ENERGY-EFFICIENCY ECONOMICS

Terms and Definitions

Certain terms are consistently used in the fields of building energy efficiency and financial and economic analysis. Energy Raters must be familiar with the terminology of both fields to properly discharge their function as energy auditors and to understand the financial implications of the recommendations they make to their clients. For ease of reference the two fields have been segregated, then alphabetized below. In a few instances a term has been included in both sections. 

Energy-Efficiency, Code and Rating Terminology
Economic, Financial & Real Estate Terminology

| Energy-Efficiency, Energy Code and Rating System Terminology

The following terms form the basis of the nomenclature that is used in the field of building energy efficiency. Without full comprehension of this terminology, Raters will not be able to converse intelligently with their clients, program administrators or technical assistance personnel. 

  • Accreditation: The process of certifying a Home Energy Rating System (HERS) as being compliant with the national industry standard operating procedures for Home Energy Rating System.(1)
  • AFUE (Annual Fuel Utilization Efficiency): A measurement of the seasonal energy efficiency of gas heating equipment. It is the annual output energy of the equipment divided by its annual input energy, expressed in consistent units (i.e. Btu-out per Btu-in). Thus, the resultant value of AFUE is unit less. AFUE includes any input energy required by the pilot light but does not include any electrical energy for fans or pumps.
  • BESTEST (Building Energy Simulation Test): A standardized procedure developed by the National Renewable Energy Laboratory and used to test the energy load prediction capabilities and accuracy of software designed for use in Home Energy Rating Systems.(2) Florida's ENERGYGAUGE™ software has been subjected to the BESTEST procedure with excellent results.(3)
  • Btu (British Thermal Unit): One of the two (watt-hours is the other) standard units of measure (IP System) for the amount of energy consumed by a process, the amount of energy transferred from one location to another, or the amount of embodied energy (such as the heat content of fuels). Specifically, it is the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit. The term 'kBtu' stands for "kiloBtu" or 1,000 Btu. The term of 'MBtu' stands for "MegaBtu" or 1,000,000 Btu. One Btu is equal to 0.293 watt-hours (Wh).
  • Btu/h (British Thermal Units per Hour): One of the two (watts is the other) standard units of measure (IP System) for the rate at which energy is used by equipment or the rate at which energy moves from one location to another. One Btu/h is equal to 0.293 watts (W).
  • CABO (Council of American Building Officials): A national organization of building code officials and interested parties which, through a national consensus process, developed, adopted and promulgated the national Model Energy Code (MEC). CABO has recently become CABO International and has taken on the administrative responsibility for the development of a uniform international building code through an International Code Council (ICC).
  • Capacity: The quantity of heating or cooling load that can be satisfied by a given equipment system designed to heat or cool and dehumidify a conditioned space or heat service hot water. Heating and cooling capacity is normally given on equipment nameplates in units of Btu. The air conditioning industry often uses units of "tons" to refer to equipment capacity. One ton of capacity equals 12,000 Btu.
  • Confirmed Rating: A Class 2 or Class 1 Rating performed on a completed construction project that confirms the energy-efficient features of a new building or the improvements made to an existing building.
  • Construction Documents: The set contractual documents by and between the owner and builder of a new building for construction, consisting of all drawings (the plans) and written specifications that are intended to govern the construction of the building.
  • COP (Coefficient of Performance): A measurement of the instantaneous efficiency of heating or cooling equipment. It represents the steady-state rate of energy output of the equipment divided by the steady-state rate of energy input to the equipment, expressed in consistent units (i.e. watts-out per watts-in or Btu/h-out per Btu/h-in). Thus, the resultant value of COP is unit less. Most vapor-compression heating and cooling equipment has COPs greater than unity. That means it delivers more heat energy than it consumes.
  • EEM (Energy Efficient Mortgage): Specifically, a home mortgage for which the borrower's qualifying debt-to-income and housing expense-to-income ratios have been increased ("stretched") by 2% because the home meets or exceeds the minimum standards of the Council of American Building Officials (CABO) 1992 version of the Model Energy Code (MEC). This so-called "stretch" mortgage results from provisions of the Cranston-Gonzalez National Affordable Housing Act, and is refined by the U.S. Energy Policy Act of 1992 (EPAct). The EEM is nationally underwritten by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). NOTE: This term is often used generically to refer to any home mortgage for which the underwriting guidelines have been relaxed specifically for energy efficiency features, or for which any form of financing incentive is given for energy efficiency.
  • EER (Energy Efficiency Ratio): A measurement of the instantaneous energy efficiency of cooling equipment. It normally is used only for electric air conditioning equipment. EER is the steady-state rate of heat energy removal by the equipment in Btu/h divided by the steady-state rate of energy input to the equipment in watts. Thus, the resultant value for EER has units of Btu/Wh. The EER of a given system is always higher than the COP of that system by a factor equal to the number of Btu/h in a watt, or 3.413.
  • EIM (Energy Improvement Mortgage): A home improvement mortgage that is given specifically for energy efficiency improvements to the property.
  • EF (Energy Factor): A standardized measurement of the annual energy efficiency of water heating systems. It is the annual hot water energy delivered to a standard hot water load divided by the total annual purchased hot water energy input in consistent units (Wh-out per Wh-in or Btu-out per Btu-in). Thus, the resultant value of EF is unitless. EF is determined by a standardized US Department of Energy procedure. Florida has developed EFs for almost all types of water heating systems, including solar water heating system.
  • Energy (use): The quantity of electricity, gas or other fuel required by the building equipment to satisfy the building heating, cooling and hot water loads imposed on that equipment by its thermostats plus the energy required to satisfy any other energy service requirements (lighting, refrigeration, cooking, etc.) of the building (see also the definitions of load and thermostat).
  • Energy Audit: A site inventory and descriptive record of features impacting the energy use in a building. This includes, but is not limited to: all building component descriptions (locations, areas, orientations, construction attributes and energy transfer characteristics); all energy using equipment and appliance descriptions (use, make, model, capacity, efficiency and fuel type) and all energy features.
  • ENERGYGAUGE: Florida's computerized tool for energy code compliance and energy rating computations, including combined energy, economic and financial analysis.
  • ENERGY STAR® Home: A home, certified by the US Environmental Protection Agency (EPA), that is at least 30% more energy efficient than the minimum national standard for home energy efficiency as specified by the 1992 CABOMEC. EPA has a number of partners and allies in its ENERGY STAR homes program and homes that qualify for ENERGY STAR certification through EPA are eligible for mortgage financing incentives through EPA's mortgage banking allies. Qualification for the ENERGY STAR home label requires a HERS score of 86 or greater. In Florida, this means that the home must receive a confirmed Rating by a certified Class 2 or Class 1 Rater. ENERGY STAR is a registered trademark of the U.S. EPA.
  • EPAct (Energy Policy Act of 1992): An Act of the 1992 U.S. Congress which, among other things, requires the Secretary of DOE to issue voluntary guidelines for residential energy efficiency ratings and requires the Secretary of HUD to establish an Energy Efficient Mortgage Pilot Program. The Act also requires state governments to "certify to the Secretary (of U.S. DOE) that it has reviewed the provisions of its residential building codes regarding energy efficiency and made a determination as to whether it is appropriate for such state to revise such residential building code provisions to meet or exceed the CABOModel Energy Code, 1992."
  • Existing Residence (or Home): A Completed residential occupancy building, including residential occupancy dwellings in mixed occupancy buildings for which a certificate of occupancy, or equivalent approval for occupancy, has been issued.
  • Fannie Mae (FNMA - Federal National Mortgage Association): A private, tax-paying corporation chartered by the U.S. Congress to provide financial products and services that increase the availability of housing for low-, moderate-, and middle-income Americans. Fannie Mae is the nation's largest corporation with $366 billion in assets and $674 billion in mortgage backed securities as of 1998. It is traded on the New York Stock Exchange (FNM), has 240,000 shareholders, and is part of Standard & Poor's 500 index. Fannie Mae constitutes the largest part of the nation's secondary mortgage market. Fannie Mae effectively increases the money supply in the primary mortgage market by purchasing (up to their prescribed limit of $214,600 as of 1/1/97), packaging, guaranteeing and selling conventional residential mortgages (as well as those insured by FHA or guaranteed by VA) to investors as Mortgage Backed Securities (MBS).
  • FHA (Federal Housing Administration): A division of the Department of Housing and Urban Development (HUD). FHA's main activity is the insurance of residential mortgage loans made by private lenders. FHA neither buys nor originates mortgages, however, through its insurance function it sets standards for mortgage underwriting. FHA insured loans are open to all qualified home purchasers of moderately priced homes (up to a maximum loan value of $155,250 as of 1/1/96). FHA requires a Mortgage Insurance Premium (MIP) of up to 2.25 percent of the loan amount (paid at closing) to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual insurance fee of up to 0.5 percent of the loan amount, paid in monthly installments. The lower the down payment, the more years the mortgage insurance fee must be paid.
  • Freddie Mac (FHLMC - Federal Home Loan Mortgage Corporation): A stockholder-owned organization, chartered by the U.S. Congress to increase the supply of mortgage funds. Freddie Mac purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. It does not originate loans but it provides a secondary market for the mortgage industry by purchasing their mortgages, packaging them into securities that are guaranteed by Freddie Mac, and selling them to investors. 
  • HERS (Home Energy Rating System): A standardized system for rating the energy-efficiency of residential buildings. Home Energy Rating Systems are currently governed by two national industry standards: 1) the HERS Council Guidelines,(4) which prescribe the accepted methods and procedures for rating a home, and 2) the Mortgage Industry HERS Accreditation Procedures,(1) which prescribe the methods and procedures for the certification of Home Energy Rating System by individual state governments and the national home mortgage industry. In Florida, HERS are additionally governed by an Act of the State Legislature(5) that requires the Florida Department of Community Affairs (DCA) "to adopt, update and maintain a statewide uniform building energy-efficiency rating system" through rulemaking.(6)
  • HERS Energy-Efficient Reference Home (EERH): The EERH is a geometric "twin" to the home being evaluated (Rated Home) and is configured to be minimally compliant with the National Council of American Building Officials (CABO) Model Energy Code (MEC) of 1992.
  • HERS Provider: An individual or organization responsible for the operation and management of a Home Energy Rating System. By Florida Statute, the sole HERS provider authorized to perform this function in the State is the Florida Department of Community Affairs.
  • HERS Rater: An individual, certified by the State of Florida, to perform residential Building Energy Efficiency Ratings in the Class for which the Rater is certified. There are three classes of residential Rater certification: Class 3 - requiring the certified capability to complete Ratings based on construction documents; Class 2 - requiring the certified capability to complete Ratings based on site energy audits; and Class 1 - requiring the certified capability to complete Ratings based on site energy audits and performance tests.
  • HERS Score: A numeric value between 0 and 100 indicating the relative energy efficiency of a given home as compared with the HERS Energy-Efficient Reference Home (EERH) as specified by the HERS Council Guidelines. The greater the score, the more efficient the home. A home with zero energy use for the rated energy uses (heating, cooling and hot water only) scores 100 and the HERS Energy-Efficient Reference Home scores 80.
  • HSPF (Heating Season Performance Factor): A measurement of the seasonal efficiency of an electric heat pump using a standard heating load and outdoor climate profile over a standard heating season. It represents the total seasonal heating output in Btu divided by the total seasonal electric power input in watt-hours (Wh). Thus, the resultant value for HSPF has units of Btu/Wh.
  • Improvement Analysis: A written calculation of the cost-effectiveness of various options to improve the energy efficiency of a building, including an explicit report on the assumed financing rate and lives of the measures used in the calculation and consideration of interactions between energy-saving measures.
  • Load: The quantity of heat that must be added to or removed from the building (or the hot water tank) to satisfy specific levels of service - in other words, to keep the space temperature or hot water temperature at a specified thermostat setting (see also the definitions of energy and thermostat).
  • MEC (Model Energy Code): A "model" national standard for residential energy efficiency. The MEC was developed through a national consensus process by the Council of American Building Officials (CABO) and is the accepted national minimum efficiency standard for residential construction. Since MEC is a model code, it does not have the "force of law" unless and until it is adopted by the local code authority. Nonetheless, MEC is used as the basis for many, if not most, of the energy efficiency criteria employed in the U.S. marketplace. By virtue of its reference in the 1992 U.S. Energy Policy Act (EPAct), the MEC is used as the national standard for determining Energy Efficient Mortgage (EEM) qualification, and it serves as the national "reference point" used by Home Energy Rating Systems (HERS) in the determination of energy ratings for homes.
  • NAECA (National Appliance Energy Conservation Act): An act of the 1987 U.S. Congress requiring the U.S. Department of Energy (DOE) to establish minimum performance efficiency standards for residential equipment and appliances sold within the United States.
  • New Residence (or Home): A residential occupancy buildings, including new residential occupancy dwellings in mixed occupancy buildings, that is permitted for construction after July 1, 1994, but has not yet been issued a certificate of occupancy.
  • Performance Test: An on-site measurement of the energy performance of a building energy feature or an energy using device conducted in accordance with pre-defined testing and measurement protocols and analysis and computation methods. Such protocols and methods may be defined by national consensus standards like those of the American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) and the American Society for Test and Measurement (ASTM), or as modified or defined and adopted by the Department of Community Affairs, Office of Codes and Standards.
  • Point Multiplier: A colloquial term for load correlation coefficient. A numeric value that when multiplied by the number of units of a given building component will yield the overall contribution of that component to the annual heating, cooling or hot water load for the building. Florida's energy code for residential buildings uses summer point multipliers (SPM), winter point multipliers (WPM) and hot water point multipliers (HWPM) to compute the various annual loads for the residence.
  • Projected Rating: A rating of any Class performed prior to the construction of a new building or prior to implementation of energy-efficiency improvements to an existing building.
  • Rated Home: The specific residence that is evaluated by an energy rating.
  • Rater: An individual, certified by the State of Florida, to perform Building Energy Efficiency Ratings for the building type and in the rating Class for which the Rater is certified. There are three classes of residential Rater certification: Class 3 - requiring the certified capability to complete Ratings based on construction documents; Class 2 - requiring the certified capability to complete Ratings based on site energy audits; and Class 1 - requiring the certified capability to complete Ratings based on site energy audits and performance tests. (See also HERS Rater.)
  • Rating (Building Energy-Efficiency Rating): A set of documents comprising a registered Rating Guide (DCA Form 11) plus any appropriate improvement recommendations, economic analysis, and financial forms that are required to complete an energy efficient mortgage application for the rated building. There are two types of Rating: Projected Ratings and Confirmed Ratings. Projected ratings are reserved for Ratings Based on Plans (new buildings) and Ratings for Improvement (existing or new buildings). Confirmed Ratings are reserved for final documentation of completed new buildings or for documentation of improvements to existing buildings.
  • Rating Class: The category of a Rating, based on the source of the input data which are used to compute the energy and cost estimates of the Rating, and consisting of the following three categories:
    • Class 1 Rating - An energy rating, conducted using site energy audit and performance test data as the sources for the input data on which the rating is based.
    • Class 2 Rating - An energy rating conducted using site energy audit data as the source for the input data on which the rating is based.
    • Class 3 Rating - A projected energy rating reserved for new buildings and clearly labeled as a "projected rating based on plans" that is conducted using construction documents as the sources for the input data on which the rating is based.
  • Rating Guide: A completed and signed DCA Form 11 providing the following information: the type of rating (projected or confirmed); the registration number for the Rating; the estimated energy use and energy cost for the building and its associated energy end-uses; the name, signature and certification number of the Rater; a comparative analysis of the building's energy-efficiency relative to other, similar buildings of the same type, located in the same climate; the national HERS Score for the building; and information on how the Rating should be interpreted.
  • R-value: A numeric value defining the resistance to heat transfer of the full thickness of a material or composite of materials. R-value is the reciprocal of conductance (C) and has units of hr/Btu-ft2-oF. Important Note on R-values: The input values required by Florida's code and rating system calculation procedures are for the R-value of the designated insulation product only - not the R-value of the entire building component assembly.
  • SEER (Seasonal Energy Efficiency Ratio): A measurement similar to HSPF except that it measures the seasonal cooling efficiency of an electric air conditioner or heat pump using a standard cooling load and outdoor climate profile over a standard cooling season. It represents the total seasonal cooling output in Btu divided by the total seasonal electric input in watt-hours (Wh). Thus, the resultant value for SEER has units of Btu/Wh.
  • Shading Coefficient (SC): The ratio of the total solar heat admittance of a given glazing product relative to the solar heat admittance of " double-strength, clear glass at normal solar incidence (i.e. perpendicular to the glazing surface).
  • Solar Heat Gain Coefficient (SHGC): The ratio of the total solar heat admittance of a given window product relative to the solar heat incident on the projected window surface at normal solar incidence (i.e. perpendicular to the glazing surface).
  • Thermostat: A control device that measures the temperature of the air in a home or the water in a hot water tank and activates the heating or cooling equipment to cause the air or water temperature to remain at a pre-specified value, normally called the set point temperature (see also the definitions of load and energy).
  • Ton(s): A term used primarily by the air conditioning industry to characterize the cooling capacity of air conditioning equipment. One ton equals 12,000 Btu.
  • U-value: The total thermal conductance of a building assembly (wall, floor, ceiling, etc.), including the indoor and outdoor air-film resistances of the assembly. The U-value when multiplied by the effective temperature difference between the indoors and outdoors, including the effects of solar and sky radiation (the "sol-air" temperature) where appropriate, will yield the normalized (per unit area) heat flow across that building composite. The units of U-value are Btu/hr-ft2-oF.
  • W (watt): One of two (Btu/h is the other) standard units of measure (SI System) for the rate at which energy is consumed by equipment or the rate at which energy moves from one location to another. It is also the standard unit of measure for electrical power. The term 'kW' stands for "kilowatt" or 1,000 watts. The term 'MW' stands for "Megawatt" or 1,000,000 watts. One watt is equal to 3.413 Btu/h.
  • Wh (watt-hour): One of two (Btu is the other) standard units of measure (SI system) for the amount of energy that is consumed by equipment, the amount of embodied energy, or the amount of energy moved from one location to another. It is also the standard unit of measure for electrical use. The term 'kWh' stands for "kilowatt-hour" or 1,000 watt-hours. The term 'MWh' stands for "Megawatt-hours" or 1,000,000 watt-hours. One watt-hour is equal to 3.413 Btu.
Additional energy and energy code terminology of interest is defined in Chapter 2 of the Florida Energy Code.(7)
 

Economic, Financial and Real Estate Terminology

The following terms are basic to understanding and using energy ratings in the financial marketplace. The enhanced version of ENERGYGAUGE is designed to perform analysis and produce results and reports that are useful in obtaining home mortgages. Without a full understanding of the terms contained in this section, Raters will not be able to take advantage of these powerful marketplace capabilities or provide these important services to their clients. 

  • Adjustable Rate Mortgage: A secured loan in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
  • Analysis with Replacement: An Improvement Analysis that includes the replacement cost of energy-efficient equipment whose useful life is exceeded during the analysis period. The cost of replacing the energy-efficient equipment, escalated at the general inflation rate, is added to the periodic cash flow stream the period following the end of its useful life.
  • Appraisal or Appraised Value: An estimate of the value of property, made by a qualified professional called an "appraiser." 
  • Assessment or Assessed Value: The value placed on real property (a building and its grounds) by the local property tax authority. 
  • Cost/Assessment: The ratio of the cost (or appraised value) of a building with respect to its assessed value. The cost to assessment ratio is normally less than 1.0 and is defaulted to 0.80 in the financial section of ENERGYGAUGE. This value is used to determine the basis for ad valorem (property) taxes on the property for ENERGYGAUGE financial analysis. 
  • Cash Flow: Periodic money stream(s) resulting from an economic decision that are expected to continue into the future. For example, rent payments, mortgage payments, taxes, etc. By convention, incoming cash flows (revenues) are positive and outgoing cash flows (payments) are negative. ENERGYGAUGE calculates the cash flow for each individual economic component of the analysis, for each year of the analysis period. 
  • Cash Flow Schedule: A table of cash flows that includes each of the periodic money streams associated with an economic decision.
  • Current Salvage: The salvage value of an existing home measure that will be replaced with a more efficient measure. Typically this value will be zero. However, for example, if an air conditioner is replaced with a more efficient one and the original unit has a useful life and can be sold for $300, then $300 is the Current Salvage value. 
  • Debt-to-Income Ratio: The ratio, expressed as a percentage, which results when a borrower's total monthly payment obligations on long-term debt are divided by their gross monthly income. This is one of two ratios (housing expense-to-income ratio being the other) used by the mortgage industry to determine if a prospective borrower qualifies (meets the underwriting guidelines) for a specific home mortgage. Fannie Mae, Freddie Mac and FHA underwriting guidelines set an upper limit of 36% on this value for conventional loans but increase ("stretch") the ratio by 2% for qualifying Energy Efficient Mortgages.
  • Discount Rate: The interest rate reflecting the time value of money that is used to convert cash flows occurring at different times to a common time (e.g. to convert future values to present values and visa versa). The discount rate represents the opportunity cost of money and is often selected as the after-tax rate of return on an alternative investment or the cost of borrowing money. ENERGYGAUGE uses a real discount rate as opposed to a nominal (or market) discount rate. In general, the nominal discount rate is equivalent to the real discount rate increased by the personal income tax burden plus the general inflation rate. The default value used by ENERGYGAUGE for the discount rate is 5%, real. ENERGYGAUGE uses a default personal income tax rate of 28% and default general inflation rate of 3%, equating to default market discount rate about 10%, nominal. 
  • ECM (Energy Conservation Measure): An individual building component or product that directly impacts energy use in a building and has a set of differentiable energy performance factors that can be arranged into a table or list. For example, wall insulation is a measure that will impact heat transfer to and from a building, and there is some list of wall measures that are differentiated by insulation R-value that define the possible walls that can be incorporated into a building. ENERGYGAUGE uses ECM tables to define and store the economic data associated with building energy efficiency alternatives.
  • ECM Lifetime: The useful lifetime of an energy conservation measure. 
  • EEM (Energy Efficient Mortgage): Specifically, a home mortgage for which the borrower's qualifying debt-to-income and housing expense-to-income ratios have been increased ("stretched") by 2% because the home meets or exceeds the minimum standards of the Council of American Building Officials (CABO) 1992 version of the Model Energy Code (MEC). This so-called "stretch" mortgage results from provisions of the Cranston-Gonzalez National Affordable Housing Act, and is refined by the U.S. Energy Policy Act (EPAct) of 1992. The EEM is nationally underwritten by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). NOTE: This term is often used generically to refer to any home mortgage for which the underwriting guidelines have been relaxed specifically for energy efficiency features, or for which any form of financing incentive is given for energy efficiency.
  • EIM (Energy Improvement Mortgage): A home improvement mortgage that is given specifically for energy efficiency improvements to the property. 
  • ENERGYGAUGE: Florida's computerized tool for energy code compliance and energy rating computations, including combined energy, economic and financial analysis. (Click here to go to a seperate web page dedicated to ENERGYGAUGE.)
  • End of Life Salvage: The salvage value of a measure at the end of its useful life. Typically, this value will be $0. For an economic analysis in which the useful life of a measure is not reached at the end of the analysis period, ENERGYGAUGE will calculate a salvage value for the remaining life of the measure using straight-line depreciation. ENERGYGAUGE will include this salvage value in the cash flow schedule and in the savings to investment ratio and internal rate of return calculations.
  • Energy Savings Goal: A user-defined level of building energy efficiency which is used by ENERGYGAUGE's automatic optimization feature as the point at which the analysis will cease.
  • Fixed Rate Mortgage: A secured loan in which the interest rate has the same value for the life of the loan. 
  • Fuel Price Inflation Rate: The annual increase in fuel price as a percent of its present value. ENERGYGAUGE uses this value to escalate fuel price in its economic and financial analysis procedures. The ENERGYGAUGE default value is 3%, the same as the default value for the general inflation rate, making the default increase in fuel cost relative to other goods and services equal to zero. 
  • Future Value (FV): Monies accruing in the future that have not been discounted to account for the fact that they will be worth less in the future than they are today. 
  • General Inflation Rate: The annual increase in the price of goods and services as a percent of their present price. ENERGYGAUGE uses this value to escalate the cost of maintenance and the cost of ECM replacements in its financial and economic analysis procedures. The ENERGYGAUGE default value for the general inflation rate is 3%. Increases in fuel prices are computed separately using the fuel price escalation rate, which is also defaulted to 3% in ENERGYGAUGE. 
  • Housing Expense-to-Income Ratio: The ratio, expressed as a percentage, which results when a borrower's total monthly housing expenses (P.I.T.I.) are divided by their gross monthly income. This is one of two ratios (debt-to-income ratio being the other) used by the mortgage industry to determine if a prospective borrower qualifies (meets the underwriting guidelines) for a specific home mortgage. Fannie Mae, Freddie Mac and FHA underwriting guidelines set an upper limit of 28% on this value for conventional loans but increase ("stretch") the ratio by 2% for qualifying Energy Efficient Mortgages.
  • Improvement Analysis: A written calculation of the cost-effectiveness of various options to improve the energy efficiency of a building, including an explicit report on the assumed financing rate and lives of the measures used in the calculation and consideration of interactions between energy-saving measures. 
  • Income Tax Rate: The marginal rate at which personal income is taxed by the federal government. ENERGYGAUGE uses this number to compute income tax impacts associated with mortgage interest payments. 
  • Internal Rate of Return (IRR): The present value of the net cash flow stream expressed as an annual percentage growth rate of the initial investment (i.e. the annual compound interest rate required to produce the same result as the evaluated investment). ENERGYGAUGE includes all taxes in its net cash flow stream so the IRR given by ENERGYGAUGE is an after-tax rate of return.
  • Loan-to-value Ratio (LTV):  The total amount of the mortgage loan divided by the appraised value of the property that secures the mortgage.
  • Maintenance Cost: The cost of keeping an ECM in good operating condition. ENERGYGAUGE uses this cost to determine the differential cost of maintaining one measure over another. Unless the maintenance cost of one ECM in a list is greater than the maintenance cost of the others, there is no need to enter maintenance costs in the ECM list because the incremental cost of selecting one measure compared to the others will always be $0. In general, there are only a few measures in an ECM list that have a differentiated maintenance costs. Therefore, it is simplest to enter only the incremental cost for any measures that have a differentiated maintenance cost. 
  • Mortgage Note: A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which the debt shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment. 
  • Mortgage Down Payment: Money paid by the borrower to make up the difference between the purchase price and the loan amount. 
  • Mortgage Interest Rate: The price charged for borrowing money expressed as a percentage of the unpaid loan balance. 
  • Mortgage Insurance Premium (MIP): The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents a payment of 2.25% of the loan principle at closing plus an annual rate of one-half of one percent paid by the mortgagor on a monthly basis. 
  • Mortgage Points: A point is equal to one percent of the principal amount of the mortgage. Lenders frequently charge points for both fixed-rate and adjustable-rate mortgages to cover loan origination costs and to increase the yield on the mortgage. These points normally are collected at closing and may be paid by the buyer (borrower) or the seller, or may be split between them. 
  • Mortgage Principal: The amount of money owed by the borrower to the lender, and the amount used to compute the periodic interest payments on simple interest loans. The principal normally decreases during the life of a simple interest mortgage. However, for negative amortization mortgages it will increase over time and for interest only loans it does not change. 
  • Net Cash Flow: The sum of the positive (revenues) and negative (expenditures) monies accruing during each period of an economic analysis (i.e. the total revenues minus the total expenditures for each period of the economic analysis, normally expressed in future value dollars). 
  • Net Present Value (NPV): The present value of all saving (revenue) streams less the present value of all cost (investment) streams. 
  • Optimization: A energy analysis and economic evaluation process that seeks to determine the most cost-effective means of achieving a stated energy-efficiency or energy use goal. 
  • P.I.T.I.:  An abbreviation which stands for principal, interest, taxes, and insurance. These generally represent a borrower's total monthly payment obligations on a home loan. The taxes and insurance portion are paid monthly to an impound or escrow account and may be adjusted annually to reflect changes in the cost of each. 
  • Present Value (PV): Monies accruing in the future that have been discounted to account for the fact that those monies will be worth less in the future than they are today. 
  • Present Worth (PW): The same as Net Present Value (NPV). The present value of all saving (revenue) streams less the present value of all cost (investment) streams. 
  • Private Mortgage Insurance (PMI):  Insurance that protects a lender from loan losses in the event of default. In most cases, PMI is used to insure the amount of a loan in excess of an 80 percent loan-to-value ratio (LTV). 
  • Property Tax Rate: The rate at which real property ownership is taxed by the local ad valorem taxing authority. 
  • Ranking Method: The economic criteria by which energy conservation measures are ordered in an ENERGYGAUGEoptimization analysis. The user-selectable ranking methods available in ENERGYGAUGE are as follows: 
    • Simple Payback -- will minimize the added first costs for the improvements with respect to the achieved energy savings. 
    • Net Present Value of Savings -- will maximize the net present value (present worth) of the energy savings over the life of the mortgage or other specified period. 
    • Savings to Investment Ratio (SIR) -- will maximize the net present value of energy savings with respect to the net present value of the added first costs (investment) over the life of the mortgage or other specified period. 
    • Internal Rate of Return on Investment (IRR) -- will maximize the rate at which the added first costs (investment) for the energy-efficiency improvements return savings over the life of the mortgage or other specified period. 
    • 1st Year Cash Flow based on Mortgage -- will maximize the net first year cash flow to the home owner as a function of the mortgage term and interest rate. 
  • Savings: The reduction in operating (energy) cost that results from an improvement in building energy efficiency. 
  • Saving to Investment Ratio (SIR): The ratio of the present value of an energy saving stream with respect to the present value of the cost of making the energy efficiency improvements. 
  • Simple payback: The number of years needed to pay for energy efficiency improvements using the energy cost savings that accrue annually from those improvements. The initial cost of the improvements divided by the annual energy cost savings from those improvements. 
  • Upgrade Cost: The price that must be paid to install an energy conservation measure into a building. If the building is "new" (i.e. has not yet been constructed), then the cost is equal to the cost of the improved measure minus the cost of the minimum standard measure. If the building already exists, then the cost is equal to the cost of the measure minus the current salvage value for the existing measure. 
  • Underwriting Guidelines: The set of procedures and criteria used by lending institutions to determine if it is in their best interest to originate (primary lenders) or purchase (secondary lenders) a specific mortgage. 
  1. Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems, June 1998. Residential Energy Services Network (RESNET), Oceanside, CA; and National Association of State Energy Officials (NASEO), Washington DC. 
  2. Judkoff, R. and J. Neymark, August 1997. "Home Energy Rating System Building Energy Simulation Test for Florida (Florida - HERS BESTEST)," Vol. 1 & 2, NREL/TP-550-23124, National Renewable Energy Laboratory, Golden, CO. 
  3. Fairey, P. et.al., January 1998. "Comparison of EnGauge 2.0 Heating and Cooling Load Predictions with the HERS BESTEST Criteria," FSEC-CR-893-98, Florida Solar Energy Center, Cocoa, FL. 
  4. Guidelines for Uniformity: Voluntary Procedures for Home Energy Ratings, Version 2.0, August 1996. Home Energy Rating Systems (HERS) Council, Washington, DC. 
  5. Florida Building Energy Efficiency Ratings Act. §553.990, Florida Statutes, 1993 et. seq. 
  6. Florida Building Energy Rating System. Rule 9-B-60, Florida Administrative Code, Department of Community Affairs, Office of Codes and Standards, Tallahassee, FL. 
  7. Energy Efficiency Code for Building Construction, 1997 Edition. Florida Department of Community Affairs, Codes and Standards Office, Tallahassee, Florida.