). In FY 1978, funds were made available
fuel customers were required to show written sooner and program administrators were able
notice from their suppliers of intent to termi- to benefit from many of the first year’s experi-
nate service. Many small dealers in propane, ences.
butane, and wood were accustomed to oper-

UTILITY POLICIES FOR THE POOR AND NEAR-POOR

Emergency payments to low-income per- vide necessary amounts of heat, light, refrig-
sons, discussed in the previous section, are in- eration, cooking, and water heating— are sold
tended to forestall utility shutoffs and ensure 1
‘Data derived from telephone interviews with 44 CAP
enough energy to meet basic needs. A number weatherization, energy, and overall program directors,
of governmental jurisdictions have imposed and interviews with community leaders at OTA. Tele-
additional policies, however, to protect low- phone interviews discussed the structure and problems
income consumers in their dealings with util- encountered with CSA energy education programs,
which included extensive discussion of weatherization
ities.
activities and problems with CSA/DOE and other pro-
In California, all utilities have been required grams, and SC I P, while additional interviews at OTA with
local energy personnel visiting in Washington centered
by law since 1975 to design their electric and
on the effect of and improvements that could be made in
gas rate structures so that the first blocks of SCIP and other community energy conservation pro-
energy consumed — the amount needed to pro- grams,
86 ● Residential Energy Conservation

at reduced rates. Utility revenues lost through Other studies of electricity and gas con-
the so-called “lifeline” subsidy are recovered sumption among low-income users indicate,
by charging higher rates for energy consumed however, that looking at average household
above the minimum allowance. This policy consumption patterns may not be the best way
represents a reversal of the traditional utility to evaluate the effectiveness of lifeline rates in
“declining block” rate structure. meeting social welfare goals. Looking instead
at the number of households in various income
The California law is premised on a finding groups that exceeded lifeline allowance levels,
that “light and heat are basic human rights and the Pacific Gas & Electric Company (PG&E)
must be made available to all people at low found that significant numbers of low-income
cost for minimum quantities. ” Lifeline rates households exceed not only the lifeline con-
are discussed in the context of utility policy for sumption levels, but also the utility system’s
energy conservation in chapter VI of this re- average consumption per household. For ex-
port. Here, they are discussed in terms of their ample, PG&E determined that nearly 50 per-
purpose in meeting social welfare goals—that cent of its low-income customers in the San
is, in preventing severe hardship caused by Francisco Bay area outside San Francisco con-
high energy prices or by termination of essen- sume more than the area’s average monthly
tial utility services as a result of inability to household level of 300 kWh.17 High consump-
pay. tion levels among low-income customers were
For lifeline rates to function as effective in- found to be very weather-sensitive and espe-
come-transfer devices, low-income households cially prevalent during winter peak-heating
must hold their electricity and gas consump- periods, probably because of the poor thermal
tion at or near the low levels needed to meet integrity of many homes occupied by low-in-
only essential needs. Available data indicate come consumers. PG&E concluded that large
that on the average, low-income households numbers of low-income consumers were being
do indeed consume less energy than house- penalized, rather than helped, by lifeline
holds in higher income brackets. A study by rates.18
the Washington Center for Metropolitan In a recent critique of the California lifeline
Studies found that in 1975, the average low-in- policy, Albin J. Dahl expressed a doubt that
come household consumed 60.6 million Btu* landlords receiving lifeline allowances for
of electricity and 110.1 million Btu of natural units in master-metered buildings would in all
gas, compared with an average of 94.2 million
cases pass on utility cost-savings to their ten-
Btu of electricity and 136.3 million Btu of
ants through lowered rents. He also pointed
natural gas for all households. Table 28 indi-
out that California residential gas consumers
cates how gas and electricity consumption in were paying for much of the gas they con-
low-income households compared with use of
sumed at rates far below the costs borne by
these energy sources in middle- and upper-in-
utilities in purchasing and delivering that gas.
come households.16
Dahl argued that the tax and welfare systems
Table 28.—Consumption of Electricity and Natural were more appropriate vehicles for solving the
Gas in U.S. Households by Income Group, 1975* energy-based financial problems of low-in-
(millions of Btu)
come persons. 19
Income
Other utility-related policies that might
$25,000
Low- $14,000- a n d assist low-income persons include prohibitions
income 20.500 above on wintertime utility shutoffs, legal aid to indi-
Electricity. . . . . . . . . . . . . . . . . . 60.6 111.3 137.5 gent utility customers, and requirements of
Natural gas. . . . . . . . . . . . . . . . . 110.1 137.4 190.5 third-party notification prior to shutoff.
● Average annual Btu per household.
SOURCE: Washington Center for Metropolitan Studies, National Survey of “j, Dahl Albin, “California’s Lifeline Policy,” Public
Household Energy Use, 1975. Utilities Fortnight/y, Aug. 31,1978, p. 20.
*One Btu is equivalent to 1 kilojoule. ‘81 bid., p 18.
“Crier, op. cit., p. 11 “I bid., pp. 13-22.
Ch. IV—Low-income Consumers . 87

HOUSING, ENERGY, AND THE POOR

For low-income persons, problems of energy ● Mortgage insurance and interest subsidies
use in the home are a subset of the larger prob- made available under section 235 of the
lems of poor housing quality in general. Op- National Housing Act to permit low- and
portunities to lower residential energy con- moderate-income persons to purchase
sumption — and reduce utility bills — are sharp- new and existing housing under afford-
ly limited for people who live in substandard able financing terms;
housing, unless a way can be found to rehabil- ● FmHA’s Section 502 Homeownership
itate or replace such housing. Weatherization Loan Program, offering either loan
programs, financial assistance, and preferen- guarantees or direct loans for the pur-
tial utility rates cannot provide full remedies chase or rehabilitation of homes under
for either owners or renters of low-quality, financing terms that vary depending on
energy-guzzling homes. A number of Federal the recipient’s income; and
programs address the housing needs of low- ● FmHA’s Section 504 Home Repair Pro-
income persons. Efforts are directed at both gram, which offers loans and grants to
tenants and homeowners. elderly rural low-income homeowners to
remove certain dangers to health and
Programs affecting rental housing include: safety.
Federal assistance to local housing au-
thorities for construction, maintenance, Programs that can affect both rental and
and subsidization of rents in public hous- owner-occupied housing are:
ing projects; ● Community development block grants
Rent subsidies under section 8 of the Na-
made available annually to local govern-
tional Housing Act which make up the dif-
ments to meet broadly specified Federal
ference between 25 percent of recipient
objectives (which include the provision of
families’ incomes and the fair market rent
adequate housing, a suitable living envi-
for the private housing units they occupy;
ronment, and expanded economic oppor-
Mortgage insurance, interest and rent sub-
tunities for low-income groups) through
sidies, and energy-related home improve-
projects designed at the local level; and
ment financing for rental housing under ● HUD’s urban development action grants
section 236 of the National Housing Act,
designed to stimulate new construction
as amended; and
and economic development in low-in-
FmHA’s Section 515 Rental and Cooper-
come areas.
ative Housing Loan Program, which
finances housing for low- and moderate- All these programs have helped low-income
income families developed by public, persons to acquire “decent, safe, and sanitary
private, or nonprofit organizations. housing” without the expenditure of an unrea-
sonable portion of their incomes for housing. It
Programs aimed at owner-occupied housing is not clear, however, that the programs have
include: helped in a noticeable way to make poor fam-
ilies’ homes more energy-efficient. For most
● The Department of Housing and Urban programs, energy conservation is a concern far
Development’s (HUD) section 312 pro- from the minds of program administrators in
gram, providing loans at 3-percent interest Washington, D. C., and in the field; similarly,
to low-income homeowners in certain des- lenders, builders, owners, developers, non-
ignated areas, for the purpose of rehabili- profit groups, and others on the receiving end
tating their homes and bringing them into of Federal housing funds have only rarely in-
compliance with current local building cluded energy efficiency in their planning or
codes; cost calcuIations.
88 . Residential Energy Conservation

Public housing projects, for example, were difference between 25 percent of their family
constructed without effective thermal stand- incomes and the fair market rent for the hous-
ards until 1963, and from 1963 to 1973, Federal ing units they occupy. Tenants in both public
guidelines for thermal standards were volun- and private housing are eligible for section 8
tary. In recent years, the emphasis within the subsidies if their incomes do not exceed 80 per-
public housing program has shifted from new cent of the median income in their geographic
construction to rehabilitation of existing proj- areas; nearly a third of all recipients earn less
ects, and energy efficiency has been desig- than half of the median income. As with the
nated as a “priority expenditure category” as public housing program, section 8 guidelines
part of rehabilitation. Since utility costs have pay little attention to energy efficiency. Only
been estimated by HUD to account for be- in the case of newly constructed apartments
tween 20 and 30 percent of project operating are section 8 subsidies tied even indirectly to
expenses, in many cases upgrading insulation, requirements for thermal integrity in the build-
windows, and energy-consuming equipment in ings; newly built homes must meet HUD mini-
public housing units is a cost-effective use of mum property standards to be eligible for par-
public funds. Unfortunately, however, HUD ticipation in the section 8 program. Older units
cannot supply accurate estimates of the level are not subject to any energy standards for
of energy-related improvements being made in eligibility
the public housing sector, or of the energy sav-
Chapter Vlll describes each of the Federal
ings that are resuIting.
housing programs listed above, and evaluates
The rental assistance program under section their effectiveness (or lack thereof) in encour-
8 of the National Housing Act assists over aging energy efficiency to keep utility costs
350,000 low-income families by making up the down for low-income owners and tenants.
Chapter V

HOUSING DECISIONMAKERS
Chapter V.— HOUSING DECISIONMAKERS

Page

Introduction . . . . . . . . . . . . . . . . . 91 39
Characteristics of the Existing Housing
Inventory . . . . . . . . . . . 91 40
Characteristics of New Housing . . . . . . 93
Housing Processes and Participants . . . . 94
New Construction. . . . . . . . . 95
Retrofit . . . . . . . . . . . . . . . . 97
Manufactured Housing. .,,. . . . 98 41
The Existing Housing Stock. . . . 99
Trends in Housing and Conservation ~ ~ ...101 42
Trends in Housing Costs .. ...101
Trends in Utility Costs .. ...104 43
Findings and Opportunities for Energy
Conservation. . . . . . . . . . . . .112 44
Builders’ Attitudes . . . . ..113
Property Owners’ Attitudes. . .......113
ls the Cost of Adding Energy Conservation 45
Features to New or Existing Housing
an impediment to Conservation? 114
Are Problems of Financing Impeding the 46
Pace of Residential Conservation? 114 47
What Are the Current and Potential Roles 48
of the Federal Government in
Encouraging Residential
Conservation? 115 49
Directions for the Future .116

50

TABLES

51
29 Structure Type: Year-Round Housing
Units, 1976 . . . . . . . . . . . . . . . . . . 91 52
30 Tenure and Number of Units by Type
of Structure, 1976 . . . 91
31 Year-Round Housing Units by Location, 53
1976. . . . . . . . . . . . . . . ., . . . . 92
32. Tenure by Location, 1976 . . . . 92 54
33. Income by Type of Occupancy, 1976 . 92
34. Age of Housing Units, 1976. . 92
35. Sales of Existing Single-Family Homes
for the United States and Each Region
by Price Class, 1977 . . . . . . 93
36. Private Housing Starts by Type of
Structure, 1977 . . . . . . . . . . . . 93 15
37. Private Housing Completions by
Location, 1977. . . . . . . . . 94 16
38. Sales Price of New One-Family Homes
Sold, 1977 . . . . . . . . . . . 94
Chapter V
HOUSING DECISIONMAKERS

INTRODUCTION

This chapter assesses the efforts to improve the energy efficiency of new and existing
housing. It identifies the opportunities for and impediments to more residential conserva-
tion. The characteristics of residential buildings, the factors that influence property owners’
attitudes and behavior toward energy conservation, the participants and processes involved
in new housing development and improvement of existing housing, and trends and institu-
tional factors that encourage or discourage conservation are examined. Based on those judg-
ments, some policy options and considerations that might further energy conservation are
noted.

CHARACTERISTICS OF THE EXISTING HOUSING INVENTORY

To understand the context within which resi- Table 30.—Tenure and Number of Units
dential conservation actions occur, it is useful by Type of Structure, 1976
to review the general characteristics of existing (units in thousands)
housing. The types of units, tenure arrange- Renter
Owner
ments, the age of the housing stocks, and the occupied occupied Total
income of property owners all influence the Occupied units . . . . . . . . . 47,904 26,101 74,005
need, potential, and feasibility of energy con- l-unit structure . . . . . . . . . 42,136 8,477 50,613
2- 4-unit structure . . . . . . . 2,143 7,116 9,259
servation. In 1976 the inventory totaled nearly 10,505
5 or more unit structures . 638 9,867
81 million units, of which more than 79 million Mobile homes . . . . . . . . . . 2,987 640 3,627
were all-year housing units and 74 milIion were
SOURCE’ U.S. Department of Commerce and U.S. Department of Housing and
occupied. The housing stock is diverse, varying Urban Development, Annual Housing Survey, 1976 U S. and Regions,
Part A Genera/ Housing Characteristics, p 1
by age, construction quality, size, design, and
amenities. Most structures are single-unit
buildings and most housing is occupied by can families are owner-occupants; 47.9 million
owners. As shown by table 29, 53.6 million units or 64.7 percent are owner-occupied; and
units or 67.6 percent are one-unit structures. only 26.1 mill ion units or 35.3 percent are oc-
Only 11.9 million units or 15.0 percent are in cupied by renters. The percentage of owner-
buildings with five or more units. occupied housing is increasing, with the big-
gest changes having occurred in the 1940’s and
Table 29.—Structure Type: 1950’s. In 1940, owner-occupied units repre-
Year-Round Housing Units, 1976
sented only 43.6 percent of all units; by 1960,
——.
Units in they accounted for 61.9 percent of all units.
Type thousands Percent
1 unit. . . . . . . . . . . . . . . . . . . . . 53,611 67.6
Most one-unit structures and mobile homes
2-4 units . . . . . . . . . . . . . . . . . . . 10,189 12.8 are owner-occupied, but a significant number
5 or more units. . . . . . . . . . . . . . 11,888 15.0 are rented. Only 14 percent of all units are in
Mobile homes or trailers. . . . . .
———3,627 4.6
buildings with five or more dwellings.
Total . . . . . . . . . . . . . . . . . . . . 79,315 100
—————.—. Most housing is located in urban areas.
SOURCE: U.S. Department of Commerce and U.S. Department of Housing and
Urban Development, Arrnua/ Hous/rrg Survey, 7976 U S and Regions,
Part A‘ Genera/ Housing Characteristics, p 1
More than two-thirds of all housing is in stand-
ard metropolitan statistical areas (SMSAs). But
Table 30 gives information on tenure and as shown in table 31, only 31.0 percent of the
structure size. Nearly two-thirds of all Ameri- housing stock is found in central cities, and

91
92 . Residential Energy Conservation

most housing in SMSAs is not in central cities Table 33.—income by Type of Occupancy, 1976
but in suburban areas. (numbers in thousands)

Table 31 .—Year-Round Housing Units Number Number


by Location, 1976 of owner of renter
Family income occupants occupants
Units in Total . . . . . . . . . . . . . . . . . . . . 47,904 26,099
Location thousands Percent Less than $3,000 . . . . . . . . . . . . 3,001 3,938
Inside SMSAs ., . . . . . . . . . . . . 53,606 67.6 $3,000-4,999 . . . . . . . . . . . . . . . . 3,625 4,074
Within central cities . . . . . . . (24,547) (31.0) $5,000-6,999 . . . . . . . . . . . . . . . . 3,644 3,301
Not in central cities. . . . . . . . (29,059) (36.6) $7,000-9,999 . . . . . . . . . . . . . . . . 5,061 4,252
Outside SMSAs. . . . . . . . . . . . . 25,710 32.4 $10,000-14,999 . . . . . . . . . . . . . . 9,574 5,318
Total . . . . . . . . . . . . . . . . . . . . 79,315 100.0 $15,000-24,999 . . . . . . . . . . . . . . 14,046 3,948
$25,000 or more. . . . . . . . . . . . . 8,953 1,268
SOURCE: U.S. Department of Commerce and U.S. Department of Housing and Median income in dollars ... ..$14,400 $8,100
Urban Development, Annual Housing Survey, 1976 U.S. and Regions, ——
Part A: General Housing Characteristics, p 3 SOURCE: U.S. Department of Commerce and U.S. Department of Housing and
Urban Development, Annual Housing Survey, 1976 U.S. and Regions,
Part A General Housing Characteristics, p. 10.
Housing tenure varies by location. As shown
by table 32, the incidence of rental housing is Table 34.—Age of Housing Units, 1976
greater in SMSAs than outside SMSAs and (units in thousands)
more prevalent in central cities than in subur-
ban areas. Nearly half the housing in central Units in
Year structure built structure Percent
cities is rented, but in suburban areas of
SMSAs rental housing makes up only 29 per- April 1970 or later. . . . . . . . . . . . 12,493 15.8
1965-70 (March) . . . . . . . . . . . . . 9,581 12.1
cent of all units. The Northeastern section of 1960-64 . . . . . . . . . . . . . . . . . . . . 8,093 10.2
the country has the largest percentage of ren- 1950-59 . . . . . . . . . . . . . . . . . . . . 13,840 17.4
tal housing and the North-Central section the 1940-49 . . . . . . . . . . . . . . . . . . . . 8,103 10.2
1939 or earlier . . . . . . . . . . . . . . 27,206 34.3
smallest.
SOURCE: U.S. Department of Commerce and U.S. Department of Housing and
Table 32.—Tenure by Location, 1976 Urban Development, Annual Housing Survey, 1976 U.S. and Regions,
(units in thousands) Part A General Housing Characteristics, p. 1.

Percent Owner- Percent A significant amount of the housing stock


Rental within occupied within changes hands each year. In 1977, more than
Location units location units location 3.5 million existing homes were bought and
Inside SMSAs . . . . . . 19,557 38.8 30,895 61.2 sold. The cost of existing housing has been ris-
Within central cities (11,581) (1 1,349)
Not in central cities. ( 7,976) (19,546) ing rapidly. The median price in 1972 was
Outside SMSAs. . . . . 6,544 27.8 17,009 72.2 $27,100; in 1977, it was $42,900. The median
Total . . . . . . . . . . . . 26,101 47,904 sales price disguises a significant variety of
SOURCE: U.S. Department of Commerce and U.S. Department of Housing and
home prices, generally and by region. Nearly
Urban Development, Annual Housing Survey, 1976 U S. and Regions, 15 percent of all existing houses sold for less
Part A: General Housing Characteristics, p 3
than $25,000, but nearly 16 percent of all sales
Owner-occupants earn more than renters, exceeded $70,000. Table 35 provides a break-
but a significant number of homeowners have down of sales by price class and region for
low or moderate incomes. (See table 33.) Near- 1977. Housing in the West is substantially more
ly 35 percent of homeowners had an income of expensive than in other parts of the country.
less than $10,000 in 1976; this group could be The incidence of lower cost housing is greatest
expected to be particularly affected by the in- in the North-Central and Southern sections of
creasing costs of homeownership. the country.
More than one-third (34.3 percent) of the Based on this data it would appear that the
stock predates 1940, even with the high level focus of a residential conservation program
of construction over the past three decades. As should be on owner-occupants, most of whom
noted in table 34, a large fraction of the stock occupy single-unit properties. Even though
is new: 27.9 percent of the inventory has been they own their own homes, many owner-occu-
built since 1965. pants have limited incomes. Homes of many
Ch. V—Housing Decisionmakers “ 93

Table 35.–Sales of Existing Single-Family Homes for the United States and Each Region by Price Class, 1977
(percentage distribution)

Price class United States Northeast North-Central South West


Under $14,999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 2.3 4.3 3.2 0.5
$15,000-19,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 3.5 6.8 5.7 1.0
$20,000-24,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 5.7 9.9 8.6 2.2
$25,000-29,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 10.0 9.4 12.8 11.5 4.6
$30,000-39,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 20.4 20.8 24.3 21.4 13.3
$40,000-49,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 17.3 19.1 18.2 16.4 16.3
$50,000-59,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 14.0 10.5 12.2 16.6
$60,000-69,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 9.0 9.1 6.1 8.2 14.2
$70,000-79,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 5.4 3.1 4.8 9.7
$80,000 and over . . . . . . . . . . . . . . . . . . . . . . . . 10.2 10.7 4.0 8.0 21.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0 100.0
Median price.... . . . . . . . . . . . . . . . . . . . . . . . . $42,900 $44,400 $36,700 $39,800 $57,300

SOURCE: National Association of Realtors, Existirtg HomeSales, 1977, p. 32.

types and classes are available in spite of sig- half the occupants are renters. Differences in
nificant inflation in the cost of existing hous- Location, tenure, price, and age of housing and
ing. Most housing is located in metropolitan in the resources and interests of occupants in-
areas, but most homeowners live outside cen- fluence the incentives and barriers to energy
tral cities in suburbs. In central cities nearly conservation in residential buildings.

CHARACTERISTICS OF NEW HOUSING

The construction industry is a cyclical in- Nearly 70 percent (1 .377 million of the total
dustry whose production varies widely year by 1.986 million housing starts) were located
year. In recent years, production has ranged within SMSAs. Housing construction activity is
from a low of 1.2 million units in 1975 to 2.4 greatest in the South and West, where the
million units in 1972. In 1977 nearly 2 million population is growing fastest. New construc-
units were started, and 277,000 mobile homes tion is heavily concentrated in fast-growing
were shipped to dealers. As might be expected, metropolitan areas. Ten market areas are ex-
singl e-f am i I y construction predominated. pected to account for 372,289 units or nearly
Table 36 provides a breakdown of housing 19 percent of all construction starts in 1978,
starts by type of structure. More than 73 per- with Houston and Dallas-Fort Worth alone ac-
cent were single-unit structures, only 21 per- counting for nearly 109,000 units.
cent were in structures of five or more units.
Table 37 shows the regional distribution of
completed housing construction for single-
Table 36.—Private Housing Starts
by Type of Structure, 1977 family and multifamily housing. Over 38 per-
(units in thousands) cent of the completions occurred in the South.
More than one-third of all multifamily comple-
Number tions were located in the West, an area with
Type of units Percent
only 27 percent of total completions. The
1 unit. . . . . . . . . . . . . . . . . . . . . . . 1,451 73.1
2 units. . . . . . . . . . . . . . . . . . . . . 61 3.1
3-4 units . . . . . . . . . . . . . . . . . . . 61 3.1
5 or more units. . . . . . . . . . . . . . 413 20.8 ‘ National Association of Home Builders’ estimate. The
Total . . . . . . . . . . . . . . . . . . . . 1,986 100 top 10 markets are Houston, 62,706; Dallas-Fort Worth,
Mobile homes or trailers. . . . . . 277 46,000; Chicago, 44,000; Phoenix, 40,000; Los Angeles-
Long Beach, 38,500; Riverside-San Bernardino, 35,000;
NOTE: Totals may not add to 100 due to rounding.
SOURCE: Department of Housing and Urban Development’s Office of Housing
Seattle-Everett, 31 ,320; San Diego, 28,000; Denver-
Statistics. Boulder, 23,400; and Detroit, 23,360.
94 ● Residential Energy Conservation

Table 38.—Sales Price of New One-Family


Homes Sold, 1977

Price class Percent


Under $30,000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
$30,000-39,000. . ~ . . . . . . . . . . . .0.0..... .. .....21
$40,000-49,999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
$50,000-59,999 . . . . . . . . . . . . . . . . . . . . . . . . . . .. .-18
$60,000-69,999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
$70,000 or over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
—.—
SOURCE -
Bureau o~the–C~n;;s~nd the Department of Housing and Urban
Total. . . . . . . . . . . 1,656 1,258 398 Development, Characteristics of New Housing, 1977

SOURCE: Department of Housing and Urban Development Office of Housing


Statistics.
range, but 18 percent sold for more than
Northeast had a small fraction of activity $79,000.
relative to its popuIation.
New homes sold in 1977 totaled 819,000, of
The cost of new housing has been rising which 782,000 were financed. More than three-
rapidly and is significantly higher than the fourths of these homes were financed by
average cost of existing housing. In 1977, the banks, savings and loans, and other mortgage
average sales price of a new home was lenders without the involvement of the Federal
$54,200, but the price of housing varied by Government. The Federal Government’s role in
region of the country. As is the case with ex- housing finance is relatively modest except in
isting housing, the highest average costs are in the case of lower income home purchasers, but
the West and East. In the Northeast, the aver- Federal insurance programs and secondary fi-
age sales price was $54,800; in the South nancing mechanisms provide important lever-
$48,100; and in the West $60,700.2 age on the financing actions. Table 39 provides
data on the role of Federal financing activities
In 1978 prices have continued to escalate
and shows that the average federally assisted
and to reflect a diversity in housing costs.
loan is much smaller than the average conven-
Housing magazine reported that in the first
tional mortgage.
half of 1978 new single-family detached
houses sold and conventionally financed aver-
Table 39.—New Homes Sold, Sales Price
aged $60,100. San Francisco had the highest by Type of Mortgage Financing, 1977
prices at $88,200 per unit, followed by Los —
Angeles ($83,800), San Diego ($80,600), and Number of
New York City ($78,000). Type of mortgage units in Median
financing thousands Percent sales price
Table 38 presents a breakdown by price FHA insured. . . . . . . . 73 9 $37,700
class of housing sold in 1977. A majority of the VA guaranteed. . . . . . 93 12 41,600
Conventional . . . . . . . 592 76 53,400
housing sold was in the $30,000 to $60,000 Farmers Home. . . . . . 24 3 25,800
‘Characteristics of New Housing (Bureau of the Census Total . . . . . . . . . . . 782 100
and Department of Housing and Urban Development, — .
SOURCE Bureau of the Census and the Department of Housing and Urban
1977). Development, Characteristics of New Housing, 1977.

HOUSING PROCESSES AND PARTICIPANTS

To assess the barriers to and opportunities types of housing markets—new construction,


for energy conservation in the housing sector, retrofit, and manufactured housing— and the
it is important to understand the attributes and attitudes and interrelationships of the key
institutional structure of the three general decisionmakers in each market. The design,
Ch. V—Housing Decisionmakers . 95

construction, financing, and operation of ing market. There are more than 100,000
housing involve a multitude of participants. builders. The largest single-family builder in
Each of these participants operates under dif- 1977 produced only 8,830 units and the largest
ferent circumstances and conditions and each multifamily builder 3,974 units. 3 In 1976 the
attempts to maximize profits and Iimit risks. top 419 builders built 21 percent of all new
housing. The average builder operates a small
New Construction business and builds fewer than 20 houses a
year. 4 A 1970 survey of the building industry
The development of new housing is a com-
found that three-fourths of all builders who
plex entrepreneurial activity, involving many
built only single-family housing built less than
participants whose interactions and coopera-
25 houses, and 46 percent built less than 10
tion are necessary for its successful comple-
houses a year. Only 2.5 percent of these build-
tion. The manner and extent of participation
ers constructed more than 100 houses annual-
and interaction differ between single-family
ly. Firms that built both multifamily and single-
and multifamily construction and between
family housing tended to be larger. As a result
housing constructed on behalf of an owner
only 57 percent of them built less than 25 units
and that constructed on a speculative basis,
each year and 11.7 percent built more than 100
which is more common. Participants in the
units. Firm’s that handled only multifamily
process include the builder or developer’ who
housing were the largest. Only 17.6 percent
plans, initiates, and carries out the develop-
constructed less than 25 units a year and 52.6
ment; lenders who provide construction and
percent buiIt more than 100 units.
mortgage financing; specialized subcontrac-
tors who undertake construction activities; No builder dominates or controls a par-
construction workers; architects and engineers ticular housing market, and the competition
who design the housing; local government of- among builders is intense. Except in the largest
ficials who establish and administer local land housing development firms, the planning, de-
use regulations, including zoning and building sign, construction management, and financing
codes; realtors who assist in the sale or rental functions are carried out by different parties.
of the housing; and the homeowner, owner-
Most builders have few full-time employees.
occupant, or investor.
(An average builder employs 2.8 full-time ex-
A new residential construction project, ecutives, 3.4 office personnel, and 24.8 super-
regardless of type, involves five basic steps: 1 ) visors and tradesmen). 5 The size of the firm
determining whether the project is financially and the precise role of the builder vary with
feasible and marketable; 2) detailed planning the type of housing being constructed, as does
and securing the site and financial commit- the role of the builder and his relationship to
ments; 3) detailed design and engineering and other participants. Some builders only coor-
the organization and securing of labor and dinate the developmental process; they rely
materials; 4) construction; and 5) sale or rental fully on specialized subcontractors to con-
of the completed project or home. At each struct the various building elements. Others
step the builder works closely with one or carry out all or some part of the construction
more of the participants. process. Some builders only build for clients
The building industry is fragmented into on a custom basis. Most, however, build spec-
many small producing units, none of which ulatively. A speculative project may involve a
controls a significant percentage of the hous- single lot or a large subdivision. Sixty-one per-

3“California Builders Still Going Strong,” Housing, No-


*The term builder is typically used in single-family vember 1978, p. 18.
construction. In multifamily construction the builder “’Housing Giants on the Grow Again,” Professional
may be the developer or may only build the project for Builder, July 1977.
the developer. In this study the terms are used inter- ‘Michael Sumichrast and Sara A. Frankel, Profile of the
changeably. Builder and His Industry.
96 ● Residential Energy Conservation

cent of the single-family housing started in homebuilders belong–and material suppliers


1976 was built for sale or rent; the remainder alert builders to new trends and products.
was built by the owner or by a contractor for
the use of the owner. Homebuilders tend to use stock plans, draft
their own plans, or modify designs they or
The builder is involved in a high-risk, highly competitors have used previously; most homes
leveraged situation, with his success or failure are not directly designed by architects or engi-
dependent on his ability to judge market de- neers. Only 27 percent of homebuilders re-
mand and conditions accurately. Builders try ported they used staff or consultant archi-
to avoid situations that increase risk or that tects. 7 Architects and engineers are more fre-
may hurt the marketability of the housing they quently used in multifamily projects because
produce. To be successful the builder must re- of their greater complexity.
spond to local tastes and produce housing that
is competitively priced. During the construc- Builders are adaptable and willing to change
tion process decisions must be made quickly the characteristics of the housing they build,
to deal with a constant stream of unforeseen but only as a result of proven market demand.
events. Most builders are reluctant to pioneer un-
proven changes that may adversely affect the
An analysis of the building industry commis- marketability of housing and may meet con-
sioned by OTA noted: sumer resistance. Builders must be concerned
about the cost of their product and the cost of
Despite apparent outward similarities, the adding standard features will be carefully
resulting product is quite heterogeneous in weighed against the advantages of those
nature. It must be produced for al I types of features in helping to sell the housing. First
unique building sites and in an incredible cost is given more consideration than Iifecycle
range of community types and climatic re-
cost. Large builders are in a better financial
gions. Viewed in this light, the production of
position to take risks–but even they must
housing would seem to demand a significant
combination of market sensitivity and man-
carefully assess the risks and opportunities in-
agerial/organizational talent. This suggests volved in deviating from established market
that entrepreneurship is almost more ‘impor- practices.
tant’ than the other inputs because it is the en-
trepreneur who must organize, become at The builder of custom homes is in a different
least practically responsible for, and eventual- position and need not make all the market
ly commit those resources. b judgments of the speculative builder. Many
decisions will be made by the owner, perhaps
As the entrepreneur, the builder or devel- on the builder’s advice. The builder does have
oper determines the character of the housing. to manage the construction process so that
If he is building on a speculative basis, the costs fall within the budget of his client while
builder must decide what type of house is in the builder earns a profit.
demand and will sell at a profit within the local
market and price class. The builder must not The role of the builder and the financial
only weigh and evaluate the multitude of management is different in the multifamily
features that might be used but must gauge his market. In the case of multifamily housing the
market correctly in terms of price, style, and builder may or may not be the owner/devel-
amenities, and compete with other builders oper of the project. The owner/developer
serving the same market. Typically a builder assumes the key decision making role and de-
keeps track of local market conditions and termines the character of the project. Project
competitive projects. The National Associa- design is based on an estimate of the rents that
tion of Home Builders (NAHB)–to which most
71 gT6 HUD s~~tjstjcal Yearbook (Washington, D. C.:

61 bid. Department of Housing and Urban Development), p. 284.


Ch. V—Housing Decisionmakers ● 97

can be charged for that location and type of of the borrower to afford the expense of home-
unit. Rent projections determine an accept- ownership. Appraisers play a key role in deter-
able level of construction cost, which in turn mining the availability of financing by estimat-
serves to determine the features to be included ing the value of the property to be financed.
in the project. The terms and conditions of Appraisals are intended to reflect market
available financing determine the ultimate values, so appraisers discount any housing
feasibility of multifamily construction. Most features they believe are not accepted in the
developers build multifamily projects with marketplace. Because multifamily loans are
only a token equity so that project characteris- larger, plans and specifications for multifamily
tics and features are determined by the extent projects are scrutinized more carefully than
to which lenders believe they add to the value for single-family homes, but typically lenders
of the project and are willing to finance their would not review indepth the specifications
inclusion. Multifamily property is an invest- for the project. Lenders make financial judg-
ment, and decisions are based on their impact ments based on appraisers’ estimates of value
on profit. The profit to be realized can be in and, perhaps to some degree, on the demon-
the form of cash flow, depreciation, future ap- strated skills and experience of the devel-
preciation, or amortization of debt. Additional oper/owner.
cash investment to add a special feature may
Funds for housing construction are made
be avoided, in some cases, even if such an in-
available by banks, savings and loan associa-
vestment would be profitable over the long
tions, life insurance companies, and federally
run. Developers seek to achieve maximum lev-
related credit agencies such as the Federal Na-
erage; thus f rent-end costs may be more impor-
tional Mortgage Association (FNMA) and the
tant to them than Iifecycle costs.
Federal Home Loan Mortgage Corporation
These concerns, combined with the require- (FHLMC). For multifamily lending, savings and
ments of local codes and regulations, provide loan associations and Federal credit agencies
the context within which the builder selects a are the most active lenders; for single-family
site, determines what he can pay for the site, housing, savings and loan associations are the
and makes decisions about the housing design dominant lenders. There are more than 23,000
and the specifications and quality of the dif- lending institutions throughout the country.
ferent construction components.
Other participants play less central roles in
Lenders are key participants in the housing development. Subcontractors and workers
construction process. Housing normalIy i n - working under the direction of the builder
volves long-term debt financing. Lenders pro- carry out specified construction tasks. Ar-
vide interim financial assistance to builders, chitects and engineers may be involved in the
developers, and subcontractors during the design of housing. Government agencies may
development process, and long-term mortgage be involved in a number of ways: the Federal
loans to house purchasers or multifamily in- Government for example, may provide subsi-
vestors. Lenders seek to make profitable loans dies, loans, or mortgage insurance to lenders to
and protect themselves against default. Be- assist in the development or financing of hous-
cause they lend money, by nature and circum- ing. Such housing must be designed to Federal
stance they tend to be conservative. Typically, construction standards. These programs are
lenders do not examine homebuilders’ plans in discussed in detail in chapter IX. Local govern-
detail. They rely instead on the experience and ments establish and administer local building
reputation of the builder in deciding whether codes to which most new housing must con-
to provide short-term financing. In terms of a form. Realtors may be employed to sell or rent
level of mortgage debt, lenders base their will- completed housing.
ingness to finance particular homes on ap-
praisers’ estimates of value, on the perceived Retrofit
risk of the investment over the term of the The home-improvement or retrofit market,
loan, and on the credit-worthiness and ability which involves upgrading or improving existing
98 “ Residential Energy Conservation

housing, functions differently from the new In terms of conservation improvements, the
construction market. Typically, the property average firm instalIs $58,000 worth of insula-
owner determines what improvements should tion annually, and on an average each firm in-
be made to the property and how the work stalIs 663 storm windows and 152 storm doors.
should be done. As might be expected, contractors are pre-
dominantly involved in installing blown-in in-
Improvements can range from minor paint-
sulation. In 1978, contractors were expected to
up/fix-up activities to substantial modifica-
carry out 647,000 jobs involving blown insula-
tions to a building’s structure or condition.
tion, 375,000 jobs using foam insulation, and
Work can be accomplished by hiring a home-
91,000 using batt insulation. Approximately
improvement contractor or installer, or by the
three-fourths of all remodelers install storm
do-it-yourself approach. Home-improvement
windows and doors, and about 13,000, or 43
contractors are not normally involved in new
percent, install insulation. ’
construction projects. Property owners often
look to hardware stores, lumber yards, or home Financing is less important in retrofit work
supply centers for information on particular than in new construction because most proj-
products or names of contractors. An esti- ects are small. The most common energy im-
mated one-half of all property improvements provements represent relatively small sums of
are done on a do-it-yourself basis. The property money, ranging from $100 to $1,000 for most
owner usually specifies the work to be done, homes. Improvements may be made all at
although some contractors promote and solicit once or over an extended time. In 1976, the
business for particular types of work. This average maintenance and improvement ex-
means that the homeowner must be knowl- penditure for owner-occupants of single units
edgeable about what improvements he or she was $450 per property. Expenditures varied
wants or have access to reliable information or widely by income group; those with incomes of
contractor advice. The most common types of less than $5,000 averaged $203; those whose in-
retrofit energy-saving improvements are in- come exceeded $25,000 averaged $822. As a
stallation of insulation, storm windows, caulk- result of the smalI sums involved, most im-
ing and weatherstripping around doors and provements are paid for by cash on hand,
windows, and furnace replacement or im- short-term credit, or savings. It is estimated
provements in furnace efficiency. that only 17 percent of home improvements
are financed by lending institution home-im-
Qualified Remodeler magazine estimates
provement loans. Small loans are not profit-
that professional remodelers will be responsi-
able to these institutions because of the high
ble for $21.5 billion of remodeling in 1979,8 in-
overhead costs in relation to the interest
cluding both residential and commercial activ-
earned. Many lenders do not make home-im-
ity. Nearly 31,000 firms do remodeling work.
provement loans for less than $1,000 or even
Firms vary from large and sophisticated enter-
$1,500. As a result they are not involved in
prises capable of undertaking any type of
most home-improvement projects.
renovation work, to one-person outfits special-
izing in a particular trade such as electrical
work or storm window instalIation. Most firms Manufactured Housing
are small; the average remodeler employs only
nine full-time and two part-time employees. Manufactured housing, including mobile
Most projects are also small, and contractor homes and modular housing, is built in a fac-
profits as a percentage of overall cost are tory Construction and sales processes for
higher than in new construction. More than manufactured housing bear little resemblance
half do less than $250,000 worth of business a to onsite construction. The housing is con-
year, while only 11.6 percent have an annual structed by factory workers, rather than by
volume in excess of $1 million. 9Booz, Allen, and Hamilton, l?ui/cfing l-lousing Out/ine:
Energy Conservation Assessment Study for the Office of
8“Market Report: Five Year Forecast for Remodeling is Technology Assessment, p. I I I-10.
Rosy,” Qualified Remodeler, September 1978. IOM. Sumichrast, op. cit.
Ch. V—Housing Decisionmakers ● 99

subcontractors. As a result, the manufacturer Besides the manufacturer, the other key par-
maintains total control over the construction ticipants are the distributors or dealers who
process. sell mobile homes and arrange financing, com-
mercial banks who finance the manufacturing
About 276,000 mobile homes were shipped
firms, and commercial banks, finance compa-
in 1977. Single-width homes range in price
nies, and other lenders who finance the pur-
from $7,000 to $25,000; double-widths cost
chase of mobile homes. Manufacturers some-
$13,000 and up. All mobile homes built since
times help distributors with financing. Mobile
June 1976 conform to the Federal Mobile
homes are considered personal property, al-
Home Construction Standards, which preempt
though there is a growing trend to consider
earlier and inconsistent State requirements.
them real property. Mobile home loans, which
Homes are typically designed by company
are considered chattel mortgages, commonly
staff or consultants who might be draftsmen or
run for 7 to 10 years at 12- to 1 3-percent in-
engineers who have specialized in mobile
terest.
home design.

THE EXISTING HOUSING STOCK

How existing houses are built must be ally available. Tabulated information on the
known before realistically assessing how much thermal characteristics of houses is shown in
their thermal envelopes can be improved in a table 41. Nearly three-fourths of the homes
cost-effective manner. Very Iittle information have at least some attic insulation, with more
exists about the thermal characteristics of ex- than two-thirds of the houses in all parts of the
isting housing. A good deal of information country reporting attic insulation. Over half
about the generaI characteristics of the hous- the homes have at least some storm windows
ing stock is contained in census data and in in- or other double glazing, but these are largely
formation collected by the Federal Housing concentrated in the Northeast and North-Cen-
Administration (FHA) for houses with FHA tral regions. Similar results hold for storm
mortgages. But the only study of the thermal doors.
characteristics of existing houses seems to be
Rowse and Harrje12 point out that insulation
that of Rowse and Harrje,11 which combines in-
was rare in homes built before 1940, and even
formation from census data, FHA data, and
for the 27 percent of the homes built between
historical trends in insulation use in the con-
1940 and 1960, the standard attic insulation
struction industry to estimate the potential for
was 2 inches of mineral wool. Thus all of these
upgrading the thermal shells of existing hous-
homes are potential candidates for retrofit.
ing. The situation is further complicated by the
Additional savings are possible even for hous-
lack of information about the massive retrofits
ing constructed in the 1970’s, as illustrated by
that have been underway for the last 3 or 4
the experiments at Twin Rivers, N.J. Rowse and
years.
Harrje conclude that more than two-thirds of
Nearly two-thirds of the houses existing in the existing housing stock is ripe for additional
1975 were built after 1940; almost a quarter attic insulation.
were built in the 1960’s. (See table 40.) Thus a
From a practical viewpoint, it is likely that
majority of the housing stock has been con-
considerably less than the 90 percent of houses
structed since insulation materials were gener-
noted by Rowse and Harrje will actually be
1
‘R. E. Rowse and D. T. Harrje, “Energy Conservation: retrofitted, as the payback for the homes con-
An Analysis of Retrofit Potential in United States Hous- taining some insulation is not likely to appear
ing” (unpublished) (Center for Environmental Studies,
Princeton University). ‘21bid.
100 ● Residential Energy Conservation

Table 40.—The Original 1975 Annual Housing Survey Data Plus Tabulated Data for Years Prior to 1940
Expressed as a Percentage of the Total Housing Units in the United States

Year built United States Northeast North-Central South West


1970-75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5 1.8 3.1 6.1 3.4
1960-70 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.1 3.8 5.5 8.7 5.0
1950-59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5 3.2 4.2 6.1 4.0
1940-49 ......., . . . . . . . . . . . . . . . . . . . . . . . . 10.3 2.0 2.3 3.9 2.1
1930-39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 1.5 1.7 2.1 1.2
1920-29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 2.6 2.5 2.0 1.3
1910-19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 1.7 2.0 1.3 .8
1900-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 2.0 2.1 1.1 .5
1890-99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 1.4 1.5 .4 .2
1880-89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 .8 .9 .2
1879-earlier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 1.6 .8 .3 ::
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 22.5 26.6 32.3 18.6
NOTE: Totals may not add to IOO due to rounding.
SOURCE: R. E. Rowse and D.T. Harrje, “Energy Conservation: An Analysis of Retrofit Potential in United States Housing’’ (unpublished~ Center for Environmental
Studies, Princeton University.

Table 41.—Thermal Characteristics of Houses: Regional Summary (percent)

a) Attic or Roof Insulation

United States Northeast North-Central South West


Yes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74.0 78.7 84.0 67.3 67.4
No . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5 13.8 9.0 22.5 18.8
Don’t know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 5.7 5.4 8.5 12.0
Not reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.8 1.6 1.7 1.8

b) Storm Windows or Other Protective Coverings


All occupied units . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0 100.0
All windows covered . . . . . . . . . . . . . . . . . . . . . 46.0 76.3 80.5 21.7 11.9
Some windows covered . . . . . . . . . . . . . . . . . . 10.0 14.6 10.7 8.5 7.2
No windows covered.. . . . . . . . . . . . . . . . . . . . 42.9 8.0 7.6 68.9 79.7
Not reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 1.2 1.2 1.0 1.2

c) Storm Doors
All occupied units . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0 100.0
All doors covered. . . . . . . . . . . . . . . . . . . . . . . . 47.8 77.9 82.0 25.0 11.1
Some doors covered . . . . . . . . . . . . . . . . . . . . . 11.7 12.7 9.2 14.6 8.9
No doors covered. . . . . . . . . . . . . . . . . . . . . . . . 39.4 8.1 7.6 59.4 78.8
Not reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 1.3 1.3 1.1 1.3

debasement
All year round units . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0 100.0
With basement. . . . . . . . . . . . . . . . . . . . . . . . . . 47.9 85.2 70.5 18.3 21.7
No basement . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.1 14.8 29.5 81.7 78.3

SOURCE: U.S. Department of Commerce and U.S. Department of Housing and Urban Development, Annual Housing Survey, 1976 U.S. and Regions, PartA: Genera/
Housing Characteristics, p.1.

attractive to many owners, and the 15.6 per- isting housing.13 Its studies indicate that ap-
cent of homes that have masonry or concrete proximately three of every four owner-occu-
walls are considerably harder to retrofit. pied dwellings had accessible attics and that
the remainder had either no attic (15.1 percent)
Owens-Corning Fiberglas Corporation has
developed estimates of the potential for 13
Owens-Corning data are taken from presentation to
energy conservation through reinsulating ex- the Federal Energy Administration, Feb. 25,1977.
Ch. V—Housing Decisionmakers ● 101

or an inaccessible attic. In this part of the hous- electricity are the predominant fuels used for
ing market only 10.9 percent of respondents cooking.
reported their dwelling had no insulation, but
the majority of homes appear underinsulated, Table 42.—Heating Equipment and Fuels
for Occupied Units, 1976
with less than 4 inches of insulation in the at- (in thousands)
tic. Only 15.3 percent of respondents had more
than 6 inches of attic insulation. Number Percent
Total occupied units . . . . . . . . . . . . . . . 79,315 100
A Gallup survey for the Department of
Warm air furnace. . . . . . . . . . . . . . . . . . . . 40,720 51.3
Energy (DOE) in early 1978 is generally consist- Steam or hot water . . . . . . . . . . . . . . . . . . 14,554 18.3
ent with the Owens-Corning findings. Nearly Built-in electric units. ., . . . . . . . . . . . . . . 5,217 6.6
three-fourths of all homeowners reported that Floor, wall, or pipeless furnace . . . . . . . . 6,849 8.6
Room heaters with/without flu. . . . . . . . . 8,861 11.2
they have attic insulation or some storm win- Fireplaces, stoves, portable heaters. . . . 2,398 3.0
dows or storm doors. None. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716 .9
In 1977, Construction Reports conducted a Total occupied housing units. . . . . . . . 74,005 100
study of insulation requirements and esti- House heating fuel:
mated that the market for additional insula- Utility gas. . . . . . . . . . . . . . . . . . . . . . . . 41,219 55.7
tion totaled 25.5 million single-family and two- Fuel oil, kerosene . . . . . . . . . . . . . . . . . 16,451 22.2
Electricity. . . . . . . . . . . . . . . . . . . . . . . . 10,151 13.7
to four-family units. The report notes, how- Bottled gas or LP gas . . . . . . . . . . . . . . 4,239
ever, that there is no agreement on the actual Coke or coal/wood/other. . . . . . . . . . . . 1,482 ;::
number of homes or properties that need in- None. . . . . . . . . . . . . . . . . . . . . . . . . . . . 463 .6
sulation or on how many owners could cost-ef- Cooking fuel:
fectively reinsulate their homes. Utility gas. . . . . . . . . . . . . . . . . . . . . . . . 32,299 43.6
Electricity. . . . . . . . . . . . . . . . . . . . . . . . 35,669 48.2
Table 42 characterizes the types of heating Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,748 7.8
None. . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 .4
equipment and fuel used in occupied units.
The majority of housing units are heated by SOURCE. U.S. Department of Commerce and U.S. Department of Housing and
Urban Development, Annual Housing Survey, 1976 U.S. and Regions,
warm air furnaces. Gas is the dominant heating Part A: General Housing Characteristics, pp. 7,8.

fuel, followed by fuel oil or kerosene. Gas and

TRENDS IN HOUSING AND CONSERVATION

Trends in Housing Costs Interest in conservation coincides with


rapidly rising costs both for new and existing
It is clear that property owners and the housing. Builders have been particularly con-
building industry have become more aware of cerned about the negative impact that rising
the importance of energy conservation and, as costs may have on the ability of purchasers to
knowledge has improved and the cost of ener- afford housing. Table 43 provides a breakdown
gy has risen, have taken steps to improve the of changes in the Consumer Price Index during
energy efficiency of housing. This trend is ap- the period 1968-76, when the costs of home-
parent in both new construction and in the ownership nearly doubled. Fuel and utilities
retrofit market. represent a rapidly rising element in housing
costs over the past few years, although their
total contribution to owning a home is still
“Gallup Organization, Inc., A Survey of Homeowners
Concerning Home Insulation, conducted for the Depart-
well below other factors.
ment of Energy, April 1978. Figure 15 portrays the relationships among
‘5 Bureau of Census, “Estimates of Insulation Require-
ments and Discussion of Regional Variation in Housing the increases in median housing costs, owner-
Inventory and Requirements,” Construction Reports, ship costs, income, and the Consumer Price In-
August-September 1977. dex between 1970-76. For the median-price
102 ● Residential Energy Conservation

Table 43.—Selected Housing Series of the Consumer Price Index: Selected Years
(1967 = 100)

Home ownership
Home
First mortgage Property maintenance Fuel and
Year Shelter a Rent Total b interest rates insurance rates and repairs utilities
1968. . . . . . . . 104.8 102.4 105.7 106.7 104.7 106.1 101.3
1969 . . . . . . . . 113.3 105.7 116.0 120.0 109.3 115.0 103.6
1970. . . . . . . . 123.6 110.1 128.5 132.1 113.4 124.0 107.6
1971 . . . . . . . . 128.8 115.2 133.7 120.4 119.9 133.7 115.1
1972 . . . . . . . . 134.5 119.2 140.1 117.5 123.2 140.7 120.1
1973 . . . . . . . . 140.7 124.3 146.7 123.2 124.4 151.0 126.9
1974 . . . . . . . . 154.4 130.6 163.2 140.2 124.2 171.6 150.2
1975 . . . . . . . . 169.7 137.3 181.7 142.1 131.4 187.6 167.8
1976. . . . . . . . 179.0 144.7 191.7 140.9 144.3 199.6 182.7
‘Includes rent, homeownership, and hotel and motel room rates.
blnc[udes home purchase, mortgage interest, real estate taxes, property insurance, and home maintenance and repairs.
SOURCE: Department of Housing and Urban Development, 1976 HUD Stafistica/ Yearbook, p 258

.
Figure 15.—lncreases in Housing Costs, Income, and Consumer Price Index, 1970-76

I 1 1 1 1 !! I 1 . - 1 - .I I J
n I I I
u
46.047.0 65.4 73.4 88.9 102.3 ’1 0

Percent increase, 1970-76

SOURCE: Joint Center for Urban Studies of MIT and Harvard University, The Nation’s Housing, 1970-76, p. 119.

homebuyer, new housing operating costs have creased only 47 percent. In 1970, 46 percent of
doubled (102.3 percent), and for the existing all families could afford the median-price new
homebuyer they have increased 73.4 percent. home and 36 percent the median-price existing
During the same period median income in- home. By 1976 only 26 percent of all families
Ch. V—Housing Decisionmakers ● 103

could afford the median-price new home and Table 44.—Percentage Distribution by Income
36 percent the median-price existing home. ’G of Homebuyers Exceeding the 25. Percent Rule

A recent Department of Housing and Urban Percentage of


Development (HUD) study of housing costs Annual income all homebuyers
also determined that housing costs outpaced Less than $15,000 . . . . . . . . . . . . . . . 30
$15,000-19,999 . . . . . . . . . . . . . . . . . 30
family income in the period 1972-76. ’7 During $20,000-24,999 . . . . . . . . . . . . . . . . . 19
that period median family income increased at $25,000 or more. . . . . . . . . . . . . . . . 21
an average annual rate of 7.05 percent. During Total. . . . . . . . . . . . . . . . . . . . . . . 100
the same period the average annual rate of in- SOURCE: U.S. League of Savings Associations, Homeownership: Affording the
crease in the median sales price of new one- Single Family Home, p. 32.

family homes was 12.49 percent, and the me-


There are two general types of homebuy-
dian sales price of existing one-family homes
ers–first-time homebuyers and repeat home-
increased 9.30 percent.
buyers. Repeat homebuyers tend to be older,
Even with the rapid escalation of housing have higher incomes, and have an equity from
costs demand for both new and existing homes their old house to invest in the purchase of
has been strong. Several reasons explain why their new home. As a result they can afford to
demand continues in the face of rapidly rising buy more expensive housing. The median price
prices. Homeownership provides attractive tax for first-time homebuyers is $37,500 but for re-
advantages over rental housing. Buyers an- peat buyers it is $48,500. First-time homeown-
ticipate that owning a home is a sound and ers are often able to afford a home because
profitable investment and will cost more in the they are willing to buy existing housing.
future. Many home purchasers buy existing
About 43 percent of first-time homebuyers
housing rather than newly constructed hous-
purchase housing constructed before 1955,
ing. Americans are willing to devote more of
compared with 25 percent of repeat buyers. By
their income to housing than would be ex-
contrast, 29 percent of repeat buyers purchase
pected based on traditional income/housing
new housing, versus 18 percent of the first-time
cost guidelines. As a result, the majority of
buyers. Table 45 describes the difference be-
Americans has been able to afford a house. In
tween the two types of buyers.
1977, nearly 60 percent of all homebuyers had
incomes of less than $25,000 and nearly 40 per- Table 45.—Percentage Distribution of Age of Homes
cent less than $20,000.18 Purchased by First-Time and Repeat Homebuyers

Several factors have enabled families to Year of construction of First-time Repeat All
home purchased buyers buyers buyers
continue to afford housing. A traditional in-
Before 1945. . . . . . . . . . . . . . 26.5 16.2 19.9
dustry rule of thumb has been that housing 1945-54 . . . . . . . . . . . . . . . . . 16.0 8.8 11.5
cost should not exceed 25 percent of gross in- 1955-64 . . . . . . . . . . . . . . . . . 17.8 16.0 16.7
come. In fact only 52 percent of all home- 1965-69 . . . . . . . . . . . . . . . . . 8.1 9.7 9.0
1970-75 . . . . . . . . . . . . . . . . . “ 13.3 19.9 17.5
owners spend less than 25 percent, 24 percent New homes. . . . . . . . . . . . . . 18.3 29.4 25.4
spend 25 to 30 percent, and 14 percent spend
more than 30 percent. Table 44 breaks down SOURCE: U.S. League of Savings Associations, Homeownership: Affording the
Single Family Homes, p. 46.
the percentage of buyers who exceed the 25-
percent income rule. First-time homebuyers are able to purchase
housing partly because of the availability of
liberal financing. Forty-five percent make
“The Nation’s Housing: 1975-1985 (Joint Center for Ur- downpayments of less than $5,000, and 73 per-
ban Studies of the Massachusetts Institute of Technol- cent put down less than $10,000. Forty-seven
ogy and Harvard University, 1977), p. 103. percent of first-time buyers make downpay-
‘7Fina/ Report of the Task Force on Housing Costs
(Washington, D. C.: Department of Housing and Urban
ments of less than 20 percent of the purchase
Development, May 1978), p. 3. price. By contrast, only 11 percent of repeat
“Homeownership: Affording the Single Family Home buyers make downpayments of less than 20
(U.S. League of Savings Association, 1978), p. 27. percent of the purchase price.
104 ● Residential Energy Conservation

It is also important to recognize that hous- ers and consumers were not concerned, until
ing costs and markets vary significantly by recently, about the energy efficiency of hous-
region of the country and community size. ing. While utility costs have been rising sub-
Table 46 shows the substantial cost variation stantially, so have other elements of home-
in new housing by metropolitan localities of ownership, particularly in larger communities.
different sizes. As shown in table 47, utility costs are not
Table 46.—Median Home Purchase Price, 1977 uniform and also vary by region. They are
highest in the South and lowest in the West,
Median home particularly California.
Metropolitan area purchase price
All U.S. metropolitan areas with Table 47.—Median Utility Costs by Region
population of 1.5 million or more . . . $49,500
All U.S. metropolitan areas with Median utility costs
populations between 250,000-1.5 Region Monthly Annual
million . . . . . . . . . . . . . . . . . . . . . . . . . $42,900
All U.S. metropolitan areas with Northeast. . . . . . . . . . . . . . . . . . $60 $720
populations of less than 250,000 . . . $37,000 North Central. . . . . . . . . . . . . . . 60 720
All of the United States . . . . . . . . . . . . $44,000 South . . . . . . . . . . . . . . . . . . . . . 70 840
West . . . . . . . . . . . . . . . . . . . . . . 50 600
SOURCE: U.S. League of Savings Associations, Homeownership: Affording the
Single Family Home, p. 13. SOURCE: U.S. League of Savings Associations, Homeownerahip Affording the
Single Family Home, p. 22.
The increase in housing costs is pricing most
Table 48 documents that utility costs still
lower middle-income families out of the new
represent a relatively small fraction of month-
housing market; they must purchase existing
ly housing expenses. In metropolitan areas the
housing or improve the dwellings they are cur-
mortgage payment is the largest element of
rently living in. Only 3.7 percent of all house
monthly costs, followed by utilities and taxes.
purchasers in 1975-76 earned less than $10,000,
But in small communities, where taxes are low,
although this income bracket represents 32
utilities represent a much larger cost element
percent of the population. Families earning
than real estate taxes.
$10,000 to $14,999 represent more than 22 per-
cent of the population but bought only 13.4 Buyers seem to be demanding reasonable
percent of the new housing. ’9 While the pace levels of insulation and double-glazing or
of construction has remained high, much of storm windows in most housing markets.
the housing is being built for upper income Because of this demand, builders are including
groups. Families earning more than $25,000 these features in their homes and appraisers
comprise 14.1 percent of the population, but and lenders are recognizing the added costs in
they bought 32.4 percent of the new housing.20 their lending judgments. Although the larger
Trends indicate that the new construction
downpayments and increased carrying costs
may affect the ability of the marginal pur-
market is increasingly oriented to the upper in-
chaser to buy a home, the overall marketabili-
come buyer. In 1965-66 the top quarter of the
population, in terms of income, bought 58 per- ty for housing has not been significantly af-
fected by including such features, which
cent of the new homes. By contrast the lower
builders view as adding to the appeal and
third of the population bought only 4 percent
salability of their homes.
of the new housing in 1975-76, but bought 17
percent of the new housing in 1965-66.2’ Trade publications report strong buyer in-
terest in energy-saving features. As noted in
Trends in Utility Costs chapter 11, surveys by Professional Builder in
1974-77 indicate that the proportion of home-
Historically, utility costs have been a small buyers willing to spend $600 or more initially
component of housing costs. As a result, build- to save $100 per year in energy costs increased
from 78 to 93 percent.22 As figure 16 shows,
‘g Ibid.
20
1 bid. * z’’ Consumers Tell What They Want in Housing,” Pro-
2’ Ibid. fessional Builder, December 1977.
Ch. V—Housing Decisionmakers ● 105

Table 48.—Percentage Distribution of Median Expenditures for Major Elements of Monthly Housing Expenses

Total
Mortgage Real estate Hazard monthly
Metropolitan area payment taxes insurance Utility costs expenses
All U.S. metropolitan areas with populations
of 1.5 million or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67.6 15.8 2.9 13.6 100
All U.S. metropolitan areas with populations
between 250,000 and 1.5 million . . . . . . . . . . . . . . . . . . . . . . . 69.1 11.8 3.4 15.7 100
All U.S. metropolitan areas with populations
less than 250,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.8 9.4 3.7 17.7 100
All of the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68.3 13.5 3.3 15.0 100
SOURCE: U.S. League of Savings Associations, Homeownership: Affording the Single Family Home, p. 25.

generally similar attitudes are apparent in all Buyers are clearly concerned about energy
parts of the country. costs and will invest in energy-saving improve-
ments. Housing magazine recently conducted
A survey of builders reported by Professional
a survey of approximately 400 prospective new
Builder confirms this trend. It documents
homebuyers in five market areas around the
strong consumer interest in and builder re-
country to determine their attitude toward dif-
sponse to energy conservation features in new
ferent features including energy-saving im-
homes. 23 Builders report that buyers believe 26
provements. While the estimated costs of
energy conservation is an important consider-
these improvements varied by region, the
ation in buying a home— and that for a majori-
survey revealed some attitudinal similarities
ty of buyers in some regions it is a very impor-
and some clear-cut differences among the
tant consideration. Such interest does not vary
market areas. The willingness to pay $500 to
significantly by housing price.
$1,500 for upgrading insulation was strongly
The Professional Builder study reports that evident in all five markets. Outside California,
double-glazed windows are now a standard a large majority of respondents were willing to
feature employed by almost 7 out of 10 builder pay for double-glazed windows. Both types of
respondents. Almost three of every four build- improvements seem well accepted by consum-
ers use some type of attic ventilation, and ers and would appear to be viewed as a worth-
nearly two out of three use a zoned heat- while investment. Table 49 presents the data
ing/cooling system with separate thermostats on the five markets.
——
in different rooms.24 As a result, about half of
The National Association of Home Builders
the builders indicated they have been able to
Research Foundation conducted detailed
reduce the size of the heating and cooling sys-
surveys of members of NAHB in 1974, 1975,
tems used, thus mitigating the added costs of
and 1976 to gain a comprehensive summary of
other energy-conserving features.
the thermal characteristics of homes built in
Simple conventional equipment and materi- recent years. Table 50 compares the average
als are most typically used by builders to up- levels of insulation and the glazing character-
grade the energy efficiency of their homes. The istics of more than 120,000 homes built in 1974
most common features used in the past 2 years and more than 112,000 homes built in the last
are: increased attic (ceiling) insulation (83 per- half of 1975 and the first half of 1976.
cent), double/triple glazing (67 percent), im-
The data show a rather remarkable jump in
proved weatherstripping/caulking (50 percent),
the levels of insulation and in the use of
roof overhangs (50 percent), heat pumps (39
double- and triple-glazing. The levels of both
percent), and attic fans (29 percent) . 25
ceiling and wall insulation increased in all nine
census regions and now show surprisingly little
23
’’ Energy and the Builder,” op. cit.
24
1 bid. * b ’’What Home Shoppers Seek in Six Major Market,”
25
1 bid. Housing, October 1978.
Ch. V—Housing Decisionmakers ● 107

Table 49.—Consumer Attitudes Toward Conservation Improvements in New Homes in Selected Localities

Washington, D.C. Miami Chicago San Francisco San Diego


Upgraded insulation
% want. . . . . . . . . . . . . . . . . 97 88 95 95 83
% don’t want. . . . . . . . . . . . 3 12 5 5 17
Double glazed windows
% want. . . . . . . . . . . . . . . . . 91 70 86 68 34
% don’t want. . . . . . . . . . . . 9 30 14 32 66
Solar water heater
% want. . . . . . . . . . . . . . . . . 34 58 25 41 36
% don’t want. . . . . . . . . . . . 66 42 75 59 64
Solar water heater and
house heater
% want. . . . . . . . . . . . . . . . . 32 48 21 42 24
% don’t want. . . . . . . . . . . . 68 52 79 58 76
Heat pump
% want. . . . . . . . . . . . . . . . . 92 — 44 — —
% don’t want. . . . . . . . . . . . 8 — 52 — —

SOURCE: Housing, October 1978, p. 54.

variation by region, with the average R-value (vs. 4.3).27 The F. W. Dodge Co. surveyed 1,000
of the wall ranging from 10.9 in the South randomly selected homes built in 1961 and
Atlantic region to 12.2 in New England and the found that 65 percent contained exterior wall
East North Central (States bordering on the insulation, 92 percent had ceiling insulation,
Great Lakes) regions. Somewhat more varia- and 7 percent had perimeter insulation. 26 B y
tion is shown for attic insulation, with a low of contrast, 99 percent of the houses built in
16.9 in the South Atlantic region and a high of 1975-76 had both ceiling and wall insulation
22.5 in the Mountain States. These data reflect and 11 percent had perimeter insulation .29
the greater variety of materials used in attics
The percentage of homes built in 1975-76
and the ease of installing different amounts.
with various levels of insulation is shown in
The use of insulation between the floor joists
table 51. Almost 100 percent have ceiling in-
actually showed a decrease, but this may re-
sulation of some kind, with 83 percent having
flect the fact that the 1976 survey separately
R-1 3, R-19, or R-22. Nearly 100 percent of the
tabulated basement wall insulation and insula-
houses have wall insulation, with 93 percent
tion of the crawl space walls, rather than an ac-
having either R-11 or R-13 because of the
tual decrease in the amount of floor insula-
almost universal use of 2x4 studs. It may seem
tion. A significant decline in the use of single-
surprising that only 20 percent of the houses
glazed windows is also evident, with only the
have insulation between the floor joists, but
East South-Central States (Kentucky, Tennes-
this may be due to the fact that in many areas
see, Mississippi, and Alabama) showing an ap-
substantial cooling is provided through the
preciable increase in the use of single glazing.
floor in summer, offsetting the winter heating
Triple glazing was not tabulated separately in
savings of floor insulation to a considerable
the 1974 survey, but it is now being used in a
degree. However, it is clear that a large
small number of homes in the Midwest and
number of houses with ventiIated crawl spaces
East.
would benefit from insulation; increased in-
It should not be inferred that similar in-
creases have occurred every year since the oil 27
Therma/ Characteristics of Sing/e Family Detached,
embargo of 1973, because the NAHB survey of Single Family Attached, Low Rise Multi-Family, and
Mobile Homes for the Office of Technology Assessment
houses built in 1973 showed insulation levels
(National Association of Home Builders, October 1977).
very similar to 1974, with weighted average R- (See appendix C.)
values for the walls of 10.0 (vs. 9.2 in 1974), “Ibid.
14.4 for the ceilings (vs. 15.8), and 4.0 for floors “Ibid.
Table 50.—Comparison Between Average Insulation and Glazing Characteristics of New Single-Family Detached Houses
Built in 1974 and in 1975-76

East West East West


New Middle North North South South South
England Atlantic Central Central Atlantic Central Central Mountain Pacific Total U.S.
Average exterior wall insulation R-value
1974. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 9.3 10.6 11.3 7.2 10.3 10.3 6.7 8.8 9.2
1975-76 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 11.8 12.2 12.0 10.9 12.0 11.9 11.0 11.4 11.7

Average ceiling or roof insulation


1974. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.9 17.9 15.7 16.6 14.8 15.1 15.1 18.1 14.6 15.8
1975-76 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2 18.7 18.5 19.3 16.9 18.0 18.4 22.5 18.0 18.4

Average insulation R-value between


floor joists
1974. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 4.8 2.8 5.2 5.4 5.2 6.6 1.8 1.8 4.3
1975-76 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0 6.7 5.0 4.8 3.7 2.9 0.1 1.8 1.4 2.6

Windows
1974
Single glazing. . . . . . . . . . . . . . . . . . . . . . . 37.1 40.7 28.3 34.3 69.4 42.4 92.7 74.1 85.1 52.0
Double glazing (insulation glass or
single w/storm) . . . . . . . . . . . . . . . . . . . 62.9 59.3 71.7 65.7 30.6 57.6 7.3 25.9 14.9 48.0

1975
Single glazing . . . . . . . . . . . . . . . . . . . . . . . 37.6 26.6 5.8 14.3 58.8 49.6 80.2 22.6 76.0 44.0
Double glazing (insulation glass or
single w/storm) . . . . . . . . . . . . . . . . . . . 62.2 71.6 89.5 82.8 41.1 49.4 19.8 76.6 23.5 55.0
Triple glazing (insulation w/storm. .,... 0.2 1.7 4.8 2.9 0.1 0 0 0.8 0.5 1.0
SOURCE: NAHB Research Foundation, inc. See appendix B of this volume for this and all other referenced NAHB data.
Table 51.– Insulation Characteristics of 1975-76 Single= Family Detached Housing Units

East West East West


New Middle North North South South South
England Atlantic Central Central Atlantic Central Central Mountain Pacific Total U.S.
Ceiling (% of all houses)
None. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 0 0.6 0.6 1.4 1.5 0 5.6 0.7 1.0
R-7 & R-11 . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0 12.3 4.5 3.0 9.8 4.2 3.0 0.7 2.8 5.4
R-13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.1 7.8 30.6 25.7 23.6 25.6 20.7 13.4 12.8 20.4
R-19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.7 46.7 28.4 25.5 51.1 42.6 59.5 42.8 80.9 50.0
R-22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 14.2 25.3 22.8 5.3 17.0 6.8 22.9 0.9 12.3
R-25, R-26, R-30, R-31, & more than R-31 . 7.2 12.4 9.2 18.7 6.9 8.1 7.8 24.5 1.5 9.3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 6.6 1.4 3.7 1.9 1.1 1.2 0.1 0.4 1.8
Exterior wall (% of all houses)
None . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0.6 0 0 0.2 0.2 0.2
Less than R-7 . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 8.0 0 0 2.0 0 1.4
R-7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.5 0 0 0.9 0.3 0.2 8.7 1.1
R-Ii . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.2 73.0 61.1 63.8 69.3 64.5 77.8 62.8 8!; 71.0
R-13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.6 21.7 33.7 32.5 18.6 30.0 15.5 22.1 8.9 21.8
R-19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 4.0 3.4 3.4 2.1 4.6 5.9 2.6 3.0 3.5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 0.8 1.8 0.3 0.5 0.6 0.6 0 0 1.0
Between floor joists (% of all houses)
None . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63.0 51.0 63.1 65.7 75.0 75.7 99.1 88.3 88.9 80.1
2-1/4’’ batts R-7.. . . . . . . . . . . . . . . . . . . . . 0.9 1.7 1.9 1.1 1.8 4.4 0.1 0.4 1.1 1.4
3-1/2’’ batts R-n. . . . . . . . . . . . . . . . . . . . . 16.5 32.9 18.5 14.3 16.8 11.5 0.4 4.1 7.3 11.2
R-13, R-19&Other . . . . . . . . . . . . . . . . . . . 19.6 14.4 16.7 18.9 6.4 8.4 0.4 7.4 2.7 7.3
Crawl space walls(% of all houses)
None . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.6 98.7 98.7 99.7 97.1 97.5 99.8 98.2 93.6 98.2
lnsulated (R-7 through R-19). . . . . . . . . . . 0.4 1.3 1.3 0.3 2.9 2.5 0.2 1.2 6.4 1.8
Basement walls (% of all houses)
None . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87.0 93.5 93.0 81.8 97.4 95.1 99.8 93.9 97.7 96.0
insulated (mostly R-7, 11, 13, & 19). . . . . . 13.0 6.5 4.6 18.2 2.6 4.9 0.2 6.1 2.3 4.0

Slab-on-grade perimeter (% of all


houses)
None . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.3 96.7 92.6 99.3 86.3 88.8 89.0 93.3 91.9 89.3
1" rigid . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 2.6 5.1 0.6 11.0 9.3 9.1 6.1 2.6 8.3
2" rigid . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.7 2.2 0.1 2.3 1.3 0.9 0.1 0.8 2.1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0 0.5 0 0.4 0.6 1.0 0.5 0 0.3
SOURCE: NAHB Research Foundation, inc.
110 ● Residential Energy Conservation

sulation of basement walls and increased use to rewrite homeowner loans and lend 100 per-
of insulation between the floor joists are the cent of the cost of adding a solar system
most obvious areas where added insulation without raising the interest rate on the home
would be useful in new construction. mortgage and normally without increasing the
total monthly payments. A bank in Washing-
The window and door characteristics of the
ton State offers preferential terms for loans on
houses built in 1975-76 are shown in table 52. It
homes that meet certain energy conservation
shows that 42 percent of the entrance doors
requirements. 31 A Minnesota bank promotes
were insulated.
its conservation program as “the way lenders
Table 53 shows the percentage of homes by can help, ” while an IIlinois bank group offers a
price that have R-11 or greater levels of insula- home inspection at a $50 cut-rate fee to detect
tion in the exterior walls and R-13 or greater heat-loss problems.32 A survey by the Savings
levels of insulation in the ceiling. More than 94 Institutions Marketing Society of America in-
percent of all houses had exterior insulation dicated that 20 percent of the 656 institutions
levels of R-11 to R-19, and the incidence of less surveyed featured energy-related homes in
than R-11 levels does not seem to correlate their 1977 advertising. 33 But while lenders have
with housing price. The data related to ceiling launched many types of programs, many have
insulation are similar. Nearly 90 percent of all dropped them or lowered their expectations in
houses had ceiling insulation levels of R-13 or the face of weak consumer response. Below-
greater, and housing price does not seem to af- market interest rates appear to offer only a
fect the levels of insulation. limited incentive to take conservation actions.
There appears to be some buyer resistance Presumably, this reflects the general low-level
to expensive conservation packages; many of demand for small home-improvement loans
homeowners would prefer to invest in addi- (see Retrofit, page 97).
tional amenities rather than more conservation Data on retrofit are less precise, but many
improvements. A Los Angeles Times30 article homeowners have been improving the energy
about Chicago builders indicated that while efficiency of their homes. As noted in table 54,
most builders provide R-11 exterior wall insula- Building Supply News estimated that in 1977
tion and R-19 ceiling insulation, customers 4.2 million jobs involved insulation and 1.3 mil-
pass up beefed-up conservation packages for lion jobs involved storm windows and doors.
such luxury options as extra rooms or garages.
One builder offered a $3,800 optional energy Extensive retrofit is confirmed by Owens-
package, but only 18 of 77 homebuyers bought Corning data. To monitor the extent of ceiling
it. Another reported a lack of interest in an op- reinsulation activity by homeowners, Owens-
tional feature to double the amount of insula- Corning conducted surveys in 1975 and 1976.
tion in the homes in one subdivision. During this period the average insulation in-
stalled increased from 4¼ to 5½ inches. The
While builders have responded to consumer extent to which reinsulation occurred did not
demand for energy-saving improvements, lend- vary widely across income groups: in fact,
ers have begun to promote saving in lending. households with incomes under $10,000 had a
Some lenders have promoted energy conserva- slightly higher rate of activity than their per-
tion through advertising the advantages of centage of the population. Based on other
conservation - and providing special arrange- studies Owens-Corning estimated that between
ments and rates for conservation loans. Many 1974 and 1976, 8 million homeowners ap-
lenders have offered conservation home-im- peared to have reinsulated their ceilings, an
provement loans at interest rates below nor- additional 7 million did so in 1977. In 1978, 5
mal market rates. One California bank offers
31
Urban and Community Economic Development
(American Bankers Association, May 1977).
30
Don Debat, “Lending Institutions Say That Energy 32 I bid.
33
Expenses May Exceed Monthly Mortgage Payments,” Los Energy Savings Is Good (Savings Institutions Market-
Angeles Times, Oct. 8,1978. ing Society of America).
Table 52.—Window and Door Characteristics of 1975-76 Single-Family Detached Housing Units

East West East West


New Middle North North South South South
England Atlantic Central Central Atlantic Central Central Mountain Pacific Total U.S.
Window glazing (% by region)
Single glaze . . . . . . . . . . . . . . . . . . . . . . . . 37.6 26.6 5.8 14.3 58.8 49.6 80.2 22.6 76.0 44.0
Single w/ storm . . . . . . . . . . . . . . . . . . . . . 25.3 21.6 27.2 40.6 15.5 22.7 12.1 22.7 4.9 20.0
Insulating glass. . . . . . . . . . . . . . . . . . . . . 36.9 50.0 62.3 42.2 25.6 26.7 7.7 53.9 18.6 35.0
Insulating w/ storm . . . . . . . . . . . . . . . . . . 0.2 1.7 4.8 2.9 0.1 0 0 0.8 0.5 1.0

Window (ft2 per unit by region)


Single glaze . . . . . . . . . . . . . . . . . . . . . . . . 81.7 47.8 7.5 23.4 105.4 84.1 123.4 49.7 152.8 82.0
Single w/ storm . . . . . . . . . . . . . . . . . . . . . 55.0 38.7 42.0 66.9 25.8 35.1 16.4 55.1 9.2 32.6
Insulating glass. . . . . . . . . . . . . . . . . . . . . 80.3 89.8 104.9 71.0 44.8 41.7 11.1 92.7 35.8 58.9
insulating w/storm . . . . . . . . . . . . . . . . . . 0.5 3.1 8.2 4.9 0 0 0 1.2 0.9 2.1
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . 217.5 179.4 162.6 166.2 176.0 160.9 150.9 198.7 198.7 175.6

Sliding glass doors


Number per unit. . . . . . . . . . . . . . . . . . . . . 0.88 1.02 0.88 0.93 0.89 0.68 0.84 1.00 1.26 0.95
Square feet per unit. . . . . . . . . . . . . . . . . . 35.2 40.8 35.2 37.2 35.6 27.2 33.6 40.0 50.4 38.0

Exterior doors (% by region)


(Entrance)
Not insulated . . . . . . . . . . . . . . . . . . . . . . . 41.0 16.1 23.1 46.1 69.6 69.2 78.8 56.5 89.4 57.9
Insulated. . . . . . . . . . . . . . . . . . . . . . . . . . . 59.0 83.9 76.9 53.9 30.4 30.8 21.2 43.5 10.6 42.1
SOURCE. NAHB Research Foundation, Inc.

Table 53.—Single-Family Detached Homes Wall and Ceiling Insulation by Housing Price

Exterior wall insulation Ceiling insulation


Price range Less than R-1 1 R11-19 Other Less than R-13 R-13 or Greater Other
Less than $30,000 . . . . . . . . . 2.7 96.7 .6 3.7 95.8 .5
$30,000 -34,999 . . . . . . . . . . . 4.6 94.8 .6 7.4 89.7 2.9
$35,000 -39,999 . . . . . . . . . . . 3.5 94.1 2.4 8.3 89.8 1.9
$40,000 -44,999 . . . . . . . . . . . 2.6 96.5 .9 6.4 93.4 .2
$45,000 -49,999 . . . . . . . . . . . 1.3 98.0 .7 4.7 92.2 3.1
$50,000 -54,999 . . . . . . . . . . . 4.2 94.8 1.0 6.7 91.3 2.0
$55,000 -59,999 . . . . . . . . . . . 1.9 97.6 .5 4.0 94.4 1.6
$60,000 -64,999 . . . . . . .“. . . . 1.7 97.6 .7 4.9 95.0 .1
$65,000 and over. . . . . . . . . . 1.3 98.2 .5 4.8 93.6 1.6
SOURCE: NAHB Research Foundation, Inc.
112 ● Residential Energy Conservation

Table 54.—Estimates of Insulation and Storm Door/ Energy conservation is a concern for the
Storm Window Activity in the Retrofit Market, 1977 mobile home industry. The Federal standards
under which all mobile homes are built include
Dollar Average
volume Number cost thermal performance standards. Three differ-
Type of activity ($000) of jobs per job ent thermal performance standards are used
Additional insulation $1,035,292 4,243,000 $244 depending on the zone of the country. The
Storm windows & NAHB study of 175,000 mobile homes built in
doors . . . . . . . . . . . $ 212,901 1,339,000 $159
SOURCE: Building Supply News, Homeowners Remodeling/Modernization
1976-77 shows that most homes had R-13 to
Study, 1978. R-18 levels of insulation in the ceilings, though
sizable portions had R-19 to R-21. Walls and
million to 5.5 million more homeowners were floors were typically insulated to an R-11
expected to invest in ceiling reinsuIation. standard. Most units had single-glazed win-
dows with storm windows, but in units to be
The Gallup survey conducted for DOE in
sold in southern areas single-glazed storm win-
early 1978 found that 1 out of 6 respondents
dows were common. The Federal standards
said that they had added insulation and 1 out
have had a positive effect in raising insulation
of 10 installed storm doors or windows in the
standards in mobile homes. Most existing
previous 12 months. Thirty-six percent of those
mobile homes have some insulation but its ef-
with insulation believe more is needed. 3 4
fectiveness is not known. Few mobile homes
Ninety-three percent believe their bills will be
have storm windows or storm doors. Due to the
lower-–(but only 44 percent know how large
nature of the industry, Federal regulation has
the savings will be). More than 80 percent of
been welcomed, and improved standards
the homeowners said they know the type of in-
shouId not represent a major barrier.
sulation they want, where to buy it and how to
install it. On the other hand, only 50 percent
know what a fair price would be.

FINDINGS AND OPPORTUNITIES FOR ENERGY CONSERVATION

Operating practices and market conditions There is no single national housing market;
largely determine the incentives for and obsta- each locality has its own characteristics and
cles to energy conservation. Opportunities for features. Practices, attitudes, and require-
energy conservation differ among the three ments vary by such factors as geography, sup-
housing submarkets– new construction, man- ply and demand for housing, climate, tradi-
ufactured housing, and existing housing. These tion, cost and availability of fuel, patterns of
differences must be considered in setting tenure, community size, and type of construc-
energy conservation goals and programs. Dif- tion. As a result, housing costs and characteris-
ferences in practices, levels of knowledge, and tics differ widely depending on locality or
attitudes toward conservation vary depending region. These variations, true of both the ex-
on whether the housing is investor-owned and isting housing stock and the new construction
rented or owner-occupied, and whether the market, affect the attractiveness of investing
housing is single-family or multifamily. These in energy conservation improvements and de-
differences affect the economic circum- termine in part the building industry response
stances, attitudes, and characteristics of the to conservation. The attitudes of property
participants in the housing sector and the in- owners toward energy costs and energy conser-
centives needed to motivate property owners vation have changed significantly over the
to take energy-saving actions. past 5 years. In response, many builders have
raised their standards for energy efficiency in
homes and are now actively promoting energy
34
Gallup Organization, Inc., op. cit. features in sales. Persons owning homes have
Ch. V—Housing Decisionmakers ● 113

begun to alter their homes to save energy; this Although most builders now seem generally
effort is being augmented and supported by aware of opportunities for conserving fuel,
contractors, utilities, and some lenders. their expertise is limited. Most building com-
panies do not have design or engineering skills,
Despite the growing response of the building but rely on architectural and engineering
industry and individuals, a great deal more can firms, utilities, design reviewers, and lending
be accomplished. New construction offers institutions to make decisions on energy-based
more energy-saving potential per dwelling than changes. Designing energy-efficient housing re-
existing housing, as many improvements possi- quires consideration of climate, site, style, ma-
ble during construction cannot be added, or terial costs, and specifications, financing
can be added only at high cost, after the costs, and taxes. Builders often cannot afford
building is finished. Because most new con- to hire experts in all these areas. Without prop-
struction must conform with local building er engineering and design, housing can contain
codes, a system is in place to inspect plans and many “energy saving” features and yet fail to
construction practices. operate efficiently.

Because of the size of the existing housing Builders appear willing to experiment with
stock — some 80 million units — retrofit wilI be new materials, particularly if others in their
most productive in saving energy in the short area are also experimenting. I n 1978, a Profes-
run. The level of thermal performance of the sional Builder survey found that 25 percent of
total housing stock will change only slowly as the builders had tried 2x6 framing with 6
a result of new construction, with annual starts inches of insulation to obtain an R-19 wall; this
of 2 million units on the average. number was up from 20 percent of the builders
surveyed in 1977.35

Builders’ Attitudes The other factor that determines how build-


ers build is the local building code, Inspections
The construction industry responds to wide-
normally include both design review and on-
ranging changes in taste and demand. Since
site inspection. As code requirements relating
the new construction market is highly com-
to energy use become more stringent, builders
petitive, and most firms are relatively small,
will presumably comply. Most homes are con-
builders must compete in terms of price, de-
structed by builders who use prescriptive
sign, and amenities as demanded by the public
codes; i.e., acceptable materials and practices
at a given time. Builders therefore add energy
are clearly specified. These builders will easily
conservation improvements to their houses to
cope with most new codes that can be trans-
the extent they expand or improve the market-
lated into simple, easy to follow formats. (See
ability of the house.
the section in chapter VI 1 I on standards.)
In addition to watching buyer demand close-
Iy, builders also stay in close touch with build-
ing material suppliers, and some follow the Property Owners’ Attitudes
research and publications of NAHB and similar The price of energy seems to be the most
groups. From such marketer’s associations and powerful incentive to conserve, and future
other builders, they learn of new industry conservation will depend on property owners
trends, practices, and products. Features like realizing increased economic benefits. Where
air-conditioning, once considered a luxury, fuel costs are high and climatic conditions ex-
became standard in a short time in response to treme, it appears that consumers are especially
buyer demand and technology transfer. Thus, wilIing to invest in energy efficiency.
education through building trade groups, com-
bined with growing public concern over energy
cost, should work to accelerate the use of con-
servation options by builders. 35
’’ Energy and the Builder,” op. cit.
114 ● Residential Energy Conservation

A Iifecycle costing analysis, while common- Is the Cost of Adding Energy


ly used to make investment decisions of cer- Conservation Features to New or
tain types, is not typically used by the home- Existing Housing an Impediment
owner. The commercial real estate investor
to Conservation?
may conduct a lifecycle cost analysis in an in-
formal manner, balancing the analysis with The inclusion of conservation improvements
judgments about the future of the property, in new housing is tempered by market condi-
the investment required, and other investment tions and considerations. The dramatic rise in
plans. Short ownership periods and investment the price of housing in recent years has made
horizons mitigate against adoption of Iifecycle builders sensitive to increases in first costs or
costing approaches. in carrying charges.
Including energy conservation features in a
The marketplace makes distinctions be- new home often increases downpayment re-
tween conservation improvements that are quirements and fixed monthly charges. While
clearly cost-effective and those which return it does not follow that if builders choose to
the investment over a longer pried. This par- upgrade the energy-saving characteristics of
tially explains the greater interest in insulation their housing and increase the price according-
and double-glazed windows than in, for exam- ly, households are priced out of the market
ple, solar energy systems. The difference in at- altogether, marginal buyers might have to
titude may also reflect consumers’ and build- scale down their expectation. For example,
ing professionals’ different levels of awareness assuming a 10-percent interest rate and 30-year
and information about various conservation term, a house cost of $50,000 and $45,000 loan,
technologies. and a $5,000 downpayment, a monthly mort-
gage payment of $394.91 would be required.
Homeowners and investors assess energy Extra improvements of $2,000 financed on the
conservation opportunities differently. Home- same terms would increase the downpayment
owners view conservation improvements in $200 and the monthly payment would rise to
terms of their potential for reducing energy $410.18. The $15.27 monthly increase would
costs, effect on the downpayment and the add $183.24 a year to housing costs. Using the
monthly carrying costs, and the possibility of rule of thumb (which is no longer universally
future maintenance difficulties. Investors in used) that a purchaser shouId spend 25 percent
rental housing consider conservation improve- of his income for housing, a purchaser would
ments in terms of improved profitability, re- have to earn an additional $733 of annual in-
duced risk, or additional income or profit. If in- come to afford the house. This additional cost
creased energy costs can be directly passed on might affect the marketability of the home;
to tenants by increasing rents, conservation NAHB estimates that 39.8 percent of the pub-
may not be an attractive investment. (See the lic–22,771,000 households–could afford a
section in chapter VI I I on tax policy.) $50,000 home with the financing described
above. Increasing the price to $52,000 reduces
the number of households who can afford the
The principal opportunity for additional
house to 21,283,000 households or 37.2 percent
conservation activity in the retrofit market
of all households, according to NAHB. The
centers on ways to motivate the homeowner to
builder therefore makes a decision to increase
improve the efficiency of his home. The home-
cost with great care.
owner can be made more aware of conserva-
tion opportunities through the media, utility
advertising and energy audit programs, and Are Problems of Financing Impeding
publicity by manufacturers and suppliers of the Pace of Residential Conservation?
building materials. Realtors and lenders can
also encourage homeowners and homebuyers Lenders generally have been willing to
to take conservation action. finance the added cost of energy-efficient
Ch. V—Housing Decisionmakers ● 115

housing. Financing has not been a problem for Few lenders are concerned with the energy
the credit-worthy borrower. Lenders rely on ap- efficiency of the homes they finance. Since
praisers to make judgments about the extent to financing is essential to homeownership for
which conservation improvements add to the most Americans, a change in the attitude of
value of a property; standard conservation im- lenders could quickly facilitate a shift to much
provements are not seen as valuation prob- higher levels of conservation. If review of
lems. Houses based on “solar passive” prin- mortgage applications included a review of
ciples or other design approaches may not be energy costs, much greater investments in sav-
acceptable to lenders if the houses have an ing energy couId be expected.
unusual appearance or require no purchased
energy; they are considered experimental.
Lenders appear increasingly willing to make
What Are the Current and Potential
conservation-related home improvement
loans, although most conservation improve- Roles of the Federal Government in
ments are inexpensive and not profitable for Encouraging Residential Conservation?
banks to finance. Most homeowners, however,
The Federal Government currently affects
pay for home improvements through cash on
the housing sector through programs that regu-
hand, savings, or short-term credit arrange-
late lenders, through tax policy, programs that
ments such as credit cards. Those who do need
provide housing subsidies, insurance, and guar-
financing may not meet requirements for in-
antees, and standards setting. The impact of
come and established credit. Low-income
Federal actions is much greater than the level
homeowners have more difficulty financing
of Federal insurance, guarantees, or subsidies
conservation improvements and may need
would suggest. The role and impact of Federal
some form of subsidy to make those improve-
programs are reviewed in chapter VllI.
ments. The Community Services Administra-
tion (CSA) and DOE weatherization program
The implementation of HUD’s Building Effi-
partially meets the needs of low-income home-
ciency Performance Standards (BEPS) and the
owners, but many may fail to qualify for or be
adoption of federally sponsored “model code”
reached by weatherization assistance. Newly
standards should raise the energy efficiency of
authorized utility audit programs may also
new housing. By using nationally developed
assist those who need financial help.
energy standards and enforcement guidelines
Lenders have limited interest in promoting for all new construction, builders and local
energy conservation and do not consider it a building code officials will be in a better posi-
significant factor in lending decisions. On the tion to understand and implement conserva-
other hand, some financing institutions esti- tion actions. The process of reviewing and im-
mate utility costs in calculating the monthly plementing standards should improve consum-
housing expenses of a potential borrower. er awareness of energy conservation. (See
Some lenders may view energy-conserving im- chapter VII l.)
provements as potential means of reducing
lending risks by reducing fuel costs, or as ways Other Federal initiatives that will affect
to improve resale value, but most do not energy efficiency in the residential sector have
evaluate the energy efficiency of housing they been mandated by the National Energy Policy
finance. Many lending institutions have initi- and Conservation Act of 1975 and the Housing
ated special, below-market interest-rate loan and Community Development Amendments of
programs to promote conservation activity. 1978, which established programs to finance
These programs have not generated strong energy-conserving improvements and promote
consumer response. Lenders therefore give solar energy and energy conservation in HUD-
these programs a low priority, treating them assisted housing. Tax credits for conservation
primarily as public relations endeavors. improvements have been enacted.
116 . Residential Energy Conservation

DIRECTIONS FOR THE FUTURE

Much remains to be done to upgrade resi- tions. A cautious approach is warranted to


dential structures and to encourage property avoid Federal actions that may be unnecessar-
owners to adopt energy-conserving practices. ily costly, provide windfalls, or have a negative
Tens of millions of homes require reinsulation impact on housing costs. Actions that increase
and other energy-saving improvements. The housing costs must be weighed carefully in
design and features provided in new housing terms of costs and benefits.
could be significantly upgraded even beyond
Assuming that the availability and price of
current levels to improve their energy efficien-
energy remain about as expected, it may be
cy.
most efficient to focus on improving the qual-
The key issue is whether the current pace of ity or expanding the coverage of existing con-
change is satisfactory, or whether additional servation programs, and to monitor the impact
Federal actions directed to property owners or of the new initiatives, before mounting any
the building industry are required to increase major new efforts. Priority should also be
either the pace or the direction of current given to modifying policies or practices that
trends. Available information provides no con- act as barriers to conservation.
clusive answer, but signs indicate that increas-
Efforts to inform the building industry and
ing energy prices, greater awareness among
property owners about the opportunities and
property owners and industry participants, and
techniques for saving energy need to be im-
previously enacted Federal legislation are en-
proved. Industry needs better technical in-
couraging property owners to invest in conser-
formation, and the average homeowner needs
vation. Legislation enacted in 1978, recent
simpler, more useful information. The quality
changes in Federal policies and practices, and
of information now available varies widely and
the promised issuance and implementation of
is disseminated unevenly. The expanded
BEPS promise to bring about further improve-
energy audit program appears to be a promis-
ment in the energy efficiency of residential
ing educational approach. The Government
buildings. Other new incentives for energy
should continue to work closely with trade
conservation in both the public and private
groups to assure that building professionals
housing sectors are described in detail in
are not only aware of the importance of con-
chapter VII I.
sidering energy costs in making housing deci-
These new initiatives, plus those related to sions, but know how to design and construct
other aspects of residential energy conserva- more energy-efficient houses. Demonstration
tion discussed elsewhere, should help to ex- efforts promote the market for energy-saving
pand the awareness and knowledge of prop- improvements and should be continued.
erty owners and building industry participants More research should be directed to conser-
about energy conservation, and stimulate fur- vation. Promising technological approaches
ther investments in conservation improve- must be encouraged. More information is
ments. In the context of rising energy prices, needed about the thermal efficiency of the
further conservation can be expected. housing stock and the extent and character of
Given the breadth of these recent Federal retrofit actions. A better understanding of real
initiatives and the market dynamics of the estate investors’ attitudes and motivations,
housing industry, it seems appropriate to move and the extent to which they are making con-
cautiously in terms of proposing additional ac- servation improvements, is needed.
Chapter VI

UTILITIES AND FUEL OIL


DISTRIBUTORS
Chapter Vl.– UTILITIES AND FUEL OIL DISTRIBUTORS

Page Page

Electric and Gas Utilities . . . . . . . . , 119 Factors That InfIuence and Limit
introduction . . . . . . . . . . . . . . . . . . . .119 Market Entry . . . . . . . . . . . . . . .144
Electric Utility Industry Structure and Fuel Oil Customer Accounts . . . . . . .144
Historical Development . . . .. ...119 Technical Notes–Computer Simulation: The
The Regulatory Environment . . . .. ....120 Effect of Conservation Measures on
The Problems of Recent Changes for the Utility Load Factors and Costs . . .. ..145
Electric Utility Industry. . .. ..121 The Question . . . . . . . . . . . . . . . . . . . .145
Gas Utility Structure and Regulatory Background . . . . . . . . . . . . . . . . . . . . .. 145
Environment . . . . . . . . . . .123 OTA Analysis of Conservation Impact on
Recent Changes in the Gas Utility Utility Loads and Costs . . . . . . . .147
Industry. . . . . . . . . . . . . . . . . .124 Results . . . . . . . . . . . . . . . . . . .. ...148
Utilities and Residential Consumers .. ..125 Discussion. . . . . . . . . . . . . . . .149
Utility Activities in Residential Energy
Conservation. . . . . . . . . . . . .. .126
Information Programs. . . . . .126
Conservation Investment Assistance TABLES
Programs. . . . . . . . . . . . . . . . . .127
Rate Reform for Electric Utilities . . .. ..130 Page

Lifeline Rates . . . . . . . . . . . .131 55. Residential Natural Gas and Electric


Load Management . . . . . . . . .132 Prices . . . . . . . . . . . . . . . . . . . ......125
Federal Programs and Opportunities in 56. Percentage Changes in Real Utility
Utility-Based Issues. . . . . . . .133 Prices, Selected Periods, 1960-77......125
New Legislation on Conservation 57. DOE EIectric Rate Demonstration
Investment Assistance. . . . .134 Program kWh Consumption Effects . . .136
New Legislation on Utility Ratemaking 58. DOE EIectric Rate Demonstration
and Load Management . . .134 Program kW Demand Effects . . . . . . .137
DOE Electric Utility Rate 59. Average Yearly Demand for Distillate
Demonstration Program . . . . . .135 Fuel 011 . . . . . . . . . . . . . . . . . . .......141
DOE Load Management Activities . . .138 60. 1985 Projection of Heating Unit Mix and
Conservation Programs of the Federally Basic Loads . . . . . . . . . . . . . . . . . . .. ..148
Owned Power Authorities . .. ...138 61. 50-Percent Electric Resistance Heating
Conclusions for Utility Policy .. ..139 by 1985 . . . . . . . . . . . . . . . . . ........148
The Fuel Oil Distributors . . . . . . .139 62 Simulated Utilities’ Load Factors, Peaks,
Industry Size. . . . . . . . . . . . . . . .139 Summer-Winter Ratio by 1985 . ......148
Fuel Oil Marketers . . . . . . . . . . . . . .140
Sales of Distillate Fuel Oils. . .........140 FIGURES
Service Activities . . . . . . . . . . . . . . .140
New Construction . . . . . . . . . . . . .143 Page

The Role of Oil Heat Distributors in 17. Sales of Distillate Fuel Oil Use as
Energy Conservation Practices . . . .143 Percent of Total . . . . . . . . . . . .. ...142
Introduction . . . . . . . . . . . . . . . , 143 18. Dispatching Generation to Meet a
Marketing of Energy Conservation Cyclical Load , . ..................146
Products . . . . . . . . . . . . . .......143 19. Daily Load Curve . . . . . . . . . . . .146
Reduction in Annual Fuel 20. Electrlc Energy Output and Annual Load
Consumption. . . . . . . .143 Factors . . . . . . . . . . . . . . . . . . .147
Chapter VI
UTILITIES AND FUEL OIL DISTRIBUTORS

ELECTRIC AND GAS UTILITIES

Introduction Electric Utility Industry Structure and


Historical Development
The electric and natural gas utility industries
serve as the conduit through which American The electric utility industry is a diverse
households receive most–and sometimes group of more than 3,500 companies, both
all —of the energy used in their residences. publicly and privately owned, collectively
Sharp increases in utility bills in recent years, comprising one of the Nation’s largest in-
along with such emergencies as blackouts and dustries. Some companies engage in all three
brownouts, have made American homeowners of the industry’s major functions —the genera-
and renters increasingly aware of the critical tion, transmission, and distribution of electric
role that utility companies play. power. Most, however, serve only as local dis-
Probably no industry — not even the petrole- tributors of power. Publicly owned municipal
um industry— has experienced the profound and cooperative companies, in particular, tend
impact on its operations and policy decisions to purchase electricity from generating com-
felt by the utility industry in the wake of the panies that may be investor-owned or federally
energy crisis of the 1970’s. Other industries operated entities such as the Tennessee Valley
have experienced increased prices and or cur- Authority (TVA). The term “electric utility,” as
tailed supplies; so have the utilities. But utility used here, refers to a distributor of electricity,
companies have also come up against societal regardless of whether the company generates
demands for change in their fundamental pur- its own power. EIectric utilities may also serve
poses, plans, financial management, and de- as distributors of natural gas.
livery of service. Although publicly and cooperatively owned
Thus, the entire relationship between utili- electric companies outnumber private inves-
ties and their residential customers has shifted. tor-owned firms by almost 10 to 1, the private
After years of enjoying declining or stable real companies dominate the industry in terms of
prices, promoting greater energy use, and re- generating capacity and quantity of electricity
sponding to rapid growth in residential energy delivered. Furthermore, the largest 200 (out of
consumption, utilities are suddenly being a total of 400) investor-owned companies ac-
asked to help their residential consumers use count for three-quarters of the Nation’s total
less gas and electricity. electric-generating capacity and serve 80 per-
cent of all electric customers.
To understand the role of electric utilities in
the consumption and conservation of energy The electric utility industry is the Nation’s
in the home, it is useful to review briefly the most capital-intensive industry. In 1977, inves-
structure and historical development of the in- tor-owned electric power companies had ag-
dustry and the regulatory environment in gregate plant investments of $190.4 billion and
which it operates. Following a discussion of annual revenues of $58.8 billion, or a total in-
these items, this chapter examines utility ac- vestment of $3.24 for each dollar of annual
tivities as they relate to residential energy con- sales 2 Attracting the capital needed for plant
servation. Information programs, energy
‘ Booz, Al Ien & Hamilton, Inc., Utility Role in Residen-
audits, conservation investment assistance, tial Conservation, report to OTA, May 1978
rate reform, and load management are exam- 2Energy Data Reports, Department of Energy, CRN
ined. 78032 )9919, Mar. 22,1978

119
120 ● Residential Energy Conservation

expansion was not difficult for the utility sec- tion of which could be planned, financed, and
tor until recently, as the industry’s high, carried out in a few years.
steady, and seemingly predictable growth, and
The result of all these advantages, in the
its regulated return, were attractive to inves-
period before the mid-1970’s, was long-term
tors seeking secure earnings.
security in the electric power sector. Today, by
contrast, utility companies find themselves
Before the oil embargo of 1973-74, personal
facing high costs for new capacity and for fuel;
incomes and retail prices paid for consumer
new regulatory requirements for environmen-
goods in the United States grew much faster
tal protection, nuclear safety, and energy con-
than retail electricity prices, so that “real”
servation; and uncertain future growth projec-
power prices — adjusted for inflation —fell.
tions and capital availability prospects.
While the Consumer Price Index rose 31 per-
cent and real family income rose 34 percent
between 1960 and 1970, the price of electricity The Regulatory Environment
grew by only 12 percent. By contrast, medical
For investor-owned utilities, most regulation
care cost 52 percent more in 1970 than in 1960,
while the increase for food was 31 percent and occurs at the State level. The Federal Energy
for homeownership 49 percent.3 The growth of Regulatory Commission (FERC), formerly the
Federal Power Commission, regulates only the
electricity use in the United States, closely
interstate transmission of power and the sale
related to these economic trends, was also en-
of power for resale (wholesale sales). State
couraged by the promotional activities of the
regulation is carried out by public utility com-
electric utilities.
missions whose members are either elected or,
Low fuel costs for power generation have more commonly, appointed by Governors
been one reason for traditionally low electric- (sometime with legislative consent) to serve
ity prices. Another reason is that utilities have, fixed terms. The commissions function as
until recently, enjoyed increases in productivi- quasi-judicial bodies and hand down decisions
ty through economies of scale in generating on rates and powerplant sitings after public
equipment and improvements in thermal effi- hearings. Municipally owned utilities are usu-
ciency of boilers. The prospect of scale econ- ally regulated by local government officials,
omies made the utilities’ promotion of electric- while cooperatively owned power systems are
ity beneficial to both shareholders and con- regulated by elected boards representing the
sumers during the pre-embargo period. As fall- consumer-owners. Regardless of ownership, all
ing real prices and promotional activities en- utilities are constrained from the arbitrary use
couraged growth, steady increases in con- of their monopoly power by the regulators,
sumption led to lower unit costs and, inciden- who require them to perform certain duties
tally, made future planning a straightforward (such as providing a reliable power supply to
process of extrapolating from past trends. all those who pay for it) in exchange for au-
thorizing a “fair and reasonable” rate of
As long as the electric utilities enjoyed rising return.
productivity, they remained a declining mar- Electric utility rate regulation involves two
ginal cost industry —that is, the incremental major steps. The first step is to approve a level
cost of electricity generated to meet new de- of revenues adequate to cover costs for opera-
mand was lower than the average costs in- tion and maintenance, debt service, deprecia-
curred by the power companies to meet ex- tion, and taxes, plus a “fair and reasonable”
isting demand. This situation facilitated the rate of return on invested capital. The utility
financing of new powerplants, the construc- commission attempts to establish a rate of re-
turn that is high enough to attract capital for
future expansion, yet not so high as to over-
3Statistica/ Abstract of the United States (Washington, charge consumers or violate the “fair and rea-
D. C.: 1977). sonable” standard.
Ch. V/—Utilities and Fuel Oil Distributors ● 121

The second step in utility regulation is to recovered. Power companies usually charge a
establish the rates at which electricity is to be minimal fee even when no power at all is used,
sold in order to produce the allowed revenues. to cover these fixed customer costs. Conse-
The ratemaking process is normally based on a quently, the first blocks of power are more ex-
“cost-of-service study,” a tool used by utilities pensive than additional blocks consumed in
to break down their total costs over a specified the same month and the most common rate de-
time period among the different functions sign is called a “declining block” rate. Until
(generation, transmission, and distribution), recently, most utility commissions have left
customer classes (residential, commercial, and the details of this second regulatory step, the
industrial), and cost classifications (customer, design of rates, largely to the discretion of the
demand, and energy). utilities, with pro forma commission approval.

Cost classifications require some explana-


tion. Customer costs include such expenses as The Problems of Recent Changes for
meters, distribution lines connected to the the Electric Utility Industry
customer’s service address, billing, and mar-
keting. As a general rule, customer costs vary In recent years, utilities have experienced
hardly at all with consumption levels. Demand changes — many of them traumatic — in every
costs are fixed costs reflecting the company’s aspect of their operations. Like all fossil fuel
investment in plant capacity and a portion of consumers, utilities have faced drastic in-
the transmission and distribution expenses; creases in the price of fuel, particularly oil.
they represent the cost of providing the max- While utility fuel cost rose 24 percent between
imum (or peak) amount of power required by 1965 and 1970, they jumped a startling 248 per-
the system at any time. Energy costs are vari- cent between 1971 and 1976. 4 In the face of
able; they depend directly on the amount of such rapid cost increases, regulators have per-
power used by the system’s customers. This mitted the electric companies to pass on
cost category includes fuel costs, costs in- higher fuel costs to their electric customers
volved in running and maintaining the boilers, through automatic “fuel adjustment clauses,”
or in producing hydroelectric power (including without waiting for normally lengthy ratemak-
pumped storage), and certain costs incurred in ing proceedings before increasing rates. These
purchasing power from other generating com- clauses have reduced hardships that utilities
panies. would otherwise have experienced by shorten-
ing the regulatory lag and eliminating the need
Assigning customer costs and energy costs for constant repetition of hearings and findings
to different classes of customers is a fairly in response to requests for rate increases.
straightforward exercise, but allocating de- Whether fuel adjustment clauses have also
mand costs is more difficult. Here, a degree of served as disincentives to energetic utility
judgment is required. Once the total contribu- searches for inexpensive fuels or alternative
tion of each consuming class to the functional energy sources is a question currently under
and classified costs is estimated, the totals are review in many State utility commissions. They
divided by the number of billing demand units have been major contributors to continuous in-
in each class and translated into rates. In most creases in residential electric customers’ bills,
cases — and in almost all situations involving making the utilities the target of resentment
residential customers — the customer, energy, and suspicion. Low-income customers and per-
and demand charges are not identified sep- sons on fixed incomes have suffered particu-
arately for the customer. Rather, they are larly from large increases in their bills. De-
lumped together in a single kilowatthour rate. linquent accounts have increased, as have
For residential consumers, the customer
charges are usually included in the rate
‘Electric Utility Rate Design Study, Rate Design and
charged for the first increments (or blocks) of Load Control; Issues and Directions, A Report to the Na-
power consumed each month (measured in kil- tional Association of Regulatory Utility Commissioners,
owatthours), in order to ensure that they are November 1977, p. 10.
122 ● Residential Energy Conservation

meter tampering and theft. In the two suc- tracted licensing procedures, inflation in labor
cessive cold winters of 1976-77 and 1977-78, costs, added hardware for safety and environ-
there were occasional news accounts of poor mental protection, and higher interest rates all
people freezing to death after utility shutoffs add to plant costs. I n 1950, the average interest
for nonpayment of bills. Some States enacted rate paid by utilities on newly issued bonds
emergency relief programs that prohibited was 2.8 percent; in 1970, the rate was 8.8 per-
such shutoffs, and the Federal Government of- cent, and by 1975 it had reached 10.0 percent.8
fered grants and loans to help pay the bills. Utilities must now look to external sources for
most of their capital needs. As a result of all
Utility managers have expressed surprise at
these factors, the electric utility sector is now
their apparent fall into disfavor with many
an industry of increasing marginal costs—that
customers as rates have risen; typically, the
is, the incremental cost of producing one more
electric (and gas) companies see themselves as
demand unit is higher than the average unit
analogous to the Greek messenger who was ex-
cost for meeting existing demand.
ecuted for bearing bad tidings. Public opinion
surveys document a widespread public belief Regulatory changes have also caused some
that the utilities are profiting from the energy discomfort for the utilities. While the electric
crisis and are highly suspect as sources of in- light and power industry could hardly be con-
formation about the crisis and its remedies. ’ sidered a textbook illustration of the free
Many consumers appear not to understand the enterprise system at work — marked, as it is, by
reasons behind their higher bills, and they at- governmental regulation of profits and prices,
tribute all rate increases to attempts to in- as well as by its own monopoly control of mar-
crease profits.6 kets and the power of eminent domain – utility
managers have nonetheless tended to identify
Fuel prices accounted for approximately 60
with business interests and to resent the expan-
percent of all rate increases in 1974, but they
sion of Government power. They have, conse-
are not the only reason for rising utility bills.
quently, found themselves in an increasingly
Plant costs have also risen sharply, According
adversary relationship with regulators at both
to figures compiled by the Department of En-
the State and Federal levels, as utility commis-
ergy (DOE), a single 1,000-MW nuclear plant
sions and Federal agencies have reached ever
begun in 1967 and brought online in 1972 cost
deeper into their operations.
an average of approximately $150 million to
build, while a similar plant begun in 1976 and Utility regulators have responded to newly
expected to be ready in 1986 will have total felt public needs to conserve energy, protect
projected costs of $1.15 billion–10 times as the environment, and deal with new consumer
high. A coal-fired plant begun in 1966 and activism. Some State commissions began in
placed in service in 1972 cost $100 million, the earl y 1970’s to disallow the costs of promo-
whiIe a comparable plant constructed between tional advertising as operational expenses.
1976 and 1986 will cost $950 million—again Some attempted to prohibit advertising alto-
almost a tenfold increase. ’ A greatly length- gether. A few have required experiments in
ened period of planning and construction ac- new rate designs, such as peakload (time-of-
counts for a significant portion of these higher day and seasonal) pricing and “lifeline” rates
plant costs. Caused in part by what John H. to subsidize poor and elderly consumers. Many
Crowley calls an “exponential increase in regu- commissions, most notably the California Pub-
latory requirements,” these delays contribute lic Utilities Commission, have begun to take a
in turn to massive increases in interest paid on closer look at requests for new generating
borrowed capital during construction. Pro- capacity, to see if energy conservation pro-
grams could delay or eliminate the need for
5Electric Utility Rate Design Study, op. cit., p. 83. proposed additional powerplants. Some have
‘Ibid.
required utilities to initiate conservation pro-
‘John H. Crowley, “Power Plant Cost Estimates Put to
the Test,” Nuclear Engineering International, July 1978, p.
41. 8
Electric Utility Rate Design Study, op. cit., p. 11.
Ch. VI—Utilities and Fuel Oil Distributors ● 123

grams involving the sale, installation, or fi- utility commissions of States in which the gas
nancing of insulation and other energy-con- is produced and consumed. With passage of
serving features for consumers. These new ini- the Natural Gas Policy Act of 1978, intrastate
tiatives have come both from aggressive inter- prices have been slated to come under Federal
pretations of existing mandates and from new reguIation.
State legislation. The separate regulatory systems for intra-
Utilities are also being asked to meet new re- state and interstate gas have contributed, over
quirements imposed at the Federal level. Air the years, to imbalances in both price and sup-
and water quality standards mandated by Con- ply. Intrastate gas, which is not regulated at
gress and enforced by the Environmental Pro- the wellhead, has generally been priced closer
tection Agency have accelerated the retire- to competitive or substitute fuels such as dis-
ment of some older plants and required the in- tillate fuel oil. Interstate wellhead prices, on
stallation of sophisticated control equipment the other hand, which are subject to cost-
on both existing and new pIants. Many com- based Federal regulation, have been lower
panies have altered their boiler fuels more priced than substitute fuels. As a consequence,
than once to respond to Federal directives; producers have kept as much gas as possible
after shifting from coal to oil or gas to meet air within the producing States which has helped
quality requirements, they have been asked by bring about an imbalance in supply between
the Federal Energy Administration (and the the two systems. Even though wellhead prices
more recent DOE) to convert back to coal to are generally higher in producing States, the
avert oil and gas shortages and cut imports. As prices residential consumers pay is lower with
nuclear power has begun to produce an impor- some exceptions. This discrepancy in part is
tant share of the Nation’s total generating due to higher transmission costs for those liv-
capacity, power companies have found it nec- ing far from the producing regions and the
essary to deal at great length and expense with need to supplement the flowing gas supply in
the Nuclear Regulatory Commission (formerly the nonproducing regions in times of shortage.
the Atomic Energy Commission). The intrastate/interstate price discrepancies
have increased during the last few years, as
Gas Utility Structure and gas-short utilities in the nonproducing States
Regulatory Environment have had to turn to high-priced supplemental
gas sources such as imported liquefied natural
Most gas utilities serve only as retail dis- gas (LNG) or synthetic natural gas (SNG) and
tributors, purchasing natural gas at wholesale propane just to meet their existing customers’
rates from a relatively small number of 13 needs. Expansion of their markets has been
pipeline companies, which purchase in turn precluded in many areas by the supply short-
from producers. Among the 1,600 retail natural ages. Industrial customers in some consuming
gas distributors, private companies predomi- States have wearied of constant interruptions
nate in terms of both their share of the industry in their gas service and have permanently
(two-thirds of all gas companies) and the quan- turned in large numbers to other fuels, par-
tity of gas they sell, as a percentage of total ticularly distillate fuel oil. Ironically, industrial
sales (90 percent). Many of these companies fuel shifts have freed up enough gas in some
are combination gas-and-electric companies; places to cause pocket surpluses. But where
these account for 40 percent of all natural gas utiIities were prohibited from providing service
saIes. 9 to new customers, they had no market for this
surplus gas and had to relinquish it to other
Almost two-thirds of the natural gas sold by
distributors.
utilities comes from the interstate market,
where its price is regulated by FERC. Intrastate Historically, the gas utility industry has
gas prices have been regulated by the public relied primarily on long-term debt to finance
its capital needs. Its capital intensity has
9
Booz, Allen & Hamilton, op. cit. declined over the last 25 years, going from
124 ● Residential Energy Conservation

$3.00 in total investment per $1.00 of sales which large industrial customers using gas as a
revenues in 1950 to $1.75 in total investment boiler fuel will bear the full additional price
per $1.00 of sales in 1975. ’0 burden –to a point. When incremental pricing
causes industrial gas rates to exceed the cost
Recent Changes in the Gas of alternative fuels, the burden of higher gas
prices in excess of alternative fuel costs will be
Utility Industry
shared by al I gas consumers.
Like the electric utilities, gas companies
Just how soon residential gas users feel the
have experienced a number of traumatic
impact of the new legislation on their monthly
changes in recent years. In many regions,
utility bills is a matter of considerable debate.
utilities have been totally unable to take on
The number of industrial customers subject to
new customers and have had to curtail not
the incremental pricing provisions is limited
only their large industrial customers whose
somewhat by the new law; only interstate cus-
contracts anticipated interruptions in service
at times of peak demand, but also some cus- tomers, and only those who use gas as a boiler
fuel (as opposed to a process feedstock), are
tomers whose contracts and rates were based
affected. If rising industrial gas prices or re-
on more expensive “firm” service. Allocations
quirements of the coal conversion legislation
of scarce gas supplies by Federal and State
cause many industries to shift to alternative
agencies have caused some utilities to lose gas
fuels (including, perhaps, imported fuel oil),
to other companies. While the need to con-
then the fixed costs associated with gas pipe-
serve gas has been obvious from a national
line transmission and storage must be shared
policy standpoint, the most immediate and
by the remaining customers. The smaller the
direct benefits of such conservation have not
group of industrial customers subject to in-
always been available to the companies that
cremental pricing, the sooner the peak price—
were able to save supplies, only to see them
allocated to others. on a par with alternative fuels — is reached and
the high-cost burden becomes dispersed
Recent passage of the National Gas Policy among residential and commercial customers
Act has brought a prospect of major changes as welI as industries.
for gas utilities and their customers. The new
law paved the way for gradual deregulation of As residential natural gas prices continue to
most gas prices and brought intrastate gas rise steeply —and the Energy Information Ad-
under Federal regulation for the first time, ministration estimates that they could reach
reducing the price gap between interstate and $3.31 per mcf in 1976 dollars by 1985–home-
intrastate gas. High-cost gas is to be deregu- owners will have an even stronger incentive to
lated first, and the regulated price of other gas conserve and overall consumption growth in
will be allowed to rise gradually from legis- the residential sector will continue to decline.
latively mandated ceiling prices, using annual On the other hand, the higher prices could
inflation rates as guides for increases. Deregu- cause special hardships for the poor and the
lation will be virtually complete by 1985. elderly. Even without direct increases in gas
prices, families will bear indirect costs through
Utilities will pay much higher prices for gas higher prices for products of industrial gas
under the new legislation. Interstate pipeline users subject to incremental pricing.
companies will pass on to utilities the higher
prices paid by pipelines for gas supplies, and Also uncertain is the effect the new legisla-
the utilities will pass on the increases in turn to tion will have on gas supplies for utilities and
their own customers. Residential gas utility residential users. Experts in the producing in-
customers will be sheltered initially, however, dustry believe that the new higher prices will
from the increase in natural gas prices because stimulate exploration and production in fields
of a provision for “incremental pricing” under previously inaccessible for economic reasons,
and that ample supplies will tend to hold down
‘“I bid. prices to some extent. Consumer advocates, on
Ch. V/—Utilities and Fuel Oil Distributors ● 125

the other hand, dispute the claim that dereg- utility industry’s sales of 14.8 quadrillion Btu
ulation will stimulate growth in production (Quads) in 1976, bringing in revenues of $9.9
before 1985 and that a competitive market is billion, or 41.9 percent of the industry’s total
at work which will restrain price increases. revenues of $23.6 billion. Gas was the heating
fuel for 56.4 percent of all occupied housing
Utilities and Residential Consumers units in 1976.3

The 74 million U.S. households accounted Utility bills, like taxes, are a continuing
for one-third of the electric utility industry’s source of particular unhappiness to consum-
sales of 1.85 trillion kWh of electricity in 1976, ers. I n fact, however, utility price statistics
and for just under 40 percent of the utility reveal just how great a bargain electric and gas
revenues of $53.5 billion. The average Ameri- consumers have enjoyed, at least until recent-
can family consumed 8,400 kWh of electricity ly. Using constant 1976 dollars, which take ac-
in 1976, spending $288, or 3.45 cents per kWh count of inflation, table 55 indicates that real
(as compared with 2.89 cents per kWh for utility prices fell steadily during the 1960’s.
customers who heat electrically). Virtually all Although that trend has since been reversed,
homes in the United States are served by elec- real gas prices in 1977 were still only 12.2 per-
tricity, with 12.6 percent of all occupied hous- cent higher than their 1960 levels, while real
ing units heated electricalIy in 1976.2 electricity prices were still 17.7 percent lower
in 1977 than in 1960. Table 56 shows the per-
Forty-one million households with natural centage change over certain indicated periods.
gas service accounted for one-third of the gas

Table 55.–Residential Natural Gas and Electric Prices (1976 dollars, selected years, 1960-77)

Natural gas ($/mcf) Electricity (¢/kWh)


Year 1976 dollars Current dollars 1976 dollars Current dollars
1960 . . . . . . . . . . . . . . . . . 1.97 1.03 $.043 $.024
1965 . . . . . . . . . . . . . . . . . 1.76 1.05 .035 .022
1970 . . . . . . . . . . . . . . . . . 1.58 1.90 .028 .021
1971 . . . . . . . . . . . . . . . . . 1.58 1.15 .028 .021
1972 . . . . . . . . . . . . . . . . . 1.64 1.21 .031 .022
1973 . . . . . . . . . . . . . . . . . 1.64 1.29 .031 .023
1974 . . . . . . . . . . . . . . . . . 1.69 1.43 .031 .028
1975 . . . . . . . . . . . . . . . . . 1.77 1.70 .032 .032
1976 . . . . . . . . . . . . . . . . . 1.98 1.98 .034 .034
1977 . . . . . . . . . . . . . . . . . 2.21 2.34 .035 .037
SOURCE: Adapted from Demand and Conservation Panel of the Committee on Nuclear and Alternative Energy Systems, “U.S. Energy Demand: Some Low Energy
Futures,” Science, Apr. 14, 1978, pp. 142-153.

Table 56.—Percentage Changes in Real Utility Consumer ire can best be accounted for by
Prices, Selected Periods, 1960-77 the suddenness of the increases and the degree
to which they have contradicted long-term his-
Period Natural gas Electricity torical experience. For consumer activists who
1960-65 . . . . . . . . . . . . – 10.7 -17.6 follow utility rate increase proceedings, the ag-
1965-70 . . . . . . . . . . . . – 10.2 – 21.1
1970-75 . . . . . . . . . . . . + 12.0 + 14.3 gregate amounts requested in recent years also
1975-77 . . . . . . . . . . . . + 24.8 + 10.6 boggle the mind. Total annual rate increases
SOURCE: Adapted from Science, Apr. 14,1978, pp. 142-152.
granted to electric utilities across the country
between 1961 and 1968 came to $16 million.
‘l factbook on the Proposed Natura/ Gas Bill, prepared From 1969 to 1976 the annual total was $1.4
by the Citizen Labor Energy Coalition, Energy Action, billion, almost a tenfold increase. ”
and the Energy Policy Task Force, Sept. 25, 1978, p. 21,
supra. 1‘Ibid.
12
Statistical Abstract of the United States, 1977. “Electric Utility Rate Design Study, op. cit., p, 13.
126 . Residential Energy Conservation

The high prices consumers are paying (and these information programs and consumers’
to a lesser extent, the perceived threat of short- actions in undertaking conservation measures.
ages) have created a new interest in the possi-
More concrete information is provided to
bilities of conservation. Investment in insula-
residential consumers by utilities that provide
tion, weatherstripping and caulking, thermo-
“energy audits” of individual homes. Making
stats with automatic nighttime setbacks, and
use of specially trained staff members and
furnace efficiency improvements have all
computer programs, utility audits include a
begun to look attractive to homeowners.
survey of the home to determine the current
Many utility companies have tried to help level of insulation, the presence or absence of
their residential customers to conserve by initi- storm windows, and other structural details.
ating a variety of conservation programs, rang- The audits also include information about the
ing from simple “bill-stuffers” providing in- historical energy consumption and costs asso-
formation on how to conserve to extensive pro- ciated with energy use in the home. They gen-
grams of insulation financing and installation, erally conclude with information about the
rate reform, and load management. The bal- cost of upgrading the thermal integrity of the
ance of this section describes these programs structure through investments in insulation
and analyzes the policy issues they raise for and other features, estimates of the energy and
utiIities and their consumers. money that could be saved, and the amount of
time needed to amortize the conservation in-
vestment through savings on utility bills.
Utility Activities in Residential Energy
Conservation Many utility companies conduct audits for
all requesting homeowners in their service
Information Programs areas regardless of the fuel used for heating
The simplest (and often the first) conserva- the home. Gas and electric companies, for ex-
tion activity undertaken by utility companies ample, audit homes that are heated by oil. In
is to promote conservation by providing, in such cases they must rely on estimates or on
flyers sent to customers with their monthly customers’ records (often incomplete) for his-
bills, “how-to” information and reasons for torical heating cost data, and, inaccuracies in
cutting down on waste. These efforts, now projected savings may be a problem. Even
common among gas and electric companies when relying on complete past billing records,
throughout the Nation, are natural substitutes auditors may either overestimate or under-
for the “bill-stuffers” of earlier years. Only the estimate both the potential savings and the
products have changed: while the brochures of lifecycle costs of insulation investments. Utili-
the 1950’s and 1960’s urged homeowners to in- ty managers are concerned about the credibili-
vest in electric heating and air-conditioning, ty and liability problems they may incur if
frost-free refrigerators, and other energy-con- customers are dissatisfied after relying on
suming commodities, the current promotional utility-conducted audits for promises of sav-
literature extolls the merits of insulation and ings of energy or dollars that do not mate-
weatherstripping, along with practices such as rialize. Despite the imperfections inherent in
lowering thermostats and cooking one-dish home energy audits, they are valuable tools for
meals. This kind of information dissemination homeowners seeking practical guidance in im-
costs the utility little and can be useful to con- proving the energy efficiency of their dwell-
sumers. Attitudinal surveys provide evidence, ings
however, that consumers generally regard util- Other conservation information programs
ities as suspect sources of information, ’ 5 Un- carried out by utilities may include guidance
fortunately, there are no easy ways to measure for builders about energy-efficient construc-
the cause-and-effect relationship between tion and efficient appliances and heating sys-
tems. The Tennessee Valley Authority, for ex-
ample, offers free seminars on heat pump de-
‘‘I bid., p. 83. sign and installation for builders and contrac-
Ch. VI—Utilities and Fuel Oil Distributors ● 127

tors. Some companies offer special awards to sidizing hookups for new customers in order to
builders who construct energy-conserving benefit all customers through economies of
houses. Seattle’s Washington Natural Gas scale. 16
Company contacts all builders who obtain
Washington Natural Gas Company has
local building permits, urging them to use ener-
taken a different approach in its ambitious
gy-efficient structural materials and heating,
energy conservation program. It offers not
ventilating, and air-conditioning (HVAC)
only ceiling insulation, but also sidewall in-
systems, A few utilities have constructed
sulation, night setback thermostats, storm win-
demonstration homes to display the latest in
dows, furnace ignition devices (to eliminate
energy-conserving construction and systems
pilot lights), and new furnaces and water
and to improve their own conservation in-
heaters that meet certain efficiency standards.
formation through research and monitoring.
Because of the large total expense incurred by
Conservation Investment Assistance Programs customers who buy several of these items, 45
percent of Washington Natural Gas’s conser-
A more direct involvement in conservation vation customers take advantage of the com-
can be seen with utilities that offer customers pany’s financing arrangements. Even this num-
installation and financing services for in- ber is lower than the company expected at the
sulating their homes. Typically, loans offered outset; it suggests a greater-than-anticipated
by the utilities may be repaid through regular consumer ability to pay for energy improve-
monthly bills. Michigan Consolidated Gas ments. The utility’s conservation business is
Company, an early entrant into the insulation carried out as a merchandising operation,
business, offers its customers up to $700 in which recoups its own costs and earns a
loans to purchase ceiling insulation, with no modest profit. Hence, the gas company’s nor-
downpayment requirement, at 12-percent an- mal operations and rates are not affected by
nual interest, with 3 years to pay. Actual in- its conservation activities. The company uses
stallation is done either by utility-approved independent contractors to install the conser-
contractors or by the homeowners themselves. vation devices, and the utility’s management
The company estimates that approximately believes its program has benefited these small
140,000 homes within its service area have businessmen by stimulating a substantial
been insulated since its program began, but volume of business. 7
only 800 customers have taken advantage of
the financing opportunity. Michigan Consoli- A number of policy issues emerge from this
dated considers its insulation program a public new area of utility activity. The companies
service and the State’s public service commis- themselves have expressed concern about pos-
sion concurs; as such, its administrative costs sibly adverse legal, financial, and management
are included among the company’s allowable effects of conservation investment assistance
operating expenses. This means that all cus- programs, particularly if company participa-
tomers, whether or not they participate in the tion were to be made mandatory by State or
insulation program, share these costs in their Federal legislation. Insulation manufacturers
utility bills. Some experts believe this situation have worried about potential supply problems
constitutes unjust discrimination in rateset- and consequent “demand pull” inflation stem-
ting, while others find it justifiable since all ming from utility-produced demand for their
customers presumably benefit from the util- products. (See appendix A for a discussion of
ity’s increased supply of gas acquired through the insulation supply problem.) And some con-
conservation. One proponent of the Michigan sumer advocates fear that utilities will use
Consolidated approach, the former chairman
of the Michigan Public Service Commission, “William G. Rosenberg, “Conservation Investments by
points to the similarity between the practice of Gas Utilities as a Gas Supply Option,” Public Utilities
Fortnight/y, Jan. 20,1977, p.19.
including conservation program costs in the ‘ ‘Information provided to OTA by Don Navarre, Vice
utility’s revenue requirement and the now- President for Marketing, Washington Natural Gas Com-
defunct policy– upheld in the courts—of sub- pany
128 . Residential Energy Conservation

their conservation programs to realize windfall dealers used by the utility as installation con-
profits, extend their monopoly powers into a tractors were found to be engaging in fraud-
currently competitive market, justify unfair or ulent activities, “puffing up” blown-in insula-
unnecessary rate increases, or otherwise work tion to make it appear more substantial in
in ways contrary to the public interest. volume (and, hence, in insulating value), and
installing insulation that was a dangerous fire
Little empirical information is available to
hazard. The problem appears especially acute
substantiate or refute these concerns. The
in the cellulose insulation industry, which is
debate about utilities’ roles in residential
characterized by large numbers of small man-
energy conservation is primarily theoretical. It
ufacturers and installers who are outside any
is useful, however, to review the major points
recognized regulatory authority. Cellulose in-
of concern and outline the Iimited avaiIable in-
sulation is normally mixed on the job site, mak-
formation about the corporate, societal, and
ing quality control virtually impossible. Recent
consumer impacts of utility conservation
recognition of the need for standards of quali-
assistance programs.
ty and performance has produced voluntary
In recommending the installation of sup- certification programs developed by the in-
plemental insulation and other conservation sulation industry (and in a few cases by utiIities
devices, utilities are often asked to estimate or State government agencies) in some areas.
the amount of energy and money that could be Yet the impossibility of guaranteeing absolute
saved by the proposed conservation invest- quality control is likely to necessitate utility
ments. Utility spokesmen fear they will be held actions such as disclaimers and liability in-
legally liable if customers later fail to achieve surance to protect themselves from responsi-
the promised savings. A discrepancy between bility for contractors’ fraud or safety failures.
projected and actual savings is not unlikely in
Logically, if many of an electric utility’s
some cases, given the difficulty of accounting
customers decide to take advantage of the
for individual families’ energy-consuming
company’s conservation investment assistance
habits and keeping pace with the moving tar-
program (hereafter referred to simply as an “in-
get of rising electric and gas rates. In fact,
sulation program”), they will use less electrici-
however, there is no record of any liability
ty individually and reduce the utility rate of
suits being filed or of judgments being made
load growth collectively. A vigorous insulation
against utilities for failing to deliver promised
program may reduce the utility’s peakload
savings, and the likelihood of such suits seems
temporarily, but the long-term effect will most
low. Utilities should be able to protect them-
likely be a reduction in the growth rate, not an
selves through careful explanation of their
absolute demand drop.
methods of estimating savings and of the
residual uncertainty that invariably remains. An important question remains: Will the
utility’s total costs be reduced by this change
A more serious liability threat may lie in the
in demand patterns, allowing the savings to be
“implied warranty” offered by utilities who
passed on to consumers in the form of lower
sell, finance, or even simply recommend
bills–or at least slower growing bills? The
specific insulation products or contractors.
answer appears to depend on a number of fac-
Managers have expressed concern about the
tors, which vary from utility to utility. A con-
quality control that customers may expect
sulting group commissioned by OTA to survey
them to exercise over the efficacy and safety
utilities’ experiences with and attitudes toward
of insulation materials and the integrity of
insulation programs found this area of uncer-
manufacturers and installation contractors.
tainty to be a matter of major concern among
This matter has arisen with at least one utility’s
the companies surveyed. ’9
active conservation program. Some insulation
In planning for future capacity and capital
“Ken Bossong, “The Case Against Private Utility In- needs, as well as for revenue and rate re-
volvement in Solar/lnsuIation Program s,” Solar Age,
January 1978, pp. 23-27. ‘9Booz, Allen & Hamilton, op. cit.
Ch. VI—Utilities and Fuel Oil Distributors ● 129

quirements, utilities must consider the varia- are far more expensive than old ones, this,
tions they typically experience between aver- delay should also retard rate increases.
age and peakloads. If insulation programs tem- Another corporate concern about utility in-
porarily reduce their average (or base) loads, sulation programs is peculiar to the gas com-
revenues will be reduced accordingly. How- panies. This problem centers on whether the
ever, if peakloads are not reduced as well, gas utilities will be permitted to add new
capacity requirements will remain as great as customers to provide a market for any gas the
they would be without the insulation program. company saves through existing customers’
In such a case, the utility must still operate ex- conservation efforts. As residential customers
pensive peaking plants during peak periods– save natural gas through improved insulation
and with lower revenues, they must raise rates and other conservation measures, they free up
to meet the fixed costs. Such an occurrence gas supplies for possible use by an expanded
could wipe out consumer savings. number of customers. Until recently, however,
A technical note at the end of this chapter many gas companies were prohibited from
contains a detailed discussion of this per- adding new customers, and during periods of
ceived problem and of an OTA computer simu- especially short supply companies often lost a
lation that tests the likelihood of insulation portion of their available supplies to other
programs having an adverse effect on utility companies through mandatory allocation pro-
load factors and costs. Using a model devel- grams. Without a promise of being able to
oped for the recent OTA study, Application of keep and sell “conservation gas” at attractive
Solar Energy to Today’s Energy Needs, OTA had prices — a so-called “finder-keepers” policy—
simulated the total loads of hypothetical util- gas companies correctly perceive their cus-
ities in four cities that represent a cross-section tomers’ gas-saving efforts as not necessarily
of climatic variations throughout the United beneficial to their operations. Indeed, conser-
States. The utilities were designed to be typical vation in the absence of a “finders-keepers”
in their heating and cooling loads, with a mix policy means the companies will have to
of single-family homes, townhouses, low- and spread fixed-distribution costs over reduced
high-rise apartments, shopping centers, indus- sales.
try, and streetlighting. The model tested the ef- Although a large number of utilities have ini-
fect of altering the insulation levels and tiated insulation programs either voluntarily or
heating and cooling equipment for certain in response to State requirements, the major
fractions of each utility’s 1985 residential load. trade associations representing both publicly
The results suggest that insulation programs and privately owned utilities have gone on
have only a small effect on a system’s load record to oppose detailed uniform national
factor–that is, on the ratio of its baseload to directives for such programs. They fear that
its peakload—and by extension, on total sys- such requirements, which were included in dif-
tem costs. The effect is, in most cases, positive ferent forms in the House and Senate versions
(a higher load factor). The impact of insulation of the National Energy Act before being modi-
in each case depends on such things as the fied substantially by the Conference Commit-
utility’s air-conditioning load, service area tee, fail to recognize each company’s unique
climate, and electric-heating load. Table 62 in needs arid circumstances.
the technical note illustrates the findings,
which still need to be verified through actual Some utilities are also reluctant to under-
experience. If they prove to be correct, they take the new roles of moneylenders and sellers
should reduce the fear that insulation pro- of hardware, although in fact neither activity is
grams will lead to higher costs and higher totally new to the industry. (In former days,
rates. many utilities sold appliances to their
customers and permitted them to make install-
The long-term picture is clearer. By slowing ment payments on their utility bills.) The elec-
demand growth, insulation programs should tric and gas companies’ strange bedfellows, in
delay new capacity needs. As new powerplants this viewpoint, are the consumer activists.
130 ● Residential Energy Conservation

Consumer groups are particularly fearful The basic argument for peakload pricing is
that small businessmen in the conservation- clear: A utility’s costs vary with the season and
device and insulation businesses would suffer the time of day, due to the equipment and fuel
from unfair competition at the hands of the mix that must be used to meet different levels
utilities. 20 The Washington Natural Gas ex- of demand. These cost variations have in-
perience suggests, however, that the opposite creased in recent years, with the result that the
effect could also result. WNG made extensive highest operating costs are now incurred when
use of small businessmen to install conserva- reserve plants are pressed temporarily into
tion materials. service to provide peak power levels. Although
these peaking plants require lower capital cost
than baseload plants, they employ expensive
Rate Reform for Electric Utilities
fuels such as petroleum distillates, and they
The area of electric utility rate design may operate less efficiently than baseload plants.
eventually represent the most significant As a result, peak power costs run as much as
departure from past practices brought about four times higher than base power costs, there-
by the changed circumstances of recent years. fore, the premise that rates should be related
Declining-block rates, the rate structure usual- to costs in order to achieve objectives of equi-
ly applied to residential users, came into ty and efficiency leads to the conclusion that
widespread use during the early days of elec- rates shouId vary with time.
trification when lighting comprised most of the
Each utility’s peakload pricing system must
utilities’ loads. Since the utilities had to main-
be “custom made” to reflect the company’s
tain adequate capacity to meet a sharp peak in
load characteristics, peak patterns, weather
demand during evening hours, it made sense to
conditions, and generational equipment. The
promote other uses of power to fill the “val-
time-differentiated rate design recently of-
leys” of demand. Customers and utilities alike
fered by the Virginia Electric Power Company
benefited from the economies of scale, and
(VEPCO) to its residential customers is fairly
the load leveling that came with growth that
was encouraged through declining-block rates. typical: 2,000 VEPCO customers, chosen from
among 17,000 who volunteered for the pro-
Now, however— as new capacity costs and fuel
gram, have had special meters (which cost the
costs exceed average system costs, and as
growth exacerbates peaking problems—pro- company $250 apiece) instaIled at their homes
to record their total kilowatthour usage and
motional rates cease to be beneficial.
their consumption during peak hours (9:00 a.m.
A number of State utility commissions have to 9:00 p.m. e.s.t., or 10:00 a.m. to 10:00 p.m.
begun requiring utilities to experiment with e.d.t., Monday through Friday). The meters
departures from their traditional declining- also measure each customer’s peak demand
block rate structures, using “peakload pric- during any 30-minute onpeak period of the bill-
ing, “ or “time-of-use rates” that rise at times of ing period; the demand figure, in kilowatts, is
peak seasonal and/or daily demand, to encour- not calculated during off peak hours. The
age users to change their habits and reduce customer’s monthly bill is broken down into
peak loads. three separate parts:
The area of innovative rate design — and par- 1, A basic customer charge of $11.50 per bill-
ticularly time-differentiated rate structure— is ing month;
complex and controversial. This report can
2. A kilowatt demand charge for onpeak de-
only touch briefly on the subject, yet its signif-
icance for residential electricity use is great mand, calcuIated at the following rates:
enough to warrant a limited discussion of the –$.031 per kW of onpeak demand during
issues surrounding peakload pricing. billing months of June through Septem-
ber;
–$.022 per kW of onpeak demand during
2oBossong, OP. Cit billing months of October through May;
Ch. VI—Utilities and Fuel Oil Distributors . 131

3. An energy charge calculated on the basis Electricity savings at the point of end-use
of the following rates: may or may not occur as a result of time-differ-
entiated rates; however, energy savings at the
–$.023 per kWh of on peak use. “input” end of the utility could be substantial.
–$.01 5 per kWh of off peak use. This is because most utilities use their newest,
The kilowatthour charges may be adjusted most efficient and economical powerplants to
for changes in fuel costs (i.e., fuel adjustment generate their baseloads. Although these
clause). recently built plants typically represent large
capital investments (and hence, high fixed
Because VEPCO’s time-of-use experiment costs) for the companies, their efficient ther-
has only recently begun, the company does not mal performance makes them the least expen-
yet have data on the effects of the experimen- sive to run because they require fewer Btu of
tal rates on participants’ electricity consump- energy input per kilowatthour of output than
tion or bills, or on the VEPCO system’s peaks, do the usually older, smaller, less efficient
costs, or revenues. The Virginia utility is also peaking plants. Furthermore, baseload plants
experimenting with time-of-use rates that are are more likely to use nuclear energy or coal,
applicable to water heaters only, and with while peaking plants generalIy rely on im-
voIuntary time-differentiated rates for ported oil or scarce natural gas.
churches and other charitable organizations
whose electricity demand tends to be greatest To the extent that shifts in demand caused
during evenings and weekends. VEPCO has by peakload pricing can minimize use of the
also identified 9,000 residential customers with peaking plants and increase the proportional
histories of substantial summer electricity con- use of the efficient baseload plants, a net sav-
sumption (at least 3,500 kWh during at least ings of energy and of operational costs should
one summer month of 1976 or 1977); these result. Over the long run, leveling peak de-
customers have been required to participate in mand could also save on fixed costs by reduc-
a metering experiment in which they are not ing the need for construction of new plants. AlI
actually charged according to time-of-day these savings —of scarce fuel input, of fixed
rates, but are given monthly statements com- and operating costs, and perhaps of end-use
paring their electricity bills under traditional electricity — represent conservation in the
pricing (which they actually pay) with costs broad sense of the word.
under peak load pricing.
Because peakload pricing of electricity Lifeline Rates
reflects the higher costs associated with
generating and distributing power during the If the trend toward time-differentiated rates
periods of highest demand on a utility system, reflects a growing belief in the appropriateness
such rate structures provide customers with of cost-based rates, a countervailing belief has
“fair” and “appropriate” price signals. The ac- affected some utility rates differently. “Light
tual level of demand elasticity—that is, cus- and heat are basic human rights and must be
tomer response (through behavior changes) to made available to all people at low cost for
price differences — is not well-understood at basic minimum quantities,” says section 1 of
this time, but federally funded rate experi- the California Energy Lifeline Act of 1 9 7 5 .
ments are beginning to produce empirical Based on this premise, the Act required Cali-
data. (These experiments are discussed below.) fornia utilities to set rates below cost for cer-
The reasons for shifting to such innovative tain minimum quantities of gas and elec-
rates go beyond a desire of economists to tricity—the estimated amount needed by an
perfect the workings of the marketplace. From average family of four living in a well-insulated
the standpoint of national policy, such rates 1,000 ft2 single-family house to provide enough
are desirable if they resuIt in an energy savings, Iighting, cooking, refrigeration, water, and
particularly of scarce and expensive fuels such space heating to maintain health and a
as oil and gas. reasonable level of comfort.
132 “ Residential Energy Conservation

So-called lifeline rates, which have also management that are under the consumer’s
been implemented in Ohio, Georgia, and Col- (rather than the utility’s) control are called in-
orado but were rejected on a national scale direct load management.
during the congressional debate over the Pub-
lic Utilities Regulatory Policy Act of 1978, The term “direct load management” refers
have two essential goals. First, they are in- to actions under the direct control of the utili-
tended to provide financial relief and avoid ty company. With the consumer’s prior con-
hardship for low-income families who con- sent, the utility installs electromechanical
sume only the minimum essential amount of means by which it can manipulate a certain
energy in their homes. Second, they are in- portion of the customer’s load. When the sys-
tended to promote conservation by reversing tem approaches peak levels, preceded signals
the traditional declining-block rate structure transmitted over high-voltage wires or radio
and charging progressively higher rates for waves can be used to disconnect certain ap-
greater quantities of gas and electricity con- pliances such as hot water heaters, air-condi-
sumed. The California experience to date in tioner compressors, and heat pumps. Custom-
striving to achieve the first purpose is dis- ers are sometimes given compensation for any
cussed in chapter IV, “Low-Income Con- inconvenience caused by load management, in
sumers.” With regard to the second objective, the form of credits against their utility bills. By
that of promoting conservation, the California carefully designing the patterns in which these
experience is not encouraging. The Pacific Gas appliances are cycled on and off throughout
and Electric Company found virtually no the utility system, the electric company can
change in the average residential use of elec- shave the sharp spikes in demand that require
tricity during the first 2 years of the lifeline the expensive operation of peaking plants. In
rate policy and determined that there was “lit- certain cases, it may also be possible to use
tle conclusive evidence as to the link between load management as a means of deferring or
lifeline and conservation . . . customers re- eliminating the addition of new capacity; this
spond more to their total bill than to any prospect however, is considerably less certain
marginal price for the block in excess of than the probability of saving fuel costs
lifeline (allowances).”21 associated with short-term operations.

Load management has been practiced wide-


Load Management
ly in Europe for many years. There, mechanical
Load management is the deliberate manipu- cycling or timing devices have been combined
lation of electricity demand at the point of end with time-differentiated rates and energy stor-
use, in order to maximize cost savings for the age systems to expand the use of load manage-
consumer, the utility system, or both. When a ment practices to heating. At least one U.S.
customer alters his energy-consuming habits to utility, the Central Vermont Public Service
take advantage of time-differentiated rates, (CVPS) Company, has also experimented with a
that customer is practicing a simple form of heat storage/load management combination.
load management. His actions might include Twenty-five of CVPS’s customers have in-
deferring dishwashing, clothes washing, and stalled electric heating systems that heat water
drying to off peak hours. On a slightly more during off peak hours (11 p.m. to 7 a.m.), cease
sophisticated level, the homeowner might in- heating during onpeak hours, and keep the
stall a timer on the water heater to limit its customers’ houses warm during the daytime by
operation to off peak hours. Forms of load circulating the preheated water throughout the
house. The company calculates that in 1974-75
2“’Lifeline Electric Rates in California: One Utility’s each customer paid approximately the same
Experience,” presented by William M. Gallavan, vice amount for this system as he would have ex-
president, rates and valuation, Pacific Gas and Electric
pended for oil heat, but that a customer who
Company, to the ninth annual Conference of the In-
stitute of Public Utilities, Graduate School of Business would have spent $724 per year for electric re-
Administration, Michigan State University, Dec. 14,1977, sistance heat paid only $348 under the heat
p. 9. storage option. For the utility, the important
Ch. VI—Utilities and Fuel Oil Distributors “ 133

result of the experiment was the finding that atures exceeded 750 F, Detroit Edison was able
each customer reduced his onpeak demand an to achieve a 25-percent reduction in these
average of 22 kW, or a total of 565 kW for the customers’ air-conditioning demand. The utili-
system as a whole.22 ty’s systemwide savings achieved through man-
agement of both air-conditioning and water
One danger associated with the combina-
heating were limited, however, by the fact that
tion of load management and time-of-day
its summer peaks tend to be broad —that is, a
rates is the possibility that their appeal to con-
high demand level is sustained for many hours
sumers will be so successful that they will
during the day. While savings through water
simply “chase the peaks around the clock,” as
heater control amounted to 200 MW in the
a Wisconsin utility regulator put it. I n Ger-
winter, they were only 50 to 60 MW in the sum-
many, preferential rates induced such a large-
mer.
scale shift to storage heating systems that
higher nighttime peaks occurred and the rates A 1977 study by the Federal Energy Admin-
had to be altered, thereby reducing the eco- istration (FEA) indicated that a simulated coal-
nomic benefits enjoyed by consumers.23 burning utility’s load management program
could achieve a substantial shift from peaking
Direct load management, keyed to mecha-
plants to baseload plants, and could result in
nisms such as temperature readings, is being
significant fuel cost savings. Furthermore,
tried by a number of utilities. Compared with
when adequacy of reserve margin is the cri-
peakload pricing, direct load management has
terion for planning new capacity additions, the
the advantage of assured response; the utility
hypothetical utility could justify the delay of
knows for certain that it can reduce a peak-
some construction plans. FEA cautioned, how-
Ioad by a specific amount through mechanical
ever, that such delays probably could not be
means, rather than hoping for an estimated
price elasticity. achieved in real-life situations because of the
ever-growing problems of rising costs, financ-
Residential consumers account for an esti- ing problems, and delays in Iicensing and con-
mated average of 30 percent of U.S. utility struction. 26
peakloads.24 Detroit Edison estimated that
Load management represents a significant
residential cooling accounts for 50 percent of
departure from utilities’ historical obligations
summer temperature-sensitive load, the frac-
to provide electrical service in any quantity
tion of total system load that is most volatile.25
Only a fraction of this load can be eliminated customers desire and are willing to pay for. It
through management. A typical arrangement represents a form of rationing, a practice that
shuts off air-conditioner compressors and out- economists argue is unnecessary when a free
side fans for 10 to 15 minutes for each hour, in marketplace employing cost-based prices allo-
two periods, while leaving inside fans running cates resources. Increasingly, however, utilities
to circulate air throughout the participating and their regulators are coming to view load
houses. The cycling signal is activated, typical- management as one more tool in the diverse
collection of policies that can aid in encour-
ly, when outside temperatures are high enough
aging utility-based residential energy conserva-
to generate a substantial systemwide demand
for air-conditioning. By shutting down air-con- tion.
ditioners in 50 homes for 15 minutes per hour
between 2 and 5 p.m. on days when temper- Federal Programs and Opportunities in
Utility-Based Issues
‘z ’’Storage Heat Shifts Load on Time at Central Ver-
mont,” Electric Light and Power, Mar. 15,1976, p. 3. Because responsibility for utility regulation
23
Gordon C. Hurlbert, improved Load lvlanagement– rests, for the most part, with States, Federal op-
New Emphasis, Sept. 24,1975.
“’’Survey Scrutinizes Load Management,” Electrical
World, July 15,1976. ZGFederal Energy Administration, The /mPaCt of Load
* s ’’ Cooling-Demand Controls Look Good,” Electrical Management Strategies UporI E/ectric Utility Costs and
Wor/d, July 15,1976. Fuel Consumption, June 1977.
134 ● Residential Energy Conservation

portunities to encourage utility actions to reasons for not doing so. The Federal standards
stimulate residential energy conservation are applicable to residential buildings are:
limited. However, recent Federal legislation 1. rates that reflect the cost of service to
and programs do provide a framework of sorts various classes of electric consumers, to
for such utility activities. the maximum extent practicable;
2 prohibition of declining-block rates for
New Legislation on Conservation Investment the energy component of electric rates,
Assistance except where such rates can be demon-
The National Energy Policy Act of 1978, strated to refIect costs that decline as con-
although not as ambitious as President Carter’s sumption increases for a given customer
original proposal to Congress, does require class;
utilities to establish conservation programs for 3 time-of-day rates reflecting costs of serv-
residential buildings of four units or less. ing each customer class at different times
Under the new law, utilities must inform their of the day, except where such rates are
customers of suggested conservation measures not cost-effective with respect to a
and of available means of purchasing and fi- customer class;
nancing investments in such measures. Util- 4 seasonally variable rates, to the extent
ities must offer onsite audits and services to that costs vary seasonally for each
assist homeowners in finding instalIation con- customer class; and
tractors and lenders. If the customer chooses, 5 load management techniques offered to
a utility must permit repayment for conserva- consumers when they are determined by a
tion investments on the regular monthly utility utility to be practicable, cost-effective,
bill. Gas and electric companies may them- reliable, and advantageous to the utiIity in
selves lend customers up to $300 each for con- terms of energy or capacity management.
servation investments, but they are prohibited A second set of standards under the Act
from direct involvement in the installation of deals with master metering of multifamily
conservation measures other than furnace effi- buildings, automatic adjustment clauses, in-
ciency modifications, clock thermostats, and formation to be provided to consumers about
load management devices. Utilities already rates applicable to them, procedures for ter-
engaged in installation of other conservation mination of electric service, and limitations on
measures as of the date of enactment are ex- the inclusion in rates of costs attributable to
empt from this prohibition. utility promotional and political advertising.
Utilities are also prohibited, under the new The new law’s most significant opportunity
law, from incorporating the administrative for Federal participation in utility ratemaking
costs of their residential conservation programs may well be its provision for intervention in ad-
in their rates. Instead, they must charge those ministrative proceedings. The Secretary of
customers who use their conservation services. Energy (along with affected utilities and con-
sumers) is allowed to “intervene and partic-
New Legislation on Utility Ratemaking and
ipate as a matter of right in any ratemaking
Load Management
proceeding or other appropriate regulatory
The Public Utilities Regulatory Policies Act, proceeding relating to rates or rate design
(P. L. 95-617), passed in October 1978 as part of which is conducted by a State regulatory au-
the overall energy legislative package, in- thority.” (16 U.S.C. §2601) According to the
creases the level of Federal involvement in report of the conference committee on the leg-
electric utility ratemaking activities. The new islation, such intervention is for the purpose of
law does not preempt State authority, but it re- participating in the consideration of the
quires State utility regulators to consider the Federal standards “or other concepts which
adoption of certain federally proposed stand- contribute to the achievement of the purposes
ards in their rate determinations, and either to of the title. ” The report also states a congres-
adopt such standards or to state in writing the sional intent that the phrase dealing with
Ch. VI—Utilities and Fuel Oil Distributors “ 135

“other concepts” be construed broadly “so ● customers have uniformly been found to
that no one will have to prove his case in ad- respond significantly to changes in elec-
vance before being allowed to intervene. ” I n tricity prices at all hours of the day, in-
effect, this provision for Federal intervention cluding peak periods;
affords DOE a means of monitoring and en- ● peak period kilowatthour price elasticity
couraging effective state implementation of (i.e., “responsiveness”) appears to exceed
the Act through direct involvement in State off peak elasticity;
regulatory proceedings. ● t i me-of-use rates reduce residential
customer peak demands even on the hot
DOE Electric Utility Rate Demonstration test days of the year; and
Program ● customer attitudes toward time-of-use
rates are decidedly positive.
Because empirical data on consumer re-
sponse to alternative rate structures are More specifically, DOE has observed sur-
scarce, the Federal Government’s most helpful prisingly uniform—and encouraging—results
role may be in providing such data. among the various time-of-use demonstration
programs, even though the study designs
The electric utility rate demonstration pro- varied considerably from test to test. Some
gram, initiated by FEA in 1975 and continued studies metered consumption and demand
to the present by DOE seeks to analyze the during two different periods–onpeak and off-
results of 16 experiments with innovative rates peak –while others employed at least one ad-
undertaken by utiIities across the country. ditional rating period, a “shoulder” or
The rate demonstration program, on which “intermediate” time of the day. The duration
$9.2 million in Federal funds (supplemented by and the time used for each period varied ac-
at least 10-percent State and local funding) cording to different utilities’ peakloads. While
were expended through FY 1978, has focused some time-of-day customers were compared
primarily on time-of-use rates applied to with their own utility records from a year
residential customers. Approximately 18,000 earlier, others were examined in comparison to
households have been studied, either as testing groups of control customers with similar
units or as control points. DOE, along with demographic, economic, and historical elec-
cooperating State utility commissions, util- tricity consumption characteristics. The
ities, and consulting analysts, has been watch- number of participating customers in each
ing customers’ total electricity consumption, study ranged from fewer than 100 to several
kilowatt demand peaks, and temporal use pat- thousand. Some experiments lasted only a
terns to determine the degree of price elas- year, while others are continuing for up to 5
ticity among residential users over a period of years. Finally, the ratios of onpeak to off peak
2 to 3 years. Although the analytical phase of rates differed substantially among the studies.
the rate demonstration program is still under- Specific results of time-of-use tests in six
way, some results have become available and States, dealing with kilowatthour consump-
preliminary conclusions have been drafted by tion, kilowatt demand, and shifts among rating
DOE. periods, are summarized in tables 57 and 58.

Tables 57 and 58 list the projects in DOE’s In a few cases, utilities attempted to esti-
rate analyses and describe the innovations mate actual or potential effects of time-of-use
tried in each test. On the basis of complete test pricing on their system loads and fuel costs.
data from two States and partial data from Connecticut Light & Power Company, for ex-
four more, DOE has arrived at the following ample, perceived an actual reduction in
tentative general findings:27 system peak of 8 to 13 MW in its peak winter
month, and 70 to 83 MW in its peak summer
month. Arkansas Power & Light projected a
“’’Electric Utility Rate Demonstration Program Fact fuel cost saving of $20 million “over the short
Sheet,” Economic Regulatory Administration, November run” if the experimental rate design were to be
1977. implemented on a systemwide basis.
Table 57.—DOE Electric Rate Demonstration Program
kWh Consumption Effects

Onpeak “Shoulder” period Off peak Net change in
State consumption consumption consumption consumption
Arizona T-O-D customers reduced, Increased slightly, compared Inconclusive evidence
compared with same with year earlier, suggests slight decline
customers a year earlier according to inconclusive
evidence
Arkansas T-O-D customers reduced Slight decline on
to level 18-26% below average summer days, larger
control customers on average larger decline on peak day
summer days, and 15-59%
below control customers
on system annual
peak day
California T-O-D customer reduced Increased, compared with
compared with same year earlier
customers a year earlier
Connecticut T-O-D customers reduced T-O-D reduced to “sign if i cant- T-O-D consumed “significantly T-O-D consumed 9-13%
“considerably” compared with Iy less” than control in more” than control in winter, less than control in
control customers i.e., con- summer, but consumed at same level as control summer, was “not sig-
sumption 23% lower same level in winter in summer nificantly different” in
winter

Ohio - T-O-D customers reduced T-O-D consumption increased T-O-D customers consumed
“considerably” compared with in winters; no noticeable 3.5% less overall than control
control customers change in other months
Vermont T-O-D customers reduced T-O-D increased some from T-O-D increased about 3%
some compared with year year earlier compared with year earlier
earlier (amount not quantified) (not quantified)
Six-State summary T-O-D customers reduced T-O-D customers increased in T-O-D consumed
15-30% compared with comparison with control 5-8% less overall than control
control customers or year customers or year earlier customers. Exception: Vermont,
earlier Most reductions occur in
summer. Some increases occur
in winter
Ch. VI—Utilities and Fuel Oil Distributors ● 137

Lu
138 . Residential Energy Conservation

Much analysis of the rate demonstration function as models for programs in energy con-
program data remains to be done, but the ini- servation.
tial findings appear to confirm the usefulness
of time-differentiated rates as means of en- The Tennessee Valley Authority encourages
couraging more efficient, cost-effective elec- conservation among its customers in a number
tricity delivery. Evidence of consumer accept- of ways. TVA offers consumers interest-free
ance of such rates may well be among the loans, payable over 3 years, for purchasing and
more important observations to date. It should installing insulation in their attics. The insula-
be emphasized, too, that long-term implemen- tion program will soon expand to allow 7-year
tation of time-differentiated rates can be ex- interest-free loans of up to $2,000 for a number
pected to produce greater consumer response of conservation measures, including storm
than the present experiments. This is because windows, floor insulation, caulking and
short-term response relies almost entirely on weather-stripping, and insulation of duct work.
behavioral changes in the usage rate and time TVA will determine which measures are cost-
of use of presently owned appliances, while effective for each customer and will inspect
long-term response could include widespread the installation before releasing funds. Addi-
changes in capital stock, such as purchases of tionally, TVA offers customers now using elec-
water heaters with timing devices to limit their tric resistance heating systems a means of con-
operation to off peak hours. verting to heat pumps by providing 81/2-per-
cent loans repayable over 10 years.
DOE Load Management Activities
[n the area of rates, TVA asserts that its rate
The Department of Energy encourages load structure is based on cost of service and en-
management through a small program in the courages conservation by applying automatic
Department’s Economic Regulatory Admin- adjustment clauses only to that portion of a
istration (ERA). DOE provides States with customer’s electricity consumption that ex-
funds and technical assistance to advance cur- ceeds 500 kWh in any billing period. TVA is
rent knowledge and experimentation with load also experimenting with four different rate
management programs, and will monitor the structures designed to encourage conserva-
States’ compliance with the new requirements tion. In one study, time-of-use rates are being
for consideration of Federal standards (includ- applied, with kilowatthour consumption billed
ing load management) in future ratemaking at 9 cents per kWh during onpeak periods and
proceedings. The Department’s Electric Energy 1.5 cents per kWh during off peak periods.
Systems Division and Energy Storage Division Analysis of the results of the study is just
also carry out research and development ac- beginning.
tivities to assist the development of new load
The Bonneville Power Administration has
management technologies.
concentrated its conservation efforts on its
Conservation Programs of the Federally own Internal operations and on information
Owned Power Authorities dissemination among its employees, its utility
customers, and end-users. The Bonneville out-
The federally owned segment of the electric reach effort has included workshops on insula-
power industry, which accounts for about 10 tion, energy audits, and training sessions for
percent of the Nation’s installed generating ca- CETA workers employed in weatherization
pacity and 5 percent of total kilowatthour programs. Bonneville has also undertaken cer-
sales, has always served as a “yardstick” for tain research programs aimed at conservation;
certain national policies. For most of the his- these include experimental use of aerial and
tory of the two largest Federal power authori- ground-based infrared sensors to detect heat
ties–the Tennessee Valley Authority (TVA) loss from buildings, and the installation of
and the Bonneville Power Administration — wind data recording stations to determine
they have served as models for effective ex- where wind-driven electric generator systems
pansion of electricity service to rural areas at couId be installed to supplement hydroelectric
low cost. More recently, they have begun to energy in the Bonneville service area. Bonne-
Ch. VI—Utilities and Fuel Oil Distributors “ 139

vine has not developed an insulation financing remain to be clarified. The opportunities for en-
program or experimented with conservation- couraging conservation through utility actions
oriented rates. appear promising, but the adjustments to new
methods of operation are proving difficult in
some cases for both the utilities and their
Conclusions for Utility Policy customers.
In response to the dramatically different cir- The great diversity among the Nation’s 3,500
cumstances in which utilities have had to electric utility companies and 1,600 retail
operate in recent years, electric and gas com- natural gas distributors precludes the develop-
panies are undertaking a number of new ac- ment of a single national policy for conserva-
tivities to encourage residential users to tion. Rather, there must be a flexible approach
reduce their consumption and aid in leveling enabling each utility to design a residential
system peakloads. Because many of these conservation program around its unique sys-
activities — including energy audits, insulation tem load, supply and cost situation, climate,
programs, rate reforms, and load manage- and other variables. An examination of Federal
ment — are recent in origin and used by only a programs and opportunities suggests that
relatively small number of companies, impor- recently enacted legislation and programs of-
tant areas of uncertainty about their efficacy fer a good start.

THE FUEL OIL DISTRIBUTORS

The distribution of home heating oil, as an Unlike the utilities with whom the industry
industry, was developed by oil appliance competes for space-heating markets, most fuel
manufacturers and their retail installers. oil marketers do not have captive customers,
Today, nearly 80 percent of heating oil de- nor do they have a monopoly on product or
mand in the United States is served by in- service territory. The marketers are forced to
dependent fuel oil marketers. compete within the oil industry for product
Although the heating oil industry operates supply, advantageous pricing, and customers.
nationwide, about 90 percent of the heating As marketers are in direct contact with the
oils are sold in only 28 States, principally along consumers, the success of their business
the northern tier of the United States from the depends entirely on customer satisfaction.
Pacific Northwest to New England and down One of the major concerns of fuel oil mar-
keters is the need to maintain customer good-
the east coast to Florida.28 Over 16 million resi-
will in light of national energy and conserva-
dential buildings depend on fuel oil for space
tion policies that could conceivably discrim-
heating. 29
inate against fuel oil consumers and jeopard-
Historically, the fuel oil industry has not ize the competitive position of the marketers.
been regulated. In recent years, however, the
industry has been subject to Federal regula-
tions on pricing and allocation during periods
Industry Size
of short supply. No such regulations are
In 1972, the Bureau of the Census of the
presently in effect.
Department of Commerce estimated that there
were 7,276 fuel oil dealers with payrolls. This
estimate, however; includes only those fuel oil
‘aSales of Fuel Oil and Kerosene in 1977 (Department
of Energy, Energy Information Administration, 1978), p.
dealers who list the sale of fuel as their prin-
6. cipal business. However, in many markets, par-
zgAnnua Housing Survey, 7976 (Department of com- ticularly nonurban markets, petroleum market-
merce, Bureau of the Census, 1978), p. 6. ers may distribute both gasoline and heating
140 “ Residential Energy Conservation

oil, with gasoline predominant. According to Sales of Distillate Fuel Oils


industry estimates, the total number of fuel oil
suppliers, including those who distribute more Figure 17 represents sales of distillate fuel
gasoline than fuel oil, falls between 10,000 and oil by end use sector for the period 1973-77. As
12,000 marketers. indicated by the table, nearly 50 percent of all
sales of distillate fuel oil goes to heating. The
The predominant distillate oil consumed in data presented does not indicate what percent-
residential space heating is No. 2 fuel oil. age of total sales is earmarked for the residen-
Heavier heating oils (No. 5 and No. 6 oil) are tial sector. However, according to one DOE of-
used primarily by industrial accounts, and are ficial, approximately 85 to 90 percent of No. 2
usually purchased directly from refineries or heating oil is sold in the residential sector.
terminal facilities. Consumption of No. 2 fuel
in 1977 amounted to 1.2 billion barrels. 30 No. 1 In general terms, fuel oil marketers deliver
fuel oil (kerosene) and No. 4 oil are also used more than 2 million barrels of distillate oil
for space heating. The demand for these distil- daily from November through March to meet
late oils in 1973-77 appears in table 59. residential space-heating needs. The delivery
schedules are temperature-sensitive and estab-
lished according to the calculated “degree
Fuel Oil Marketers days.” The average consumption per heating
season for residential home heating varies
About 85 percent of independent heating-oil
from about 900 gallons in the South-Atlantic
marketers sell directly to consumers. There-
region to about 1,600 gallons per heating sea-
fore, they are regarded as retailers rather than
son in the New England region.
jobbers. However, a dual petroleum marketer
will often have different suppliers or brands
for its heating oil and its gasoline. It is not Service Activities
unusual for a distributor to be a jobber for one
product and a retailer of the other. For the 1977-78 heating season, about 67 per-
cent of all fuel oil consumers had their oil heat
A marketer may service from several hun- equipment checked and serviced as part of an-
dred to 50,000 or more customer accounts. Ac- nual efficiency checkups. About 40 percent of
cording to a 1978 survey, 16 percent of the fuel oil consumers have service contracts pro-
marketers had more than 3,000 customers; viding for annual efficiency checkups. These
their share represented 55 percent of the annual service calls are generally considered
customers recorded .3’ Forty-seven percent of essential to maintain furnace efficiencies and
the companies had between 1,000 and 3,000 promote fuel conservation.
accounts, representing 41 percent of the
customers. Forty-two percent of the marketers In the same heating season, the average
had fewer than 1,000 customer accounts, ac- serviceman was responsible for 440 customers
counting for approximately 14 percent of the and managed to make six calls per day, exclu-
customers. The survey also indicated that all sive of efficiency checkups. 32 About 53 per-
fuel oil marketers sold No. 2 fuel oil, about cent of the servicemen serviced burners exclu-
sively. The remainder either installed burners
half sold No. 1 fuel oil (kerosene), and less than
10 percent sold other fuel oils. The survey in- only or serviced and installed them.
dicated that about 80 percent of marketers The lifetime of oil heat equipment is approx-
sold and serviced oil heat equipment, account- imately 20 years while other equipment— such
ing for 62 percent of that end of the business. as gas furnaces — may be in place much longer.
Seventy-eight percent of the heating oil mar- Improvements in oil burner efficiencies over
keters surveyed operate a bulk plant (large the years have acted as an incentive for more
storage) facility. rapid replacement of oil furnaces.
30Sa/es of Fue/ Oil, op cit., p. 1.
‘I Margaret Mantho, “Margins Improve to Offset Rising 32
Margaret Mantho, “Annual Service Management
Costs,” Fuel Oil and Oil Heat, September 1978, p. 35. Analysis, ” Fue/ Oi/ and Oi/ l-feat, May 1978, p. 36.
Ch. VI—Utilities and Fuel Oil Distributors . 141

Table 59.—Average Yearly Demand for Distillate Fuel Oil


(in thousands of barrels)

Domestic
demand Production Imports Stocks
1972 Average. . . . . . . . . . . . . . . . . 2,913 2,629 181 alsd,zad

1973 Average. . . . . . . . . . . . . . . . . 3,092 2,820 392 alg6,@l

1974 January. . . . . . . . . . . . . . . . . 3,835 2,880 464 181,179


February . . . . . . . . . . . . . . . . 3,849 2,399 306 149,125
March . . . . . . . . . . . . . . . . . . 3,164 2,226 287 128,822
April. . . . . . . . . . . . . . . . . . . . 2,852 2,522 220 160,645
May . . . . . . . . . . . . . . . . . . . . 2,450 2,704 268 141,806
June. . . . . . . . . . . . . . . . . . . . 2,377 2,783 220 160,645
July . . . . . . . . . . . . . . . . . . . . 2,309 2,792 221 182,458
August . . . . . . . . . . . . . . . . . . 2,309 2,705 125 198,673
September . . . . . . . . . . . . . . 2,385 2,552 152 208,269
October . . . . . . . . . . . . . . . . . 2,887 2,700 237 209,908
November . . . . . . . . . . . . . . . 3,157 2,801 454 212,875
December . . . . . . . . . . . . . . . 3,853 2,924 515 223,717
Average . . . . . . . . . . . . . . . . . 2,948 2,668 289
1975 January . . . . . . . . . . . . . . . . . 3,953 2,852 324 199,715
February . . . . . . . . . . . . . . . . 3,967 2,679 302 176,696
March . . . . . . . . . . . . . . . . . . 3,293 2,531 256 161,111
April . . . . . . . . . . . . . . . . . . . . 3,094 2,486 110 146,214
May . . . . . . . . . . . . . . . . . . . . 2,382 2,431 136 152,027
June. . . . . . . . . . . . . . . . . . . . 2,266 2,574 68 163,306
July . . . . . . . . . . . . . . . . . . . . 2,112 2,589 106 181,472
August . . . . . . . . . . . . . . . . . . 2,173 2,592 92 197,323
September . . . . . . . . . . . . . . 2,163 2,812 129 220,732
October . . . . . . . . . . . . . . . . . 2,675 2,744 103 226,113
November . . . . . . . . . . . . . . . 2,544 2,767 96 235,749
December . . . . . . . . . . . . . . . 3,778 2,783 124 208,787
Average . . . . . . . . . . . . . . . . . 2,849 2,653 153
1976 January . . . . . . . . . . . . . . . . . 4,298 2,734 164 165,428
February . . . . . . . . . . . . . . . . 3,687 2,961 207 150,439
March . . . . . . . . . . . . . . . . . . 3,336 2,793 151 138,306
April . . . . . . . . . . . . . . . . . . . . 2,788 2,655 96 137,249
May . . . . . . . . . . . . . . . . . . . . 2,519 2,738 97 147,057
June. . . . . . . . . . . . . . . . . . . . 2,436 2,885 151 165,064
July . . . . . . . . . . . . . . . . . . . . 2,255 2,959 126 190,861
August . . . . . . . . . . . . . . . . . . 2,237 2,982 131 217,930
September . . . . . . . . . . . . . . c
2,618 2,947 147 232,230
October . . . . . . . . . . . . . . . . . 3,028 2,995 141 235,599
November . . . . . . . . . . . . . . . 3,714 3,180 135 223,648
November FEA/APl . . . . . . . 3,724 3,199 136 221,178
December FEA/APl . . . . . . . 4,654 3,273 166 183,500

1977
a Total as of December 31.
.
Average FEA/APIC . . . . . . . .
January FEA/APIC. . . . . . . . .
3,130
5.237 3.374
—’
2,925 142
471 145.490

b 1976 average is based on Bureau of Mines data for January through November and FEA data for December
January 1977 data are from American Petroleum lnstitute (APl).
c= Revised.

SOURCES: Bureau of Mines, Federal Energy Administration, and American Petroleum Institute.

New burners installed today are expected to 84 percent. To date, there has been little Feder-
operate at seasonal efficiencies of 80 percent, al support for development of high-efficiency
and new promising technologies have pro- oil heat equipment. Furthermore, most market-
duced burners with seasonal efficiencies up to ers cannot afford to establish R&D programs
Figure 17 –-Sales of Distillate Fuel Oil Use as Percent of Total
(millions of dollars]

Vessels and
railroads

❑ Electric
utilities Heating $1,2310

$1,150.9 5.1% 2

1973 “ 974 1976


Ch. VI—Utilities and Fuel Oil Distributors ● 143

for high-efficiency equipment; research efforts The Role of Oil Heat Distributors in
are therefore centered in the furnace manufac- Energy Conservation Practices
turing industry.
Introduction

New Construction Given the relatively small and highly con-


centrated nature of the residential oil-heating
In 1971-77, from 8 to 11 percent of new market, a number of factors affect— and lim-
homes were heated by oil. The following chart it — the role of fuel oil distributors in residen-
compares the relative position of oil, gas, and tial energy conservation. This section outlines
electricity in the new home market: the industry’s assessment of its current role in
the energy conservation practices of its cus-
Percent of New Homes by Type of Heating Fuel33 tomers. The assessment is the product of a
Oil Gas EIectricity questionnaire that was mailed to 48 fuel oil
1971 . . . . . . . . . . . . . 8 60 31 distributors and 19 State, regional, and local
1972. . . . . . . . . . . . . 8 54 36
trade associations in late November 1977.
1973. . . . . . . . . . . . . 10 47 42
1974. . . . . . . . . . . . . 9 41 49 Twenty-one distributors and five trade associa-
1975. . . . . . . . . . . . . 9 40 49 tions responded from all regions of the country
1976. . . . . . . . . . . . . 11 39 48 where fuel oil is consumed for space heating.
1977. . . . . . . . . . . . . 9 38 50

In the Northeast, however, the figures indi- Marketing of Energy Conservation Products
cate an increase in the oil share of the new Very few fuel oil distributors are actively
home market in 1971-76. The following chart selling residential insulation, storm windows
shows the comparisons for the Northeast: and doors, and other conservation hardware.
However, most fuel oil distributors are in-
Percent of New Homes by Type of volved in helping their customers reduce the
Heating Fuel 34

amount of fuel oil consumed. As mentioned


Oil Gas Electricity earlier, about 69 percent of the residential con-
971. . . . . . . . . . . . . 31 42 26
972. . . . . . . . . . . . . 33 36 29
sumers of fuel oil have their heating equip-
973. . . . . . . . . . . . . 35 34 28 ment checked and/or tuned at least once a
974. . . . . . . . . . . . . 32 29 38 year through a direct service offered by the
975. . . . . . . . . . . . . 41 24 33 distributors and many of the refiner markets.
976. . . . . . . . . . . . . 51 15 31
977. .........,.. 4 9 17 31 More fuel oil distributors use independent
Thus, while oil heat has grown slowly in the contractors to provide insulation and other
national new home market, stilI accounting for energy conservation products to their custom-
only slightly over a tenth of the units, oil heat ers than sell these materials directly.
in new homes in the Northeast has grown from Besides the basic energy hardware (e.g., re-
just under a third of the market in 1971 to over placement burners, boilers, furnaces, insula-
half in 1976. The decline of the gas share in the tion, etc.) that is being marketed by fuel oil
early- to mid-1 970’s, both nationwide and in distributors, some have attempted to market
the Northeast, can be attributed to prohibi- other energy conserving equipment such as
tions on new gas hookups by several State pub- automatic stack dampers, stack heat reclaim-
lic utility commissions in response to supply ers, outdoor temperature controls, humidifiers,
shortages. Recent increases in gas supply and attic vents, fireplace heaters, and other related
termination of moratoria on new hook-ups items.
may reverse this trend.
Reduction in Annual Fuel Consumption

qJC~aracterjStjcS of New Housing 7977 (Department of


More than half of the respondents reported
Commerce, Bureau of the Census, 1978), p. 28. that 50 percent or more of their customers
341 bid. have reduced their annual consumption by
144 . Residential/ Energy Conservation

more than 15 percent since the 1973 price rise. runs from a low of 10 percent to a high of 90
States in the colder climates reported the percent of advertising budgets. Radio is also
highest percentage of customers conserving used, but it accounts for a relatively low
fuel oil. percentage of the total advertising budget.
In the 1972-73 heating season (adjusted for A number of marketing choices that are ex-
actual rather than average degree days), resi- ercised by fuel oil distributors are based on
dential oil consumption reflected predictable technical information about energy conserva-
regional patterns, influenced by climate—for tion. Some of the most frequently cited
example, a low of 800 gallons in South Caro- sources include State trade associations,
lina to a high of 1,750 gallons in northern New magazines and other publications of general
England. It should be noted that homeowner circulation, and local industry trade associa-
consumption can vary widely even within a tions Suppliers and manufacturers of energy
community. This divergence is largely attrib- conservation materials, however, are consid-
uted to variables such as living-space size, ered the most reliable sources of technical in-
thermal characteristics of the housing unit, formation
and consumer behavior patterns.
Fuel Oil Customer Accounts
Factors That Influence and Limit Market Entry
Since 1973, when costs of fuel oil began to
Why have a few fuel oil distributors entered rise, oil distributors’ delinquent customer ac-
the business of marketing insulation and storm counts (past due by more than 30 days) have in-
windows and doors, while most have not? The creased significantly. Many distributors re-
reasons most often cited include the expecta- ported increases of about 15 percent or
tions of increased profits, increased service of greater, and some distributors have reported
existing customers, and the prevention of cus- an increase in delinquent accounts by 50 per-
tomer switches to other fuels. cent or more. Obviously, customers with delin-
quent accounts cannot normally finance addi-
What prevents fuel oil distributors from mar-
tional expenditures, such as conservation im-
keting insulation and other related items? Rea-
provements. A large number of delinquent ac-
sons most frequently cited include the lack of
counts affects the ability of distributors to set
available qualified independent contractors to
aside capital or to acquire financing for the
service the distributor’s customers, and the
purpose of developing energy conservation
lack of capital to get into the conservation
guidelines.
business. Furthermore, most competing distrib-
utors are simply not marketing this hardware. One of the most significant problems facing
Other disincentives include the apparent short- fuel oil distributors in terms of their ability to
age of insulation and other energy materials, carry delinquent accounts or to offer credit
the inability of homeowners to pay for or terms for financing conservation efforts is the
finance energy conservation measures, and the elimination by wholesale suppliers of discount
limited public interest in energy conservation. terms for payments. Another problem fre-
quently cited is the increased interest charges
Advertising is one of the major vehicles by
associated with financing more expensive in-
which fuel oil distributors penetrate the mar-
ventory. Furthermore, increases in insurance
ket. Bill-stuffers are the most popular form, ac-
costs have also contributed to oil distributors’
counting for 5 to 30 percent of total advertis-
cash flow problem.
ing budgets. Direct mail to potential customers
Ch. VI—Utilities and Fuel Oil Distributors ● 145

TECHNICAL NOTES–COMPUTER SIMULATION:


THE EFFECT OF CONSERVATION MEASURES ON UTILITY
LOAD FACTORS AND COSTS

The Question daily variations in the demand for electricity,


and on the possibility that insulation and other
Will widespread adoption by residential conservation measures could magnify these
electric customers of conservation measures, variations in uneconomic ways. EIectric com-
particularly insulation, result in utility load panies must have available to them at any
changes that are economically counterproduc- given time enough generating capacity to meet
tive to the utilities and/or their customers? the highest level of demand expected at that
time, plus a reserve margin of capacity to use
Background in the event that some powerplants are shut-
down by emergencies or for routine mainte-
Many residential consumers of electricity nance. But since the peak demand level may
are investing in energy-saving materials and be reached on only a few days each year, and
devices for their homes in hopes of reducing for only a few hours even on those days, util-
their utility bills, or at least stemming the rapid ities are Iikely to have a considerable fraction
increases they have experienced recently. Add- of their total generating capacity idle much of
ing insulation to existing homes is the action the time.
most commonly taken, but some homeown-
Idle generating capacity is expensive, and
ers — and builders of new homes— are also
certain kinds of powerplants are more expen-
choosing HVAC systems with energy efficiency
sive to keep idle than others. Although a com-
and cost savings in mind. Electric heat pumps
pany pays for fuel and other operating costs
are becoming widely used for this reason. Con-
only when the plant is operating, many fixed
sumer attitudinal surveys indicate that electric
costs — such as interest on the capital bor-
customers investing in conservation measures
rowed to build the plant— must be paid regard-
are motivated primarily by the hope of saving
less of how much the plant is used. It follows,
money.
then, that newer, bigger, more capital-inten-
Whether or not consumers experience lower sive plants (particularly nuclear plants) are the
or even slower growing utility bills in the most expensive to shutdown, while older,
future depends ultimately on whether or not smaller plants (like oil-fired turbines) are the
their utility companies can achieve cost sav- least expensive to hold in reserve. Conversely,
ings that can be passed on, in turn, to rate- new plants are often the least expensive to
payers. Many factors affect utility costs, and operate, while the older ones (which usually
consumer conservation actions will not be the use the most expensive fuels) are the most
only determinant of the direction in which costly to run.
rates will go in the next few years. But utility
A utility’s daily or yearly “load’ ’-the total
managers have raised questions about the pos-
amount of electricity it must generate during
sibility that conservation practices could have
that time— is usually thought of as having
some adverse effect on load factors and sys-
three components. The baseload–-that which
temwide costs, thereby contributing to a need is demanded nearly all the time— is the largest
for higher rates. From the consumer’s stand-
component and is usually generated with the
point, this would surely be the ultimate exam-
company’s newest, largest, and most techno-
ple of “Catch-22.”
logically advanced plants. The intermediate
The fear of cost increases caused by conser- load–an increment that is demanded less of
vation actions is based on the fact that utility the time— is typically derived from slightly
costs are positively correlated to seasonal and older and smaller plants, fired with fossil fuels.
146 ● Residential Energy Conservation

The peakload — a sharply greater demand com- ● Peakload plants — low fixed costs, very
ponent that may be demanded only occasion- high operating costs, resulting in the high-
alIy — is usually met with small oil- or gas- fired est overalI costs when in operation.
turbines, or with pumped-storage hydroelectric
plants, or by purchasing power from other Figure 19.— Daily Load Curve
companies sharing the same distribution grid.
Figures 18 and 19 illustrate a typical system
load and the three major generating com-
ponents.

Figure 18.—Dispatching Generation to Meet a

6,000
Cycling generation

4,000

3,000 o
12M 4 - 8 12N 4 8 12M
Time of day
2,000

1,000 = 0.73 = 73 %

SOURCE. Electrlc Utility Rate Design Study, Rate Design and Load Control:
0 Issues and Direct/ens, a Report to the National Association of
12M 4 8 12N 4 8 12M Regulatory Utility Commissioners, November 1977.

Time of Day
A major determinant of total utility costs
SOURCE: Electric Utility Rate Design Study, Rate Design and Load Control:
Issues and Directions, a Report to the National Association of
and generating capacity needs is a company’s
Regulatory Utility Commissioners, November 1977 “annual load factor, ” which is the ratio of the
average utility load over the year to the peak-
Ioad during any time period (usually 15
The costs of keeping and operating these dif- minutes] during the year. The higher the load
ferent kinds of plants vary, typically, as fol- factor, the less total downtime the company
lows: experiences in its generating capacity. Up to a
certain point, the utility benefits from keeping
● Baseload plants–high fixed costs, low
its plants running, generating sales revenues
operating costs, resulting in the lowest
with which to cover both fixed costs and oper-
overall costs when in operation.
ating costs. Some idle capacity is needed, how-
● Intermediate-load plants— medium fixed ever, to allow normal maintenance operations
costs, medium-to-high operating costs, re- to take place, to substitute for other plants in
sulting in medium overalI costs when in emergency outages, and to meet the peaks.
operation. When all plants are operating and additional
Ch. VI—Utilities and Fuel Oil Distributors ● 147

OTA Analysis of Conservation Impact family homes are initially set to the same level
on Utility Loads and Costs of Insulation, which the model can increase to
a higher value. The insulation levels in the
A model developed for OTA’s recent study, other buildings do not vary. The change for
Application of Solar Energy to Today’s Energy single-family homes corresponds to a heat load
Needs, analyzed the impact of conservation reduction of 31 to 49 percent, depending on
measures on utiIity operations. the location. In addition to the insulation
OTA’s model simulates utilities in four U.S. level, the type of heating equipment can be
cities. The utility loads, shown in table 60, con- changed to allow the possibility of varying the
sist of a mix of single-famiIy homes, town- percentage of homes that are electrically
houses, low- and high-rise apartments, shop- heated. Diversity is built into the model so that
ping centers, industry, and streetlighting. Each the peakloads of the individual homes do not
of the four cities has the same number of units alI occur simultaneously. 35
although the heating and cooling loads are To determine the effects on utility loads of
determined by the weather conditions, taken increased insuIation among resident i al
from 1962 data, of each city. The residential
heating and cooling equipment mix is initially
details about the model and the hypothetical
set to match conditions in 1975 and then fore- ut I I loads can be found in Application of Energy
cast. to 1985 using a residential energy use Energy Needs, vol. 1, chapter V, and vol. 11,
model developed by ORNL. All the single- chapter V 1.
148 ● Residential Energy Conservation

Table 60.—1985 Projection of Heating Unit Mix shown in table 60. Table 61 shows the number-
and Basic Loads (number of buildings) ing of buildings assumed to have electric heat
Albu- Fort in the case when it was assumed that 50 per-
querque Boston Worth Omaha cent of residences use electric heat.
Single family units
Electric heat. . . . . . 10,470 8,080 11,790 7,720
Fossil heat. . . . . . . 45,450 47,840 44,130 48,200 Results
Electric cooling. . . 43,613 34,863 55,920 55,920
The load factor and seasonal peak demands
Total . . . . . . . . . . 55,920 55,920 55,920 55,920
are given in table 62 for the reference and the
Townhouses . . . . . . . 6,960 6,960 6,960 6,960 high insulation cases for both mixes of residen-
Low rise units . . . . . . 2,160 2,160 2,160 2,160 tial heating —1 985 projection and high electric
High rise units. . . . . . 600 600 600 600
Shopping centers . . . 30 30 30 30 resistance. The results show that an increase in
insulation does not change the load factor sig-
Annual industrial loads (all cities) —2.54 billion kWh. nificantly. In all but two situations, the load
Annual streetlight load (all cities) —98.78 million kWh.
factor Increases as insulation is added, but the
increase does not exceed 4 percent. The two
customers, the model was run first with all exceptions are the utilities with 50-percent
single-family homes at the baseline insulation electric resistance heat that still experience
level and again at the high insulation level, their peak loads in the summer.
using the forecast 1985 mix of home heating
systems initially, and then using an assumption Table 61 .—50-Percent Electric Resistance Heating
by 1985 (number of buildings)
that 50 percent of the homes were electrically
heated. (The latter case was included to simu-
Electric Fossil
late utilities with winter peaks.) All other load City heat heat Total
characteristics remained constant throughout Albuquerque, Boston,
the analysis. The heating and cooling mix for Fort Worth, and Omaha . . . . 27,960 27,960 55,920
single-family homes for the 1985 forecast is — — —

Table 62.–Simulated Utilities’ Load Factors, Peaks, Summer-Winter Ratio by 1985


—...
Albuquerque Boston Fort Worth Omaha
——
Reference High Reference High Reference High Reference High
case insulation case insulation case insulation case insulation
—— . .
Base case
Load factor. . . . . . . . . . 0.534 0.537 0.498 0.505 0.470 0.475 0.448 0.453
Winter peak (MW, 1,359 1,315 1,316 1,263 1,562 1,472 1,453 1,397
month). . . . . . . . . . . . Jan. Jan. Feb. Feb. Jan. Feb. Feb. Feb.
Summer peak (MW, 1,386 1,352 1,354 1,320 1,942 1,873 1,823 1,768
month). . . . . . . . . . . . Aug. Aug. Jul. Jul. Aug. Aug. Jul. Jul.
Summer-winter ratio . . 1.02 1.03 1.03 1.05 1.24 1.27 1.25 1.26

50-percent electric resistance heating case


Load factor. . . . . . . . . . 0.472 0.485 0.466 0.492 0.483 0.481 0.483 0.467
Winter peak (MW, 1,677 1,569 1,600 1,433 1,842 1,594 1,787 1,603
month). . . . . . . . . . . . Jan. Jan. Feb. Feb. Jan. Jan. Feb. Feb
Summer peak (MW, 1,368 1,348 1,392 1,362 1,958 1893 1,847 1,805
month). . . . . . . . . . . . Aug. Aug. Jul. Jul. Aug. Aug.
Summer-winter ratio . . 0.79 0.86 0.87 0.95 1.06 1.19 1.03 1.13

50-percent heat pump case


Load factor. . . . . . . . . . 0.465 0.484 0.446 0.483 0.470 0.476 0.463 0.457
Winter peak (MW, 1,632 1,528 1,587 1,426 1,778 1,569 1,787 1,599
month). . . . . . . . . . . . Jan. Jan. Feb. Feb. Jan. Jan. Feb. Feb.
Summer peak (MW, 1,373 1,351 1,400 1,368 1,976 1,906 1,861 1,815
month). . . . . . . . . . . . Aug. Aug. Jul. Jul. Aug. Aug. Jul. Jul.
Summer-winter ratio . . 0.85 0.88 0.88 0.96 1.11 1.21 1.04 1.14
Ch. VI—Utilities and Fuel Oil Distributors ● 149

The effect on the summer-winter peak dif- average loads by the addition of insulation. On
ference, shown in table 62, is more pro- the other hand, two of the simulated utilities —
nounced. For all summer peaking utilities, for those with summer peaks accompanied by
either mix of heating systems, the ratio of the large electric heating loads–experienced
summer to winter peak increases as a result of moderate drops in their load factors after in-
increased insulation. These increases range sulation was added. Summer-winter peak
from 1 to 12 percent and are greatest for the ratios change very Iittle — under 2 percent— in
utilities with the highest percentage of electric the cases for which the electric heating load is
heat. For the winter peaking utilities, the ratio small, but as that load increases, the change in
decreases by about 8 percent when the resi- the ratio also grows until the winter peak
dential insulation level is increased. begins to exceed the summer peak.
In sum, OTA’s simulation indicates that
Discussion
most utilities will not be measurably affected
These simulations indicate that the effect of by the widespread addition of insulation by
extensive additions of insulation by residential residential customers, unless at Ieast a third or
customers depends greatly on the amount of so of their residential customers use electric
residential electric heat in the utility’s load, heat If more than half use electric heat, the
since adding insulation affects heating loads utility will still experience an improved load
more than cooling loads. Utilities that have factor as long as its peak comes in the winter.
winter peaks or small electric heat loads (rela- In such cases, the increase in load factor and
tive to their cooling loads) experienced in- the leveling of differences between summer
creases in their load factors; this means that and winter peaks can assist in bringing about
their peakloads were reduced more than their more efficient use of generating capacity.
Chapter Vll

STATES AND LOCALITIES


Chapter Vll.— STATES AND LOCALITIES

Page

EPCA/ECPA: Legislative Foundation . . . . . . . . . . . 154


Federal Energy Policy Leadership and Federal Funds for State Energy
Conservation Programs Will Continue to be Necessary to Stimulate
Many State Activities. . . . . . . . . . . . . . 160
WeII-Defined State Energy Policy Has Not Emerged . . . .161
Energy Production Is the Predominant Concern of Energy-Rich States .161
New State Organizations Are Emerging to Grapple With Current
Energy Problems . . . . . . . . . . . . . . . . . . . . 162
Information Flow From Federal to State and From State to State
Government Requires Attention . . . . . . . . . . . . . 162
State Legislatures Have Focused on Seven Major Issues in Energy
Conservation . . . . . . . . . . . . . . 163
Four Residential Energy Conservation Programs Serve as the
Foundation of State Efforts . . . . . . . . . . . . . 164

TABLES

Page

63. Residential Energy Conservation Legislation, 1974-77 .. ....155


64. Residential Energy Conservation Programs . . . . . . . .157
65. State Issues in Residential Energy Conservation . . . . . .158
Chapter Vll
STATES AND LOCALITIES

The problems of federalism have a special bearing on residential energy conservation.


States are the vehicles used to implement many of the federally defined programs aimed at
reducing residential energy consumption, and States are the mechanism through which
localities receive Federal dollars for many efforts. But the wide differences among States in
attitudes, resources, climate, geography, population, size, governmental organization, and
history combine to remind the policy maker of the diversity of the American political fabric.
Policies that fail to recognize these differences face difficulty from the beginning.
It is not possible to examine a “representative sample” of States, but some information
can be gleaned from viewing the States in the aggregate and a few States more carefulIy. This
chapter reflects a close look at 10 States, with some information about all 50. Although con-
servation programs have been in place only a short time, it is possible to make some clear
statements about areas of difficuIty and areas of promise.
All States, plus the trust territories, have submitted plans for Federal approval under the
Energy Policy and Conservation Act (EPCA) and the Energy Conservation and Production Act
(ECPA). The eight mandatory areas defined in these laws form the core of State activities.
Some States have launched broad and imaginative programs and seem to have achieved suc-
cess. In these States, such as Minnesota, Iowa, and California, State agencies, localities, in-
terest groups, and others have joined to produce innovative and fruitful responses to the
problem. On the other hand, many States have done very Iittle.

Most States have simply responded to the Beyond these complaints, which character-
Federal initiative and available Federal fund- ize the early stages of many Federal efforts,
ing for the mandatory programs. Thus, the are problems relating to the States’ energy
Federal Government tends to define State and viewpoint. States with substantial energy re-
local solutions. As the energy problems have sources are less concerned with conservation
been defined as a national problem and Con- than with obtaining a “fair shake” in the solu-
gress has indicated that national policies will tion of the problems. States with large re-
be forthcoming (and indeed are in effect), most sources of fossil fuels place conservation in a
States have been hesitant to initiate policy in- secondary role compared to production issues.
dependently. Many States feel that the pro- Legislative attention in these States tends to be
grams initiated and the organizations set in directed toward resource extraction and devel-
place, while responsive to the Federal view, are opment.
inappropriate to the particular State. Most
States have substantial problems in program Of particular difficulty to the States has
integration, technical assistance, and funding. been the need to measure the energy savings
Too few persons are trained to deal with the the ‘approved State plan” will produce. This
varied and overlapping aspects of energy con- problem is well stated by one of the leading
servation, and State agencies need more tech- State energy agency directors, John Millhone
nical help than they are receiving. The usual of Minnesota:
problems—the pacing of Federal programs,
The requirement that the State plan save at
uncertainties about guidelines and reguIations, least 5 percent of the 1980 energy consump-
communications problems, late release of Fed- tion presumed a statistical sophistication that
eral funds, and changing players in national doesn’t exist. Most rudimentary State energy
and regional Department of Energy (DOE) data systems have an error of plus or minus 5
off ices — add to the confusion. percent or more. The Act provided that part of

153
154 ● Residential Energy Conservation

a State’s grant would be based upon its pur- conservation program required energy savings
ported energy saving, stimulating exaggeration equivalent to about 800 million barrels of oil
when accuracy about the real energy savings is by 1980, and provided only $150 million in
sorely needed. The emphasis was placed on funding authority. This meant that the Federal
Btu savings alone, penalizing States that Government was trying to buy a barrel of oil
sought conversion from precious to more through the program for 10 cents. 2
abundant fuels — natural gas to coal, for exam-
ple—when conversions meant more Btu A review of the findings from the 10-State
wouId be used. 1 study sample reveals a number of useful find-
Another problem with the 5-percent goal ings. More specific information appears in
relates to the funding level. The State energy tables 63, 64, and 65.

EPCA/ECPA: LEGISLATIVE FOUNDATION

The Energy Policy and Conservation Act A State may propose other activities to
(Public Law 94-163) and the Energy Conserva- receive Federal funding. The proposed pro-
tion and Production Act (Public Law 94-385) grams must cumulatively achieve a 5-percent
provide the foundation for Federal energy con- reduction in energy demand by 1980.
servation policy. (The former Federal Energy
Every State, plus the trust territories, has
Administration (FEA) weatherization program
submitted plans for Federal approval. Each
has been brought under these Acts.) These acts
authorize funding to States that develop ap- State plan outlines many programs, but rela-
tively few program elements have been
proved State energy conservation plans (SECP).
started Some programs rely on State legisla-
The plans must address eight mandatory areas:
tive action. In most cases the legislatures have
not passed legislation specified in the plans.
● mandatory Iighting efficiency standards;
Most of the Federal funds for programs, more-
● programs promoting vanpools and public
over, were not dispersed until January 1, 1978.
transportation;
Planning activity predominated prior to that
● mandatory standards on energy efficiency
date
that govern State and local procurement
practices; Seven major conclusions emerge from ex-
● mandatory thermal efficiency standards amination of these States. They include orga-
and insulation requirements; nizational or administrative difficulties as a
● laws permitting a right-turn-on-red; result of funding characteristics, the emer-
● public education; gence of new agencies in fields previously
● intergovernmental coordination in energy dominated by existing organizations, and prob-
matters; and lems in providing qualified technical expertise.
● energy audits for buildings and industrial None of these is trivial in the development of
plants. successfuI conservation programs.

‘John Millhone, Analysis of Energy Conservation Pro- ‘Iblci Much of the information in this chapter is based
grams, paper prepared for the annual meeting of the or, state ~es;~ent;a/ Energy Conservation: Attitudes, ~0/-
American Association for the Advancement of Science, [c e~ an(~ Programs, prepared for Office of Technology
February 1978 AC se$srnent by Booz, Allen& Hamilton, May 1978
Table 63. -– Residential Energy Conservation Legislation, 1974.77

Ione

~.... . . . --- . .- .- . . .
156 ● Residential Energy Conservation
—. . . . — -.. ..... . .— ——.— ——— . ...———

Table 63.— Residential Energy Conservation Legislation, 1974-77—continued

Appliance efficiency
standards

None

None None

Requires listing of None


energy consumption
information and
average operating
cost of appliances
before sale (1975)

Requires disclosure
of energy consump-
tion & efficiency
info. of appliances
{1975)

None None
1 I ..— —. . . -.— — .———. -..
Ch. VIl—States and Localities ● 157
....... .————. —.. . . ..— . . - . . .=. . ..—— —. . . . . —-—.———

Table 64.— Residential Energy Conservation Programs’

1-
P4

-----
158 ● Residential Energy Conservation
.——— .“. . . . . . . ——. . - --- —— ... ..—— ———. . . ——————- -.— ——

Table 65 –State Issues in Residential Energy Conservation

—— . . . . . .
Intergovernmental Policymakfng Attitude
Conservation as an Energy producer interaction responsibility toward
State issue (Residential vs. importer (& local interaction in State gov’t Federal program<

California Conservation is of Energy importer There appears to be Lack of comprehensive Strong belief
primary concern to — Heavily depend- extensive cooperation energy policy has among all actors
Calif. as an energy ent on natural among the actors in slowed conservation that the Federal
issue gas California although efforts Government has
- CPUC & ERCDC — Dependent on CPUC & ERCDC not been the im-
have stated a supplemental gas appear critical of one Seems that the energy petus for Calif. ’s
policy that con- both foreign & other’s actions commission & legisla- aggressive con-
servation is the domestic ture play the key role! servation efforts
equiv. of an All agencies appear in formation of energy
alternative committed to the same policy The State wants
source of supply goal of achieving max. — very strong energy the Fed’s not to
of energy conservation & work commission preempt
- Very concerned together toward this
about finders- goal Lack of under-
keepers issue standing by Feds
& natural gas of State problems
—lack of cooper-
ation with States
on Important Is-
sues In pursuing
conservation

Feds. can play a


role in setting
materials

Georgia Energy conserva- Georgia is a very There is relatively little The Ga. SEO (Office c There exists a
tion does not seem strong energy import- interaction among the Energy Resources) we positive attitude
to be a major issue. er; it imports 97% of SEO, PSC, and LEG. created by executive w/in Ga. govt. to-
Has been given its energy. However PSC focuses on rate order & maintains a ward Fed, inter-
relatively Iittle Historically low ener- structure and the close relationship w/ vention in State
attention gy prices & a mild Iegislature considers the governor Policy programs. The
cIimate make it diffi- energy to be of minor is formulated in the OER expressed
cult to convince the Importance. Energy is Governor s office w/ the view that the
public that conserva- left, for the most part, strong dependence Fed’s are flexi-
tion is necessary [o the SEO on the OER ble w/respect to
their program re-
The GMA (Ga. Munici- quirements,
pal Association is an even the’ they
extremely powerful may not address
body in Ga. & GPC is the most crucial
working w/govt. at the energy issues
local level to imple-
ment conservation
programs

Illinois Coal conversion & None None Division of Energy Infrared ffyovers
exploration, nuclear
waste management ICC in lead (according
& disposal are most to the ICC and Gov-
important: conser- ernor’s Office of
vation a secondary Manpower & Human
issue Development)
Iowa Conservation con- Imports 80-90% of All agree that All agencies see the
sidered an impor- s energy intergovernmental Energy Policy Council
ant issue by relationships are & the Iowa Commerce Rate structures
government cooperative Commisslon as major
actors
Other major issues
are: SecondariIy. State Bottle biii
geological survey &
nuclear facility council on Coal usage study
siting environmental
quality
Natural gas avail-
ability & curtailment
Life aye@ costing

Schc@ retrofit

$ona

, ——.....-L.. . .
1 ———— ! –1 —- ..— ..—. 1. . — –. .L — .–.

FEDERAL ENERGY POLICY LEADERSHIP AND FEDERAL FUNDS


FOR STATE ENERGY CONSERVATION PROGRAMS WILL
TO STIMULATE
TIES
Ch. VII—States and Localities 161

missions, which may have many employees, tion has been the prime motivation for the
have generally not devoted themselves to development of conservation programs in
questions beyond ratemaking. States appear to most States.
have trouble stimulating public support for in-
Two other aspects of Federal action are of
creased State energy research funding. Most of
concern to States: program flexibility and tech-
the individuals interviewed suggested it would
nical assistance. States want Federal programs
be imprudent for the State either to duplicate
to provide sufficient flexibility to accommo-
Federal analytical efforts or the ability of Fed-
date individual State needs. States view
eral laboratories to perform technical re-
guidelines more favorably than strict stand-
search. This viewpoint has its notable excep-
ards, for example. States are also receptive to
tions: California, for example, has established
technical assistance from the Federal Govern-
a large agency in addition to the existing
ment. Georgia officials suggested that the lack
Public Utilities Commission. The agency has
of technical staff to develop lighting standards
been charged with conducting research and
could be accommodated by Federal technical
developing material, building, and appliance
support. Only in Minnesota was it determined
standards, as well as performing independent
that DOE had provided someone to assist with
energy forecasting. One of the largest energy-
conservation program design. Although Feder-
producing States, Texas, has garnered suffi-
al assistance in both manpower and funding
cient revenue from energy expiration activ-
are desirable from the State viewpoint, most
ities to be able to invest State money in seek-
State officials interviewed were critical of the
ing solutions to State energy problems.
accountability requirements, which involve a
Federal funding is a mainstay of State con- significant amount of paperwork. These of-
servation programs. Without this support ficials felt that Federal reporting procedures
many States would be limited in their pro- were an unreasonable burden given the num-
grams. Most States provide some contribution ber of persons and amount of time required to
to conservation programs; some— like Colo- comply with Federal procedures.
rado — rely on Federal funds. Federal legisia-

WELL-DEFINED STATE ENERGY POLICY HAS NOT EMERGED

Many States can reach political consensus stances, States have been able to coalesce
on nonenergy matters, such as education, and their concerns on some (but not all) issues,
present that consensus to Federal decision- such as California’s position on the importance
makers. In such cases, it is quite clear what a of liquefied natural gas, Texas’ views on natu-
State wants from Washington. But with energy, ral gas deregulation, or Pennsylvania’s stand
no State has developed well-defined, compre- on coal extraction. But these are the excep-
hensive programs and policies. In some in- tions.

ENERGY PRODUCTION IS THE PREDOMINANT CONCERN


OF ENERGY-RICH STATES
States with large reserves of coal, oil, or gas coal. I n contrast, States that must import ener-
are far more concerned with production than gy perceive domestic energy resources as a na-
conservation. Moreover, States with plentiful tional resource, rather than a State commodi-
resources desire to exploit and maintain State ty. These States, such as Maine and Georgia,
discretion over allocation. Thus, Louisiana want to ensure that domestic energy products
disagrees with policies requiring it to distribute are equitably distributed.
gas out of the State and convert some users to
162 ● Residential Energy Conservation

NEW STATE ORGANIZATIONS ARE EMERGING TO GRAPPLE


WITH CURRENT ENERGY PROBLEMS

Many organizations play a role in State State Energy Off ices (SEOs) and Public Serv-
energy policymaking. These bodies may create ice Commissions (PSCs) share responsibility for
new laws or rules to suit existing authority. The the conduct and implementation of conserva-
Governors, legislatures, and public service tion programs. The PSC utility regulatory
commissions are traditional participants in responsibility and the SEO role in residential
energy policy formulation. However, these energy conservation programs provide a basis
organizations have accumulated new duties or for interaction between these two State agen-
new considerations for the conduct of their ac- cies. It is not uncommon, however, to find
tivities. Others have begun to consider issues these agencies communicating very little with
previously left to administrative agencies, one another. PSCs are addressing the subject
private enterprise, or the Federal Government. of rate reform and encouraging voluntary par-
The functional relationships between these ex- ticipation by utilities in energy conservation.
panding and new organizations are not fully SEOs, on the other hand, are primarily respon-
established. Uncertainty may disappear as sible for developing and implementing energy
Federal policy becomes established, State en- conservation programs. Many proposed SEO
tities gather more experience, and as issues programs promote utility involvement in in-
become more clearly defined for State, local, forming customers of conservation options,
and Federal decisionmakers. Meanwhile, State providing audits and, in some cases, financing.
decisionmakers may tend to defer difficult The lack of coordination between PSCs and
issues for study, or to shift highly sensitive SEOs can be a problem for utilities as well as
issues to other decision makers (e. g., the Feder- consumers.
al Government). Moreover, State energy policy
will continue to be developed on a case-by-
case basis.

INFORMATION FLOW FROM FEDERAL TO STATE AND


FROM STATE TO STATE GOVERNMENT REQUIRES ATTENTION

Though Federal agencies gather a lot of in- must be disseminated. The Energy Extension
formation, States have limited access to and Service and the Solar Heating and Cooling In-
benefit from this information. State officials formation Center are examples of ways to do
reported their inability to secure information this. The Extension Service is designed to work
that they believed would be useful. No Federal with individuals and organizations to define
effort was identified to discern State needs problem areas and to provide informational
and uses for federally derived information. and technical assistance. The Information
Center is a federally funded repository for in-
The same informational problems exist
formation on specific issues available to
among States. Thus, each State must address a
anyone who desires it. More trained individ-
problem from scratch, without significant
uals who can work directly with groups are
benefit from previous similar efforts at the
needed.
Federal level or in other States. Information
Ch. VII—States and Localities “ 163

STATE LEGISLATURES HAVE FOCUSED ON SEVEN


MAJOR ISSUES IN ENERGY CONSERVATION

● Thermal efficiency standards. States are sidered similar legislation. States have not
required to develop thermal efficiency moved ahead strongly and appear to be
standards in order to receive funds for waiting for Federal action.
SECP. In some cases, this may be done ad- ● Minnesota and California have enacted
ministratively (as in Massachusetts); in appliance efficiency standards. Pennsyl-
others new legislation is required. Most of vania and Tennessee require disclosure in-
the State effort here has been to adopt formation to assist consumers in selecting
directly or to model one of three model energy-efficient appliances. Here, too,
codes, American Society of Heating, Re- most States are deferring to Federal ac-
frigeration, and Air Conditioning Engi- tion.
neers 90-75, National Conference of ● Insulation programs have been enacted in
States on Building Codes and Standards,
4 of the 10 States studied. Many other
or the Department of Housing and Urban
States have passed similar legislation.
Development (HUD) minimum property
Most of the legislation authorizes State
standards. Twenty-six States have the leg-
expenditures for weatherization for low-
islative authority to establish energy con-
income and elderly homeowners. In Cali-
servation standards for new buildings.
fornia, the legislature directed the Public
Twenty-one States have authority to es-
Utilities Commission to authorize utility
tablish standards for all new buildings,
insulation and financing programs.
and one State, Washington, has authority
to establish residential standards only.
● Tax incentives to encourage homeowner
One more State, New York, has adminis- conservation are being considered by
trative authority to set standards for lowa, Missouri, and Nevada. Alaska has
homes. Only six States have explicit legis- made a $200 tax credit available since
lative authority to enforce the standards 1977.
when local jurisdictions do not. Enforce- ● Utility rate reform has been a major issue
ment has traditionally been a local, volun- in most States. Maine, Tennessee, and
tary choice. State legislation has been in- California have enacted legislation requir-
troduced to adopt one of the approved ing consideration of conservation rates by
codes, usually in a modified form as part the State PSCs.
of a State building code. I n many cases, ● Solar energy has been a popular legisla-
proposed thermal efficiency code legisla- tive topic. Many States have passed or
tion refines existing law, such as in Ten- considered legislation on sun rights, tax
nessee and California. credits, and solar system testing. Most
● California has adopted insulation material States view the use of solar energy as an
standards; several other States have con- element of conservation policy.
164 ● Residential Energy Conservation

FOUR RESIDENTIAL ENERGY CONSERVATION PROGRAMS


SERVE AS THE FOUNDATION OF STATE EFFORTS

States have emphasized four programs in ● Energy audits –Utility-sponsored audits


residential energy conservation. have been one of the most successful and
widely used programs. Audits have been
Consumer education – T h e c o m p l e x i t y o f instrumental in the encouragement of ret-
energy issues may be the most significant rofit insulation activities by homeowners.
obstacle to motivating consumer action in ● Insulation retrofit– State energy office
conservation. States have placed much media presentations and utility bill-stuff-
emphasis on the development of con- ers have provided strong motivation for
sumer education materials and programs. consumer participation in retrofit pro-
grams. Many consumers are financing
Weatherization programs–These pro-
their retrofits through the utilities.
grams were initially sponsored by FEA.
State conservation plans have, in many in- Besides these four programs, a few States
stances, provided for the continuation of have studied the need for State-determined
these programs. In some cases, State heating, ventilating, and air-conditioning
funds have been used to augment the Fed- standards and for time-of-sale insulation re-
eral allocations. Weatherization programs quirements. Neither of these issues has re-
have received the most Federal energy ceived sufficient support to warrant State pro-
conservation dollars. grams.

Educating the consumer on energy conservation through brochures and bill stuffers is being undertaken by
States and utilities
Chapter Vlll

FEDERAL GOVERNMENT AND


ENERGY CONSERVATION

Chapter VllI.— FEDERAL GOVERNMENT AND


ENERGY CONSERVATION
Page Page

Introduction . . . . . . . . . . . . . . . . .. ....167 Mortgage and Home Improvement


Department of Housing and Urban Insurance Programs . . . . . . . . . . .. ..175
Development . ..................169 Section 203(b) and (i) One- to Four-
Housing Programs Directed to Low- Family Home Mortgage
and Moderate-Income Families . . . . . 169 Insurance. . . , . . . . . . . . . . . . . .175
Low-Rent Public Housing . . . . . . . .169 Section 221(d(2) Homeownership
Section 8 Low-Income Rental Assistance for Low- and Moderate-
Assistance . . . . . . . . . . . . . . . ., 170 Income Families . . . . . . . . . . .. .175
Section 236 Rental and Cooperative Section 233 Experimental Housing
Housing Assistance for Lower Program. . ..................175
Income Families . . . . . . . . . . . .171 Section 207 Multifamily Rental
Section 202 Direct Loans for Elderly Housing. . ..................175
and Handicapped Housing . . . . . 171 Section 221(d)(3) and (4) Multifamily
Section 312 Rehabilitation Loans .. 171 Rental Housing for Low- and
Section 235 Homeownership Assistance Moderate-Income Families . ., .. 176
for Low- and Moderate-income Section 223(e) Housing in Declining
Families. . ..................171 Neighborhoods . .............176
Conservation Policies and Title I Home Improvement and
opportunities . . . . . . .........172 Mobile Home Loan Program .. ..176
Public Housing . . , . . . . . . . . . . , .. 172 Conservation Policies and
Section 8, Section 202, and Section opportunities . . . . . . . . . . .......176
236 Projects. . . . . . . . . . . .. ....173 other HUD Programs . ..............177
Section 312 Rehabilitation Loans .. 174 Community Development Block
Section 235 Homes . . . . . . . . . . . .174 Grant Program. . .............177
Page Page

Acquired Property Management and Federal Home Loan Mortgage


Disposition . . . . . . . . ........178 Corporation . . . . . . . . . . . . . . . 89
GNMA Guaranteed Mortgage-Backed Conservation Policies and
Securities and Special Assistance Opportunities . . . . . . . . . . . . . . . 189
Mortgage Purchases . . . .. ....178 Energy Conservation and Federal Tax
Research and Demonstration Policy . . . . . . . . . . . . . . . . . . . . . .190
Projects . . . . . . . . . . . . .. ....178 Present Law (Prior to the Energy Tax Act
Minimum Property Housing of 1978) . . . . . . . . . . . . . . . . . . . . . . .. 190
Standards . .................179 1 he Effect of Present Law on Energy
Conservation Policies and Conservation. . ..................191
Opportunities . . . . . . . . .. .179 1 he Energy Tax Act of 1978...........191
Community Development Block Further Changes to Encourage Energy
Grant Program. . . . . . .........179 Conservation Expenditures . . . . . . . . .192
Acquired Property Management and Investment Tax Credit. . . ., . .........193
Disposition . ................180 Rapid Amortization . . . . . . . . . . . . . . . .193
Government National Mortgage Conservation R&D Activities, Office of
Corporation. . ...............181 Conservation and Solar Applications,
Minimum Property Standards .. ...181 Department of Energy. . . . . . . . . . . .. 194
Farmers Home Administration . . . . . . .. .181 Program Objective and Strategy. . . . . 194
Section 502 Homeownership Loan Budget Allocation. . . . . . . . . . . . . . . . . .194
Program. . . . . . . . . . . . . . . . . . . . .182 Activities of the BuiIdings and
Section 504 Home Repair Loan and Community Systems Program . ......196
Grant Programs. . ..............182 Program Evaluation . . . . . . . . . . . . . . .. 197
Section 515 Rural Rent and Cooperative Conclusion . . . . . . . . . . . . . . . . . . . . . . .199
Housing Loans. . . . . . . . . . . . . . .. 182 Standards and Codes . ................200
Conservation Policies and Opportunities 182 Minimum Property Standards. . .......200
Veterans Administration. . . . . . . . . . .. 184 Farmers Home Administration Thermal
VA Loan Guarantee and Direct Loan Performance Standards. . ........202
Programs. . . . . . . . . . . . . . . . . . . . . .. 184 Model Code for Energy Conservation in
Conservation Policies and Opportunities 184 New Buildings . ..................203
Other Federal Departments and Programs .185 Building Energy Performance Standards. 204
CSA Emergency Energy Conservation
Program. . . . . . . . . . . . . . . . .185
DOE Weatherization Assistance TABLES
Program. . . . . . . . . . . . . . . . . . . . . .185
DOE Division of Buildings and Page

Community Systems . . . . . ......186 66. Federal Housing Programs Delivery


DOE Obligations Guarantee Program. 186 Systems. . . . . . . . . . . . . . . . . . . . . .. ..168
Department of Defense. . . . . . . .. ...186 67. New Privately Owned and Publicly
Treasury Department: Tax Policy . .. .187 Owned Housing Units Started, Including
Conservation Policies and Farm Housing, 1977. . . . . . . . . . . . . . . . 169
Opportunities . . . . . . . . ...........187 68. New Privately Owned Housing Units
Housing Secondary Mortgage Market and Started by Type of Financing 1977 .. ..169
Regulatory Agencies . . . . . . . . . . . . .187 69. Originations of Long-Term Mortgage
Regulatory Agencies. . . . . . . . . . . .. .188 Loans 1977 . . . . . . . . . . . . . . . . . . . . .. 187
Federal Home Loan Bank Board .. .188 70 Net Acquisitions of Long-Term Mortgage
Federal Deposit Insurance Loans on Residential Properties by
Corporation. . . . . . . . . .......188 Lender Groups. . . . . . . . . . . . . . . . . . . .188
Conservation Policy and 71. FY 1979 Budget Estimates for Residential
Opportunities . ................188 and Commercial Components of DOE’s
Secondary Mortgage Market . ........188 Conservation Mission . . . . . . . . . . . . . .196
Federal National Mortgage 72. FY 1979 Budget Estimates for DOE
Association . . . . . . . . . . . . .. 189 Energy R&D. . . . . . . . . . . . . . . . . . . . . .196
Chapter Vlll
FEDERAL GOVERNMENT AND
ENERGY CONSERVATION

INTRODUCTION

The Federal Government exerts substantial influence on the character of the Nation’s
existing housing and on the location, type, and level of new construction activity. It would be
logical to conclude that Washington is thus a leader in the drive for energy conservation in
residential housing. But the Federal record is a mixed one. The Federal Government has not
developed a coordinated or standardized policy to encourage residential energy conserva-
tion. The level of interest in promoting conservation varies by agency and program. Although
there is evidence of greater concern and sensitivity about conservation by Federal agencies
and important additional legislative authority was enacted in 1978, there are opportunities
for accelerating conservation and for developing more systematic agencywide approaches.
This section of the report examines the major Federal agencies involved in housing and
energy conservation and reviews what they are doing or could do to promote conservation.
The important conservation-related programs are described in terms of their key features, au-
thorization, and program activity. How these programs and activities affect lending institu-
tions, the building industry, State and local governments, and property owners—and how
they influence the knowledge and awareness of all of these sectors about energy conserva-
tion — is explained.

The Federal Government has been actively ● demonstration projects to pioneer new ap-
involved in promoting the objective of “a de- proaches;
cent home and a suitable living environment” ● research related to residential buildings;
for all Americans through a variety of housing ● regulation of housing, financing, and mar-
programs and regulatory activities. The De- ket support activities; and
partment of Housing and Urban Development ● direct construction and ownership of
(HUD), the Farmers Home Administration housing (by the Department of Defense
(FmHA) of the Department of Agriculture (DOD)).
(USDA), the Veterans Administration (VA), and
the agencies that regulate lending institutions Federal assistance involves a number of Fed-
are the major Federal agencies bearing on the eral agencies and programs, private lenders,
housing industry. Federal activities are and State and local governments. Table 66 il-
directed to lenders, property owners, develop- lustrates the fragmented nature of the delivery
ers, and lower income tenants and homeown- system. The types of lenders and agencies dif-
ers< Types of activity and assistance include: fer depending on the type of construction and
the housing occupants.
● loan insurance for private lenders;
● subsidies to lower income families and For all of its regulations and standards–
owners of lower income housing projects; which do affect general housing activities —
● direct Government loans to property own- the direct Federal role in housing development
ers; is relatively small in relation to nonfederally
● establishment of construction standards; assisted housing. (The exceptions are low-
● grants to local Government for housing in- income housing development and providing
frastructure; mortgage insurance or guarantees for the

167
168 “ Residential Energy Conservation

Table 66.—Federal Housing Programs Iower end of the market.) Publicly owned hous-
Delivery Systems ing is a small fraction of new construction
starts as table 67 shows.
Number of field offices/
Type of institution participating institution: Most housing is built and financed without
Federal assistance. [n 1977 only one in six
1. Federal agencies privately owned housing starts were insured by
HUD HUD’s Federal Housing Administration (FHA)
Area/insuring offices . . . . . . . . . . . . . . . . . 76
Regional offices . . . . . . . . . . . . . . . . . . . . . 10 or guaranteed by VA (table 68). FmHa financed
FmHA
an additional 126,000 units. Federally assisted
County offices. . . . . . . . . . . . . . . . . . . . . . . 1,760 housing totaled 435,000 units or 22 percent of
FNMA regional offices. . . . . . . . . . . . . . . . 5 all starts in 1977.
VA
Regional offices . . . . . . . . . . . . . . . . . . . . . 49 Even though most housing is conventionally
Federal Home Loan Bank Board financed and developed without direct Federal
Regional banks . . . . . . . . . . . . . . . . . . . . . . 12 assistance, the Federal Government’s influ-
ence on housing is significant and its role in
2. State and local government agencies promoting energy conservation can be impor-
States tant. Whether or not energy conservation is
State housing agencies . . . . . . . . . . . . . . . 39
made a priority concern, Federal housing pro-
Local government agencies grams and policies affect residential energy
CDBG recipients. . . . . . . . . . . . . . . . . . . . . 3,200
CDBG recipients proposing housing/ conservation. In assisting in the development,
rehab type programs. . . . . . . . . . . . . . . . 1,470 maintenance, and financing of housing, the
Section 312 agencies . . . . . . . . . . . . . . . . . 200-250 Federal Government is in a position to in-
fluence directly and indirectly the thermal
3. Private institutions (categories overlap)
characteristics of a significant portion of the
Lenders
Commercial banks . . . . . . . . . . . . . . . . . . . 14,697 existing housing inventory and plans for new
Savings and loan associations . . . . . . . . . 4,858 construct ion.
Mutual savings banks. . . . . . . . . . . . . . . . . 473
Credit unions. . . . . . . . . . . . . . . . . . . . . . . . 22,421 In terms of reducing energy consumption,
Title I lenders the Federal Government has an opportunity
Approved . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 not only to promote energy conservation
Active. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600
through requiring high thermal standards for
FHA mortgages newly constructed federally assisted housing
Approved . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,700
Active . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500 or by retrofitting existing structures in which
FNMA originators HUD has an interest, but it can also promote
Approved . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 the adoption of energy conservation standards
Active . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 in State building codes and encourage mort-
Very active. . . . . . . . . . . . . . . . . . . . . . . . . . 400-500
gage lenders and secondary market mortgage
FHLMC originators
Federally supervised savings & loans.... 2,048
purchasers to consider energy costs and the
Active . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 energy conservation characteristics of residen-
GNMA originators tial properties they finance. These latter ac-
Approved (all are FNMA approved tivities could have a larger impact on the hous-
originators) . . . . . . . . . . . . . . . . . . . . . . . 1,000 ing sector than many more direct Federal hous-
VA mortgages ing support activities. But as the following ex-
No approval system . . . . . . . . . . . . . . . . . . NA
amination of agencies and programs indicates,
SOURCE: RUPL Federal incentives for Solar Homes, 1977, table lV.7. National conservation may be given inadequate priority
Association of Mutual Savings Banks, 1977 National Facfbook of
MutualSavings Banks, 197LP. 12. in Federal programs and in funding decisions.
Ch. Vlll—Federal Government and Energy Conservation “ 169

Table 67.—New Privately Owned and Publicly Owned Housing Units Started, Including Farm Housing, 1977
(in thousands)

Type of structure Inside Outside


Total 1 unit 2 units 3 to 4 units 5 units or more SMSAS SMAS
Total . . . . . . . . . . 1,990 1,452 61 —. 61 415 1,378 612
Privately owned. 1,987 1,451 61 61 414 1,377 610
Publicly owned . 3 1 — — 1 1 2

NOTE: Figures may not total due to rounding.
SOURCE: HUD Office of Housing Statistics.

Table 68.—New Privately Owned Housing Units Started by Type of Financing 1977 (in thousands)
Number of housing units Number Percent of total starts Percent
FHA FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Homes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Total FHA & VA. . . . . . . . . . . . . . . . . . . . . . . . . 16
VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Total FHA & VA. . . . . . . . . . . . . . . . . . . . . . . . . 309 SOURCE: HUD Office of Housing Statistics.
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,678
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,987

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT


The Housing and Urban Development Act of tion does not appear to be a priority depart-
September 9, 1965, established HUD. It is the mental concern and the role of the Energy
principal Federal agency responsible for pro- Conservation Office is limited. Individual pro-
grams concerned with housing needs and im- grams have established policies toward energy
proving and developing the Nation’s commu- conservation but the Department has no over-
nities. It operates programs in all parts of the all policy or consistent priority for meeting
country except that for rural and small-town conservation goals.
areas served by FmHA. HUD administers a
The Senate, Banking, Housing, and Urban
variety of housing programs, including mort-
Affairs Committee and the House Banking,
gage insurance programs for private lenders,
Currency, and Housing Committee handle
rental and homeowners hip subsidy programs HUD’s legislation.
for lower income families, and programs to im-
prove the availability of mortgage credit and The most important HUD programs are re-
policy research support programs. Local devel- viewed below. Housing programs designed to
opment activities are assisted by the communi- benefit low- and moderate-income families are
ty development block grant program. Through discussed first. Subsequent sections discuss
its promulgation of minimum property stand- the principal mortgage insurance programs
ards, HUD sets construction standards for all and other types of HUD programs with energy
HUD-assisted, VA-guaranteed, and FmHA- conservation potential. Each program’s conser-
assisted housing. vation policy is described, and its level of ac-
tivity noted.
HUD operates through a field structure of 10
regional offices and 82 field offices including
39 area offices. Housing Programs Directed to Low-
The Assistant Secretary for Neighborhoods, and Moderate-Income Families
Voluntary Associations, and Consumer Protec-
LOW-RENT PUBLIC HOUSING
tion is the Department’s principal energy con-
servation officer. An Office of Energy Conser- This program provides financial and techni-
vation has been established. Energy conserva- cal assistance to local public housing agencies
170 ● Residential Energy Conservation

(PHAs) to develop, own, and operate low- In FY 1978, $685 million was appropriated
income housing projects. Projects are financed for operating subsidies.
through the sale of tax-exempt local obliga-
Authorization.– U.S. Housing Act of 1937
tions that are guaranteed by the Federal Gov-
(Public Law 75-412) as amended.
ernment. HUD provides annual contributions
to pay the debt service of PHA obligations so
SECTION 8 LOW-INCOME RENTAL ASSISTANCE
as to assure low rents and maintain adequate
services and reserve funds. Rents, based on the This program, which is HUD’s main assisted-
residents’ ability to pay (25 percent of adjusted housing program, makes rental subsidies avail-
gross income), contribute to the cost of manag- able to help lower income families rent stand-
ing and operating the housing. ard privately owned housing. Eligible families
Additional public housing can be developed must earn less than 80 percent of the median
by PHAs acting as the developer, by private de- income for the area. Thirty percent of the
velopers under the “turn key” program, or families assisted must earn less than so per-
through acquisition and rehabilitation of ex- cent of the median income for the area.
isting housing. The program makes up the difference be-
Two related programs–modernization and tween what a lower income household can af-
operating subsidies – provide financial sup- ford (no more than 25 percent of adjusted
port to the existing public housing inventory. gross income) and the fair market rent for an
adequate housing unit. Housing thus subsi-
Under the modernization program, HUD
dized must meet certain standards of safety
finances capital improvements in public hous-
and sanitation, and rents for these units must
ing projects to upgrade living conditions, cor-
fall within the range of fair market rents as
rect physical deficiencies, and achieve oper-
determined by HUD. This form of rental assist-
ating efficiencies and economies. The develop-
ance may be used in existing housing or newly
ment cost is amortized through annual Federal
constructed or substantially rehabilitated
contributions toward the debt service. I n addi-
units Project sponsors may be private owners,
tion, the National Energy Act authorized a
profit-motivated, nonprofit or cooperative
special program to finance the cost of energy-
organizations, public housing agencies, and
conserving improvements for public housing.
State housing finance agencies.
HUD also provides operating subsidies to
Local PHAs administer the existing housing
help PHAs maintain and operate their projects,
program. They certify eligible tenants, inspect
retain minimum operating reserves, and offset
the units proposed for subsidy, and contract
certain operating deficits. The operating sub-
for payment with landlords whose units have
sidies are based on the Performance Funding
been approved. Proposals for new construc-
System, a formula designed to calculate oper-
tion or substantial rehabilitation are submitted
ating subsidies based on what it costs a well-
for approval to HUD or State housing finance
managed PHA to operate its units.
agencies.
Program Activity. –As of December 1977,
more than 4,000 localities had public housing Program Activity. -Through December 1977,
programs; 1,187,693 units were available for reservations had been established for 982,439
occupancy, of which about 25 percent were units. As of that time, 25,636 new units, 4,341
designated for the elderly. In 1977, an addi- rehabilitated units, and 327,797 existing units
tional 6,229 units were made available for oc- were occupied. A significant portion of pro-
cupancy, and 6,321 were placed under con- gram funds were being used to assist families
struction or rehabiIitation. living in HUD-financed projects that have been
reacquired or assigned to HUD or are in finan-
In FY 1978, some 800 PHAs were expected to cial difficuIty.
participate in the modernization program,
$42.6 million in contract authority was allo- Authorization.– Section 8 of the U.S. Hous-
cated to finance capital costs of $475 million. ing Act of 1937 (Public Law 73-379) as amended
Ch. Vlll—Federal Government and Energy Conservation ● 171

by the Housing and Community Development Authorization. – Section 202 of the Housing
Act of 1974 (Public Law 93-383). Act of 1959 (Public Law 86-372).
SECTION 312 REHABILITATION LOANS
SECTION 236 RENTAL AND COOPERATIVE
HOUSING ASSISTANCE FOR LOWER The section 312 program provides rehabilita-
INCOME FAMILIES
tion loans in federally aided community devel-
The section 236 program provides mortgage opment block grant, urban homesteading, and
insurance and interest subsidies to lenders to neighborhood strategy areas. The program
reduce the rent that lower income households makes available direct Federal loans to
pay for housing. No additional commitments finance the rehabilitation of residential,
are now being made under the program. Under mixed-use, and nonresidential properties. A
section 236, HUD insures mortgages and loan may be used to insulate or weatherize
makes monthly payments to lenders on behalf properties. Loans may not exceed $27,000 per
of project owners to reduce mortgage interest dwelling unit or $50,000 for nonresidential
costs to as low as 1 percent. The amount of properties. The interest rate is 3 percent except
subsidy provided is based on the income of the for families whose income is above 80 percent
occupants. Projects are developed by nonprof- of the median family income when the rate is
it, limited-dividend, or cooperative organiza- tied to the Treasury borrowing rate. The loan
tions. In 1974 HUD began to pay additional term is for a period up to 20 years or three-
subsidies to cover the differences between the fourths of the property’s remaining useful life.
tenants’ contribution and the actual costs of The applicant must evidence the capacity to
operating the projects. repay the loan and be unable to secure neces-
sary financing from other sources on compar-
Program Activity. – In 1977, 561 units were in-
able terms and conditions. Preference is given
sured. The program has financed more than
to low- and moderate-income applicants.
393,000 units since its inception.
Program Activity.– Through December 1977,
Authorization. — Section 236 of the National
$430 million of rehabilitation loans involving
Housing Act (1934) (Public Law 73-479) as
80,327 units had been approved. In 1977 alone,
amended by section 201 of the Housing and
5,787 loans were made, involving 7,942 units
Urban Development Act of 1968 (Public Law
with a total loan amount of $65.3 million.
90-448).
Authorization. – Section 312 of the Housing
SECTION 202 DIRECT LOANS FOR ELDERLY and Urban Development Act of 1964 (Public
AND HANDICAPPED HOUSING
Law 88-560).
The section 202 program for the elderly and
handicapped provides long-term direct loans SECTION 235 HOMEOWNERSHIP ASSISTANCE
FOR LOW- AND MODERATE-INCOME FAMILIES
to eligible, private, nonprofit sponsors to
finance rental or cooperative housing facilities The section 235 program provides mortgage
for elderly and handicapped persons. The in- insurance and interest subsidies to lenders.
terest rate is based on the average rate paid on HUD insures mortgages and makes monthly
Federal obligations during the preceding fiscal payments to lenders on behalf of low- and
year. A minimum of 20 percent of the section moderate-income homebuyers to reduce their
202 units must also be assisted by the section 8 mortgage interest costs to as low as 4 percent.
program. The program originally enacted in 1968 was
A household of one or more persons, the significantly revised in 1975.
head of which is at least 62 years old or handi- The homeowner must contribute 20 percent
capped, is eligible to live in section 202 proj- of his adjusted gross income to the monthly
ects. mortgage payments and must make a down-
Program Activities.– In 1977, reservations for payment of 3 percent of the cost of acquisi-
32,801 units were made and projects involving tion. The income limit for initial occupancy is
10,322 were started. 95 percent of the area median income. Mort-
172 ● Residential Energy Conservation

gage limits are $32,000 ($38,000 for homes for ings resulting from the grants must either bene-
five or more persons) and in high-cost areas fit tenants in the form of reduced rent or
$38,000 ($44,000 for homes for five or more reduced Federal operating subsidies.
persons). HUD has an opportunity to influence energy
Program Activity. — In 1977, 6,485 loans were conservation in assisted housing in two general
insured for a total value of $174 million. The ways: as a part of the approval of the plans and
program has financed nearly 485,000 units. specifications of new construction or substan-
tial rehabilitation projects and, once the hous-
Authorization. — Section 235 of the National ing is built, in conjunction with the provision
Housing Act (1934) (Public Law 73-479) as of annual subsidies that maintain the low- and
amended by section 101 of the Housing and moderate-income character of the housing.
Urban Development Act of 1968 (Public Law Because of the manner in which the program
90-448). functions, the opportunities to promote con-
servation in the section 312 program are more
Conservation Policies and Opportunities limited and are explained below.
Legislation enacted in 1978 and changes in All assisted housing programs have similar
program policies have made energy conserva- policies governing the inclusion of energy-
tion a more important policy concern in savings improvements in new construction or
assisted housing programs than it had been substantialIy rehabiIitated projects with the ex-
previously. Recent legislative changes and the ception of the section 312 loan programs. All
conservation policies of the different programs newly developed assisted housing must con-
are discussed below. form to HUD’s minimum property standards
(MPS) Improvements financed by section 312
The 1978 National Energy Conservation Pol-
loans must conform to local building code re-
icy Act and the Housing and Community
quirements. The conservation requirements of
Development Amendments of 1978 enacted
the MPS have been raised periodically and will
important new energy conservation authorities
be made more stringent as a result of the
and funding. I n the Housing and Community
future adoption of the building energy per-
Development Amendments the Secretary of
formance standards. The upgrading of the MPS
HUD is encouraged to promote cost-effective
may increase the capital costs of new projects,
and economically feasible solar energy sys-
which wilI over the short-run increase the
tems in housing assisted through sections 8,
amount of Federal subsidies required. Over the
312, and 202. The Secretary is also directed to
long run, however, the energy savings that will
promote cost-effective and economically fea-
result from improved thermal performance
sible solar energy instalIations in residential
wiII decrease Federal subsidy requirements.
housing in general, taking into account the in-
terests of the low-income homeowners and The opportunities for improving conserva-
renters. The Act requires that section 312 fi- tion activities and saving energy in existing
nanced improvements and section 8 substan- housing are significant. HUD policies related
tial rehabilitation projects meet cost-effective to conservation are in the process of being
energy conservation standards. The National upgraded. Some of the specific policies and
Energy Conservation Policy Act included sev- issues are reviewed on a program by program
eral provisions that affect assisted housing. A basis.
$10 million authorization of contract authority
specifically for the purchase and installation PUBLIC HOUSING
of energy conservation improvements was au- Concern for energy conservation in the man-
thorized. A $25 million grant program was au- agement of public housing projects has been a
thorized to finance conservation improve- distinct and often stated HUD policy. Conser-
ments for sections 236, 221(d)(3), and 202 proj- vation improvements for existing projects can
ects that are in financial difficulty as a result be financed through the modernization pro-
of energy costs. The law requires that the sav- gram, and conservation has been identified as
Ch. Vlll—Federal Government and Energy Conservation “ 173

one of five areas for priority funding. The practices. Increased utility expenses were
extent to which modernization funds are used simply funded by the operating subsidies pro-
for conservation is not known but it appears gram. Operating subsidy funding decisions
that significant numbers of projects involve were not reviewed in order to determine how
some conservation activities. Some PHAs have outlays could be reduced by making cost ef-
funded conservation projects out of their own fective conservation improvements to proj-
surplus funds without looking to HUD for spe- ects.
cial funding but few PHAs have significant
The conservation potential in public housing
surplus reserves and most must rely on HUD
is large for a number of reasons. Many projects
for funds to make conservation improvements.
are not now energy efficient. The information
The energy efficiency of the public housing in-
chain between HUD and PHAs is relatively
ventory is not known but because of historic
short. Information can be easily distributed
construction cost limitations and the age of
through established communication channels.
the housing stock it can be assumed that a
Financing is a relatively modest problem. The
large portion of public housing is not energy
modernization program could become primar-
efficient. Recently HUD has encouraged PHAs
ily an energy conservation program through
to install individual utility meters in projects if
administrative action.
it was judged cost effective.
The operating subsidies program could be
HUD has proposed new regulations that
reoriented to give greater consideration to
would expand and extend energy conservation
energy conservation. The performance funding
efforts in public housing and involve PHAs in
system, the formula used to allocate operating
systematic conservation programs. All PHAs
subsidies, could be revised to provide incen-
would be required to conduct energy audits of
tives for conservation. Operating data could
their projects within 3 years. Based on the
be reviewed to provide a clearer picture of the
audits, PHAs would have to establish a list of
energy conservation potential of particular
conservation improvements ranked by their
projects. Incentives could be created for PHAs
degree of cost effectiveness and to make im-
to encourage them to give energy conservation
provement decisions based on the priority
more attention and priority.
ranking. The scope of the audits would have to
cover an assessment of certain specialized SECTION 8, SECTION 202, AND
types of improvements. The regulations would SECTION 236 PROJECTS
require PHAs to buy appliances with the
These projects are largely owned by private
highest energy efficiency, thermostats would
nonprofit or limited dividend-for-profit cor-
have to be set at no more than 750 F, water
porations. Because of debt service payments
heaters would have to be set at 1200 F, and in-
and operating cost requirements owners have
dividual utility check meters would have to be very limited cash flow or reserve funds avail-
installed unless other actions were considered
able to finance energy conservation improve-
more cost effective.
ments. Most sponsors are unwilling to increase
Adoption of these requirements could result their equity in projects even if the investment
in significant energy savings. PHAs currently will result in reducing operating costs.
spend $400 milIion for utilities and the in- Although the relationship between HUD and
crease in the cost of utilities has been a major these private housing owners is not as direct as
factor in the large operating losses sustained in with public housing agencies, owners should
public housing. be sensitized and encouraged to make conser-
vation improvements.
Prior to the development of these regula-
tions, HUD and PHAs had not established ener- Motivating owners to retrofit their projects
gy conservation standards and goals. PHAs may be difficult. Project owners may not have
had been encouraged to include conservation an incentive to make conservation improve-
projects in their modernization activities but ments because many have little investment or
there was no HUD review of conservation personal interest in the projects. Because util-
174 . Residential Energy Conservation

ities in many projects are paid by the tenants, Recently proposed regulations would en-
owners have no financial incentive to invest in courage PHAs to provide technical assistance,
conservation improvements. work writeups, and cost estimates to landlords
participating in the section 8 existing program
HUD might use its authority to approve rent
to help them determine what energy savings
increases to get owners to make conservation
improvements wouId be cost effective.
improvements. The extent to which proposed
increases in rent represent utility cost in- Proposed regulations for the section 8
creases could be ascertained and, in situations moderate rehabilitation program would allow
where improvements would be cost effective, owners to make conservation improvements
such improvements couId be required as a con- such as installing storm windows and storm
dition of the rent increase. A similar require- doors as long as the improvements are judged
ment might be made as a condition of receiv- cost effective over the 15-year term of the sub-
ing section 236 operating subsidies. In granting sidy contract.
operating subsidies HUD does not evaluate the Because virtually all section 202 elderly
energy efficiency of projects nor determine the projects are on a sound financial footing and
impact of energy costs on operating costs. owned by experienced church and union spon-
Prior to 1978 there was no funding available to sors, retrofitting existing projects offers an ex-
finance such improvements but the National cel lent opportunity for saving energy. The area
Energy Conservation Policy Act authorized a of prime potential for unrealized conservation
grant program to assist section 236 and section measures in this program relates to projects
202 projects, and loans for conservation im- built before 1973 when thermal standards were
provements, solar energy systems, and installa- lower. Separate financing might be required to
tion of individual utility meters can be insured enable sponsors to make conservation im-
under section 241 of the National Housing Act. provements, but given the nature of the tenant
Although HUD requires reserves for capital group and the financial sources of these proj-
improvements in properties with HUD income ects, such financing, especially if backed by a
mortgages, and those reserve funds might, in Government guarantee, should be readily
some cases, represent a source to cover con- avaiIable.
servation capital expenditures, that resource
has limited potential. Many projects are in SECTION 312 REHABILITATION LOANS
financial difficulty and many do not have ade- Borrowers can make conservation improve-
quate reserves. Applying stringent policies ments with proceeds from section 312 rehabili-
about making conservation improvements tation loans. The program has not specifically
could increase the cash flow problems of proj- promoted conservation but consideration is
ects and couId bring about increased mortgage being given to establishing energy conserva-
defaults and foreclosures. tion guidelines. Since properties assisted
In the section 8 existing housing program, through section 312 must be brought up to
HUD does not evaluate the energy efficiency local code standards, the effectiveness of the
of the units occupied by program benefici- program in terms of saving energy could be im-
aries, Assistance is calculated based on pro- proved by the upgrading of local energy con-
totype utility costs and fair market rent deter- servation codes. Since most loans go to low-
minations. As a result, actual energy costs are and moderate-income property owners there
not considered in approving units and deter- are tradeoffs that have to be made in establish-
mining subsidy payments in the program. ing standards between additional energy sav-
Although it would pose many administrative ing and the ability of property owners to afford
problems, the section 8 housing standard the extra costs.
could be modified to require consideration of
the energy characteristics of units eligible for SECTION 235 HOMES
assistance or consideration of the actual costs No special conservation policies or opportu-
of utiIities. nities have been identified for the section 235
Ch. Vlll—Federal Government and Energy Conservation ● 175

homeownership program beyond those relat- SECTION 233 EXPERIMENTAL HOUSING


ing to acquired property disposition and those PROGRAM
which would result from changes to the MPS.
The section 233 program provides insurance
for experimental single-family and multifamily
Mortgage and Home Improvement projects involving unconventional housing sys-
Insurance Programs tems or subsystems without the requirements
that they adhere to normal HUD-FHA process-
SECTION 203(b) AND (i) ONE- TO FOUR-FAMILY
HOME MORTGAGE INSURANCE ing and MPS requirements. The program is in-
tended to assist in lowering housing costs and
The section 203(b) and (i) program provides improving housing standards, quality, livabil-
mortgage insurance to lenders for loans to ity, or durability of neighborhood design
finance the purchase, construction, or rehabili- through the use of experimental technology or
tation of one- to four-family properties — up to experimental property standards. The ra-
97 percent of the property value up to $25,000 tionale for the program is to develop ex-
and 95 percent for the value in excess of perience with a concept before the concept is
$25,000–for terms up to 30 years. The loans written into the MPS. OccasionalIy, cases be-
may finance homes in both urban and rural ing considered by FmHA or VA that cannot be
areas (except farms). The maximum mortgage approved under their procedures are referred
loan on a single-family home is $60,000. to the section 233 program for final action. No
example of this procedure being used to facil-
Program Activity.– In 1977, 42,760 new con-
itate processing of energy-conservation-ori-
struction and 241,504 existing home loans were
ented loans has been identified.
insured for a total value of $7.7 biIIion.

Authorization.– Section 203(b) and (i) of the Program Activity. -Through September 1977,
National Housing Act (1934) (Public Law $8 million in insurance on single-family hous-
73-479). ing had been issued, and $97 million in in-
surance on multifamily projects had been
SECTION 221(d)(2) HOMEOWNERSHIP issued. I n 1977, 14 single-famiIy loans were in-
ASSISTANCE FOR LOW- AND MODERATE- sured at a total value of $399,300. No multi-
INCOME FAMILIES
family projects were insured in 1977.
The section 221 (d)(2) program provides mort-
gage insurance to lenders for loans to finance
the purchase, construction, or rehabilitation of SECTION 207 MULTIFAMILY RENTAL HOUSING
low-cost, one- to four-family housing. The max-
The section 207 program provides mortgage
imum insurable loan for an owner occupant is
insurance to lenders for loans to finance the
$31,000 for a single-family home (up to $36,000 construction or rehabilitation of multifamily
in a high-cost area). For a large-family home
rental housing (eight or more units) by private
$36,000 (or up to $42,000 in a high-cost area) is
or public developers. The housing project must
the maximum insurable loan. Higher mortgage
be located in an area approved by HUD for
limits apply to two- to four-family housing. A
rental housing and in which market conditions
downpayment of 3 percent is required, and
show a need for such housing. The mortgage
mortgage terms are for up to 30 years.
cannot exceed the lesser of 90 percent of value
Program Activity. — In 1977, 1,039 new con- or unit-size cost limitations. The mortgage
struction and 33,594 existing units were in- term is Iimited to 40 years.
sured for a total value of $736.2 million.
Program Activity.– In 1977, 2,884 units were
Authorization. – National Housing Act (1934) insured at a value of $49 miIIion.
(Public Law 73-479) as amended by section 123
and section 221(d)(2) of the Housing Act of Authorization. — Section 207 of the National
1954 (Public Law 83-560). Housing Act (1934) (Public Law 73-479).
176 ● Residential Energy Conservation

SECTION 221(d)(3) AND (4) MULTIFAMILY and Urban Development Act of 1968 (Public
RENTAL HOUSING FOR LOW- AND Law 90-448).
MODERATE-INCOME FAMILIES
This program provides mortgage insurance TITLE I HOME IMPROVEMENT AND MOBILE
HOME LOAN PROGRAM
to lenders for loans to finance the construction
or rehabilitation of multifamily (5 or more The title I home improvement and mobile
units) rental or cooperative housing for low- home loan program provides co-insurance to
and moderate-income or displaced families. lenders for loans to finance major and minor
The insured mortgage amounts are controlled improvements, alterations, and repairs of in-
by statutory dollar limits per unit, which are in- dividual homes, nonresidential structures, and
tended to insure moderate construction costs. mobiIe homes.
Section 221(d)(3) mortgages may be obtained Title I loans may be made in amounts up to
by public agencies, nonprofit, limited-divi-
$15,000 for a term of up to15 years at an inter-
dend, or cooperative organizations. Section est rate not to exceed 12 percent. Loans of less
221(d)(4) mortgages are limited to profit-moti- than $7,500 are generally unsecured personal
vated sponsors. Under section 221(d)(3), HUD loans, Under the program HUD reimburses
may insure 100 percent of total project cost for lenders for 90 percent of any loss under the
cooperative and nonprofit mortgages, but it program.
may insure only 90 percent under section 22 I
(d)(4) irrespective of the type of mortgage. Under title 1, mobile home loans may be
made in amounts up to $16,000 and 12 years
The National Energy Conservation Policy on single-module units and up to $24,000 and
Act authorizes a grant program to finance the 15 years for double-module units at any inter-
cost of energy-conserving improvements in est rate up to 12 percent.
section 22 I (d)(3) projects.
Program Activity.– More than 32 million
Program Activity. — In 1977, 70,809 units were loans, of which more than 60,000 are mobile
insured for a total value of $1.57 biIIion. home loans, for a value of over $26 billion,
Authorization. — Section 221(d)(3) and (4) of have been insured under the program since its
the National Housing Act (1934) (Public Law inception. Program activity in 1977 was
73-479) as amended by the Housing Act of 1954 345,579 loans with a value of $1,341 million.
(Public Law 83-560). Authorization. — Section 2, title I of the Na-
tional Housing Act (1934) (Public Law 73-479)
SECTION 223(e) HOUSING IN DECLINING as amended by the Housing Act of 1956 (Public
NEIGHBORHOODS Law 84-1020).
The section 223(e) program provides mort-
Conservation Policies and Opportunities
gage insurance to lenders for loans to finance
the purchase, construction, or rehabilitation of Conservation efforts in HUD mortgage in-
housing in older, declining, but still viable ur- surance programs occur primarily through the
ban areas where conditions are such that nor- requirements imposed by HUD’s MPS (in the
mal requirements for mortgage insurance can- case of new construction) and standards of ac-
not be met. The terms of the loans vary accord- cepted practice (in the case of existing
ing to the HUD/FHA program under which the buildings). These standards are implemented
mortgage is insured, but the loan must be an through the relationships among area office
acceptable risk. staff, lenders, and applicants for mortgage in-
surance. Field staff are sensitized to conserva-
Program Activity.– In 1977, 8,511 loans were
tion measures through formalized training of
insured under this authority.
technical personnel (architects and engineers)
Authorization. – S e c t i o n 2 2 3 ( e ) o f t h e N a - who interact with the field representatives and
tional Housing Act (1934) (Public Law 73-479) applicants. An applicant who wants to incor-
as amended by section 103(a) of the Housing porate a novel or first-cost intensive system in
Ch. Vlll—Federal Government and Energy Conservation ● 177

new construction can generally secure a full not seem to be used as aggressively as they
hearing for his case before local office person- might be for transmitting information on con-
nel. If his costs are higher than those generally servation techniques and opportunities.
accepted for the kind of structure in that par-
ticular area, he will be persuaded to modify his
approach to conform to accepted costs. [f his
Other HUD Programs
approach involves a system or a technique not COMMUNITY DEVELOPMENT BLOCK GRANT
provided for in the MPS, he may elect prefer- PROGRAM
ential processing under the experimental pro-
gram (section 233 described above). The community development block grant
program (CDBG) makes available block grants
It is difficult to evaluate the impact the title to local governments to fund a wide range of
I home improvement loan program has on en- community development activities. Metropoli-
ergy conservation since this activity is admin- tan areas–generally cities over 50,000 popula-
istered primarily by lending institutions with tion — and qualified urban counties—those
HUD-FHA carrying out postaudits of insurance with populations in excess of 200,000— are
claims. Although the written instructions to the guaranteed an annual grant or “entitlement”
lending institutions are broad enough to allow based on needs. Smaller communities compete
practically any kind of conservation loan, no for the remaining “discretionary” funds.
specific attempt is made to generate loans for Spending priorities are determined at the local
conservation purposes. Further, there appears level, but the law enumerates general objec-
to be no effort to determine whether such tives that the block grants are designed to ful-
loans are being made, and if so, what problems fill, including the provision of adequate hous-
might exist. The 1974 Housing and Urban De- ing, a suitable Iiving environment, and ex-
velopment Act specificalIy authorized title I to panded economic opportunities for lower in-
insure loans for energy conservation improve- come groups. Grant recipients are required to
ments. The MPS do not apply to title I loans estimate their lower income housing needs and
but HUD has specified standards for solar address them in the overall community devel-
energy installations. The National Energy Con- opment plan they submit.
servation Policy Act authorizes Federal sec-
ondary market institutions to buy and selI title Funds may be used to finance or subsidize
1 loans that financed energy conservation im- housing improvement and rehabilitation.
provements. CDBG rehabilitation assistance is provided in a
The National Energy Conservation Policy variety of forms, including direct loans, loan
Act has increased the opportunity for insuring guarantees to private lenders, interest sub-
homes and multifamily projects with solar sidies, and loan writedowns to reduce the size
energy systems. Section 248 of the act author- of privately made loans.
izes HUD to increase the size of insured loans
under sections 203 and 207 by up to 20 percent Program Activity.– Under the program
due to increased costs for the installation of $10.95 billion was authorized for FY 1978-80.
solar energy systems. The FY 1978 appropriation was $3.6 billion,
and some 3,200 local governments received
The dissemination of conservation informa- grants, of which 1,300 received entitlement
tion by HUD to the portion of the housing mar- grants. The amount of funds earmarked for re-
ket that relies on HUD mortgage insurance ap- habilitation was estimated at $418 million in
pears potentially effective, despite the number FY 1977, and about 1,500 communities ex-
of participants involved, because of the large pected to have rehabilitation programs.
number of HUD area offices, the regular con-
tacts that owners and the housing industry Authorization. –Title 1 of the Housing and
have with HUD staff and the variety of HUD Urban Development Act of 1974 (Public Law
publications going to the different parts of the 93-383) as amended by the Housing and Urban
housing industry. These channels, however, do Development Act of 1977 (Public Law 95-128).
178 . Residential Energy Conservation

ACQUIRED PROPERTY MANAGEMENT AND mortgages. The guarantee is backed by the full
DISPOSITION faith and credit of the U.S. Government. Appli-
In the course of its activities, HUD acquires cants must be FHA-approved mortgagees in
title to many properties it insured or assisted good standing and generally have a net worth
because of mortgage defaults by property in excess of $100,000.
owners. HUD’s policy is to Iiquidate properties Program Activity. –GNMA guaranteed more
in such a manner as to assure the maximum than $152 billion in mortgage-backed, pass-
return to the mortgage insurance funds exist- through securities in FY 1978. In FY 1978 it
ent with the need to preserve and maintain made tandem commitments of $2.1 billion.
residential areas and communities.
Authorization.— Tandem plan activities were
Program Activities.– At the end of FY 1978 it authorized by the Housing and Urban Devel-
is estimated that HUD will own 63,119 proper- opment Act of 1968 and 1969 (Public Law
ties of which 25,701 would be houses and 90-488 and 91-1 52), the Housing and Communi-
37,418 multifamily units. Total acquisitions for ty Development Act of 1974 (Public Law
1978 are estimated at 50,575. 93-838), the Emergency Home Purchase Act of
Authorization. — Not applicable. 1974 (Public Law 93-449), the Emergency Hous-
ing Act of 1975 (Public Law 94-50), and the
GNMA GUARANTEED MORTGAGE-BACKED Housing Authorization Act of 1977 (Public Law
SECURITIES AND SPECIAL ASSISTANCE 95-1 28). GNMA’s guarantee authority is author-
MORTGAGE PURCHASES
ized by the Housing and Urban Development
The Government National Mortgage Associ- Act of 1968 (Public Law 90-44).
ation (GNMA), a corporate entity within HUD,
was originalIy established to provide a second- RESEARCH AND DEMONSTRATION PROJECTS
ary market for federally insured residential
Solar Heating and Cooling Demonstration.–
mortgages not readily salable in the private
As part of the national solar energy program
market. These mortgages generally financed
administered by the Department of Energy
housing for special groups or in areas of
(DOE), HUD is responsible for a demonstration
special needs. Prior to September 1, 1968,
of the practical application of solar energy in
GNMA’s functions were carried out by the Fed-
residential heating and cooling. The program
eral National Mortgage Association (FNMA).
includes 1) residential demonstrations in
More recently GNMA was authorized to pur- which solar equipment is installed in both new
chase both federalIy insured and conventional and existing dwelIings, 2) development of per-
mortgages at below-market interest rates to formance criteria and certification procedures
stimulate lagging housing production. These for solar heating and cooling demonstrations,
mortgages are then resold at current market 3) market development to encourage accept-
prices, with the Government absorbing the loss ance of solar technologies by the housing in-
as a subsidy under the “tandem” plan. HUD-, dustry, and 4) data gathering and dissemina-
FNMA-, or Federal Home Loan Mortgage Cor- tion of demonstrations and market develop-
poration (FHLMC)-approved lenders may apply ment efforts.
to sell mortgages to GNMA.
Program Activity. –As of December 1977 the
Twenty-five special assistance programs first four of five funding cycles have been
have been implemented since 1954. Between completed. A total of 325 grants valued at
January 1974 and September 1977 GNMA $13.5 million, involving 6,924 dwelling units,
issued $20.5 billion in commitments to pur- had been made.
chase below-market interest rate mortgages.
Authorization. – Solar Heating and Cooling
GNMA also guarantees the timely payment Act of 1974 (Public Law 93-409).
of principal and interest to holders of securi-
ties issued by private lenders and backed by Energy Performance Standards for New Build-
pools of HUD-insured and VA-guaranteed ings. –The purpose of this research, managed
Ch. Vlll—Federal Government and Energy Conservation “ 179

by HUD, is to develop energy performance Anyone may suggest modifications to the


standards for new buildings. It is divided into MPS; important changes are issued for com-
three phases: an assessment of how much ener- ment through the Federal Register.
gy buildings are designed to use; an assessment
Program Activity. – Not applicable.
of how much less energy buiIdings could be de-
signed to use; and the testing and evaluation Authorization. — National Housing Act (1934)
of standards. For analysis purposes buildings (Public Law 73-279).
were divided into two major groups — nonresi-
dential buildings, including multifamily Conservation Policies and Opportunities
homes, and low-rise multifamily housing, and
mobile homes. COMMUNITY DEVELOPMENT BLOCK GRANT
PROGRAM
The work is being carried out by the AIA Energy conservation activities are not spe-
Research Corporation and its subcontractors. cifically promoted nor precluded as one of the
eligible activities under CDBG. Localities may
Data is being collected on 6,254 buildings, choose to assist virtually any list of projects,
which were constructed in 1975 and 1976 in provided there are community improvement
different metropolitan areas. activities and are primarily oriented toward
helping low- and moderate-income families.
Program Activity. –The Phase I report has Many approaches to energy conservation
been completed. In November 1978, a draft set could be justified under these conditions; the
of standards and regulations and target most obvious would be an energy conservation
numbers for different climatic regions were CDBG-funded component tied into a housing
issued by DOE, and HUD issued draft imple- rehabilitation or a public housing moderniza-
mentation regulations for comment. After pub- tion program. Because individual communities
lic review and comment, standards will be select and design the projects they will under-
promulgated. Approximately $10 million has take, HUD has no easy way of knowing to what
been devoted to standards development. extent energy conservation improvements are
current] y encouraged.
Authorization. –Title I I I of the Energy Con-
servation Production Act of 1976 (EC PA) (Pub- The use of CDBG funds for conservation im-
lic Law 94-385). provements in rehabilitation financing pro-
grams has been made explicit in draft regula-
tions issued by HUD. The regulations would
MINIMUM PROPERTY HOUSING STANDARDS
allow CDBG rehabilitation financing to be
HUD has established MPS for its programs, used for measures to increase the efficient use
which prescribe minimum levels of design and of energy in structures through such means as
construction. The preamble of the National installation of storm windows and doors,
Housing Act (1934), which established FHA, au- siding, wall and attic insulation and conver-
thorized the agency to promote the upgrading sion, modification or replacement of heating
of housing standards. There are MPS for one- and cooling equipment, including the use of
to two-family new construction, multifamily solar energy equipment. The regulations also
new construction, nursing homes, and rehabil- propose that in considering discretionary
itation. The rehabilitation standards are more grants for new communities, HUD will give
in the form of guidelines than standards. The some weight to proposals that demonstrate the
MPS are used not only by HUD but by VA and potential of energy conservation.
FmHA, except that the latter’s standards for The CDBG program could give greater atten-
insulation differ somewhat from HUD’s MPS. tion to how its funds could be used to save
(See later section on Housing Standards.) The energy. Better coordination of efforts between
construction of all mobile homes is governed CDBG and the Community Services Admin-
by HUD’s Mobile Home Construction and istration’s weatherization program could be an
Safety Standards. effective approach to promoting residential
180 . Residential Energy Conservation

conservation. The weatherization program tated and then marketed. For those properties
could be administered to dovetail with HUD- that are fully repaired before resale, there are
financed rehabilitation projects, thus meeting no statutory maximums placed on the dollar
particular needs. amount of improvements aIlowed per struc-
Many jurisdictions, especially suburban and ture. A major goal of HUD, FmHA, and VA, in-
small communities, have had little involve- sofar as their reacquired housing inventory is
ment in HUD programs but may be eligible for concerned, is to dispose of the units as quickly
discretionary CDBG grants. The situation sur- as possible with the highest dolIar return.
rounding the planning of an application or ex- In 1978, HUD modified its property disposi-
penditure of CDBG funds in such communities tion policies so that all single-family homes
may be fluid, and—with encouragement— have to include certain energy conservation
they might find the promotion of energy con- features, or the purchaser has to agree to add
servation in housing worthwhile. I n this con- the features to the home as a condition of sale.
text, energy conservation would appear to be The only exceptions to the policy are homes
an ideal activity for the CDBG program to scheduled to be demolished, properties sold in
foster. conjunction with section 312 financing for
In larger cities CDBG funds can and fre- rehabiIitation by the purchaser, and properties
quently do go to agencies or organizations that transferred to local governments. Local
may be particularly interested in energy con- governments, however, are required to agree
servation. These agencies are frequently neigh- that conservation measures will be included
borhood-oriented, close to citizens, and may in their repair requirements for the homes.
be willing to launch energy conservation activ- HUD required energy-savings features include
ities. Such groups could be encouraged to pro- weatherstripping and caulking as needed, re-
mote conservation. Urban planning activities, placement of warped or ill-fitting doors and
now supported by the block grant program, windows, Insulation of the attic, air ducts, and
could be directed toward articulating the need hot water heating pipes, and installation of
for and scope of energy conservation pro- storm doors and windows in certain climatic
grams. zones. If heating or air-conditioning equip-
ment is replaced, proper sized equipment must
There appear to be few procedural road-
be selected.
blocks to encouraging conservation in CDBG
rehabilitation programs. HUD and local gov- Multifamily properties are not required to
ernment personnel do not seem to be opposed conform to a specific conservation standard.
to an energy efficiency emphasis but need en- Field offices have discretion in determining
couragement and greater awareness of the what should be done or in the case of “as is”
magnitude of the opportunity and potential to sales whether the making of conservation im-
use the CDBG program to achieve energy con- provements should be a condition of sale.
servation objectives. An energy conservation emphasis by HUD
may, in fact, have greater utility in helping pre-
ACQUIRED PROPERTY MANAGEMENT AND vent mortgage default and housing reacquisi-
DISPOSITION tion by the Government than in rescuing prop-
Although three Federal agencies (HUD, erties once defaulted. The major area of con-
FmHA, and VA) administer housing acquired cern for HUD (and FmHA) revolves around
due to default on Government-financed mort- multifamily projects that are heading for but
gages, HUD has the largest inventory con- have not yet defaulted and been acquired. A
sisting of both single- and multi-famiIy units. possible first step might be for the agency to
review its lists of publicly financed low- and
HUD and VA closely coordinate their activ- moderate-income housing, using annual re-
ities in administering and disposing of reac- ports submitted for the projects as well as
quired properties. Field offices determine audit reports to identify those projects ap-
whether properties are sold “as is” or rehabili- proaching default. Those projects where
Ch. Vlll—Federal Government and Energy Conservation “ 181

energy cost factors are the major financial ceed $8,000 and total purchases and commit-
problem could be identified and targeted for ments cannot exceed $100 million at any one
immediate action to improve the energy man- time. The interest rate can range from a rate
agement situation. While it might or might not that is not less than the average yield on out-
be possible to influence tenant attitudes standing interest-bearing obligations of the
toward saving energy, pinpointing such prob- U.S. Government of comparable maturities
lem projects could encourage project man- then forming a part of the public debt to the
agers to display a greater conservation con- maximum rate authorized by title 1. The Act
sciousness. If escalating energy costs are the also provides standby authority to buy and sell
prime cause of the financial difficulty and ma- title I or section 241 loans made for the pur-
jor conservation expenditures are indicated, pose of installing energy-conserving improve-
secondary financing could be made available ments.
and the financial problems that led to mort-
gage default might be lessened or eliminated. MINIMUM PROPERTY STANDARDS
This approach may be particularly appropriate Section 526 of the Housing and Community
for projects using electric heat. Development Act of 1974 required that–to
the maximum extent feasible— HUD promote
GOVERNMENT NATIONAL MORTGAGE
CORPORATION energy conservation through the MPS. The Na-
tional Energy Conservation Policy Act required
Because all its purchases are federally in- under the Energy Conservation Standards for
sured or guaranteed, HUD’s MPS determine New Buildings Act of 1976 becomes effective. ”
the energy efficiency of housing financed The MPS have been upgraded recently. (See
through GNMA. GNMA would presumably ac-
section on standards.) HUD believes any up-
cept whatever increased standards and energy- grading of conservation standards requires a
savings priorities were established by HUD.
balancing of the need to keep down construc-
The National Energy Conservation Policy tion costs and the potential fuel savings that
Act provides authority to GNMA to purchase will result from energy conservation improve-
title I insured loans made to low- and moder- ments, and tends to look with disfavor on addi-
ate-income families to finance the instalIation tional requirements that might increase the net
of solar energy systems. Such loans cannot ex- monthly housing costs of borrowers.

FARMERS HOME ADMINISTRATION

The Farmers Home Administration of USDA fices in rural areas (usually county seats) na-
provides housing assistance in open country tionwide. Unlike HUD, most of FmHA’s pro-
and rural communities with populations up to grams are not dependent on banks or other ap-
10,000. Its programs are also available in cities proved lending institutions. FmHA makes
of 10,000 to 20,000 population that are outside loans directly to families or sponsors using
standard metropolitan statistical area funds secured by issuing Certificates of
(SMSA) and have a serious lack of mortgage Beneficial Ownership placed with the Federal
credit as determined by the Secretaries of Financing Bank. FmHA also has the authority
HUD and USDA. The Federal Housing Act of to insure loans made by commercial lenders.
1949 gave FmHA authority to make housing
loans to farmers; that authority has been Housing developed under FmHA programs
broadened to serve other groups over the must be modest in size, design, and cost and
years. must meet HUD’s MPS.

The programs are administered by county The Senate Banking, Housing, and Urban Af-
agents through a system of 1,760 county of- fairs Committee and the House Banking, Cur-
182 . Residential Energy Conservation

rency, and Housing Committee handle FmHA on the amount. Loans cannot exceed $5,000.
housing legislation. Loans of less than $2,500 need only be evi-
denced by a promisory note. A combination
Section 502 Homeownership Loan Program loan grant is made to applicants if they can
The section 502 homeownership loan pro- repay only part of the cost; if the applicant
gram provides loan guarantees to private lend- cannot repay any of the cost a 100-percent
ers or direct loans to individuals to buy, build, grant is made.
or rehabilitate homes. FmHA guarantees 90 Program Activity. –During 1977, 3,843 loans
percent of the principal and interest on were made at a value of $9. I million.
privately financed housing loans. The max-
imum repayment period is 33 years. New Authorization. –Title V of the Housing Act
homes and homes older than 1 year may be of 1949 (Public Law 81-171) as amended.
financed with 100-percent loans. The interest
rate depends on adjusted family income and Section 515 Rural Rent and Cooperative
can vary from 1 to 8 percent. Although there is Housing Loans
no maximum amount that an applicant can The section 515 program provides loans to
borrow, the loan is limited by FmHA’s require- private, public, or nonprofit groups or in-
ment that the housing be modest in size, de- dividuals to provide rental or cooperative
sign, and cost and what an eligible family can housing of economic design for low- and
afford for mortgage payments, taxes, and in- moderate-income families and the elderly.
surance within 20 percent of its adjusted in- Funds may be used to construct new housing,
come. purchase new or existing housing, or repair ex-
In addition to the use of “regular” section isting housing for rental purposes. The interest
502 loans for housing repair, families earning rate on loans varies from 1 percent to the
less than $7,000 annually are eligible for FmHA market rate, depending on the housing
another type of home improvement loan under sponsor and the incomes of the occupants.
section 502. Under the 1:2:4 program a family Loans up to 50 years are made to elderly proj-
can borrow up to $7,000 over a period of 25 ects; for all other projects the term is up to 40
years at an interest rate of 1 to 4 percent years. Section 8 assistance provided by HUD
depending on family income for improvements can be used in conjunction with section 515
that would bring its home up to standard con- projects.
ditions.
Program Activity.– In 1977, 1,509 loans were
Program Activity. — In 1977, 121,614 loans made with a value of $647 m i I I ion.
were made with a total value of $2,678 m i I I ion.
Authorization. --Title V of the Housing Act
Authorization. –Title V of the Housing Act of 1949 (Public Law 81-171) as amended.
of 1949 (Public Law 81-171) as amended.

Section 504 Home Repair Loan and Conservation Policies and


Grant Programs
Opportunities
The section 504 home repair program pro-
vides loans and grants to low-income home- The FmHA loan programs have no specific
owners with grants restricted to the elderly to energy conservation goals. They rely on con-
remove certain dangers to their health and servation measures that may be integrated into
safety. An applicant must lack the income HUD’s MPS. Innovative approaches are dis-
necessary to repay a FmHA section 502 loan couraged in the new construction programs. As
and must own and occupy a home that has with solar applications, any measure requiring
conditions hazardous to health and safety. All capital costs out of the ordinary must be sepa-
loans are made at an interest rate of 1 percent. rately financed and requires special review
Loan terms vary from 10 to 20 years depending and approval from Washington.
Ch. Vlll—Federal Government and Energy Conservation . 183

The National Energy Conservation Policy Most FmHA financing is direct Government
Act requires the Secretary of Agriculture to lending, sometimes at a subsidized interest
promote the use of energy saving techniques rate. Conservation measures that exceed nor-
to the maximum extent feasible. Such stand- mal construction costs will therefore represent
ards should be consistent as far as practical an additional cost to the Government in the
with the HUD standards and be implemented latter case. FmHA rental projects typically
as soon as possible. have only one-third the number of units of a
typical urban project, so larger apartment
The FmHA section 504 program (grants and builders and architects are not attracted to the
low-interest loans for modifications to existing program and technical resources may be
housing) has made an effort to promote the limited.
weatherizing of single-family homes generalIy
Several steps could be taken to make hous-
wherever local community action agencies
ing built through FmHA more energy-efficient.
have been aware of FmHA’s program.
A much closer utility cost analysis could be re-
quired of every rental project applicant to
Housing assistance of FmHA is very person-
assure that alI feasible energy options are con-
alized. FmHA, unlike HUD, is decentralized
down to the county level. Applicants always sidered. Although FmHA has issued new insula-
meet directly with the FmHA county agent and tion thermal efficiency standards, the Wash-
ington-level system for handling novel energy
continue that relationship throughout the life
of the loan. The county agent inspects con- conservation questions and for simplified and
struction in progress and manages the loan sympathetic processing of such applications
payment process. County agents have relative- does not appear to have generally penetrated
ly complete authority, provided they deal with to the field level within the agency. Field staff
conventional building systems and techniques. couId be encouraged to combine single-family
loans and grants (section 504) with the weath-
On the other hand, the agents are not techni-
calIy expert in housing, and agency resources erization grants administered by local poverty
are limited. FmHA usually has only one archi- programs. The importance of energy conserva-
tect per State office. Several State offices, in tion could be more actively promoted by
fact, cover more than one State, further re- FmHA. The county agents could be provided
ducing the technical attention that can be with more extensive information on conserva-
given to individual projects. tion opportunities and given more extensive
technical support.
Because of the rural nature of the program, The FmHA State and county personnel ap-
there is heavy reliance on electric heat so that pear to be diligent and service-oriented and
energy costs are an important concern. How- will respond to Government policy that en-
ever, FmHA does not actively promote certain courages conservation if authority and direc-
kinds of buildings or utility systems. FmHA tion are given. The message on energy conser-
reacts to what is proposed by builders, many vation has so far been muted and very unclear,
of whom previously built single-family homes with the exception of the recently published
only. thermal efficiency standards for insulation.
184 ● Residential Energy Conservation

VETERANS ADMINISTRATION

The Veterans Administration provides a vari- struction. Existing properties are approved on
ety of benefits to veterans and their depend- the basis of “value.” There is no statutory limit
ents, including housing financing assistance on on the value of structures the agency will
more liberal terms than is available to the non- guarantee, but energy-conserving improve-
veteran. The assistance is in the form of loan ments wilI not be recognized if those costs ex-
guarantees to private lenders. Where private ceed the appraiser’s notion of the “value” of
capital is not available direct loans are made. the structure. As the VA operates its program
The VA uses HUD’s MPS in evaluating proper- through “approved lenders, ” (commercial
ties. banks and mortgage Iending institutions), the
first consideration is the “approved lender’s”
The VA operates through 49 regional offices.
policies. If the lender is liberally inclined
In the Senate and House, the Veterans Af- toward financing a house that includes extra
fairs Committees handle VA housing legisla- costs due to energy conservation equipment or
tion. materials not fully recognized in the appraisal,
the lender must then be willing to seek VA ap-
VA Loan Guarantee and Direct
proval of the particular case. The VA may then
Loan Programs review the appraiser’s statement of “value,”
The Veterans Administration provides loan and the questionable costs may be included
guarantees to private lenders and direct loans with in the mortgage. However, this is relatively
to veterans to finance the purchase, construc- difficult because the VA housing program is
tion, or rehabilitation of homes, mobile homes, too thinly staffed for the case-by-case per-
or condominiums. One- to four-unit owner- sonalized attention this approach requires.
occupied properties are eligible for assistance.
As far as new construction is concerned, VA
The maximum guarantee is $17,500 or 60 per-
follows HUD’s MPS; therefore, any initiative or
cent of appraised value, whichever is less.
the raising of energy efficiency requirements
There are no limits on the value of properties
in this area is up to HUD.
that can be guaranteed. No downpayment is
required and loans up to 30 years are eligible I n the existing home market, the determina-
under the guarantee. tions of value are largely made by fee
appraisers — local real estate personnel who
Program Activity. — In 1977, 392,557 guaran-
are not Government employees. Reaching
tee commitments were issued with a total
such a large group concerning energy conser-
value of $13.9 billion. In addition 2,566 direct
vation and influencing their thinking may be
loans were made for a total amount of $63.2
best accomplished through the appraisal or
million. Of the total program activity 369,024
professional organizations and through HUD
involved home purchases, 12,206 refinancing,
channels, as these appraisers usually do FHA
2,638 condominiums, 3,459 mobile homes, and
appraisal work, as well.
5,230 direct loans sold and guaranteed.
The Veterans Administration could also play
Authorization. – Servicemen’s Readjustment
Act of 1944 as amended, title 30 U.S.C. 1, an important role in educating VA lenders and
originators about the importance of consider-
chapter 37.
ing energy conservation in lending decisions.
Conservation Policies and As VA does not guarantee the entire loan, but
Opportunities just a portion, many lenders may have a differ-
ent and more conservative attitude toward VA
The Veterans Administration has no formal loans than toward FHA loans. Moreover, VA is
system for promoting energy conservation in proud of its relatively low default rate and
its home loan guarantee program. VA follows believes this is due to its conservative policies
HUD’s MPS in approving loans for new con- in analyzing risk and judging “value.”
Ch. Vlll—Federal Government and Energy Conservation ● 185

OTHER FEDERAL DEPARTMENTS AND PROGRAMS

A number of other Federal departments play power training funds provided under the Com-
important roles in supporting residential prehensive Employment and Training Act
energy conservation or housing production (CETA) are used.
and can have a significant impact in promoting The emergency energy conservation pro-
energy conservation. HEW’s Community Serv- gram also funds a variety of research and dem-
ices Administration (CSA) administers the onstration activities related to energy conser-
emergency energy conservation program, vation in various sectors of the economy.
which includes research and development ac-
tivities and a program to weatherize the homes Program Activity. –Approximately 800 CAAs
of low-income families. The DOE’s Division of participate in the weatherization program.
Buildings and Community Systems funds a About $39 million was appropriated for weath-
wide variety of residential conservation erization grants in fiscal year 1978. As of
research and demonstration activities. The De- December 31, 1977, 268,252 households had
partment also administers a weatherization been assisted. The average grant was approx-
assistance program for low-income families imately $233. The research and demonstration
and is authorized to operate a loan guarantee activities were funded at a level of $24 million
program for energy conservation improve- in FY 1978.
ments. The Department of Defense is an im- Authorization. –Section 222(a)(12) of the
portant developer of residential housing for Economic Opportunity Act of 1964 (Public
the military and is involved in energy conserva- Law 88-452) as amended.
tion demonstrations. The Department of the
Treasury affects energy conservation practices
and housing production and maintenance DOE Weatherization Assistance Program
through its formulation and administration of
tax and fiscal policies. The DOE weatherization assistance program
is intended to supplement other Federal
CSA Emergency Energy Conservation Program weatherization efforts. Grants are provided to
the States, based on climate and the extent of
The emergency energy conservation pro- poverty. The States contract with community-
gram of CSA includes a weatherization compo- based organizations, which in turn weatherize
nent, which provides grants to low-income the homes of low-income families, particularly
families (up to 125 percent of the Office of the homes of the elderly and handicapped. Pri-
Management and Budget’s (OMB) poverty in- ority is given to contracts with community ac-
come guidelines) for housing repair and tion agencies. The income of recipients cannot
energy-savings i m prove merits t h a t w i l l exceed 125 percent of the OMB poverty in-
minimize heat loss and improve thermal effi- come guideline. Normally, grants cannot ex-
ciency. Renters as well as homeowners are ceed $400 per household. Of the funds granted
eligible. Funds are allocated to States, which in 90 percent must be used for program costs.
turn allocate funds to community action agen- Labor, supervision, and transportation are ex-
cies (CAAs) or CSA can fund CAAs directly. pected to come from other sources, particular-
Funds may be used for insulation, storm doors ly CAAs and manpower training funds pro-
and windows, repairs of sources of heat loss, vided under CETA.
and repair of heating systems. Of the funds
granted, 80 percent must be used for materials. Program Activity. -The program was initi-
Expenditure limits per unit vary from region to ated in the fall of 1977 and 501 homes were
region and, since November 1977, can range weatherized in 1977. About 1,000 organiza-
up to $800. CAAs are encouraged to attempt to tions are participating. The FY 1978 appropria-
secure labor, supervision, and transportation tion was $65 million; the FY 1979 appropriation
costs from other sources; most frequently man- $199 million.
186 ● Residential Energy Conservation

Authorization. – Title IV, part A, of the one of the allowable uses of loan guarantees,
Energy Conservation and Production Act of the program appears to be only incidentally a
1976 (Public Law 94-385). (See chapter III for housing program. To implement the housing
current information.) portion a system to service the housing market
would have to be established. Guarantees
DOE Division of Buildings and couId be made if credit would not otherwise
Community Systems be available.
The program has never become operational.
The Division of Buildings and Community
DOE has had second thoughts about whether
Systems supports a variety of research projects
it would be useful. Potential demand for the
and demonstrations designed to: 1 ) encourage
assistance is under study.
and support the installation of energy-efficient
technologies, 2) develop and commercialize Program Activity. – None.
systems to reduce the dependence on petro-
leum and natural gas, 3) develop and dissemi- Authorization. – Section 451 of the Energy
nate information about energy-efficient tech- Conservation and Production Act of 1976 (Pub-
nologies, 4) promote the use of energy-conserv- lic Law 94-385).
ing technologies and practices, 5) develop and
implement energy-efficient standards for new Department of Defense
buildings and appliances, and 6) implement
the weatherization assistance program. Activ- The Department of Defense owns and oper-
ities include such projects as the testing of ates 385,000 units of family housing within the
heat pumps, energy feedback meters, and insu- continental United States. DOD also leases
lation; a nine-city demonstration to improve some units off base, but these leases typically
the availability of energy conservation im- are short term to handle emergency situations.
provement financing; distribution of an energy
retrofit manual to homeowners and home im- Since 1976 DOD has operated a comprehen-
provement contractors; and the encourage- sive energy conservation investment program
ment of State adoption of the NationaI Con- (EClP) designed to save energy in all types of
ference of States on Building Codes and Stand- DOD-owned buildings. Approximately $13 mil-
ards (NCSBCS) Model Code (Model Code for lion a year has been used for residential retro-
Energy Conservation in New Building Con- fit The ECIP requirements for FY 1976-84 are
struction). estimated to be $1.5 bilIion.

Initially retrofit projects had to show a 5-


Program Activity. —The 1979 appropriation
year payback period to be selected for imple-
was $79.55 million. In 1978 it was $52.3 million.
mentation, but a Btu-saved formula is now be-
ing used. In FY 1979 al I projects must average
Authorization. –The Department was estab-
58 million Btu saved per $1,000 of investment,
lished by the Department of Energy Organiza-
but a project designed to save as low as 23
tion Act of 1977 (Public Law 95-91) pursuant to
million Btu will be considered. Translated into
Executive Order 12009 of September 13, 1977.
a payback formula, this approach results in
(See p. 194 for discussion of program.)
consideration of projects with payback periods
as long as 15 years.
DOE Obligations Guarantee Program The DOD program is goal-oriented and im-
plemented through the chain of command,
This program would provide loan guarantees and apparently the goals are being achieved.
for a wide range of conservation or renewable Information access is regular and there are no
resource activities for existing commercial, in- peculiar financing problems because all con-
dustrial, and multifamily buildings. While servation is funded from Iine item appropria-
multifamily housing is specifically included as t ions.
Ch. Vlll—Federal Government and Energy Conservation ● 187

Under a DOD solar demonstration project, Conservation Policies and


DOD has retrofitted four houses. Opportunities
Also, DOD appears to have a well-conceived
Both the CSA and DOE programs directly
and relatively thorough training program for support energy conservation. Tax policies are
upgrading housing managers and sensitizing discussed in another part of the report.
tenants in day-to-day conservation measures.
To expand its conservation activities, DOD
Program Activity. — Retrofit activity has aver- might consider using the annual appropri-
aged approximately $13 million a year during ations for debt service dollars instead of direct
the FY 1977-79 period. expenditure dollars. In that way, it could accel-
erate the conservation program and realize the
Authorization. – Not applicable. per unit savings of volume contracting at to-
day’s costs rather than future costs, thus ac-
Treasury Department: Tax Policy
celerating all the energy cost savings into 1
The Treasury Department has a significant year rather than realizing them incrementally.
impact on the development and maintenance These earlier realized energy cost savings, plus
of the Nation’s housing inventory and invest- avoidance of contracting cost increases due to
ment in conservation improvements through inflation in future years, might be cost effec-
its administration and enforcement of internal tive. Such an approach, which commits Con-
revenue laws. These laws and their present and gress to appropriations in advance, would re-
potential impact on energy conservation are quire specific legislative approval but would
discussed in detail at the end of this section. not require additional appropriations.

HOUSING SECONDARY MORTGAGE MARKET AND


REGULATORY AGENCIES

Nearly all of the capital for the housing in- Lending practices are affected by the policies
dustry is provided by a Variety of private lend- of lending regulatory agencies and the activ-
ing institutions. Savings and loan associations, ities of secondary mortgage market institu-
banks, and mortgage companies are the pri- tions.
mary loan originators as shown by table 69.

Table 69.—Originations of Long-Term Mortgage Loans 1977


(dollars in billions)
188 ● Residential Energy Conservation

Regulatory Agencies leverage to encourage its members to adopt an


energy conservation policy as it regulates but
Most lenders are subject to Federal and/or does not provide liquidity to banks as does
State regulations. The two most important in FHLBB.
terms of their impacts on the housing industry
are the Federal Home Loan Bank Board
(FHLBB) and the Federal Deposit Insurance Secondary Mortgage Market
Corporation (FDIC).
A number of Government-sponsored agen-
cies have been established to provide liquidity
FEDERAL HOME LOAN BANK BOARD
to the mortgage market by purchasing loans
The Federal Home Loan Bank Board is an in- originated by private lenders. As noted earlier,
dependent executive agency that supervises the Government National Mortgage Associa-
and regulates savings and loan associations, tion (GNMA) purchases selected types of FHA
which are the country’s major private source and VA mortgages. The Federal Home Loan
of funds for financing housing. The Board gov- Mortgage Corporation provides a secondary
erns the Federal Savings and Loan Insurance market for conventional mortgages made by
Corporation, which provides deposit insurance savings and loans and other lenders, and the
to savings and loan institutions. The Board Federal National Mortgage Association
directs the Federal Home Loan Bank System, (FNMA) purchases mortgages originated by ap-
which provides reserve credit and ancillary proved lenders. The important role of federally
services to member saving and loans. There are supported loan pools can be noted in table 70,
12 regional Federal Home Loan Banks in the which breaks down net acquisitions of long-
system. term mortgage loans on residential properties
for 1977. The pools acquired 15 percent of the
FEDERAL DEPOSIT INSURANCE CORPORATION one- to four-family loans made and 5.7 percent
The Federal Deposit Insurance Corporation of the multifamily loans made. (Comparing
is an independent executive agency that super- this table to table 68 documents that mortgage
vises and regulates certain activities of Na- companies particularly make use of the sec-
tional and State banks that are members of the ondary market to selI off loans they originate. )
Federal Reserve System and State banks that
apply for deposit insurance. FDIC provides de- Table 70.—Net Acquisitions of Long-Term Mortgage
Loans on Residential Properties by Lender Groups
posit insurance to banks. The management of (dollars in billions)
the corporation is invested in a three-person
Board of Directors, one of whom is the Comp- 1-to 4-family Multifamily
troller of the Currency. There are 14 regional Type homes projects
FDIC offices in the system. Savings and loan
associations. . . . . . . . . . . 84.2 6.5
Mutual savings banks . . . . . 10.3 1.7
Conservation Policy and Opportunities Commercial banks. . . . . . . . 31.6 1.4
Life insurance companies. . .6 .9
The Federal Home Loan Bank Board has no Non insured pension funds. .1 .1
specific conservation policy. It is cooperating State & local retirement
with DOE’s attempt to sensitize all financial funds. . . . . . . . . . . . . . . . . .3 .2
State & local government
institutions to energy efficiency in their resi- credit agencies. . . . . . . . . 2.6 1.0
dential lending practices. These activities in- Credit unions . . . . . . . . . . . . .7 —
clude structured group interviews, discussions Mortgage investment
trusts. . . . . . . . . . . . . . . . . (a) .1
about revision of loan appraisal procedures, Federal credit agencies. . . . 4.5 1.1
and investigations of different financing incen- Mortgage pools . . . . . . . . . . 22.5 1.2
tives. State chartered credit
unions. . . . . . . . . . . . . . — .3
The Federal Deposit Insurance Corporation Total . . . . . . . . . . . . . . . . . 158.4 14.6
has no apparent energy conservation policy. It aunder $50 milllon.
NOTE Figures may not total due to rounding.
does not believe that it has the authority or SOURCE: HUD Office of Housing Statistics.
Ch. Vlll—Federal Government and Energy Conservation ● 189

These secondary market institutions are im- FEDERAL HOME LOAN MORTGAGE
portant to energy conservation not only in that CORPORATION
they provide liquidity to lenders, but because The Federal Home Loan Mortgage Corpora-
they employ appraisal and mortgage credit tion (the Mortgage Corporation) promotes the
standards, forms, and policies that are com- flow of capital into the housing market by
monly used in the lending industry and have establishing an active secondary market in
energy conservation implications. Generally, mortgages for savings and loans and other
appraisal forms have not explicitly (with the lending institutions. It operates under the
exception of the HUD/FHA forms) required an direction of FHLBB. The corporation’s pur-
estimate of energy costs. No forms require an chase programs cover conventional mortgage
appraisal of the energy efficiency of the prop- loans, participations in conventional mortgage
erty. Neither FNMA nor FHLMC requires ener- loans, and FHA-insured and VA-guaranteed
gy costs to be considered to evaluating a bor- loans. Its sources of funds are borrowings from
rower’s credit. Federal Home Loan Banks, the issuance of
GNMA mortgage-backed securities, the is-
FEDERAL NATIONAL MORTGAGE ASSOCIATION suance of participation sale certificates, and
direct sales from its mortgage portfolio.
The Federal National Mortgage Association
Program Activity. –At the end of 1977, the
is a Government-sponsored private corpora-
Mortgage Corporation held $4.1 billion in
tion regulated by the Secretary of HUD. It pro-
mortgages. Outstanding commitments totaled
vides supplementary assistance to the second-
$5.5 billion.
ary market for home mortgages by supplying a
degree of liquidity for mortgage investments, Authorization. — Emergency Home Finance
thereby improving the distribution of invest- Act of 1970.
ment capital available for home mortgage
financing. FNMA buys FHA-insured, VA-guar- Conservation Policies and Opportunities
anteed, and conventional mortgages. FNMA The National Energy Conservation Policy
makes mortgage funds available through peri- Act authorized the Mortgage Corporation to
odic auctions of mortgage purchase com- purchase title I loans whose proceeds were
mitments on home mortgages in which lending used to finance energy conservation improve-
institutions, such as mortgage companies, ments and authorized FNMA to buy and sell
banks, savings and loan associations, and in- conservation and solar energy-related home
surance companies, make offers to FNMA, improvement loans.
generally on a competitive basis. It also offers
to issue standby commitments for both home FNMA and FHLMC have taken some actions
and multifamily mortgages on proposed con- to promote conservation. They have issued a
struction at approved prices based on its auc- new home mortgage appraisal form requiring
tion prices. The Secretary of HUD may require appraisers after March 1, 1979, to determine
that a reasonable portion of the corporation’s whether insulation exists and is adequate,
mortgage purchases support the national goal whether the home has storm windows, and to
of providing adequate housing for low- and note any special energy features, their costs
moderate-income famiIies. and contribution to the property’s value. The
FHLMC has announced that it will purchase
Program Activity.– In 1977, F N M A m a d e refinance loans with loan-to-value ratio’s of up
commitments of $10.92 billion and as of De- to 90 percent rather than 80 percent if its pro-
cember 31, 1977, had a net mortgage and loan ceeds will be used for rehabilitation, renova-
portfolio of $33.2 billion. tion, or energy conservation improvements.
Authorization. – Housing and Urban Devel- FNMA and FHLMC are in a position to pro-
opment Act of 1954 (Public Law 83-560) as vide leadership to sensitize lenders to energy
amended by the Housing and Urban Develop- conservation considerations in lending. Their
ment Act of 1968 (Public Law 90-448). influence on lending practices is substantial
190 . Residential Energy Conservation

because lenders commonly follow secondary costs as a factor in determining the ability of
market practices and requirements so that the purchaser to afford a home. These actions
mortgages will be readily salable if the lender would make homebuyers more aware of
wants to dispose of them. Their forms are energy conservation issues and would provide
widely used in the industry. DOE has tried to financial incentives to purchasers of energy-
encourage these institutions to induce lenders efficient properties.
to require energy-efficiency information on
The Mortgage Corporation is in a particular-
mortgage applications, to consider energy
ly strong position to change lender practices
costs in approving properties and judging the
because it can require sellers to repurchase
credit of borrowers, and to revise their
mortgages if it is determined that prescribed
guideforms and lending guidelines according-
procedures and practices were not followed in
ly. A number of actions could be taken to pro-
originating the loan. On the other hand, ap-
mote conservation. Forms and procedures
praisers and lenders are reluctant to to use in-
could require more explicit considerations of
formation on the past energy consumption of a
the energy efficiency of properties. Appraisals
home because of the importance of lifestyle
could take into account the actual energy
and family size in determining energy costs
costs of specific homes. Appraisers could iden-
and because of potential issues of liability that
tify and give greater consideration to the ex-
might arise.
istence or absence of conservation improve-
ments. Lenders could be required to use energy

ENERGY CONSERVATION AND FEDERAL TAX POLICY

Federal tax policy can do much more than it cific tax incentives for energy conservation ex-
has to stimulate energy conservation. Taxes penditures.
have substantial impact on individual deci-
sions about the construction, rehabilitation,
improvement, and ownership of all kinds of
Present Law (Prior to the
residential property in the United States. Until Energy Tax Act of 1978)
very recently, existing law has not encouraged Under present law, four types of tax law pro-
expenditures for energy conservation. visions principally affect the construction,
The tax laws may be used –as they have rehabilitation, improvement, and ownership of
been in a number of similar situations–to af- residential property. They relate to the deduc-
fect certain investment decisions and to re- tions available for the payment or incurrence
quire certain behavior as a prerequisite to the of: 1 ) interest on indebtedness, 2) real property
availability of a financial benefit. If energy taxes, 3) depreciation, and 4) the costs of
conservation is accepted as a valid national operating residential property. Section 163 of
objective, long-term conservation goals may the Internal Revenue Code (the “Code”) pro-
be assisted substantially by changes in the tax vides a specific deduction for all interest paid
laws that affect the building and improvement or incurred on indebtedness. Section 164 of the
of residential housing. Code provides a specific deduction for real
estate taxes paid or incurred. Section 167 of
Some tax law changes have already been the Code is the basic depreciation provision —
made to encourage energy conservation ex- providing various methods of depreciation for
penditures, and others could be made to the owners of rented residential property, in-
strengthen the incentives. These changes fall cluding a special 5-year amortization provision
into two categories: 1 ) Iimiting tax benefits to for the rehabilitation of low- and moderate-
cases where energy conservation needs have income residential property. For certain prop-
been considered, and 2) providing new, spe- erties having historic significance, Congress
Ch. Vlll—Federal Government and Energy Conservation Ž 191

added in 1976 a special 5-year amortization sults in the availability of the Federal tax
provision for rehabilitation expenditures (sec- deduction to renters.
tion 191 of the Code). With respect to the cost
of operating rental residential property, sec- The interest and real property tax deduc-
tions 162 and 212 of the Code provide deduc- tions are available to the owners of multi-
tions for all of the ordinary and necessary ex- family residential property, with similar
penses related to the operation of such proper- economic effects. I n addition, such owners
ty. have the opportunity to recover the cost of
energy conservation expenditures through
Single-family homeowners (whether the depreciation —ordinarily, over the useful life
dwelling is a freestanding house, a condomini- of the capital equipment or structural feature
um unit, or a unit in a cooperative) who oc- involved. While the depreciation deduction
cupy their own homes may take only the in- does afford cost recovery, it does not provide
terest and real estate tax deductions. Owners any greater incentive to make an energy con-
of multifamily residential property (without re- servation expenditure than to make any other
gard to the number of rental units) are entitled, capital equipment or structural expenditure.
additionally, to the benefits available under While the knowledge that energy operating
the depreciation provisions and to deductions costs will be reduced by such expenditures
for the costs of operating the property. may affect certain decisions concerning newly
constructed buildings, those costs have a
The Effect of Present Law on Energy much lower priority in rehabiIitation and im-
provement decisions, particularly when utility
Conservation
costs are simply passed on to tenants.
The interest and real property tax deduc- Overall, therefore, it may be concluded that
tions are both important factors in decisions tax laws enacted before 1978 have provided
made by individuals to build, rehabilitate, im- very Iittle encouragement to the owners of
prove, or purchase a single-family home. The residential property considering decisions to
interest deduction reduces the real cost of the make energy conservation expenditures.
mortgage loan. The real estate tax deduction
reduces the cost of providing shelter. The in-
terest deduction indirectly encourages expend-
The Energy Tax Act of 1978
itures for capital equipment or structural To stimulate energy conservation expendi-
changes that conserve energy. For example, to tures by those homeowners who are not en-
the extent that the cost of original construc- titled to depreciation, the Energy Tax Act of
tion or later rehabilitation or improvement is 1978 provides certain new Federal income tax
financed by a mortgage loan, the interest de- credits. The credits may be applied only
duction reduces the real cost of the energy against investments relating to a taxpayer’s
conservation expenditures. To the extent that principal place of residence (whether owned or
such expenditures increase the appraised rented), which must be located in the United
value of single-family homes — and thus, the States and –to be eligible for the first category
applicable real property taxes —the real estate of credits— have been “substantially com-
tax deduction reduces shelter costs. pleted” before April 20,1977.

While neither of these deductions is now The new law permits tax credits amounting
available to renters, an effort is underway to to 15 percent of the cost of energy conserva-
make the real property tax deduction avail- tion investments of up to $2,000 (i. e., a max-
able. Under a recently enacted New York imum credit of $300) made during a taxable
statute, a renter would become directly re- year between 1977 and 1985. Eligible invest-
sponsible for the real property tax allocable to ments include insulation, furnace efficiency
his dwelling unit. The Internal Revenue Service improvements, clock thermostats, storm win-
is considering whether this new State law re- dows and doors, caulking and weatherstrip-
192 Ž Residential Energy Conservation

ping, utility meters that show the cost of serv- 2. Providing new, specific tax incentives for
ice, and any other items “of the kind which the energy conservation expenditures.
Secretary specifies by regulations as increasing
the energy efficiency of the dwellings.” Draft Two special provisions of present law allow
regulations specifically exclude heat pumps, owners of multifamily residential property to
according to Internal Revenue Service sources. recover their costs of rehabilitation and im-
provement over a 5-year period (rather than
A second provision of the Energy Tax Act the much longer useful life of the rehabilitated
provides tax credits amounting to 30 percent or improved property).
of the cost of investments of up to $2,000 in
renewable energy sources, and 20 percent of Under section 167(k) of the Code, owners of
up to $8,000 in additional costs of such renew- rehabiIitated low- and moderate-income resi-
able energy sources (i. e., a maximum credit of dential property may recover their rehabilita-
$2,200). The renewable-energy tax credit, tion expenditures — to the extent of $20,000 per
which may be used for newly constructed as residential unit—over a 5-year period. The
well as pre-1 977 dwellings, may be applied availability of this special provision should be
against an investment in active or passive solar conditioned upon making energy conservation
systems, geothermal energy, wind energy, or expenditures that meet HUD standards. AS the
“any other form of renewable energy which present $20,000 limitation on rehabilitation ex-
the Secretary specifies by regulation, for the penditures to which this special provision now
purpose of heating or cooling such dwelling or applies often does not cover the full cost of
providing hot water for use within such dwelI- the actual rehabilitation, the present provision
ing.” At this writing, the draft regulations are might be amended to provide simiIar treat-
expected to prohibit application of the credit ment for up to an additional $2,000 per unit of
to wood-burning stoves. They are also ex- “certified energy conservation expenditures”
pected to be restrictive with respect to passive made in connection with such a project. Such
solar features; they will exclude such things as a requirement would produce a long-term
greenhouses, draperies, special materials used budgetary benefit through its reduction of the
in roofing, siding, or glazing, and any construc- long-range increase in section 8 housing
tion components that serve structural func- assistance payment costs in section 167(k)
tions as welI as passive solar functions. housing projects. It would, thereby, offset the
The new credits may be used only to reduce revenue losses in early years from such a
tax liability, not to gain a refund. However, if change in tax policy.
the eligible expenditures exceeds a taxpayer’s Under sections 191 and 167(o) of the Code,
tax liability for the year in which the invest- the owners of substantially rehabilitated his-
ment is made, the amount of the tax liability toric properties have been afforded the ability
may be carried over to the next taxable year. to deduct rehabilitation expenditures, without
This provision seeks to avoid discrimination limit, over a 5-year period (under section 191)
against low-income persons with Iittle or no tax or to claim depreciation with respect to such
liability. costs in the same manner as would the owner
of newly constructed residential property (sec-
Further Changes to Encourage Energy tion 167(o)). The availability of these special
Conservation Expenditures provisions should also be conditioned upon
making energy conservation expenditures that
Further changes in tax policy would encour-
meet H U D standards. I n the case of owners
age additional energy conservation expend-
who make an election under section 191, no
itures. Two broad categories of change deserve
new tax incentive is required, as all rehabilita-
considerate ion:
tion expenditures are deductible over a 5-year
1. Requiring that certain existing tax benefits period. I n the case of section 167(1) elections,
be available only if energy conservation a substantial tax incentive already exists and it
needs have been taken into account. seems improper to increase it at this time
Ch. Vlll— Federal Government and Energy Conservation ● 193

before any experience has been accumulated isting commercial and industrial structures, it
concerning its use. would seem equally important to extend such
policy to “certified energy conservation ex-
Somewhat different considerations apply to
penses” — including structural components
owners of residential property who use it in a
and capital equipment— in both newly con-
trade or business, or hold it for the production
structed and rehabilitated residential struc-
of income and are, therefore, entitled to claim
tures. While the definition of “certified energy
depreciation deductions. In such cases, the tax
conservation expenditures” would require
laws have been utilized in two ways to encour-
careful drafting to avoid abuse, the principle is
age particular types of investments — either the
the same as in the expansion of the investment
provision of an investment tax credit or the
credit.
provision of a form of rapid amortization of
the costs of the investment. Either technique
could be selected to encourage investments in Rapid Amortization
energy conservation.
An alternative tax incentive to the expansion
of the scope of the investment credit provi-
Investment Tax Credit sions is the enactment of a special rapid amor-
tization provision for “certified energy conser-
The existing investment tax credit provisions
vation expenditures. ” The technique of a 5-
do not encourage energy conservation expend-
year amortization provision has been used in
itures in that they do not now provide a credit
the past to encourage investments in such
for the cost of buildings (or the structural com-
areas as soil and water conservation (section
ponents of buildings) or for any tangible per-
175), fertilizer (section 180), the clearing of
sonal property used in connection with resi-
land (section 182), the rehabilitation of low-
dential property (see section 43 of the Code). It
and moderate-income housing (section 167(k))
wouId be necessary to amend the provisions of
and, most recently, the rehabilitation of his-
present law to provide for an exception for
toric structures (section 191 ). Such a technique
“certified energy conservation expenditures”
seems particularly adaptable to encouraging
to encourage such investments.
investments in energy conservation.
Indirectly, Congress has given such a provi-
Congress has, in more recent years, ex-
sion active consideration for expenditures in
pressed the belief that incentive tax provisions
connection with the rehabilitation of certain
should not become permanent parts of the In-
commercial and industrial buildings. Under
ternal Revenue Code, but should be readily
section 314 of H.R. 13511 (which passed the
susceptible to review, change, and elimination
House and reached the Senate Finance Com-
as necessities and priorities change. Thus, for
mittee in the 95th Congress), the investment
example, the 5-year amortization of expend-
tax credit would be available for qualifying
itures for the rehabilitation of historic
energy conservation and al I other expenditures
buildings applies only to expenditures made
made in connection with a qualified rehabili-
between June 15,1976, and June 15,1981. Such
tated building. These expenditures include in-
provision may be thereafter extended by Con-
vestments in structural components of the
gress, as has the section 167(k) rehabilitation
building as well as capital equipment expend-
expense deduction for further periods (general-
itures that constitute personal property.
ly, of 2 years each in duration). A separate 5-
Having recognized the importance of mak- year amortization provision for energy conser-
ing avaiIable the investment credit in such cir- vation expenditures should be easiIy suscepti-
cumstances to encourage the recycling of ex- ble to such treatment.
194 ● Residential Energy Conservation

CONSERVATION R&D ACTIVITIES, OFFICE OF CONSERVATION


AND SOLAR APPLICATIONS, DEPARTMENT OF ENERGY

The buildings and community systems pro- 2 develop and commercialize systems that
gram of the Office of Conservation and Solar will reduce dependence on petroleum and
Applications is the major division within DOE natural gas;
that conducts R&D activities related to energy 3 develop and disseminate information
conservation in the residential sector. Under about new and existing technologies con-
this program, t h e r e a r e a v a r i e t y o f s u b - cerning energy-efficiency utiIization im-
programs which address specific areas of con- provements;
servation R&D. The purpose of this discussion 4 promote the use of energy-conserving
is to provide a general description of the technologies and energy-conserving prac-
various subprograms and to address some of tices in the facilities and operations of the
the problem areas in the R&D component of Federal Government;
residential energy conservation. 5 develop and implement energy efficiency
standards for new buildings and appli-
ances; and
Program Objective and Strategy 6 implement the weatherization program to
Specifically, the near-term objective of the meet certain energy needs of low-income
buildings and community systems program, “is citizens. 2
to produce total energy savings through the Another important objective of the build-
development and implementation of new tech- ings and community systems program is to in-
nology equal to 2.4 million barrels of oil volve nongovernmental groups in research,
equivalent per day by 1985 by lowering unit development, demonstration, and implemen-
energy consumption 20 percent in existing tation activities to facilitate the transfer of
buildings and community systems; and 30 per- technology and information to potential users
cent in new buiIdings, community systems, and as soon as the technology has been demon-
consumer products." 1 strated to be economically and technically
feasible. A majority of the funds that support
The program is aimed at increasing energy
these activities are spent with industry on a
utilization efficiency, providing options to
large number of cost-sharing projects. The pro-
substitute energy forms such as coal for
gram also works closely with various trade and
natural gas, and providing technologies that
non-Federal organizations to obtain comments
decrease the need for energy to satisfy human
from a variety of sources, including the Na-
needs. AlI activities are directed toward pro-
tional Governors Conference, the National
viding these new technologies within an eco-
Conference of States on Building Codes and
nomicalIy and environmentalIy sound frame-
Standards, the League of Cities, Public Tech-
work. Also, activities focus on preparing for
nology, Inc., the National Association of Home
transfer of energy-efficient technologies fol-
Builders, the American Institute of Architects,
lowing demonstration to the residential and
the American Society of Heating, Refrigerating
commercial sectors.
and Air Conditioning Engineers, Inc., and the
The strategy for attaining program objec- National Savings and Loan League.
tives is to:
1. encourage and support the installation of Budget Allocation
energy-efficient technologies as soon as
possible; Table 71 presents a summary of budget esti-
mates (in thousands of dollars) by program ac-
‘Management Review and Control Document, Office
of Conservation and Solar Applications, p. 1, Mar. 23, 2 U S Department of Energy, FY 1979 Congressional/
1978 Budget Request, Jan. 23,1978, p. 1.
Ch. Vlll— Federal Government and Energy Conservation ● 195

Photo credit: U.S. Department of Energy

Energy-saving homes— Construction of homes in Mission


Viejo, Calif., designed to use less than half the energy of
surrounding conventional houses in a research project Disseminating information on residential energy efficiency
supported by DOE, Southern California Gas company, and involves cooperation within the executive branch. This
the Mission Viego Company, a real estate firm publication was a joint effort of HUD and DOE

Photo credit: Department of Energy by Jack

Solar heating and cooIing—This house in Baltimore County, Md., designed by architect Peter Powell, uses
passive solar concepts to provide “natural” heating and cooling. DOE is studying passive solar heating concepts
to determine how well they can work to save energy and money in buildings
196 ● Residential Energy Conservation

Table 71.— FY1979 Budget Estimates for Residential As the figures suggest, conservation R&D re-
and Commercial Components of DOE’S mains a high priority in the Federal energy
Conservation Mission agenda.
(in thousands of dollars)
Activity
— FY 1978 FY 1979
Residential & commercial Activities of the Buildings and
Buildings & community systems Community Systems Program
Building systems . . . . . . . . . . . . . . $ 19,500 $ 17,600
Community energy utilization. . . . 12,800 19,400 Building Systems. –The building systems ob-
Urban waste. . . . . . . . . . . . . . . . . . . 11,000 8,500 jective is geared toward development and
Technology & consumer products 9,200 20,350
commercialization of energy-efficient design,
Analysis & technology transfer. . . 2,590 2,800
methods of construction and operation, and
Subtotal. . . . . . . . . . . . . . . . . . 55,090 68,650
the development of standards for new and ex-
Mandatory appliance standards . . . . 4,267 3,750 isting residential and commercial buildings.
Other commercial. . . . . . . . . . . . . . . . 200 500 For the residential sector, R&D attempts to
Weatherization . . . . . . . . . . . . . . . . . . 64,166 198,950
Capital equipment . . . . . . . . . . . . . . . 170 1,200 provide cost-effective and acceptable technol-
ogies for retrofit of existing buildings (e. g., ap-
Total, residential & commercial. ... .$123,893 $273,050
plications of revised mechanical ventilation
Estimate, residential & commercial, FY 1979. . . . $27,050
Estimate, residential & commercial, FY 1978. . . . 123,893 and redesign of existing equipment to improve
overall seasonal performance). Another major
— INCREASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . $149,157
priority is the improvement of installation
tivity for the residential and commercial com- practices for mechanical equipment and the
ponent of DOE’s conservation mission. building envelope.
As the table indicates, the FY 1979 budget Community Systems.– There are three major
authority for $273,050,000 represents an in- thrusts to the community systems program: 1 )
crease of $149,157,000 from FY 1978. Part of integrated systems, 2) planning design and
this increase occurs in the community energy management, and 3) implementation mecha-
utilization program where projects are moving nisms. All of these programs are moving from
from the feasibility and design stages to feasibility studies and initial desi