FLORIDA BUILDING COMMISSION
ENERGY TAC
(Unanimously Adopted April 6, 2009)
and
FLORIDA
ENERGY CODE WORKGROUP
(Unanimously Adopted March 27, 2009)
RECOMMENDATIONS
REGARDING
COST
EFFECTIVENESS TEST FOR AMENDMENTS TO THE FLORIDA ENERGY CODE
In 2008,
the Florida Legislature passed the Florida Energy Act of 2008. A portion of this Act (Section 109, HB 7153) directs the
Florida Building Commission (FBC) to develop a rule for determining the cost
effectiveness of energy conservation measures considered for inclusion in the
Florida Energy Code, as follows:
“(3) The Florida Building Commission shall,
prior to implementing the goals established in subsection (1), adopt by rule
and implement a cost-effectiveness test for proposed increases in energy
efficiency. The cost-effectiveness test shall
measure
cost-effectiveness and shall ensure that energy efficiency increases result in
a positive net financial impact.”
The
administrative rule directed by this legislation is to be completed and applied
to the 2010 update of the energy provisions of the Florida Building Code.
To
assist in meeting their charge to develop a rule for a cost effectiveness test for
the Florida Building Code, the Florida Department of Community Affairs (DCA) contracted
with the Florida Solar Energy Center (FSEC) to draft a report on economic indicators
and to make recommendations on economic assessment standards that might be included
in a cost effectiveness test rule. The Report was used as the basis for the
Workgroup’s evaluation of issues and options.
The
Florida Legislature has directed that the adopted cost effectiveness test “ensure
that energy efficiency increases result in a positive net financial impact.” This charge could be interpreted as a
positive net financial impact to the state economy as a whole. This interpretation would imply that
macro-economic and societal impacts must be considered. It is important to point out that the
economic indicators used to develop these recommendations do not consider these
macro-economic and externality impacts, which include, but are not limited to,
the following:
·
Increased job
creation through additional construction spending on building energy
efficiency,
·
Increased
general economic activity due to added consumer disposable income and spending
resulting from energy cost savings,
·
Decreased
importation of expensive fuels for the production of electricity,
·
Decreased
environmental pollution in the form of green house gases and heavy metals from
coal-fired power plants – the largest segment of power production,
·
Decreased
health costs due to reductions in environmental pollution.
FSEC
concludes that, “from a statewide economic perspective that considers both
macro-economic impacts and the societal externalities of energy use, the
recommendations presented in the FSEC Report are quite conservative”.
The
Florida Energy Code Workgroup’s recommendations are provided on the following
pages.
Workgroup Action
Motion—The Workgroup voted
unanimously to adopt the package of consensus recommendations for submittal to
the Energy TAC and Florida Building Commission regarding cost effectiveness
test for evaluating proposed amendments to the Florida Energy Code.
1. OPTIONS
FOR ENERGY EFFICIENCY COST-EFFECTIVENESS TESTS FOR RESIDENTIAL CODE
The Florida Legislature directed the
Commission to develop a rule for determining cost effectiveness of energy
conservation measures to be considered for inclusion in the Florida Energy
Code. The rule must be completed and applied to the update of the energy
provisions of the for the 2010 Florida Building Code.
“(3) The Florida Building Commission shall, prior to
implementing the goals established in subsection (1), adopt by rule and
implement a cost-effectiveness test for proposed increases in energy
efficiency. The cost-effectiveness test shall
measure cost-effectiveness and shall ensure that energy
efficiency increases result in a positive net financial impact.”
Energy Analysis Calculations Methodology
Energy analysis necessary to
determine energy savings for Energy Conservation Measures (ECMs) be accomplished using Florida’s code compliance
software, EnergyGauge®.
Energy simulation analysis will be
conducted for both single ECMs and packages of ECMs.
Economic Analysis Assumptions
Energy Conservation Measure (ECM)
costs will be the full, installed incremental cost of improvements, where the
incremental cost is equal to the difference between the baseline measure cost
and the improved measure cost unencumbered by any federal tax credits, utility
incentives or state rebates.
Energy Conservation Measure (ECM)
costs will be the full, installed incremental cost of improvements, where the
incremental cost is equal to the difference between the baseline measure cost
and the improved measure cost unencumbered by any federal tax credits, utility
incentives or state rebates, with option to consider encumbering utility
incentives, etc. later, if possible.
Study Life Period
The analysis for residential
buildings shall be conducted over a 30 year study period.
ECM Service Life
The evaluation shall be conducted
using the appropriate service lives of the measures.
Home Mortgage
Parameter Values
Mortgage interest rate: the greater of the most recent 5-year average
and 10-year average simple interest rate for fixed-rate, 30-year mortgages
computed from the Primary Mortgage Market Survey (PMMS) as reported by Freddie
Mac.
Mortgage down payment: 10%.
Annual Rate Parameter
Values
General inflation rate: the greater of the most recent 5-year and
10-year Annual Compound Interest Rate (ACIR) computed from the annual average
Consumer Price Index (CPI) as reported by the U.S. Bureau of Labor Statistics.
Discount rate: General inflation rate plus 2%.
Fuel escalation rate: the greater of 5-year and 10-year ACIR
computed from revenue-based prices as reported by Florida Public Service
Commission minus the general inflation rate.
The baseline electricity and natural
gas prices used in the analysis shall be the statewide, revenue-based average
residential price for the most recent available 12 months as provided by the
Florida Public Service Commission.
Cost Effectiveness Criteria
For present value cost-to-benefit
ratio (PVCB) a value of 1.0 or greater.
For the internal rate of return
(IRR) on investments, a value equal to 8%.
{The recommended value is approximately 1.5% greater than the guaranteed
return on State of Florida DROPS (retirement account) investments and is
considered large enough that any rational investor would consider the
investment wise compared with any other long-term investment.}
For the levelized cost of conserved
energy (LCCE), a value equal to the statewide residential revenue-based retail
cost of electricity adjusted at the fuel escalation rate over one-half of the
life of the measure (yields average over the measure life). {This is based on
the fact that, over their life, accepted measures will cost consumers the same
or less than purchasing electricity from the utility, where: LCCE criteria =
(current price) * [(1+fuelEsc) ^ (life/2)].}
Evaluation Methodology for Measures and Packages
of Measures
Create multiple packages of ECMs
that result in the target % efficiency increase for each code cycle update (20,
30, 40 and 50%), based on comparison to the 2007 FBC as adopted October 31,
2007 (without the 2009 supplement).
Evaluate each ECM using adopted cost
effectiveness indicators (PVBC, IRR, LCCE), within their specific package of
ECMs. PVBC will be considered the primary measure with IRR and LCEE used as
measures for illustration and communication of individual ECMs and packages of
ECMs comparative economic viability.
Validation of the cost effectiveness
of Florida Energy Efficiency Code for Building Construction changes shall mean
that a number of ECM packages evaluated to comply with the statutory percent
energy efficiency increase requirements have a greater benefit than cost as
measured in present value dollars.
2. OPTIONS
FOR ENERGY EFFICIENCY COST-EFFECTIVENESS TESTS FOR COMMERCIAL CODE
Energy Analysis Calculations Methodology
Energy analysis necessary to
determine energy savings for Energy Conservation Measures (ECMs) will be accomplished using Florida’s code compliance
software, EnergyGauge®.
Energy simulation analysis will be conducted
for both single ECMs and packages of ECMs.
Economic Analysis Assumptions
Energy Conservation Measure (ECM)
costs will be the full, installed incremental cost of improvements, where the
incremental cost is equal to the difference between the baseline measure cost
and the improved measure cost unencumbered by any federal tax credits, utility
incentives or state rebates.
Energy Conservation Measure (ECM)
costs will be the full, installed incremental cost of improvements, where the
incremental cost is equal to the difference between the baseline measure cost
and the improved measure cost unencumbered by any federal tax credits, utility
incentives or state rebates, with option to consider encumbering utility
incentives, etc. later, if possible.
Study Life Period
The analysis for commercial
buildings shall be conducted over a 30 year study period with appropriate
service lives included in the analysis.
ECM Service Life
The evaluation shall be conducted using
the appropriate service lives of the measures.
Mortgage
Parameter Values
Mortgage interest rate: tied to a relevant and appropriate commercial
lending vehicle.
DCA will work with BOMA to develop
recommendations for rule adoption hearing.
Mortgage down payment: based on appropriate commercial lending
vehicle(s)
DCA will work with BOMA to develop
recommendations for rule adoption hearing.
Annual Rate
Parameter Values
General inflation rate: the greater of the most recent 5-year and
10-year Annual Compound Interest Rate (ACIR) computed from the annual average
Consumer Price Index (CPI) as reported by the U.S. Bureau of Labor Statistics.
Discount rate: General inflation rate plus 2%.
Fuel escalation rate: the greater of 5-year and 10-year ACIR computed
from revenue-based prices as reported by Florida Public Service Commission minus
the general inflation rate.
The baseline electricity and natural
gas prices used in the analysis be the statewide, revenue-based average
commercial price for the most recent available 12 months as provided by the
Florida Public Service Commission.
Cost Effectiveness Criteria
For present value cost-to-benefit
ratio (PVCB) a value of 1.0 or greater.
For the internal rate of return
(IRR) on investments, a value equal to 8%.
{The recommended value is approximately 1.5% greater than the guaranteed
return on State of Florida DROPS (retirement account) investments and is
considered large enough that any rational investor would consider the
investment wise compared with any other long-term investment.}
DCA will work with BOMA to develop
recommendations for rule adoption hearing.
For the levelized cost of conserved
energy (LCCE), a value equal to the statewide commercial revenue-based retail
cost of electricity adjusted at the fuel escalation rate over one-half of the
life of the measure (yields average over the measure life). {This is based on
the fact that, over their life, accepted measures will cost consumers the same
or less than purchasing electricity from the utility, where: LCCE criteria =
(current price) * [(1+fuelEsc) ^ (life/2)].}
Evaluation Methodology for Measures and Packages
of Measures
Create multiple packages of ECMs
that result in the target % efficiency increase for each code cycle update (20,
30, 40 and 50%), based on comparison to the 2007 FBC as adopted October 31,
2007 (without the 2009 supplement).
Evaluate each ECM using adopted cost
effectiveness indicators (PVBC, IRR, LCCE), within their specific package of
ECMs. PVBC will be considered the primary measure with IRR and LCEE used as
measures for illustration and communication of individual ECMs and packages of
ECMs comparative economic viability.
Validation
of the cost effectiveness of Florida Energy Efficiency Code for Building
Construction changes shall mean that a
number of
ECM packages evaluated to comply with the statutory percent energy efficiency
increase requirements have a greater
benefit than cost as measured in
present value dollars.
2.5 Clarify Definition of “Consumer” (applies to
both Residential and Commercial)
The Workgroup recommends that
the Energy TAC develop a definition for “Consumer” for inclusion in
recommendations to the Commission.
OPTION:
Define “Consumer” as a Class of the economic system
participant (e.g. consumer, producer, regulator) similar to energy regulation
system consideration.
DCA will provide recommendations to Workgroup at subsequent
meeting.