UBC Theses and Dissertations

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UBC Theses and Dissertations

Energy economics in office buildings Anderson, Lloyd Albert 1982

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ENERGY ECONOMICS IN OFFICE BUILDINGS by LLOYD ALBERT ANDERSON B. S c . , The U n i v e r s i t y o f A l b e r t a , 1962 THESIS SUBMITTED IN PARTIAL FULFILMENT THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE i n THE FACULTY OF GRADUATE STUDIES DEPARTMENT OF COMMERCE We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA © A p r i l , 1982 I n p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e a n d s t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by t h e h e a d o f my d e p a r t m e n t o r by h i s o r h e r r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . D e p a r t m e n t o f (~OjW f7? £ft<2 £ The U n i v e r s i t y o f B r i t i s h C o l u m b i a 2075 Wesbrook P l a c e V a n c o u v e r , Canada V6T 1W5 D a t e J?-^ A/tf/l- 8\ DK-6 (2/79) i ABSTRACT ENERGY ECONOMICS IN O F F I C E BUILDINGS Th e c e n t r a l h y p o t h e s i s t o be t e s t e d b y t h i s t h e s i s c a n be s t a t e d as f o l l o w s : A r e l a t i v e i n c r e a s e i n t h e e x p e n s e o f e n e r g y  consumed i n a c o m m e r c i a l o f f i c e b u i l d i n g h a s t h e e f f e c t o f r e d u c i n g  t h e v a l u e o f t h e o f f i c e b u i l d i n g . A s e c o n d and p a r a l l e l h y p o t h e s i s i n t h e p o l i c y a r e a was a l s o t e s t e d as f o l l o w s : The p r i c e m e c h a n i s m  o p e r a t i n g on t h e demand f o r e n e r g y i n t h e c o m m e r c i a l o f f i c e b u i l d i n g  m a r k e t s e r v e s t h e p u b l i c i n t e r e s t i n e n c o u r a g i n g e n e r g y c o n s e r v a t i o n . C o m m e r c i a l b u i l d i n g e n e r g y u s a g e , e n e r g y p r i c i n g a n d p o l i c y a r e e x p l o r e d i n d e t a i l i n C h a p t e r I . The r e l a t i v e p l a c e e n e r g y h o l d s i n t h e e x p e n s e o f o p e r a t i n g a c o m m e r c i a l b u i l d i n g as w e l l as t h e p l a c e e n e r g y c o n s u m p t i o n h o l d s i n t h e c o m m e r c i a l o f f i c e s e c t o r i s e x p l o r e d . T h e s e s t u d i e s l e a d t o t h e c o n c l u s i o n t h a t e n e r g y e x p e n s e and e n e r g y c o n s u m p t i o n a r e i m p o r t a n t r e s p e c t i v e l y i n t h e s e a r e a s . I t i s a l s o shown t h a t i t i s i n t h e n a t i o n a l i n t e r e s t t o r e d u c e t h e c o n s u m p t i o n o f n o n - r e n e w a b l e e n e r g y s o u r c e s . T e c h n i c a l c a p a b i l i t i e s were t h e n r e v i e w e d a n d i t i s e s t a b l i s h e d t h a t i t i s f e a s i b l e t o r e d u c e t h e c o n s u m p t i o n o f e n e r g y i n b o t h e x i s t i n g a n d new c o m m e r c i a l o f f i c e b u i l d i n g s . C h a p t e r I I s t u d i e s t h e i m p o r t a n c e o f e n e r g y c o s t i n d e t e r m i n i n g v a l u e i n a t h e o r e t i c a l m o d e l . A h y p o t h e t i c a l b u i l d i n g i s e s t a b l i s h e d a n d t h e p a r a m e t e r s f r o m t h i s b u i l d i n g a r e u s e d i s a n e t p r e s e n t v a l u e m o d e l . U s i n g a s e t o f t e c h n i c a l f o r e c a s t s c o n v e r t e d t o g r o w t h r a t e s o f e n e r g y e x p e n s e , i t i s d e m o n s t r a t e d t h a t t h e i n t e r n a l r a t e o f r e t u r n , b e i n g a n a c c e p t e d s c a l e o f v a l u e , was n o t s e n s i t i v e t o c h a n g e s i n t h e c o s t o f e n e r g y consumed. i i An e m p i r i c a l s t u d y o f e n e r g y and market v a l u e s was t h e s u b j e c t o f C h a p t e r I I I . A model o f c o m m e r c i a l b u i l d i n g v a l u e was e s t a b l i s h e d as f o l l o w s : V = f ( l o t s i z e p e r u n i t a r e a , income p e r u n i t a r e a , e n e r g y consumption p e r u n i t a r e a , number o f p a r k i n g s t a l l s p e r u n i t a r e a , number o f s t o r i e s , type o f c o n s t r u c t i o n , p r e s e n c e o f a i r c o n d i t i o n i n g , q u a l i t y , age, p a r k i n g u n d e r g r o u n d , p r e s e n c e o f an e l e v a t o r , s a l e s d a t e and l o c a t i o n ) I n f o r m a t i o n on e n e r g y was o b t a i n e d from B.C. Hydro computer f i l e s and a l l o t h e r d a t a was o b t a i n e d from t h e f i l e s o f t h e B.C. Assessment A u t h o r i t y . The r e g r e s s i o n r e s u l t s f r o m t h e e m p i r i c a l s t u d y a re a n a l y z e d i n C h a p t e r IV t o d e t e r m i n e t h e s i g n i f i c a n c e o f energy i n d e t e r m i n i n g market v a l u e . I n d e f i n i t e r e s u l t s were a c h i e v e d f o r t h e energy v a r i a b l e c o e f f i c i e n t , b u t t h e r e g r e s s i o n model p r o v e d t o be s i g n i f i c a n t , 2 and t h e R show t h a t the model i s a good p r e d i c t o r o f v a l u e . I t i s e v i d e n t t h a t a degree o f m u l t i c o l l i n e a r i t y i s p r e s e n t i n t he d a t a , and an a d d i t i o n a l r e g r e s s i o n i s i n c l u d e d u s i n g a model w i t h h i g h l y c o r r e l a t e d v a r i a b l e s removed. The r e s u l t s o f t h i s r e g r e s s i o n i n d i c a t e t h a t t h e degree o f m u l t i c o l l i n e a r i t y was n o t r e s p o n s i b l e f o r t h e i n d e f i n i t i v e r e s u l t s . I t i s c o n c l u d e d t h a t t h e market v a l u e o f a c o m m e r c i a l o f f i c e b u i l d i n g i s n o t a f f e c t e d t o a s i g n i f i c a n t e x t e n t , by an i n c r e a s e i n t h e consumption o f e n e r g y . The c e n t r a l h y p o t h e s i s i s t h e r e f o r e n o t s u p p o r t e d by the e m p i r i c a l r e s u l t s . i i i E n e r g y p o l i c y i s r e v i e w e d i n C h a p t e r V. T h i s r e v i e w i n c l u d e s a number o f a v a i l a b l e p o l i c y t o o l s a v a i l a b l e t o g o v e r n m e n t . The c h a p t e r c o n c l u d e s t h a t p r i c i n g p o l i c y a l o n e i s l i k e l y i n a d e q u a t e t o r e d u c e e n e r g y c o n s u m p t i o n . I n t h e c o n c l u d i n g c h a p t e r , t h e c e n t r a l h y p o t h e s i s i s r e j e c t e d . T h i s c o n c l u s i o n i s s u p p o r t e d by b o t h t h e t h e o r e t i c a l and t h e e m p i r i c a l a n a l y s e s . The s e c o n d p o l i c y h y p o t h e s i s i s a l s o r e j e c t e d , a n d a number o f p o s s i b l e p o l i c y m e a s u r e s a r e s u g g e s t e d . T h e s i s S u p e r v i s o r i v I N D E X PAGE CHAPTER I INTRODUCTION TO COMMERCIAL BUILDING ENERGY USAGE, ENERGY PRICING AND POLICY 1 Do C o m m e r c i a l B u i l d i n g s i n Canada Consume a S i g n i f i c a n t P o r t i o n o f T o t a l E n e r g y Consumed 4 A l t e r n a t i v e S o u r c e s o f E n e r g y 6 I n t h e E c o n o m i c s o f B u i l d i n g O p e r a t i o n s , I s E n e r g y C o n s u m p t i o n S i g n i f i c a n t R e l a t i v e t o O t h e r C o s t s 10 I s i t T e c h n i c a l l y P o s s i b l e t o A c h i e v e a S i g n i f i c a n t R e d u c t i o n i n t h e Amount o f E n e r g y Consumed i n C o m m e r c i a l B u i l d i n g s (The C o n s e r v a t i o n I s s u e ) 13 T e c h n i c a l S t a n d a r d s f o r E n e r g y E f f i c i e n t B u i l d i n g s 17 P r i c i n g Mechanisms a n d T h e i r E f f e c t s on C o n s u m p t i o n 20 O c c u p a n t P r o b l e m s i n C o n s e r v a t i o n 27 SUMMARY 29 CHAPTER I I INVESTMENT ANALYSIS: A MODEL OF PRICE DETERMINATION 31 A p p l y i n g t h e M o d e l s 3 3 SUMMARY 44 CHAPTER I I I EMPIRICAL STUDY: ENERGY AND MARKET VALUES 45 R e g r e s s i o n A n a l y s i s 45 S t r u c t u r a l E q u a t i o n s t o T e s t E n e r g y H y p o t h e s e s 51 V PAGE DESCRIPTION OF VARIABLES 54 DEPENDENT VARIABLES 62 INDEPENDENT VARIABLES 62 CHAPTER IV REGRESSION ANALYSIS RESULTS 63 Co m p l e t e Sample 63 S t r a t i f i e d Sample w i t h Debt D a t a 68 "Homogeneous" Sample R e s u l t s 72 SUMMARY 76 CHAPTER V ENERGY POLICY 80 F i n a n c i a l P e r s u a s i v e P o l i c i e s 83 M a n d a t o r y F i n a n c i a l P o l i c y I n s t r u m e n t s 108 P e r s u a s i v e N o n - F i n a n c i a l P o l i c y I n s t r u m e n t s 110 M a n d a t o r y N o n - F i n a n c i a l P o l i c y M e a s u r e s 115 SUMMARY 127 CHAPTER VI 128 CONCLUSIONS 128 L I S T OF TABLES 134 APPENDIX "A" 135 APPENDIX "B" 147 BIBLIOGRAPHY 148 1 CHAPTER I INTRODUCTION TO COMMERCIAL BUILDING ENERGY USAGE, ENERGY PRICING AND POLICY  The theme o f t h i s t h e s i s i s t h e a n a l y s i s o f t h e e f f e c t o f e n e r g y c o n s u m p t i o n on t h e m a r k e t v a l u e o f c o m m e r c i a l o f f i c e b u i l d i n g s i n Canada. An a t t e m p t i s made t o d e t e r m i n e i f e n e r g y c o n s e r v a t i o n m e a sures a r e r e f l e c t e d i n c o m m e r c i a l v a l u e s and t o l i n k any r e l a t i o n s h i p t o n a t i o n a l and p r o v i n c i a l e n e r g y p o l i c y . The i m p o r t a n c e o f t h i s s t u d y c a n be d e m o n s t r a t e d by r e f e r e n c e t o b o t h t h e p r i v a t e and p u b l i c s e c t o r s o f t h e economy. I n t h e p r i v a t e s e c t o r , a p r e r e q u i s i t e f o r a s u c c e s s f u l i n v e s t -ment has b e en shown t o be a c c u r a t e i n f o r m a t i o n a b o u t t h e p r e s e n t and f u t u r e amounts o f income, v a l u e and o p e r a t i n g e x p e n s e . T h i s s t u d y w i l l p r o v i d e i n f o r m a t i o n t o t h e p r i v a t e s e c t o r w h i c h w i l l a l l o w b e t t e r d e c i s i o n s t o be made when c o n s i d e r i n g e x p e n d i t u r e s on p l a n t and e q u i p m e n t f o r t h e p u r p o s e o f u s i n g o r c o n s e r v i n g e n e r g y ( e . g . c a p i t a l e x p e n d i t u r e and o p e r a t i n g e x p e n s e s ) . I n t h e p u b l i c s e c t o r , g o v e r n m e n t s a t l o c a l , r e g i o n a l and n a t i o n a l l e v e l s i n b o t h Canada and t h e U n i t e d S t a t e s c a n make use o f t h e r e s u l t s o f t h i s s t u d y t o e v a l u a t e t h e i m p a c t o f t h e p r i c e mechanism i n c o n t r o l l i n g t h e demand f o r e n e r g y i n com-m e r c i a l o f f i c e b u i l d i n g s . T h i s c o u l d be one t o o l f o r f o r m u l a t i n g p o l i c y r e l a t i n g t o t h e c o n t r o l o f e n e r g y u s a g e i n t h e c o m m e r c i a l s e c t o r . 2 The c e n t r a l h y p o t h e s i s t o be t e s t e d c a n be s t a t e d as f o l l o w s : A r e l a t i v e i n c r e a s e i n t h e e x p e n s e o f e n e r g y consumed  i n a c o m m e r c i a l o f f i c e b u i l d i n g h a s t h e e f f e c t o f r e d u c i n g t h e  m a r k e t v a l u e o f t h e o f f i c e b u i l d i n g . 1 T h i s h y p o t h e s i s i s d e v -e l o p e d t h e o r e t i c a l l y and t e s t e d e m p i r i c a l l y t o d e t e r m i n e w h e t h e r a r e l a t i o n s h i p between e n e r g y e x p e n s e and m a r k e t v a l u e e x i s t s and i f i t e x i s t s , t o d e t e r m i n e t h e s t r e n g t h o f t h e r e l a t i o n s h i p . The t i m i n g o f t h e a d j u s t m e n t i n v a l u e t o t h e c h a n g e s i n t h e r e l -a t i v e c o s t s o f e n e r g y depends i n p a r t on t h e c o n t r a c t u a l r e l a -t i o n s h i p between l a n d l o r d and t e n a n t , e.g. l e a s e s . The e m p i r i -c a l work i s b a s e d on a sample o f c o m m e r c i a l o f f i c e b u i l d i n g s i n t h e G r e a t e r V a n c o u v e r a r e a . To t h e e x t e n t t h a t t h e r e l a t i o n s h i p e x i s t s as d e s c r i b -ed i n t h e h y p o t h e s i s , and c o m m e r c i a l o f f i c e b u i l d i n g owners and f u t u r e i n v e s t o r s show a s i g n i f i c a n t i n t e r e s t i n e n e r g y usage, a s e c o n d h y p o t h e s i s i n t h e p o l i c y a r e a i s t e s t e d . T h i s h y p o t h e s i s i s t h a t : The p r i c e mechanism o p e r a t i n g on t h e demand f o r e n e r g y  i n t h e c o m m e r c i a l o f f i c e b u i l d i n g m a r k e t s e r v e s t h e p u b l i c  i n t e r e s t i n e n c o u r a g i n g t h e c o n s e r v a t i o n o f e n e r g y . T h i s h y p o t -h e s i s c o n s i d e r s t h a t e n e r g y i s a s c a r c e r e s o u r c e , and t h a t c o n -s e r v a t i o n o f e n e r g y i s i n t h e p u b l i c i n t e r e s t . 1 The measurement u s e d i n t h i s s t u d y i s t h e amount o f e n e r g y i n k i l o w a t t h o u r s p e r s q u a r e f o o t p e r y e a r (KWH/FT^/YEAR) consumed by a c o m m e r c i a l b u i l d i n g . An i n c r e a s e i n e n e r g y e x p e n s e may be c a u s e d by an i n c r e a s e i n t h e q u a n t i t y o r an i n c r e a s e i n t h e p r i c e p e r u n i t o f t h e e n e r g y . 3 The f o l l o w i n g s u p p l e m e n t a r y q u e s t i o n s w i l l be a d d r e s s -e d : (1) Do c o m m e r c i a l b u i l d i n g s i n Canada consume a s i g n i f i -c a n t amount o f e n e r g y when r e l a t e d t o t o t a l l e v e l s i n a l l s e c t o r s i n Canada? (2) I n t h e e c o n o m i c s o f b u i l d i n g o p e r a t i o n s , i s e n e r g y c o n s u m p t i o n s i g n i f i c a n t r e l a t i v e t o o t h e r c o s t s ? (3) I s i t t e c h n i c a l l y p o s s i b l e t o a c h i e v e a s i g n i f i c a n t r e d u c t i o n i n t h e amount o f e n e r g y consumed by commer-c i a l b u i l d i n g s ? (4) I f t h e o f f i c e b u i l d i n g m a r k e t does n o t v a l u e e n e r g y c o n s e r v a t i o n a t t h e same l e v e l as s o c i e t y g e n e r a l l y , a r e p o l i c y m easures n e c e s s a r y ? (5) What p o l i c y m e a sures a r e a v a i l a b l e t o l e g i s l a t o r s t o p r o mote a d e c r e a s e i n c o n s u m p t i o n o f e n e r g y i n commer-c i a l b u i l d i n g s ? ( 6 ) Can t h e s e p o l i c i e s h a v e t h e d e s i r e d e f f e c t o f r e d u c i n g e n e r g y c o n s u m p t i o n w i t h o u t u n d e s i r a b l e s e c o n d a r y im-p l i c a t i o n s ? E a c h o f t h e h y p o t h e s e s and s u p p l e m e n t a r y q u e s t i o n s w i l l be d e v e -l o p e d f u r t h e r t h r o u g h o u t t h e t h e s i s . I n g e n e r a l , t h e t h e o r e t i c a l i n f o r m a t i o n u s e d as b a c k -g r o u n d f o r t h i s t h e s i s o r i g i n a t e d i n t h e U n i t e d S t a t e s . An e f f o r t h a s b e e n made t o i n c o r p o r a t e f a c t o r s r e l a t i n g t o t h e C a n a d i a n s i t u a t i o n as much as p o s s i b l e u s i n g C a n a d i a n d a t a and 4 p u b l i c a t i o n s as i n f o r m a t i o n s o u r c e s when a v a i l a b l e . I t i s n e c -e s s a r y t o measure t h e e x t e n t t o w h i c h c o m m e r c i a l b u i l d i n g s c o n -t r i b u t e t o t h e t o t a l demand f o r e n e r g y i n v a r i o u s forms i n Canada so t h a t t h e i m p o r t a n c e o f t h i s s e c t o r may be p u t i n p e r s p e c t i v e . F u r t h e r , b o t h t h e c u r r e n t s t a t e o f t h e a r t i n r e d u c i n g e n e r g y c o n s u m p t i o n f r o m h i s t o r i c l e v e l s , and t h e a t t i t u d e s and e f f o r t s o f b u i l d i n g owners t o w a r d s r e d u c i n g e n e r g y c o n s u m p t i o n a r e c o n s i d e r e d . DO COMMERCIAL BUILDINGS IN CANADA CONSUME A SIGNIFICANT PORTION OF TOTAL ENERGY CONSUMED?  The N a t i o n a l E n e r g y B o a r d h a s p u b l i s h e d i n f o r m a t i o n s h o w i n g t h a t Canada w i l l e v e n t u a l l y become s e l f - s u f f i c i e n t i n some forms o f e n e r g y , b u t w i l l be h e a v i l y d e p e n d e n t on i m p o r t s i n o t h e r s . Canada seems most v u l n e r a b l e i n t h e s u p p l y o f c r u d e o i l , p a r t i c u l a r l y i n t h e E a s t e r n p r o v i n c e s . N e t i m p o r t f i g u r e s f o r c r u d e o i l , p u b l i s h e d by E n e r g y M i n e s and R e s o u r c e s (E.M.&R.), N a t i o n a l E n e r g y P o l i c y ( 1 9 8 0 ) , i n d i c a t e t h a t by 1985, 16 p e r c e n t o f demand w i l l be met by i m p o r t s . I t i s q u e s t i o n a b l e w h e t h e r t h i s f i g u r e w i l l be l o w e r by 1990 d e s p i t e a s s u r a n c e s o f t h e f e d e r a l government. N a t u r a l gas e s t i m a t e s r e l e a s e d by t h e N a t i o n a l E n e r g y B o a r d i n C a n a d i a n N a t u r a l Gas - S u p p l y and  R e q u i r e m e n t s (1979) p r o j e c t a s h o r t f a l l i n p r o d u c t i o n s t a r t i n g i n 1992. T h i s s h o r t f a l l i s p r o j e c t e d t o i n c r e a s e t o 52 p e r c e n t by t h e y e a r 2000, b u t t h e s h o r t f a l l v a r i e s a c c o r d i n g t o t h e t y p e 5 o f e n e r g y . Hence c o n s e r v a t i o n and i n t e r - f u e l s u b s t i t u t i o n may b o t h be g o a l s o f n a t i o n a l i m p o r t a n c e . A c c o r d i n g t o t h e B u i l d i n g Owners and Managers A s s o c i a -t i o n (BOMA) ( 1 9 8 0 ) , a breakdown o f t h e s o u r c e s o f e n e r g y u s e d t o h e a t , c o o l and v e n t i l a t e c o m m e r c i a l b u i l d i n g s shows t h a t a p p r o x -i m a t e l y 40 p e r c e n t o f t h e consumers use o i l , 30 p e r c e n t u s e gas, and 30 p e r c e n t use e l e c t r i c i t y . T h i s amounted t o 11 p e r c e n t o f t h e o i l c o n s u m p t i o n i n Canada, 19 p e r c e n t o f t h e n a t u r a l g as, and 25 p e r c e n t o f t h e e l e c t r i c i t y . On a v e r a g e , c o m m e r c i a l b u i l -d i n g s u s e 13 p e r c e n t o f t h e t o t a l e n e r g y f r o m a l l s o u r c e s c o n -sumed i n a l l s e c t o r s . C o n s i d e r i n g t h e e x t e n t o f c o n s u m p t i o n by c o m m e r c i a l b u i l d i n g s , a s u b s t a n t i a l r e d u c t i o n i n t h e us a g e o f o i l and n a t u -r a l gas w i l l h a v e a s i g n i f i c a n t e f f e c t on t h e l e v e l s o f i m p o r t s and t h e l e v e l s o f p r o j e c t e d s h o r t f a l l s . T h e r e a r e q u e s t i o n s c o n c e r n i n g a r e d u c t i o n t h e usage o f e l e c t r i c a l e n e r g y e i t h e r t h r o u g h a r e d u c t i o n i n t h e demand o r t h r o u g h i n t e r - f u e l s u b s t i t u t i o n . I n E n e r g y F u t u r e s f o r C a n a d i a n s , Gander and B e l a i r e (1978) p r o j e c t e d t h a t t h e u s e o f n u c l e a r power f o r g e n e r a t i n g e l e c t r i c i t y w o u l d a c c o u n t f o r 36 p e r c e n t o f t h e t o t a l c a p a c i t y i n Canada by 1992. The c u r r e n t c o n c e r n s r e l a t i n g t o u r a n i u m m i n i n g and t h e p u b l i c s a f e t y a s p e c t s o f n u c l e a r power g e n e r a t i o n , combined w i t h t h e e x c e s s i v e c o s t s i n v o l v e d i n t h e c o n s t r u c t i o n o f n u c l e a r p l a n t s , l e a d t o t h e b e l i e f t h a t e f f o r t s made t o r e d u c e r e l i a n c e on e l e c t r i c a l 6 power i n t h e c o m m e r c i a l s e c t o r w o u l d be c o n s i d e r e d t o be a s i g n i f i c a n t b e n e f i t t o s o c i e t y . A r e d u c t i o n i n t h e u s e o f e n e r g y g e n e r a l l y , and i n c o m m e r c i a l b u i l d i n g s i n p a r t i c u l a r , w o u l d have o t h e r b e n e f i c i a l e f f e c t s . F i r s t i s t h e a d v a n t a g e o f r e d u c i n g t h e c o u n t r y ' s r e l i -a n c e on i m p o r t e d o i l s i n c e o f f i c e b u i l d i n g s r e l y h e a v i l y on t h i s s o u r c e o f e n e r g y (40 p e r c e n t o f o f f i c e s u s e o i l f o r h e a t i n g ) . R e d u c t i o n s i n t h e u s e o f n a t u r a l gas and e l e c t r i c i t y may a l s o a f f e c t t h e b a l a n c e o f payments i n d i r e c t l y , b u t t h e d i r e c t i m p o r t o f o i l i s much more s i g n i f i c a n t t h a n t h e i n d i r e c t e f f e c t o f n a t u r a l gas and e l e c t r i c i t y combined. (As a c o n s e q u e n c e t h e f o c u s i s on t h e " o i l " i s s u e ) . T h i s w o u l d a l l e v i a t e , i n some measure, t h e i n h e r e n t p r o b l e m s o f s h o r t a g e o f d o m e s t i c s u p p l y and t h e p r o b l e m s g e n e r a t e d by an a d v e r s e b a l a n c e o f payments. Second, t h e p r e s e r v a t i o n o f a l l d o m e s t i c n o n - r e n e w a b l e r e s o u r c e s f o r f u t u r e g e n e r a t i o n s i s c o n s i d e r e d t o be an i m p o r t a n t p o l i c y o b j e c t i v e and any r e d u c t i o n i n a g g r e g a t e o f f i c e demand f o r e n e r -gy w o u l d c o n t r i b u t e t o t h i s p o l i c y . A l t e r n a t i v e S o u r c e s o f E n e r g y R e l i a n c e upon a l t e r n a t i v e s o u r c e s o f e n e r g y h a s been s u g g e s t e d t o b r i n g a b o u t a change i n t h e c o n s u m p t i o n p a t t e r n f o r o i l , n a t u r a l gas and e l e c t r i c i t y w i t h t h e s u b s t i t u t i o n o f renew-a b l e e n e r g y s o u r c e s f o r c o m m e r c i a l b u i l d i n g s . S o l a r r a d i a t i o n , g e o t h e r m a l e n e r g y and w i n d e n e r g y a r e t h r e e r e n e w a b l e e n e r g y 7 s o u r c e s w h i c h h a v e , i n i s o l a t e d i n s t a n c e s , b e e n u s e d as s u b s t i -t u t e s f o r n o n - r e n e w a b l e s o u r c e s i n b u i l d i n g s . Use o f s u c h s u b s t i t u t e s h as been p r i m a r i l y e x p e r i m e n t a l a n d t h e r e p l a c e m e n t o f c o n v e n t i o n a l e n e r g y s o u r c e s by s u c h r e n e w a b l e s o u r c e s h a s n o t made s i g n i f i c a n t i n r o a d s a t t h i s t i m e . I t h a s been s u g g e s t e d t h a t i n t e r - f u e l s u b s t i t u t i o n s w i l l f o r e s t a l l t h e d o m e s t i c s h o r t g a g e o f o i l and e a s e t h e b u r -dens a r i s i n g f r o m i m p o r t i n g o i l . A summary c a l c u l a t i o n o f an a t t e m p t t o make up t h e o i l d e f i c i t by t h e y e a r 1990 by s u b s t i t u -t i n g s u r p l u s n a t u r a l gas shows t h a t , a f t e r s u b s t i t u t i n g t h e n a t u r a l gas s u r p l u s , t h e r e s t i l l r e m a i n s an a p p r o x i m a t e s h o r t -f a l l o f 50 p e r c e n t . T h i s h e a v y r e l i a n c e on n a t u r a l gas i s t h e r e f o r e a v e r y s h o r t t e r m s o l u t i o n . The s u b s t i t u t i o n o f e l e c t r i c i t y f o r o i l o r n a t u r a l gas would, as m e n t i o n e d p r e v i o u s l y , r e q u i r e h e a v y r e l i a n c e on n u c l e a r power, w i t h t h e p r o b l e m s i n h e r e n t i n t h i s method. The s u b s t i t u t i o n o f a n o t h e r n o n - r e n e w a b l e r e s o u r c e i n t h e f o r m o f c o a l , o r gas m a n u f a c t u r e d f r o m c o a l , h o l d s some p r o m i s e f o r com-p l e m e n t i n g and p e r h a p s r e p l a c i n g o i l . I t i s n o t e d , however, t h a t w h i l e t h e r e q u i s i t e t e c h n o l o g y i s a v a i l a b l e , t h e c o a l r e s e r v e s o f Canada a r e l i m i t e d . Some e s t i m a t e s ( W i l l i a m s , 1980) s u g g e s t t h e l i f e o f p r o v e n c o a l r e s e r v e s w i l l n o t e x t e n d b e y o n d t h e y e a r 2035, ( b a s e d on p r o j e c t e d l e v e l s o f i n c r e a s e i n t h e u s e o f c o a l ) . 8 S t o b a u g h and Y e r g i n ( 1 9 7 8 ) , s u g g e s t t h a t t h e u s e o f c o n s e r v a t i o n measures, as o p p o s e d t o f i n d i n g new s o u r c e s o f e n e r g y , i s t h e o n l y r e a s o n a b l y method o f r e d u c i n g t h e c o n s u m p t i o n o f e n e r g y i n b u i l d i n g s . I n d e s c r i b i n g c o n s e r v a t i o n , S t o b a u g h and Y e r g i n s t a t e : T h e r e i s a s o u r c e o f e n e r g y t h a t p r o d u c e s no r a d i o a c t i v e w a s t e , n o t h i n g i n t h e way o f p e t r o -d o l l a r s , and v e r y l i t t l e p o l l u t i o n . M o r e o v e r , t h e s o u r c e c a n p r o v i d e e n e r g y t h a t c o n v e n t i o n a l s o u r c e s may n o t be a b l e t o f u r n i s h , (page 136) They p o i n t t o a t r e n d i n t h e U n i t e d S t a t e s where s u b -s t a n t i a l r e d u c t i o n s i n t h e amount o f e n e r g y u s e d i n b o t h p r i v a t e and government b u i l d i n g s h a v e b e e n a c h i e v e d . C o s t c o n s i d e r a -t i o n s o v e r t h e l i f e - c y c l e o f a b u i l d i n g , r a t h e r t h a n t h e h i s t o r -i c a l p r a c t i c e o f u s i n g f i r s t - t i m e c a p i t a l c o s t c a l c u l a t i o n s , i s g a i n i n g g r e a t e r u s a g e . S a v i n g s t h r o u g h c o n s e r v a t i o n do n o t r e -q u i r e m a j o r t e c h n o l o g i c a l b r e a k t h r o u g h s and, i n most c a s e s , do n o t r e q u i r e m a j o r changes i n l i f e s t y l e s . The m a j o r b a r r i e r s t o t h e c o n s e r v a t i o n o f e n e r g y a r e f o u n d t o be i n s t i t u t i o n a l , p o l i t -i c a l and s o c i a l . A g overnment p o l i c y d e s i g n e d t o champion t h e c a u s e o f c o n s e r v a t i o n may h e l p t o overcome some o f t h e s e o b s t a c -l e s . T h r e e t y p e s o f c o n s e r v a t i o n p rograms a r e c i t e d by S t o b a u g h and Y e r g i n . The f i r s t two, i n v o l u n t a r y c u r t a i l m e n t due t o s u p p l y i n t e r r u p t i o n and e x t e r n a l l y i m p o s e d measures w h i c h r e -9 q u i r e a m a j o r l i f e s t y l e change, a r e c o n s i d e r e d u n d e s i r a b l e . I n s t e a d t h e method c a l l e d " p r o d u c t i v e c o n s e r v a t i o n " i s t o be e n c o u r a g e d . P r o d u c t i v e c o n s e r v a t i o n r e f e r s t o t h o s e m e asures w h i c h e n c o u r a g e c h a n g e s i n t h e e x i s t i n g c a p i t a l s t o c k and p r o m i s e changes i n b e h a v i o u r w h i c h e n c o u r a g e t h e u s e o f l e s s e n e r g y i n an e c o n o m i c a l and s o c i a l l y n o n - d i s r u p t i v e manner. A p r o b l e m w i t h p r o d u c t i v e c o n s e r v a t i o n d e r i v e s f r o m i t s f u n d a m e n t a l c h a r a c t e r i s t i c s i t i s a h i g h l y f r a g m e n t e d a p p r o a c h . I t i m p l i e s t h e need f o r d i s c i p l i n e and c o n s t a n t m o n i -t o r i n g a t t h e i n d i v i d u a l l e v e l . A t t h e t i m e o f t h e 1973 o i l c r i s i s , e x p e r t s o f t h e day, who promote t h e e x p a n s i o n o f e n e r g y p r o d u c t i o n i n o i l , n u c l e a r power, c o a l and gas, d e v e l o p e d a u n i -f i e d , h e n c e p o w e r f u l v o i c e . C o n s e r v a t i o n i s t s , a l t h o u g h c u r r e n t -l y r e c e i v i n g government and p o p u l a r s u p p o r t , a r e n o t as w e l l o r g a n i z e d , h e n c e n o t as p o w e r f u l . As a c o n s e q u e n c e , c o n s e r v a -t i o n i s o f t e n r e l e g a t e d t o t h e b a c k g r o u n d i n f a v o u r o f more g l a m o r o u s and e x c i t i n g e n e r g y s o l u t i o n s . I n t h e R e p o r t on E n e r g y f r o m t h e A s s o c i a t i o n o f  P r o f e s s i o n a l E n g i n e e r s o f B r i t i s h C o l u m b i a ( 1 9 7 8 ) , a recommenda-t i o n was made t h a t t h e r e must be an o n g o i n g commitment t o c o n -s e r v a t i o n on t h e p a r t o f government and e v e r y c i t i z e n . I n a d e s c r i p t i o n o f t h e N o r t h A m e r i c a n s i t u a t i o n , t h e e d i t o r s s t a t e : 10 I t h a s been m e n t i o n e d many t i m e s i n t h e p r e s s t h a t Canada and t h e U.S. a r e t h e two most e n e r g y i n t e n s i v e n a t i o n s i n t h e w o r l d . A l -t h o u g h l i v i n g s p r e a d o u t a l o n g a na r r o w s t r i p i n a c o l d c l i m a t e i n c r e a s e s o u r needs f o r t r a n s p o r t a t i o n a nd s p a c e h e a t i n g , o u r e n e r g y c o n s u m p t i o n i s e x c e s s i v e . T h i s i s l a r g e l y due t o o u r l o v e o f l a r g e c a r s and o c c u p a t i o n o f w e l l h e a t e d b u t p o o r l y i n s u l a t e d b u i l d i n g s , t h e r e a d y a v a i l a b i l i t y and low p r i c e o f e n e r g y , e s p e c i a l l y p e t r o l e u m p r o d u c t s . (Page 12) IN THE ECONOMICS OF BUILDING OPERATIONS, IS ENERGY CONSUMPTION SIGNIFICANT RELATIVE TO OTHER COSTS? V a r i o u s s t u d i e s have been i n i t i a t e d t o d e t e r m i n e l e v e l s o f e n e r g y c o n s u m p t i o n i n d i f f e r e n t b u i l d i n g s t r u c t u r e t y p e s . Two examples i n c l u d e t h e O n t a r i o H y d r o (1978) s u r v e y o f 80 b u i l d i n g s i n T o r o n t o , and t h e B u i l d i n g Owners' and Managers' A s s o c i a t i o n (B.O.M.A.) s t u d y o f b u i l d i n g s i n a s e l e c t i o n o f c i t i e s i n Canada i n 1977. The O n t a r i o H y d r o s t u d y r e p o r t s t h a t e n e r g y c o n s u m p t i o n i n b u i l d i n g s r a n g e f r o m a low o f 19.0 KWH/ft ^ / y e a r ^ t o a h i g h o f 87.0 KWH/ft^/year. By g e n e r a l l y a c c e p t e d s t a n d a r d s , t h i s r e p r e s e n t s an e x c e s s i v e r a n g e . The b u i l d i n g s a t t h e h i g h end o f t h e r a n g e a r e j u d g e d , by c o n t e m p o r a r y s t a n d a r d s , t o be u n a c c e p t a b l y h i g h . B.O.M.A. r e p o r t e d an e v e n w i d e r r a n g e i n p e r u n i t usage, f r o m 18.0 t o 169.0 K W H / f t 2 / y e a r . B.O.M.A. a l s o n o t e d t h a t e n e r g y c o s t s f o r o f f i c e b u i l d i n g s a v e r a g e d 30.9 p e r c e n t o f t h e t o t a l v a r i a b l e c o s t s , e x c l u d i n g m a i n t e n a n c e , 1 E n e r g y i s mea s u r e d i n k i l o w a t t h o u r s p e r s q u a r e f o o t p e r y e a r (KWH/FT 2/YEAR) as a s t a n d a r d i n Canada. 11 r e p a i r s and m a t e r i a l p u r c h a s e , o f t h e b u i l d i n g . The b r e a k d o w n o f v a r i a b l e c o s t s i n a t y p i c a l o f f i c e b u i l d i n g i s i l l u s t r a t e d i n F i g u r e l . l l I t c a n be s e e n t h a t e n e r g y i s t h e most s i g n i f i c a n t v a r i a b l e c o s t . C l e a n i n g , a t 22.8 p e r c e n t , i s r e l a t i v e l y h i g h b u t t h i s v a r i a b l e i n c l u d e s h i g h l a b o u r c o s t . B R E A K D O W N O F I N D I V I D U A L V A R I A B L E C O S T S F i g u r e 1.1 SOURCE: BUILDING OWNERS AND MANAGERS ASSOCIATION DOWNTOWN AND SUBURBAN O F F I C E BUILDINGS EXCHANGE REPORT (1980) E n e r g y c o s t s i n c l u d e t h e u t i l i t y c o s t s p r i n c i p a l l y f o r n a t u r a l g a s , o i l and e l e c t r i c i t y . The e l e c t r i c a l (2.4 p e r c e n t ) , h e a t i n g (3.1 p e r c e n t ) , a i r c o n d i t i o n i n g (4.2 p e r c e n t ) , e l e v a t o r s (5.5 p e r c e n t ) and h e a t i n g , v e n t i l a t i n g and a i r c o n d i t i o n i n g (HVAC 8.0 p e r c e n t ) r e f e r t o t h e p e r c e n t a g e s o f v a r i a b l e c o s t s f o r s y s t e m m a i n t e n a n c e . 12 F u r t h e r , t h e O n t a r i o H y d r o s t u d y p r o v i d e s i n f o r m a t i o n on a v e r a g e c o n s u m p t i o n . A v e r a g e c o n s u m p t i o n i n 1977 was 44.4 K W H / f t 2 / y e a r i n t h e sample o f b u i l d i n g s i n t h e T o r o n t o a r e a . A f o l l o w - u p s u r v e y t h e f o l l o w i n g y e a r c o n f i r m e d t h a t a v e r a g e c o n s u m p t i o n was i n t h e 40-45 KWH/ft 2 r a n g e . A B.C. Hy d r o s t u d y o f s e v e n b u i l d i n g s i n V a n c o u v e r f o r t h e y e a r 1979 r e p o r t e d t h e a v e r a g e c o n s u m p t i o n t o be 68.3 KWH/ft 2• A more r e c e n t s u r v e y by t h e B r i t i s h C o l u m b i a B u i l d i n g C o r p o r a t i o n (B.C.B.C.), i n c l u d i n g 110 b u i l d i n g s u n d e r i t s c o n t r o l , r e p o r t e d an a v e r a g e a n n u a l c o n s u m p t i o n o f 40.4 K W H / f t 2 / y e a r . The m i n i -mum c o n s u m p t i o n i n t h i s s t u d y was 12.4 K W H / f t 2 / y e a r , t h e m a x i -mum was 160.7 K W H / f t 2 / y e a r 1 , and t h e a v e r a g e was 40.4 K W H / f t 2 / y e a r . (See T a b l e 1.1) TABLE 1.1 STUDY AVERAGE CONSUMPTION K W H / f t 2 / y e a r HIGHEST CONSUMPTION K W H / f t 2 / y e a r LOWEST CONSUMPTION K W H / f t 2 / y e a r ONTARIO HYDRO 44.4 87 .0 19.0 BOMA 48.6 169.0 18.0 VANCOUVER 68.3 157 .6 20.1 BCBC 40.4 160.7 12.4 1 S t u d i e s c o m p a r i n g c o n s u m p t i o n i n d i f f e r e n t c l i m a t i c c o n d i -t i o n s , a l t h o u g h a l l o w i n g f o r a d i f f e r e n c e i n d e g r e e - d a y s , i n d i c a t e a v e r y s m a l l d i f f e r e n c e i n t h e t o t a l u n i t e n e r g y c o n s u m p t i o n . 13 R e f e r r i n g t o T a b l e 1.1, t h e s e f o u r s t u d i e s c o n f i r m t h a t t h e r e e x i s t s a wide r a n g e o f e n e r g y c o n s u m p t i o n p e r s q u a r e f o o t . F u r t h e r , t h e s e r a n g e s c a n n o t be e x p l a i n e d by r e f e r e n c e t o geo-g r a p h i c l o c a t i o n s i n c e wide v a r i a t i o n s i n c o n s u m p t i o n were f o u n d i n e a c h s t u d y . T h e s e f a c t s , combined w i t h e x p e n s e d a t a p r o v i d e d i n t h e BOMA s t u d y , c o n f i r m t h a t , on a v e r a g e , e n e r g y i s t h e s i n g l e l a r g e s t o p e r a t i n g e x p e n s e i t e m . F u r t h e r m o r e , i n a l a r g e p o r t i o n o f t h e b u i l d i n g s , t h o s e w i t h above a v e r a g e c o n s u m p t i o n o f e n e r g y c o s t s , e x p r e s s e d as a p o r t i o n o f t o t a l c o s t , w i l l g r e a t l y e x c e e d t h e BOMA a v e r a g e . IS IT TECHNICALLY POSSIBLE TO ACHIEVE A SIGNIFICANT REDUCTION IN THE AMOUNT OF ENERGY CONSUMED IN COMMERCIAL BUILDINGS (THE CON-SERVATION ISSUE)?  I n r e l a t i o n t o t h e e x i s t i n g s t o c k o f b u i l d i n g s , how f a r i f a t a l l c a n t h e a v e r a g e c o n s u m p t i o n o f e n e r g y be r e d u c e d ? How f a r below t h e c u r r e n t 40 KHW/square f o o t / y e a r a v e r a g e u n i t c o n s u m p t i o n c a n e i t h e r a r e t r o f i t t e d b u i l d i n g o r (a b u i l d i n g r e -n o v a t e d f o r e n e r g y e f f i c i e n c y ) i m p r o v e d o p e r a t i n g p r o c e d u r e s r e -duce e n e r g y c o n s u m p t i o n ? I n o r d e r t o d e t e r m i n e what i s t e c h n i c a l l y p o s s i b l e , i t i s f i r s t n e c e s s a r y t o b r i e f l y o u t l i n e t h o s e f a c t o r s t h a t w i l l i n f l u e n c e e n e r g y c o n s u m p t i o n . The ma j o r f a c t o r s w h i c h w i l l d e -t e r m i n e a n n u a l e n e r g y c o n s u m p t i o n i n c l u d e : (1) D e s i r e d i n t e r n a l t e m p e r a t u r e d u r i n g o c c u p a t i o n (by h e a t i n g o r c o o l i n g ) . 14 (2) T o t a l s q u a r e f o o t a g e t o be c o n d i t i o n e d ( h e a t e d o r c o o l e d ) . (3) Number o f d a y s p e r y e a r and h o u r s p e r day a t t h e d e -s i r e d i n t e r n a l t e m p e r a t u r e . (4) P e r m i t t e d i n t e r n a l t e m p e r a t u r e w h i l e u n o c c u p i e d . (5) P h y s i c a l c h a r a c t e r i s t i c s o f t h e b u i l d i n g , e.g. i n s u l -a t i o n , t y p e o f c o n s t r u c t i o n m a t e r i a l , b u i l d i n g d e s i g n , g l a s s a r e a , e t c . (6) C l i m a t i c c o n d i t i o n s . (7) Management o f c l i m a t e c o n t r o l s y s t e m s , e.g. a r e p e r -m i t t e d u n o c c u p i e d t e m p e r a t u r e s a c h i e v e d e f f i c i e n t l y . A number o f s t u d i e s h a v e a t t e m p t e d t o d e t e r m i n e w h e t h -e r s i g n i f i c a n t r e d u c t i o n s i n e n e r g y c o n s u m p t i o n a r e p o s s i b l e . One s t u d y , s p o n s o r e d by t h e N a t i o n a l R e s e a r c h C o u n c i l (NRC), and c a r r i e d o u t by V i n t o E n g i n e e r i n g L t d . ( 1 9 7 8 ) , p e r f o r m e d e x t e n -s i v e e n e r g y s i m u l a t i o n s t u d i e s on f o u r o f f i c e b u i l d i n g s (an ex-p l a n a t i o n o f t h e s e s i m u l a t i o n methods o c c u r s l a t e r i n t h i s s e c -t i o n ) . The p u r p o s e s o f t h e s t u d y were t h r e e f o l d : (1) The e n e r g y s i m u l a t i o n p r o g r a m was t o be t e s t e d f o r r e -l i a b i l i t y by c o m p a r i n g i t w i t h a c t u a l c o n s u m p t i o n . (2) A t y p i c a l o f f i c e b u i l d i n g was a n a l y z e d t o d e t e r m i n e t h e e f f e c t s o f c l i m a t e , s i z e , s hape and p e r i o d o f o c -c u p a n c y on e n e r g y c o n s u m p t i o n i n o r d e r t o e x p l a i n t h e w i d e s p r e a d s i n u n i t c o n s u m p t i o n f i g u r e s . 15 (3) The p o t e n t i a l r e d u c t i o n s i n t h e e n e r g y c o n s u m p t i o n o f e x i s t i n g b u i l d i n g s was i n v e s t i g a t e d t h r o u g h t h e a p p l i c a t i o n o f p r e - d e t e r m i n e d , l o w - c o s t e n e r g y management p r o g r a m s . The t e s t o f t h e s i m u l a t i o n p r o g r a m p r o v e d s u c c e s s f u l : t h e s t i m u -l a t e d c o n s u m p t i o n f i g u r e s were w i t h i n t h r e e p e r c e n t o f t h e a c t u -a l f i g u r e s c o n f i r m i n g t h e a c c u r a c y o f t h e s i m u l a t i o n methods. The NRC s t u d y r e p o r t e d t h a t t h e f a c t o r h a v i n g t h e g r e a t e s t e f f e c t on e n e r g y c o n s u m p t i o n was t h e h o u r s o f work p e r  d a y . T h i s was f o l l o w e d by t h e number o f work d a y s p e r y e a r . The most i m p o r t a n t p h y s i c a l p a r a m e t e r was f o u n d t o be t h e r a t i o o f o u t s i d e s u r f a c e a r e a o f t h e b u i l d i n g t o f l o o r a r e a . The v a r i a b l e s w h i c h were f o u n d t o be t h e l e a s t s i g n i f i c a n t were c l i -mate, i n t e r n a l h e a t i n g l e v e l s and, o n l y s l i g h t l y more i m p o r t a n t , i n t e r n a l c o o l i n g l e v e l s . The i m p l e m e n t a t i o n o f s i m u l a t e d c h a n g e s t o s y s t e m s t o d e t e r m i n e r e d u c e d e n e r g y usage s t a r t e d w i t h a g r o u p o f i t e m s r e -q u i r i n g no c a p i t a l o u t l a y s . T h e s e i n c l u d e d : shut-down o f mech-a n i c a l and e l e c t r i c a l s y s t e m s f r o m 6:00 p.m. t o 7:00 a.m. on w o r k d a y s , and a l l day on non-workdays; t h e r m o s t a t s e t t i n g s o f 2 1 ° C e l c i u s f r o m O c t o b e r 1 s t t o May 3 1 s t , and 2 4 ° C e l c i u s f r o m J u n e 1 s t t o September 3 0 t h ; r e m o v i n g t u b e s f r o m l i g h t f i x t u r e s t o r e d u c e l i g h t i n g e n e r g y t o 2.5 w a t t s / s q u a r e f o o t ; a n d r e s e t -t i n g s e r v i c e w a t e r t e m p e r a t u r e s t o 4 3 ° C e l c i u s . The a d d i t i o n o f t h e s e m o d i f i c a t i o n s t o t h e b a s e model d e c r e a s e d t h e a n n u a l e q u i -16 v a l e n t e n e r g y c o n s u m p t i o n by 50 p e r c e n t , w i t h l i t t l e i n c r e a s e i n c a p i t a l c o s t . Changes t o s y s t e m s r e q u i r i n g m i n o r c a p i t a l e x p e n d i -t u r e s were s t u d i e d . T h e s e i n c l u d e d : a i r q u a n t i t y a d j u s t m e n t s , f i x t u r e c h a n g e s , r e w i r i n g and b a l l a s t r e m o v a l , r e d u c e d o u t s i d e a i r v e n t i l a t i o n r a t e s , and e l i m i n a t i o n o f r e h e a t u s i n g r a d i a -t o r s . The a d d i t i o n o f t h e s e m i n o r - c o s t i t e m s h a d t h e e f f e c t o f i m p r o v i n g t h e t o t a l e n e r g y r e d u c t i o n s , i n c l u d i n g t h e n o - c o s t i t e m s , t o 60 p e r c e n t . T h i s p r o c e s s was r e p e a t e d on two o t h e r b u i l d i n g s o f d i f f e r e n t s i z e and s y s t e m t y p e s . R e d u c t i o n s i n c o n s u m p t i o n v a r -i e d f r o m 57 t o 60 p e r c e n t . A f o u r t h b u i l d i n g was c h e c k e d and was f o u n d t o be o p e r a t i n g a t a minimum o f 2 3 KWH/square f o o t / y e a r , and i t was f o u n d t h a t , w i t h o u t s o p h i s t i c a t e d and h i g h c o s t r e v i s i o n s , l o w e r c o n s u m p t i o n was n o t p o s s i b l e . T h i s f o u r t h b u i l d i n g h a d a s y s t e m f o r h e a t i n g and a i r c o n d i t i o n i n g s i m i l a r t o t h e o t h e r t h r e e . L i g h t i n g l e v e l s were a l s o e q u i v a l e n t . Con-s i d e r i n g t h a t t h e r e were no s o p h i s t i c a t e d s o l a r s y s t e m s o r h e a t s t o r a g e s y s t e m s , t h e low f i g u r e o f 2 3 KWH/square f o o t / y e a r may be c o n s i d e r e d a minimum^, and t h e c o n t r o l and o p e r a t i o n o f t h e s y s t e m s u s e d as a m odel. The r e d u c t i o n s i n c o n s u m p t i o n i n t h e 1 The methods o f a c h i e v i n g c o n s u m p t i o n f i g u r e s l e s s t h a n 23 KWH/square f o o t / y e a r a r e c o n s i d e r e d u n e c o n o m i c a l s i n c e t h i s r e q u i r e d more s o p h i s t i c a t e d e q u i p m e n t and s y s t e m s . 17 t h r e e b u i l d i n g s where s y s t e m r e v i s i o n s were s i m u l a t e d y i e l d e d f i n a l f i g u r e s o f 40 KWH/square f o o t / y e a r , f o r one b u i l d i n g , and 24 KWH/square f o o t / y e a r f o r t h e o t h e r two b u i l d i n g s . F o r c o m p a r i s o n p u r p o s e s , t h e c o n s u m p t i o n f i g u r e f o r V a n c o u v e r ' s p r o v i n c i a l c o u r t h o u s e and o f f i c e complex i s p r e -d i c t e d t o be 35 KWH/square f o o t , w h i l e t h e c o n s u m p t i o n f i g u r e f o r t h e new O n t a r i o C o u r t h o u s e i n E n e r g y Management Canada  (1980) i s p r e d i c t e d t o be 13 KWH/square f o o t / y e a r . A c t u a l c o n -s u m p t i o n f i g u r e s f o r t h e s e b u i l d i n g s s h o u l d be a v a i l a b l e soon, and w i l l a t t r a c t some i n t e r e s t . A p a p e r by t h e A m e r i c a n I n s t i t u t e o f A r c h i t e c t s , (1979) "A N a t i o n o f E n e r g y E f f i c i e n t B u i l d i n g s by 1990", c o n -c l u d e s t h a t t h e p o t e n t i a l s a v i n g f o r e x i s t i n g b u i l d i n g s i s 30 p e r c e n t ( f r o m 40 KWH/square f o o t / y e a r t o 28 KWH/square f o o t / y e a r ) and f o r new b u i l d i n g s , a s a v i n g o f 60 p e r c e n t ( f r o m 40 KWH/square f o o t / y e a r t o 16 KWH/square f o o t / y e a r ) c o u l d be a c h i e v e d . T h e s e e s t i m a t e s a r e b a s e d on c a s e s t u d i e s o f o f f i c e b u i l d i n g s i n m a j o r A m e r i c a n c i t i e s f r o m 1976 t o 1978. T e c h n i c a l S t a n d a r d s f o r E n e r g y E f f i c i e n t B u i l d i n g s S t u d i e s o f v a r i o u s programs o f r e t r o f i t and i n v e s t m e n t i n e n e r g y c o n s e r v i n g d e v i c e s i s r e p o r t e d by J a c k s o n ( 1 9 7 9 ) . Re-p r o d u c e d i n F i g u r e 1.2 i s a g r a p h i c a l r e p r e s e n t a t i o n o f t h e b e n -18 e f i t s i n e n e r g y r e d u c t i o n compared t o e x p e n d i t u r e s o f c a p i t a l f u n d s . 1 The r e s u l t s o f t h i s s t u d y , shown i n F i g u r e 1.2 i n d i -c a t e t h a t s i g n i f i c a n t r e d u c t i o n i n e n e r g y c o n s u m p t i o n c a n be a c h i e v e d w i t h s m a l l c a p i t a l i n v e s t m e n t s ( e . g . a 10 p e r c e n t i n -c r e a s e i n c a p i t a l c o s t a c h i e v e s a 50 p e r c e n t r e d u c t i o n i n e n e r g y u s e ) , b u t t h a t t h e r e t u r n s f r o m a d d i t i o n a l c a p i t a l d i m i n i s h d r a m a t i c a l l y . 1 0 0 1 * - — — - » - l 1 -5 SA-f 6 0 * 30*F « A ™ " l \ , . - 4 . 6 I \V«A . - 9 I - S A S E . O U A L O U C T J - E C 0 N 0 M I Z E R 3- EXHAUST AIR HEAT RECOVER? 4- RESET CONTROLS 3-IMPROVED CHILLER EFFICIENCY 6- OOUBLE SUNOLE 7- SOLAR 6-ICES 9-TOTAL ENERGY A-ORICINAL OESIGN. INCLU0E5 CREDIT FOR REOUCED EOUIPMENT SIZES. I \ I f - SA . 4 ' I I I I I I 3.* 3A,4,6A^' , .rV4,6 100% 110% 120% 130% 140% IS0% 160% 170% 160% 190% HYAC CAPITAL COST Space heating and a i r conditioning energy use vs c a p i t a l cose for t y p i c a l o f f i c e building with dual duct system. FIGURE 1.2 SOURCE: JACKSON, J.R., An E c o n o m e t r i c - E n g i n e e r i n g A n a l y s i s Of F e d e r a l E n e r g y C o n s u m p t i o n P r o g r a m s , U.S. D e p t . o f Commerce, J a n u a r y , 1979. I n F i g u r e 1.2, t h e t e r m " d u a l d u c t s y s t e m " r e f e r s t o an a l l a i r h e a t i n g - c o o l i n g s y s t e m commonly u s e d f o r o f f i c e b u i l d -i n g s . HVAC i s an i n d u s t r y a b b r e v i a t i o n f o r h e a t i n g , v e n t i -l a t i n g and a i r c o n d i t i o n i n g . — 19 G u i d e l i n e s f o r t h e d e s i g n o f new c o m m e r c i a l b u i l d i n g s a r e a v a i l a b l e t o t h e i n d u s t r y f r o m t h e A m e r i c a n S o c i e t y o f H e a t -i n g , R e f r i g e r a t i o n and A i r C o n d i t i o n i n g E n g i n e e r s (ASHRAE). ASHRAE i s a t e c h n i c a l o r g a n i z a t i o n , r e c o g n i z e d as t h e s t a n d a r d s e t t i n g a g e n c y i n t h e m e c h a n i c a l d e s i g n , c o n s t r u c t i o n and manu-f a c t u r i n g i n d u s t r i e s . I n t h e 1978 A p p l i c a t i o n s Handbook, ASHRAE, p r o v i d e d a d e s c r i p t i o n o f t h e i m p o r t a n t e n e r g y c o n s e r v a -t i o n c o n s i d e r a t i o n s f o r new b u i l d i n g d e s i g n . T h i s handbook s u g g e s t s s e t t i n g t e m p e r a t u r e s t a n d a r d s w i t h i n a r a n g e o f 2 . 3 ° C e l c i u s i n summer ( 2 3 . 3 " C e l c i u s t o 2 5 . 6 ° C e l c i u s ) , and 2 . 2 ° C e l c i u s i n w i n t e r ( 2 1 . 1 " C e l c i u s t o 2 3 . 3 " C e l c i u s ) . The r e p o r t a l s o s u g g e s t s v e n t i l a t i o n r a t e s f o r o u t s i d e a i r w h i c h h a v e been r e d u c e d t o consume l e s s e n e r g y . ASHRAE (1980) i n d i -c a t e s t h a t many dynamic- 1 c o n s e r v a t i o n m e asures p r e s e n t l y i n u s e a r e more a p p r o p r i a t e t h a n t h e p a s s i v e m e a s u r e s c u r r e n t l y u s e d i n b u i l d i n g d e s i g n . C l e a r l y a r a n g e o f e n e r g y c o n s e r v a t i o n methods c a n be e m p l o y e d i n c o m m e r c i a l b u i l d i n g s . The b u i l d i n g ' s s t r u c t u r a l " e n v e l o p e " i s as i m p o r t a n t as e i t h e r t h e t y p e o f m e c h a n i c a l s y s -tem o r t h e t y p e o f c o n t r o l s y s t e m . I n o r d e r t o a n a l y z e t h e e n e r g y p r o b l e m , computer s i m u l a t i o n s h a v e been d e v e l o p e d where t h e t h e r m a l b e h a v i o u r o f a c o m m e r c i a l b u i l d i n g c a n be s i m u l a t e d 1 Dynamic measures a r e t h o s e t h a t r e q u i r e m e c h a n i c a l means o f e n e r g y movement ( e . g . pumps and f a n s ) . 20 u s i n g one o f a number o f programs a v a i l a b l e . I n Canada, t h e p r o g r a m most commonly u s e d i s t h e E n e r g y Systems A n a l y s i s (ESA) p r o g r a m by M e r r i w e t h e r (1976) w h i c h , up t o e a r l y 1980, was s u p p o r t e d by P u b l i c Works Canada, and c o u l d be u s e d w i t h o u t r o y a l t y c h a r g e . Computer s i m u l a t i o n t e c h n i q u e s a r e u s e d on new d e s i g n s t o d e t e r m i n e t h e e f f e c t on e n e r g y c o n s e r v a t i o n o f d i f f -e r e n t m a t e r i a l s and e q u i p m e n t . S i m i l a r t e c h n i q u e s a r e u s e d on e x i s t i n g b u i l d i n g t o d e t e r m i n e t h e e x t e n t and e c o n o m i c s o f r e t -r o f i t p r o g r a m s . A n o t h e r method o f a n a l y s i n g t h e e n e r g y e f f i c i e n c y o f t h e e x i s t i n g s t o c k o f c o m m e r c i a l b u i l d i n g s i s t h e u s e o f i n f r a -r e d p h o t o g r a p h y t o p r o d u c e "thermograms". A d e s c r i p t i o n o f t h e t e c h n i q u e and p i c t o r i a l r e s u l t s i s shown i n t h e N a t i o n a l  G e o g r a p h i c ' s , " S p e c i a l R e p o r t on E n e r g y " , ( 1 9 8 1 ) . The l o c a t i o n o f maximum e n e r g y l o s s i n a b u i l d i n g c a n be l o c a t e d f r o m s u c h p h o t o g r a p h s ; t h e n a c t i o n t a k e n t o r e d u c e t h e l o s s e s t h r o u g h r e m e d i a l t e c h n i q u e s i n c l u d i n g i n s u l a t i o n , r e d u c t i o n i n o u t s i d e a i r i n f i l t r a t i o n o r d o u b l e - g l a z i n g . P r i c i n g Mechanisms and T h e i r E f f e c t s on C o n s u m p t i o n A r e d u c t i o n i n t h e c o s t o f e n e r g y i n a b u i l d i n g c a n be a c h i e v e d i n ways t h a t h a v e l i t t l e e f f e c t on t h e t o t a l amount consumed. T h e s e s y s t e m s t a k e a d v a n t a g e o f t h e method o f b i l l i n g f o r e l e c t r i c a l e n e r g y . C o m m e r c i a l e l e c t r i c m e t e r s i n d i c a t e b o t h c o n s u m p t i o n , as t h e amount o f e n e r g y a c t u a l l y consumed, and t h e 21 p e a k l e v e l o f e n e r g y u s e d o v e r a s e t p e r i o d o f t i m e . T h i s p e a k l e v e l o f e n e r g y u s e d a t any p o i n t i n t i m e d u r i n g t h e b i l l i n g p e r i o d i s r e f e r r e d t o as t h e "demand l e v e l " f o r b i l l i n g p u r p o s e s . I f t h e p e ak l e v e l o f e n e r g y c o n s u m p t i o n was 1000 KW and t h e demand b i l l i n g p e r i o d was s i x months, t h e amount o f "demand b i l l e d " o r t h a t p e r i o d w o u l d be b a s e d on 1000 KW o f e l e c t r i c i t y f o r t h e e n t i r e p e r i o d . To e l i m i n a t e s h o r t d u r a t i o n s u r g e s o f power c a u s e d by m o t o r s t a r t - u p , t h e p e a k l e v e l must l a s t a t l e a s t f i f t e e n m i n u t e s t o be c o n s i d e r e d i n c a l c u l a t i n g t h e demand b i l l i n g f o r t h e s i x month p e r i o d . Hence, a r e d u c t i o n o f t h e p e a k l e v e l o f demand (when c o n s u m p t i o n i s a t i t s h i g h e s t l e v e l ) , c a n e f f e c t s u b s t a n t i a l s a v i n g s i n demand c h a r g e s o v e r t h e e n t i r e s i x - m o n t h p e r i o d b e c a u s e t h e demand b i l l i n g w o u l d t h e n be b a s e d on a l o w e r p e a k . F o r example, c o n s i d e r t h i s o v e r s i m p l i f i e d c a s e i l l u s -t r a t i n g demand p e a k s . KW 0 1 2 3 4 5 5 TIME (months) FIGURE 1.3 E L E C T R I C A L ENERGY USAGE 22 D u r i n g t h e b i l l i n g p e r i o d f r o m month one t o month s i x , t h e peak l e v e l o f c o n s u m p t i o n was one t h o u s a n d (1000) k i l o w a t t s , and t h i s l e v e l m u l t i p l i e d t i m e s t h e demand c h a r g e p e r k i l o w a t t d e t e r m i n e s t h e demand b i l l i n g . The s h a d e d a r e a i n t h e g r a p h i s an i n d i c a t i o n o f t h e c o n s u m p t i o n , w h i c h i s b i l l e d on t h e b a s i s o f t h e t o t a l k i l o w a t t h o u r s (KWH) m u l t i p l i e d t i m e s t h e u n i t r a t e p e r k i l o w a t t h o u r s . A r e d u c t i o n i n t h e l e v e l o f c o n s u m p t i o n d u r i n g t h e l a s t two weeks o f month s i x t h e r e f o r e , w o u l d r e d u c e t h e demand b i l l i n g l e v e l t o 750 KW, o r a 25 p e r c e n t r e d u c t i o n , w h i l e t h e c o n s u m p t i o n i n KWH was n o t s i g n i f i c a n t l y r e d u c e d . I n c l u d e d i n c u r r e n t t e c h n o l o g y a r e s y s t e m s w h i c h u t i l -i z e t h e r m a l s t o r a g e f o r t h e p u r p o s e o f "peak s h a v i n g " o r r e d u c -i n g demand. H e a t and c o o l s t o r a g e a l l o w s t h e equipment, u s u a l l y e l e c t r i c a l l y - d r i v e n c h i l l e d w a t e r u n i t s , t o r u n d u r i n g o f f - p e a k p e r i o d s , s t o r i n g t h e c o l d o r h o t w a t e r i n l a r g e u n d e r g r o u n d t a n k s t o be u s e d d u r i n g peak p e r i o d s . T h i s t y p e o f s y s t e m s a v e s on t h e c o n s u m p t i o n o f e n e r g y and r e d u c e s demand. H e a t r e j e c t e d f r o m t h e w a t e r c h i l l e r i s s t o r e d when c o o l i n g i s r e q u i r e d i n t h e d a y t i m e and i s t h e n c i r c u l a t e d t o h e a t t h e b u i l d i n g a t n i g h t . The s t o r a g e o f c o o l w a t e r d u r i n g t h e n i g h t c a n r e d u c e demand c h a r g e s , and a l l o w f o r more e f f i c i e n t m achine o p e r a t i o n s . T h i s a l l o w s a r e d u c e d s i z e d r e f r i g e r a t i o n m a c h i n e t o o p e r a t e on a c o n t i n u a l b a s i s , p r o d u c i n g h i g h e r e f f i c i e n c i e s . When maximum c o o l i n g i s r e q u i r e d d u r i n g d a y t i m e , b o t h t h e c o l d w a t e r f r o m t h e r e f r i g e r a t i o n m achine and t h e s t o r e d c o o l w a t e r a r e c i r c u l a t e d 23 t o c o o l t h e b u i l d i n g . As p r e v i o u s l y d i s c u s s e d , t h e o p t i m a l t e m p e r a t u r e s w i n g a l l o w e d by ASHRAE s t a n d a r d s was s t a t e d t o be 2 . 3 ° C e l c i u s i n t h e summer. A s i m p l e r method h a s been d e v e l o p e d t o s t o r e c o o l i n g i n a c o m m e r c i a l b u i l d i n g u s i n g t h e mass o f t h e b u i l d i n g . The t e c h -n i q u e s t a r t s by a l l o w i n g t h e e q u i p m e n t t o c o o l t h e b u i l d i n g d u r i n g o f f - p e a k t i m e s t o minimum t e m p e r a t u r e . D u r i n g peak p e r i o d s , t h e c a p a c i t y and t h e c o n s u m p t i o n a r e r e d u c e d and t h e s p a c e and mass t e m p e r a t u r e s a r e a l l o w e d t o i n c r e a s e t o t h e m a x i -mum t e m p e r a t u r e . T h i s method o f s t o r a g e h a s p r o v e n t o be v e r y e f f e c t i v e i n r e d u c i n g o v e r a l l demand. Peak l o a d s h e d d i n g methods u s e d f o r l i m i t i n g peak d e -mand i n c l u d e t h e shut-down, o r r e d u c t i o n i n c a p a c i t y o f non-e s s e n t i a l l o a d s d u r i n g peak p e r i o d s . A i r m o v i n g e q u i p m e n t , pumps and d o m e s t i c w a t e r h e a t e r s may be t u r n e d o f f f o r t h e 1 - 1-1/2 h o u r s i n t h e a f t e r n o o n when s y s t e m s a r e c r e a t i n g e x p e n s i v e peak l o a d s . T h i s a c t i o n r e d u c e s peak l o a d demand w i t h a minimum d i s c o m f o r t t o o c c u p a n t s . One o f t h e more i n t e r e s t i n g t e c h n i c a l a r e a s o f r e d u c i n g c o n -s u m p t i o n i n b u i l d i n g s i s t h e u s e o f " l o w - g r a d e " h e a t , meaning h e a t a t l o w e r t e m p e r a t u r e s . Low-grade h e a t i s p r o d u c e d i n a b u i l d i n g u s i n g v a r i o u s h e a t r e c l a i m i n g methods, w h i c h i n c l u d e h e a t f r o m e x h a u s t a i r s y s t e m s , h e a t a v a i l a b l e f r o m t h e r m a l s t o r a g e t a n k s p r o d u c e d by s o l a r c o l l e c t o r s , o r h e a t r e j e c t e d 24 f r o m w a t e r c h i l l i n g e q u i p m e n t , and h e a t r e c l a i m e d 1 f r o m f l u e g a s e s . M a n u f a c t u r e r s h a ve d e v e l o p e d a i r - t o - w a t e r h e a t t r a n s f e r u n i t s w i t h much l a r g e r c o n t a c t s u r f a c e s t o a l l o w u s e o f t h i s low g r a d e h e a t i n d i r e c t s p a c e o r v e n t i l a t i o n a i r h e a t i n g . T e c h n i c a l l y f e a s i b l e and c u r r e n t l y e c o n o m i c a l methods o f u s i n g l o w - g r a d e h e a t t o r e d u c e e n e r g y c o n s u m p t i o n i n c l u d e h e a t pump s y s t e m s . S m a l l s y s t e m s u s i n g a i r - t o - a i r t r a n s f e r s c a n u s e t h e h e a t f r o m t h e o u t s i d e t o h e a t s p a c e s t o c o m f o r t a b l e t e m p e r a t u r e s . T h e s e s y s t e m s a r e e f f i c i e n t , w i t h a c o e f f i c i e n t o f p e r f o r m a n c e ^ g r e a t e r t h a n u n i t y a t e x t e r i o r t e m p e r a t u r e s down t o a b o u t minus 18° C e l c i u s . To r e d u c e u n n e c e s s a r y wear on eq u i p m e n t , s i n c e e n e r g y i s n o t g a i n e d , i t i s more e c o n o m i c a l t o s w i t c h c o n t r o l t o e l e c t r i c a l - r e s i s t a n c e h e a t i n g a t t h i s p o i n t . The r e v e r s e c y c l e o f t h e h e a t pump p r o v i d e s c o o l i n g , r e j e c t i n g h e a t t o t h e o u t s i d e a i r . I n l a r g e c o m m e r c i a l b u i l d i n g s , and i n a r e a s where t h e r e a r e l o w - g r a d e h e a t " s i n k s " , s u c h as l a k e s o r h o t s p r i n g s , 1 The u s e o f " s o r p t i o n " s y s t e m s t o p r o d u c e c o o l i n g a r e a l s o b e i n g c o n s i d e r e d . C o e l l n e r (1980) d e s c r i b e s t h e r e a c t i v a -t i o n o f a s o r p t i o n d e h u m i d i f i e r u s i n g i n e x p e n s i v e e n e r g y s u c h as s o l a r h o t w a t e r , w a s t e steam, o r r e c o v e r e d e x h a u s t h e a t . T h e s e s y s t e m s u s e a b r o m i d e s o l u t i o n t e r m e d t h e d e s -i c c a n t , w h i c h p r o d u c e s c o o l i n g by a b s o r b i n g m o i s t u r e . The d e s i c c a n t i s r e g e n e r a t e d u s i n g l o w - g r a d e h e a t . C o o l i n g c a n t h e r e f o r e be p r o d u c e d by s u b s t i t u t i n g a l o w - g r a d e h e a t s o u r c e f o r e l e c t r i c a l power. 2 The c o e f f i c i e n t o f p e r f o r m a n c e i s t h e r a t i o o f t h e amount o f h e a t p r o d u c e d d i v i d e d by t h e e l e c t r i c a l e n e r g y u s e d . 25 t h e w a t e r - t o - a i r " h e a t pump" i s f e a s i b l e . T h e s e u n i t s c a n a l s o work on t h e r e v e r s e c y c l e , and r e j e c t h e a t t o t h e h e a t s i n k . When t h e c o n d e n s e r w a t e r c i r c u i t i s m a i n t a i n e d a t a b o u t 2 4 ° C e l c i u s , h e a t pumps on one s i d e o f a b u i l d i n g may be t a k i n g h e a t f r o m t h e c i r c u i t w h i l e u n i t s on t h e o p p o s i t e s i d e o r t h e i n t e r i o r may be r e j e c t i n g h e a t . The c o e f f i c i e n t o f p e r f o r m a n c e o f t h e s e s m a l l w a t e r - t o - a i r u n i t s i s a b o u t 2.2. T h e r e a r e a number o f i n t e r e s t i n g h e a t r e c l a m a t i o n methods w h i c h a r e m a r g i n a l l y f e a s i b l e u s i n g p r e s e n t l y a c c e p t e d d i s c o u n t r a t e s . The "Q-Dot" u n i t i s a p a t e n t e d s e a l e d t u b e u n i t , w i t h a w i c k m a t e r i a l a d h e r e d t o t h e w a l l o f t h e u n i t . When h e a t i s a p p l i e d t o one end, t h e h e a t i s i m m e d i a t e l y t r a n s -f e r r e d t o t h e o t h e r end by t h e v a p o u r . L i q u i d i s r e t u r n e d t o t h e w i c k p r o v i d i n g a c o n t i n u o u s l o o p . Banks o f t h e s e t u b e s a r e i n s t a l l e d t o t r a n s m i t w a s t e h e a t f r o m c o n t a m i n a t e d e x h a u s t a i r s t r e a m s t o c o l d e r i n c o m i n g a i r s t r e a m s u s e d t o v e n t i l a t e t h e s p a c e . A n o t h e r method u s e d w i t h a i r s t r e a m s t h a t a r e n o t c o n -t a m i n a t e d t o t h e same d e g r e e i s t h e t h e r m a l w h e e l . A l a r g e w h e e l i n f i l l e d w i t h a t h e r m a l mat i s r o t a t e d between two a i r s t r e a m s . The mat p i c k s up t h e h e a t f r o m one s i d e and i s r o t a t e d t o t h e o p p o s i t e s i d e where t h e c o o l e r a i r i s h e a t e d . The r e l a t i v e l y s o p h i s t i c a t e d t e c h n i q u e s a v a i l a b l e f o r new b u i l d i n g s h a v e been shown, i n c u r r e n t t e c h n i c a l l i t e r a t u r e , t o a c h i e v e a r e d u c t i o n o f 80 p e r c e n t i n e n e r g y c o n s u m p t i o n . To a c h i e v e t h i s r e d u c t i o n , t h e a d d i t i o n o f complex a u t o m a t i o n 26 a u t o m a t i o n d e v i c e s a r e n e c e s s a r y f o r c o n t r o l . C o m p u t e r - b a s e d s y s t e m s h ave been d e v e l o p e d by t h e m a j o r c o n t r o l c o m p a n i e s and a r e a v a i l a b l e t o t h e i n d u s t r y w i t h t h e n e c e s s a r y s o f t w a r e t o a c h i e v e t h e d e s i r e d e n d s . A s i g n i f i c a n t l y l o w e r amount o f e n e r -gy c a n be consumed u s i n g d i f f e r e n t methods o f o p e r a t i o n w i t h t h e same s y s t e m . The a d d i t i o n o f c o m p u t e r s t o s y s t e m s w h i c h employ c o n v e n t i o n a l f u n c t i o n s , s u c h as m o n i t o r i n g s e t - p o i n t and o n - o f f f u n c t i o n s , has a l l o w e d o p t i m i z a t i o n o f e q u i p m e n t r u n n i n g t i m e s and s e l e c t i o n o f s e t - p o i n t s . C o n v e n t i o n a l c o n t r o l s y s t e m s adop-t e d f o r c o m p u t e r s do h a v e l i m i t a t i o n s , s p e c i f i c a l l y i n t h e a r e a o f o p t i m i z i n g c o n t r o l s t r a t e g i e s . Where s y s t e m s a r e v e r y com-p l e x and t h e c o n v e n t i o n a l s y s t e m c o s t s a r e h i g h , t h e new g e n e r a -t i o n s o f D i r e c t D i g i t a l C o n t r o l (D.D.C.) s y s t e m s a r e e mployed. A D.D.C. c o n t r o l s y s t e m u s e s a c e n t r a l computer t o r e p l a c e c o n -v e n t i o n a l b u i l d i n g s y s t e m s c o n t r o l s , a l l o w i n g complex o p t i m a l s t r a t e g i e s t o be i m p l e m e n t e d a t low m a r g i n a l c o s t . T h i s s e c t i o n s t a r t e d by p o s i n g t h e q u e s t i o n : I s i t  t e c h n i c a l l y p o s s i b l e t o a c h i e v e a s i g n i f i c a n t r e d u c t i o n i n t h e  amount o f e n e r g y consumed i n c o m m e r c i a l b u i l d i n g s ( t h e c o n s e r - v a t i o n i s s u e ) ? I t h a s b e en d e m o n s t r a t e d t h a t a v a r i e t y o f t e c h -n i c a l l y f e a s i b l e a c t i o n s may be t a k e n w h i c h w i l l r e d u c e e n e r g y c o n s u m p t i o n e i t h e r w i t h o u t a l t e r i n g t h e c l i m a t e c o n d i t i o n s ex-p e r i e n c e d by o c c u p a n t s o r c h a n g i n g t h e c o n d i t i o n s t o what i s deemed t o be o u t s i d e an " a c c e p t a b l e " r a n g e . However, t h e s e p r o -grams may f a c e some r e s i s t a n c e e i t h e r b e c a u s e o f a c t u a l o r 27 p e r c e i v e d c h a n ges i n c o m f o r t . T h e s e " p e o p l e p r o b l e m s " a r e t h e s u b j e c t o f t h e n e x t s e c t i o n . I n t h i s r e g a r d we a r e c o n c e r n e d w i t h o c c u p a n t s who a r e t e n a n t s , owners o r v i s i t o r s t o t h e o f f i c e b u i l d i n g . Hence, c o n t r a c t u a l a r r a n g e m e n t must be c o n s i d e r e d . O c c u p a n t P r o b l e m s i n C o n s e r v a t i o n E n e r g y c o n s e r v a t i o n i s n o t w i t h o u t p r o b l e m s . B u i l d i n g owners have f o u n d t h a t where e n e r g y c o n s e r v a t i o n t e c h n i q u e s a f -f e c t o c c u p a n t c o m f o r t , c o n t r o l s a r e r e s i s t e d e i t h e r l e g a l l y t h r o u g h e x i s t i n g l e a s e s o r p h y s i c a l l y t h r o u g h l a c k o f c o - o p e r a -t i o n . H o u r s o f e q u i p m e n t o p e r a t i o n a n d peak s h a v i n g p r o g r a m s c a n be p o i n t s o f d i s a g r e e m e n t and f r e q u e n t l y h o u r s o f o p e r a t i o n a r e s p e c i f i e d i n l e a s e c o n t r a c t s . R e d u c i n g s p a c e t e m p e r a t u r e s i n t h e w i n t e r and i n c r e a s i n g t h e t e m p e r a t u r e i n t h e summer h a s a l s o met w i t h a c o n s i d e r a b l e amount o f o c c u p a n t r e s i s t a n c e and a g a i n m a t t e r s o f i n t e r i o r c l i m a t e c o n t r o l a r e f r e q u e n t l y c i t e d i n l e a s e c o n t r a c t s . R e d u c t i o n s i n l i g h t i n g l e v e l s i n common a r e a s and l e a s e s p a c e h a ve r e c e i v e d c r i t i c i s m where o v e r - z e a l o u s o r c o s t - c o n s c i o u s owners and managers have r e d u c e d l i g h t i n g l e v e l s b elow d e s i r e d l e v e l s ( b u t p e r h a p s s t i l l w i t h i n " a c c e p t -a b l e l e v e l s " ) . I n a d d i t i o n , i n c a s e s where t h e amount o f o u t -s i d e a i r h a s been r e d u c e d , c o m p l a i n t s a b o u t h i g h o d o u r l e v e l s , h e a d a c h e s f r o m h i g h c o n c e n t r a t i o n o f c a r b o n d i o x i d e and l a c k o f o x y g e n h a v e been r e c e i v e d . I n some c a s e s t h e c o m p l a i n t s a r e w e l l f o u n d e d i n t h a t p h y s i c a l as o p p o s e d t o p s y c h o l o g i c a l 28 p r o b l e m s o c c u r e d . I n o t h e r c a s e s however, t h e a i r v e n t i l a t i o n was r e d u c e d , b u t s e t w i t h i n " a c c e p t a b l e s t a n d a r d s " and comp-l a i n t s were s t i l l r e c e i v e d . R e s i s t e n c e f r o m o c c u p a n t s c o u p l e d w i t h u n c e r t a i n t y as t o f u t u r e f u e l c o s t s , a r e f a c t o r s c i t e d by B r a c e ( 1 9 8 1 ) , P r e s i -d e n t o f H o n e y w e l l , t o e x p l a i n why o n l y two p e r c e n t o f c o m m e r c i a l b u i l d i n g owners have i m p l e m e n t e d a f u l l e n e r g y c o n s e r v a t i o n p r o -gram. The f a c t t h a t most c o m m e r c i a l l e a s e s p r o v i d e t h a t e n e r g y c o s t s a r e p a s s e d on t o t e n a n t s i s g i v e n as one r e a s o n f o r t h e c u r r e n t a p a t h y among b u i l d i n g owners. To t a k e a d v a n t a g e o f t h e p o t e n t i a l c o n s e r v a t i o n i n c o m m e r c i a l b u i l d i n g s , B r a c e c a l l s f o r "a n a t i o n a l e n e r g y c o n s e r v a t i o n p r o g r a m t h a t h a s t e e t h i n i t " . T h i s c a n be t a k e n as a c a l l f o r more r e g u l a t i o n . 29 COMMERCIAL BUILDING ENERGY USAGE, ENERGY PRICING AND POLICY: A SUMMARY I t h a s been shown t h a t : (1) E n e r g y u s e i n o f f i c e b u i l d i n g s a c c o u n t f o r a s i g n i f i -c a n t p o r t i o n o f t h e o i l , n a t u r a l gas and e l e c t r i c i t y u s e d i n Canada. (2) O i l c o n s t i t u t e s t h e s i n g l e most f r e q u e n t l y u s e d s o u r c e o f e n e r g y u s e d i n o f f i c e b u i l d i n g s , and g i v e n o u r r e -l i a n c e on o i l i m p o r t s , t h i s u s e c o n t r i b u t e s i n a s i g n -i f i c a n t way t o o u r n a t i o n a l o i l s h o r t a g e . (3) E n e r g y c o s t s a r e t h e s i n g l e l a r g e s t ( v a r i a b l e ) o p e r a -t i n g e x p e n s e and any e c o n o m i e s i n t h i s e x p e n s e i t e m c o u l d p r o v e s i g n i f i c a n t . (4) The u s e o f e n e r g y i n c o m m e r c i a l o f f i c e b u i l d i n g s c a n be r e d u c e d t h r o u g h t e c h n i c a l and management c o n s e r v a -t i o n t e c h n i q u e s . The a v a i l a b l e t e c h n o l o g y f o r r e d u c i n g t h e e n e r g y u s e d i n b u i l d i n g s , most o f w h i c h h a s been d e s c r i b e d h e r e , h a s p r o -g r e s s e d t o t h e p o i n t t h a t t h e c o n s u m p t i o n o f e n e r g y i n new, c r e a t i v e l y d e s i g n e d c o m m e r c i a l b u i l d i n g s i s a s m a l l f r a c t i o n o f t h e h i s t o r i c e n e r g y use f o r o l d e r b u i l d i n g s . M o r e o v e r , o f f i c e 30 c a n be b u i l t w h i c h no l o n g e r r e q u i r e a s e p a r a t e h e a t s o u r c e ^ . The i m p o r t a n t q u e s t i o n s r e l a t e d t o e n e r g y p o l i c y w i l l be p o s t p o n e d t o C h a p t e r IV o f t h i s t h e s i s , s i n c e t h e p o l i c y s o l u t i o n s w i l l depend, i n l a r g e p a r t , on t h e e f f i c i e n c y o f t h e m a r k e t as a means t o c o n t r o l t h e u s e o f e n e r g y , t h e t i m i n g o f t h e u s e o f e n e r g y ( e . g . demand b i l l i n g ) , and t h e t y p e o f e n e r g y u s e d t h r o u g h t h e p r i c e mechanism. R e l i a n c e on t h e p r i c e mechanism w i l l be e x p l o r e d i n t h e t h e o r e t i c a l and e m p i r i c a l s t u d i e s i n t h e f o l l o w i n g c h a p t e r s . The n e x t c h a p t e r [INVESTMENT ANALYSIS: A MODEL OF PRICE DETERMINATION] c o n s i d e r s e n e r g y c o n s e r v a t i o n i n a c o m m e r c i a l o f f i c e b u i l d i n g f r o m a t h e o r e t i c a l a p p r o a c h . 1 F o r example, b u i l d i n g s w i t h a means t o s t o r e e x c e s s h e a t f r o m one p e r i o d o f t i m e f o r u s e when h e a t i s n e e d e d a r e b e i n g d e s i g n e d w i t h o u t a h e a t i n g s o u r c e ( e . g . a b o i l e r ) . 31 CHAPTER I I INVESTMENT ANALYSIS: A MODEL OF PRICE DETERMINATION I n C h a p t e r I , we d e m o n s t r a t e d t h e i m p o r t a n c e o f e n e r g y i n t h e e c o n o m i c s o f o f f i c e b u i l d i n g o p e r a t i o n . I t was n o t e d t h a t e n e r g y c o s t s r e p r e s e n t e d t h e l a r g e s t v a r i a b l e i t e m i n t h e o p e r a t i o n o f a c o m m e r c i a l o f f i c e b u i l d i n g . M o r e o v e r , i t was n o t e d t h a t i n v e s t o r s w i l l f a c e consumer r e s i s t a n c e t o e f f o r t s t o r e d u c e e n e r g y c o n s u m p t i o n . Of p e r h a p s g r e a t e r i m p o r t a n c e were t h e o b s e r v a t i o n s t h a t l e v e l s o f e n e r g y c o n s u m p t i o n i n c o m m e r c i a l b u i l d i n g s v a r i e d o v e r a v e r y w ide r a n g e . The a p p a r e n t l a c k o f c o n t r o l s u g g e s t s e i t h e r i n v e s t o r s d o n ' t c a r e a b o u t e n e r g y c o s t o r t h e y d o n ' t know t h e s i g n i f i c a n c e o f e n e r g y c o s t . A r t i c l e s by Haney, C r a s k and I s a k s o n (1978) and I s a k s o n and Haney (1978) a r e s i g n i f i c a n t i n t h a t t h e y r e p o r t s u r v e y e v i d e n c e i n d i c a t i n g a low l e v e l o f a w a r e n e s s o f t h e e f f e c t s o f e n e r g y e x p e n s e i n t h e a n a l y s i s o f e i t h e r e x i s t i n g o r f u t u r e o f f i c e p r o j e c t s . G i v e n t h e s i g n i f i c a n c e o f e n e r g y e x p e n -s e s , t h i s low l e v e l o f a w a r e n e s s i s o f c o n c e r n . Improvements i n methods o f a n a l y s i s a r e b e i n g d e v e l o p e d i n a number o f f i e l d s i n c l u d i n g a p p r a i s a l and i n v e s t m e n t a n a l y s i s . T h e s e improvements a r e s u c h t h a t t h e y may f o r c e i n v e s t o r s t o be more e x p l i c i t i n t h e i r a s s u m p t i o n s c o n c e r n i n g a l l c a p i t a l and o n g o i n g c o s t s , and i n p a r t i c u l a r , e n e r g y c o s t s . 32 U s i n g computer programs w h i c h s i m u l a t e t h e p h y s i c a l o p e r a t i o n o f a new commercial b u i l d i n g t o det e r m i n e t h e energy expense, t e c h n i c a l d a t a are g e n e r a t e d w h i c h can be i n c o r p o r a t e d i n t o t h e methods o f i n v e s t m e n t a n a l y s i s used by i n v e s t o r s and a n a l y s t s . S i n c e the p h y s i c a l components o f t h e b u i l d i n g can be v a r i e d , i t i s p o s s i b l e t o t e s t d i f f e r e n t c o m b i n a t i o n s o f con-s t r u c t i o n and energy management so t h a t t h e c o n s t r u c t i o n o f new comme r c i a l b u i l d i n g s and management o f b o t h new and e x i s t i n g b u i l d i n g s can be c a r r i e d o u t t o m i n i m i z e energy expense w i t h i n r e a l i s t i c c o s t - b e n e f i t l i m i t s . G i v e n t h e s e t e c h n i c a l means o f f o r e c a s t i n g energy d a t a , t h e q u e s t i o n i s "how can t h i s i n f o r m a t i o n be used i n r i g -ourous c o s t / b e n e f i t a n a l y s i s f o r t h e purpose o f i n v e s t m e n t a n a l y s i s ? " G i v e n the improved f o r e c a s t i n g a c t i v i t i e s c o n c e r n i n g energy consumption, how can t h i s improved knowledge be p u t t o use? (And how might i t be put t o use?) C l e a r l y , one way t h e i n f o r m a t i o n may be used i s as an i n p u t t o t h e c u r r e n t l y used models o f i n v e s t m e n t a n a l y s i s f o r b o t h new and e x i s t i n g b u i l d i n g s . For the purpose o f t h i s t h e s i s , we w i l l choose t o dem-o n s t r a t e how t h i s t e c h n i c a l knowledge f o r f o r e c a s t i n g energy consumption can be i n c o r p o r a t e d i n t o a n e t p r e s e n t v a l u e model o f i n v e s t m e n t a n a l y s i s . W h i l e t h e net p r e s e n t v a l u e model i s not t h e o n l y method o f i n v e s t m e n t a n a l y s i s used i n t h e market t o d a y , i t i s perhaps t h e most w i d e l y p u b l i s h e d . 33 A p p l y i n g t h e M o d e l s The b a s i c n e t p r e s e n t v a l u e m o d e l 1 i s s e t o u t as f o l l o w s : NPV = N CF+ R n t = l ( l + r ) t ( l + r ) n WHERE: NPV N C F t R n r t N et p r e s e n t v a l u e o f t h e i n v e s t m e n t H o l d i n g p e r i o d Net b e n e f i t s , m e a s u r e d as c a s h f l o w s , r e a l i z e d e a c h p e r i o d R e v e r s i o n c a s h f l o w i n y e a r o f d i s p o s -i t i o n O r i g i n a l d o l l a r e q u i t y i n v e s t m e n t A p p r o p r i a t e d i s c o u n t r a t e 1, 2, 3, ... N y e a r s i n h o l d i n g p e r i o d F o r p u r p o s e s o f t h i s t h e s i s , t h i s b a s i c model c a n be r e w r i t t e n as f o l l o w s : NPV = N t = l NOIt ( l + r ) t ( l + r ) * ( l + r ) N - E r WHERE: N O I H E N t Net o p e r a t i n g income i n p e r i o d b e f o r e d e d u c t i n g e n e r g y c o s t s ( T h i s r e p r e s e n t s t h e g r o s s r e v e n u e s r e c o v e r e d by t h e p r o p e r t y owner l e s s t h e owner's s h a r e o f o p e r a t i n g e x p e n s e s e x c l u s i v e o f e n e r g y ) E n e r g y c o s t s o f p e r i o d t o be b o r n e by t h e p r o p e r t y owner A v a r i a t i o n o f t h e n e t p r e s e n t v a l u e m odel may a l s o be u s e d i n a n a l y s i s , where t h e n e t p r e s e n t v a l u e i s s e t a t z e r o , and t h e model i s s o l v e d f o r t h e r a t e o f r e t u r n , c a l l e d t h e i n t e r n a l r a t e o f r e t u r n ( I R R ) . 34 R e - w r i t i n g t h e b a s i c model i n t h i s f o r m more c l e a r l y shows t h e r o l e o f o n g o i n g e n e r g y c o s t s . M o r e o v e r , w h i l e i t i s n o t c e n t r a l t o t h i s t h e s i s , t h e a n a l y s i s o f new c a p i t a l e x p e n d i -t u r e s d e s i g n e d t o a d h e r e e n e r g y e f f i c i e n c y c o u l d be a n a l y z e d u s i n g a v a r i a t i o n o f t h i s m odel. T h i s ( r e - w r i t t e n ) model c a n be u s e d t o a n a l y z e t h e i n f l u e n c e o f o n g o i n g e n e r g y e x p e n s e on n e t p r e s e n t v a l u e . The o p e r a t i n g s a v i n g s o f a s p e c i f i c i n v e s t m e n t c a n be e s t i m a t e d by an a n a l y s i s o f t h e l i f e c y c l e c o s t - b e n e f i t o f t h e i n v e s t m e n t u s i n g t h i s m odel. The n e t p r e s e n t v a l u e model i s u s e d t o d e t e r m i n e t h e r o l e o f e n e r g y o p e r a t i n g c o s t i n t h e a n a l y s i s o f o f f i c e b u i l d -i n g s and t h e s e n s i t i v i t y o f n e t p r e s e n t v a l u e t o c h a n g es i n any v a r i a b l e b u t s p e c i f i c a l l y e n e r g y e x p e n s e . 1 By e s t a b l i s h i n g t h e r o l e o f e n e r g y o p e r a t i n g e x p e n s e s i n a model o f i n v e s t m e n t a n a l y s i s , i t i s p o s s i b l e t o d e m o n s t r a t e t h e e f f e c t o f e n e r g y e x p e n s e , on e i t h e r y i e l d s ( r p e r c e n t ) o r n e t p r e s e n t v a l u e s . F o r i n v e s t o r s s e e k i n g a s p e c i f i c and p r e d e -t e r m i n e d y i e l d v a r i a t i o n s i n e n e r g y e x p e n s e must be r e f l e c t e d i n t h e n e t p r e s e n t v a l u e . G i v e n i n d i v i d u a l e x p e c t a t i o n s c o n c e r n i n g y i e l d s ( r p e r c e n t ) and g i v e n t h e f o r e c a s t f o r n o n - e n e r g y v a r i -a b l e s ( r e n t s and o t h e r e x p e n s e s and r e s i d u a l v a l u e s ) c h a n g es i n p r e s e n t v a l u e o c c a s i o n e d by e n e r g y e x p e n s e s w i l l u l t i m a t e l y be 1 The change i n e n e r g y e x p e n s e s c a n o c c u r t h r o u g h a change i n t h e p r i c e o f e n e r g y , o r a change i n t h e l e v e l o f consump-t i o n t h r o u g h c o n s e r v a t i o n m e a s u r e s . 35 r e f l e c t e d i n how much i n v e s t o r s w i l l b i d f o r p r o p e r t i e s , and how l i t t l e c u r r e n t owners a r e p r e p a r e d t o a c c e p t . T h e s e b i d and a s k e d p r i c e s w i l l u l t i m a t e l y d e t e r m i n e m a r k e t v a l u e s . Hence, i f e n e r g y e x p e n s e s a r e deemed t o be i m p o r t a n t by i n v e s t o r s , t h e y s h o u l d be r e f l e c t e d i n l o w e r b i d and a s k e d p r i c e s , and h e n c e l o w e r m a r k e t v a l u e s . U s i n g a n e t p r e s e n t v a l u e model w i t h a v e r a g e d a t a f r o m a h y p o t h e t i c a l o f f i c e b u i l d i n g , t h e e x t e n t o f e n e r g y s e n s i t i v i t y c a n be a n a l y s e d and i t s i m p a c t on m a r k e t v a l u e c a n be e x p l o r e d . T o t a l e n e r g y c o s t f o r t h e h y p o t h e t i c a l b u i l d i n g w i l l be f o r e c a s t e d ( t h e t e c h n i c a l f o r e c a s t ) b a s e d on t h r e e s c e n a r i o s . T h e s e f o r e c a s t s w i l l be b a s e d on h i s t o r i c a l d a t a p r o v i d e d by B.C. Hydro, t o d e t e r m i n e t h e e s t i m a t e d most p r o b a b l e r a t e , most o p t i m i s t i c r a t e and most p e s s i m i s t i c r a t e o f i n c r e a s e o f t h e c o s t o f e n e r g y . N o m i n a l g r o w t h r a t e s f o r e n e r g y e x p e n s e a r e assumed a t 10 p e r c e n t , 14 p e r c e n t and 20 p e r c e n t . T h e s e t e c h n i c a l f o r e c a s t s w i l l t h e n be u s e d i n t h e n e t p r e s e n t v a l u e m o d e l . The h y p o t h e t i c a l b u i l d i n g s e l e c t e d i s an a v e r a g e o f b u i l d i n g s u s e d i n t h r e e r e c e n t r e s e a r c h and p u b l i c a t i o n s t a n d a r d s ^ , a n c j i s c h o s e n as r e p r e s e n t a t i v e o f t h e most common f o r m o f o f f i c e b u i l d i n g i n Canada. 1 (a) t h e "1977 Downtown and S u b u r b a n O f f i c e B u i l d i n g E x p e r i -e n c e E x c h a n g e R e p o r t " p u b l i s h e d by t h e B u i l d i n g Owners and Managers A s s o c i a t i o n (BOMA); (b) t h e s t u d y by O n t a r i o H y d r o (1978) i n t h e i r s t u d y " E n e r g y Use i n O f f i c e B u i l d i n g s " ; a n d ( c ) t h e " S t a n d a r d T e s t B u i l d i n g S p e c i f i c a t i o n s f o r I n t e r n a -t i o n a l E n e r g y A g e ncy C o m p a r i s o n o f B u i l d i n g E n e r g y A n a l -y s i s Computer P r o g r a m s " p u b l i s h e d by t h e N a t i o n a l R e s e a r c h C o u n c i l . 36 The h y p o t h e t i c a l b u i l d i n g s e l e c t e d i s a 12 s t o r y , r e c t a n g u l a r , 110,000 s q u a r e f o o t b u i l d i n g , w i t h 35 p e r c e n t o f t h e e x p o s e d w a l l s u r f a c e as windows. L i g h t i n g t o 4.5 w a t t s p e r s q u a r e f o o t i s u s e d . The m e c h a n i c a l s y s t e m s , i n s u l a t i o n , window t y p e s and r o o f s y s t e m comply w i t h t h e r e q u i r e m e n t s o f ASHRAE 90-1975. ASHRAE 90-75 i s t h e s t a n d a r d a d o p t e d by most o f t h e A m e r i c a n s t a t e s and by t h e C a n a d i a n Government f o r b u i l d i n g d e s i g n t o c o n s e r v e e n e r g y . The c o n s u m p t i o n f i g u r e s a r e t a k e n f r o m an a v e r a g e o f t h e r e s e a r c h s t a n d a r d s f o r t h e b u i l d i n g , and a r e u s e d t o e s t a b -l i s h t h e e n e r g y c o s t s i n t h e y e a r s 1974 t o 1980. They a r e as f o l l o w s : A n n u a l E l e c t r i c a l C o n s u m p t i o n .. 1,208,900 kwh A n n u a l Gas C o n s u m p t i o n 1,759,156 kwh ( e q u i v a l e n t ) The peak l o a d s u s e d f o r c a l c u l a t i n g demand c h a r g e s a r e 2 54 kw p e r month. C a l c u l a t i o n s o f m o n t h l y c o n s u m p t i o n were b a s e d on an a s s u m p t i o n o f e q u a l use p e r month r a t h e r t h a n t h e a l t e r n a t i v e o f u s i n g a p e r c e n t a g e f o r e a c h month i n d i c a t i n g a v a r i a t i o n f o r s e a s o n s . M o n t h l y d a t a f o r a t y p i c a l y e a r were c a l c u l a t e d b o t h ways, and t h e s i m p l i f i e d v e r s i o n v a r i e d by l e s s t h a n 1 p e r c e n t , so t h e r e s u l t s b a s e d on t h e e q u a l p e r month a s s u m p t i o n s h o u l d n o t be d i s t o r t e d . 37 I n o r d e r t o e s t a b l i s h t h e r e l a t i v e o r p e r c e n t a g e c h a n g e s i n n e t p r e s e n t v a l u e o c c a s i o n e d by c h a n g i n g e n e r g y c o n -s u m p t i o n f i g u r e s f o r o t h e r r e v e n u e and e x p e n s e components i n t h e a n a l y s i s h a v e been e s t i m a t e d f r o m i n f o r m a t i o n c o n t a i n e d i n E x p e r i e n c e E x c h a n g e R e p o r t s [BOMA, 1 9 8 0 ] . The n e t o p e r a t i n g income f i g u r e , as an a v e r a g e o f e i g h t b u i l d i n g s i n t h e V a n c o u v e r a r e a , a r e r e p o r t e d a t $4.29 p e r s q u a r e f o o t p e r y e a r w i t h o p e r a -t i n g e x p e n s e s a t $4.59 p e r s q u a r e f o o t p e r y e a r . E n e r g y c o s t s f r o m t h e p r e v i o u s l y m e n t i o n e d a n a l y s i s a r e , i n t h e y e a r 1981, $0.35 p e r s q u a r e f o o t p e r y e a r . T h i s e n e r g y c o s t f i g u r e i s s i g n i f i c a n t l y l e s s t h a n t h e a v e r a g e i n V a n c o u v e r b a s e d upon BOMA d a t a ( w h i c h were g i v e n a t $0.83 p e r s q u a r e f o o t p e r y e a r ) . The f i g u r e u s e d ($0.35) c o n s i d e r s t h a t t h e l a t e s t s t a n d a r d s o f e n e r -gy e f f i c i e n c y h a v e been a p p l i e d t o t h e t h e o r e t i c a l b u i l d i n g . The model u s e d t o e s t a b l i s h t h e s e n s i t i v i t y o f n e t p r e s e n t v a l u e t o changes i n e n e r g y c o s t s i s t h e b a s i c model ex-p l a i n e d e a r l i e r . I t assumes t h a t t h e d i s c o u n t r a t e ( r ) i s a l -r e a d y a d j u s t e d f o r d i f f e r e n c e s i n r i s k and f u r t h e r assumes t h a t an a l l o w a n c e f o r v a r i a t i o n s i n i n f l a t i o n i s i n c l u d e d i n t h e d i s -c o u n t r a t e , ( r p e r c e n t p e r annum f o r "N" y e a r s ) . F u r t h e r m o r e t h e t e c h n i c a l d a t a f o r e n e r g y c o n s u m p t i o n w i l l be u s e d t o f o r e -c a s t t h e a n n u a l e n e r g y e x p e n s e and a s e p a r a t e r a t e o f i n c r e a s e w i l l be e s t i m a t e d f o r o p e r a t i n g income b e f o r e e n e r g y e x p e n s e . 38 Hence t h e r e s t a t e d model becomes: NPV = WHERE: n N N O l ( l + a ) E N ( l + b ) R t = l ( l + r ) t ( l + r ) t ( l + r ) N - E, p e r annum i n c r e a s e i n NOI ( e s t i m a t e d f r o m i n d u s t r y d a t a ) p e r annum i n c r e a s e i n e n e r g y e x p e n s e s ( e s t i -mated t h e t e c h n i c a l e n e r g y d a t a s u p p l i e d by B.C. Hydro) I t i s assumed t h a t t h e p r o j e c t h a s no d e b t and t h e n e t o p e r a t i n g income and r e v e r s i o n f l o w s a r e a f t e r t a x e s . The a s s u m p t i o n s c o n c e r n i n g d e b t and income t a x a r e u s e d f o r c o n v e n i e n c e o n l y , and do n o t d e t r a c t f r o m t h e g e n e r a l i t y o f t h e c o n c l u s i o n s . The o f f i c e b u i l d i n g i s assumed t o be s o l d a t t h e end o f y e a r 5. F o r t h e p u r p o s e s o f t h i s i l l u s t r a t i o n , t h e e q u i t y i n -v e s t m e n t i n y e a r 1 i s e s t i m a t e d t o be $10,200,000 and a y e a r 1 n e t o p e r a t i n g income o f $1,277,000 i s u s e d ( b a s e d on a v e r a g e BOMA d a t a ) . F u r t h e r e s t i m a t e s r e q u i r e d t o c o m p l e t e t h e s p e c i f i c a -t i o n s o f t h e model a r e : A n n u a l E s c a l a t i o n R a t e s O p e r a t i n g E x p e n s e f l o w s (a) = E n e r g y c o s t s (b) = D i s c o u n t R a t e ( r p e r c e n t ) assumed = R e s i d u a l V a l u e ( R n ) assumed = 10 p e r c e n t 10 p e r c e n t 15.5 p e r c e n t $17,030,000 39 F o r p u r p o s e s o f s e n s i t i v i t y a n a l y s i s , t h e r a t e o f e s -c a l a t i o n i n o p e r a t i n g e x p e n s e s (NOI) i s c h a n g e d f r o m 10 p e r c e n t t o 12.5 p e r c e n t and 15 p e r c e n t . S i m i l a r c h a n g e s t o 14 p e r c e n t and 20 p e r c e n t a r e a n a l y s e d f o r e n e r g y c o s t . To e s t a b l i s h a b a s e u n i t e n e r g y c o s t f o r t h e p u r p o s e s o f t h e s e a n a l y s e s , a r e -v i e w o f c u r r e n t e n e r g y p r i c i n g i s i n c l u d e d . To compare e n e r g y c o s t s i n B r i t i s h C o l u m b i a t o o t h e r a r e a s , t h e c o m m e r c i a l e l e c t r i c a l r a t e o v e r 30,000 kwh p e r month o f 1.60 c e n t s p e r kwh s h o u l d be u s e d . R a t e c o m p a r i s o n s p u b l i s h -ed by C u r t i s (1980) show t h i s r a t e t o be t y p i c a l o f t h e p a c i f i c n o r t h w e s t r e g i o n . Where e n e r g y c o s t s a r e more d e p e n d e n t on t h e c o s t o f o i l , as i n Iowa and New Y o r k , r a t e s o f 5.2 c e n t s / k w h and 7.6 c e n t s / k w h a r e p r e v a l e n t . I n p r e d i c t i n g f u t u r e e n e r g y c o s t s o v e r t h e n e x t 5 y e a r s , i t c a n be assumed t h a t t h e l o w e s t p o s s i b l e i n c r e a s e w i l l be a t t h e r a t e o f i n f l a t i o n (b=10 p e r c e n t ) . T h i s i s t h e p o l i c y o f B.C. H y d r o and Power A u t h o r i t y . I t i s more l i k e l y t h a t due t o p r o j e c t e d demand i n c r e a s e s , l e a d i n g t o t h e need t o d e v e l o p more e x p e n s i v e r e s o u r c e s t o g e n e r a t e e n e r g y , t h e r a t e o f i n -c r e a s e w i l l e x c e e d t h e r a t e o f i n f l a t i o n . U s i n g a s c e n a r i o as o u t l i n e d i n a number o f p u b l i c a t i o n s , i n c l u d i n g N a t i o n a l R e s e a r c h C o u n c i l - U n i t e d S t a t e s ( 1 9 7 9 ) , a p e s s i m i s t i c e s t i m a -t i o n o f e n e r g y c o s t s b a s e d on a c c e l e r a t e d demand and h i g h e r c o s t s w i l l s e t t h e r a t e o f i n c r e a s e s u b s t a n t i a l l y h i g h e r t h a n t h e r a t e o f i n f l a t i o n . An e x a c t e s t i m a t i o n o f t h e r a t e o f 40 i n c r e a s e i s n o t p o s s i b l e , due t o u n c e r t a i n t y i n t h e a r e a o f b o t h demand and government p o l i c y . F o r t h e p u r p o s e s o f t h i s p a p e r , t h e most l i k e l y i n -c r e a s e i n e n e r g y c o s t s w i l l be a t t h e r a t e o f 4 p e r c e n t above t h e r a t e o f i n f l a t i o n (b=14 p e r c e n t ) . The o p t i m i s t i c l e v e l o f i n c r e a s e w i l l be a t t h e r a t e o f i n f l a t i o n (b=10 p e r c e n t ) , and t h e most p e s s i m i s t i c , o r w o r s t c a s e , w i l l be a t a r a t e o f 10 p e r c e n t above t h e r a t e o f i n f l a t i o n (b=20 p e r c e n t ) . N e t p r e s e n t v a l u e s f o r t h e t h r e e r a t e s o f i n c r e a s e o f b o t h n e t o p e r a t i n g income, i n c l u d i n g e n e r g y (NOI) (a=10 p e r c e n t , 12.5 p e r c e n t and 15 p e r c e n t ) and changes i n t h e r a t e o f i n c r e a s e o f e n e r g y were c a l c u l a t e d (a=10 p e r c e n t , 14 p e r c e n t and 20 p e r -c e n t ) , w i t h r e s u l t s g i v e n i n T a b l e 2.1. The s e n s i t i v i t y o f t h e n e t p r e s e n t v a l u e t o changes i n t h e c o s t o f e n e r g y were c a l c u -l a t e d . TABLE 2.1 NET PRESENT VALUE OF HYPOTHETICAL BUILDING E n e r g y A c c e l e r a t i o n R a t e O p e r a t i n g Income E s c a l a t i o n R a t e (%) a=10% a=12.5% a=15% | b]_=10% $-540,000 | $255,000 $1,091,000 1 | b 2=14% $-553,000 | $242,000 $1,079,000 | b 3=20% $-574,000 | $221,000 $1,057,000 1 41 F o r example, as t h e r a t e o f i n c r e a s e o f e n e r g y c o s t s goes f r o m 10 p e r c e n t t o 14 p e r c e n t , t h e n e t p r e s e n t v a l u e de-c l i n e s f r o m $-540,000 t o $-553,000 o r 2.41 p e r c e n t . The r e s u l t s shown i n T a b l e 2.2 show t h a t s e n s i t i v i t y o f n e t p r e s e n t v a l u e t o c h a n g es i n t h e a c c e l e r a t i o n o f e n e r g y c o s t s i s v e r y d e p e n d e n t on t h e s c a l e o f t h e n e t p r e s e n t v a l u e i t s e l f . TABLE 2.2 E L A S T I C I T Y OF NET PRESENT VALUE Change i n E n e r g y A c c e l e r a t i o n R a t e O p e r a t i n g Income E s c a l a t i o n R a t e (%) a i = 1 0 % | a 2=12.5% | a 3=15 | ( b 2 - b i ) = 4 % -.32 | -.71 | -.17 % | ( b 3 - b 2 ) = 6 % 1 -.34 1 | -.79 | -.18 1 1 From T a b l e 2.2, f o r example, t h e e l a s t i c i t y o f t h e n e t p r e s e n t v a l u e , a t a change i n e n e r g y a c c e l e r a t i o n r a t e o f 4 p e r -c e n t , i n c r e a s e s f r o m -0.32 t o -0.71 and r e d u c e s f r o m -.071 t o 0.17 a s t h e o p e r a t i n g income e s c a l a t i o n r a t e i s i n c r e a s d f r o m 10 p e r c e n t t o 12.5 p e r c e n t and f r o m 12.5 p e r c e n t t o 15 p e r c e n t . I n o r d e r t h a t t h i s d ependence on t h e l e v e l o f t h e n e t p r e s e n t v a l u e be removed, t h e i n t e r n a l r a t e s o f r e t u r n were c a l -c u l a t e d f o r t h e r a t e s o f change o f o p e r a t i n g income (NOI) and e n e r g y c o s t s ( E N ) . 42 The i n t e r n a l r a t e o f r e t u r n i s d e f i n e d as t h a t r a t e ( r ) w h i c h p r o v i d e s a n e t p r e s e n t v a l u e o f z e r o . I n o t h e r words: N N O l ( l + a ) EN(l+b) R n 0 = - + - E 0 t = l ( l + r ) t ( l + r ) t ( l + r ) N The r e s u l t s o f t h e i n t e r n a l r a t e s o f r e t u r n c a l c u l a -t i o n s a r e shown i n T a b l e 2.3 and t h e s e n s i t i v i t y i s shown i n T a b l e 2.4 TABLE 2.3 INTERNAL RATES OF RETURN CALCULATIONS O p e r a t i n g Income 1 E n e r g y E s c a l a t i o n R a t e E s c a l a t i o n R a t e (%) a i = 1 0 % | a 2=12.5% | a 3=15% | b i = 4 % 14.13% | 15.95% | 17.77% 1 b 2=6% 14.10% | 15.93% | 17.75% 1 b3=20% 1 14.06% | 15.89% | 17.72% As an example, f o r an e n e r g y e s c a l a t i o n r a t e o f 14 p e r c e n t and an o p e r a t i n g income e s c a l a t i o n r a t e o f 12.5 p e r c e n t , t h e i n t e r n a l r a t e o f r e t u r n i s c a l c u l a t e d a t 15.93 p e r c e n t f o r t h e h y p o t h e t i c a l b u i l d i n g . 43 TABLE 2.4 E L A S T I C I T Y OF INTERNAL RATES OF RETURN Change i n E n e r g y A c c e l e r a t i o n R a t e O p e r a t i n g Income E s c a l a t i o n R a t e (%) a i = 1 0 % | a 2=12.5% | a3=15% ( b 2 - b i ) = 4 % | .029 | -0.18 | -0.15 ( b 3 - b 2 ) = 6 % | .025 | -0.17 | -0.14 J To p r o d u c e a more m e a n i n g f u l measure o f s e n s i t i v i t y , e l a s t i c i t i e s o f t h e i n t e r n a l r a t e s o f r e t u r n were c a l c u l a t e d i n r e l a t i o n t o c h a n g e s i n e n e r g y c o s t s and c h a n g e s i n o t h e r c o s t s . The r e s u l t s a g a i n showed t h a t t h e change o f t h e i n t e r n a l r a t e o f r e t u r n was o n l y m i l d l y s e n s i t i v e ( e l a s t i c i t i e s o f between -.014 and +.029) t o m a j o r changes i n t h e e s c a l a t i o n r a t e o f e n e r g y c o s t s i n d e p e n d e n t o f t h e changes i n o t h e r c o s t s . T h e r e a r e a number o f p o s s i b l e r e a s o n s why c h a n g e s i n e n e r g y c o s t s a r e n o t i m p o r t a n t d e t e r m i n a n t s o f c h a n g e s i n n e t p r e s e n t v a l u e s o r i n t e r n a l r a t e s o f r e t u r n . I t i s most l i k e l y t h a t e n e r g y i s n o t a m a j o r component o f t h e o v e r a l l e x p e n s e s o f o p e r a t i n g a b u i l d i n g r e l a t i v e t o o t h e r e x p e n s e s . I n a d d i t i o n , s m a l l c h a n g e s i n t h e i n t e r n a l r a t e o f r e t u r n s may be v e r y i m p o r -t a n t compared t o l a r g e c h a n g es i n t h e c o s t o f e n e r g y , l e a d i n g t o a low s e n s i t i v i t y . 44 ENERGY COST AND NET PRESENT VALUE:  A SUMMARY In t h i s c h a p t e r we h a v e d e v e l o p e d a model t o demon-s t r a t e t h e r o l e o f e n e r g y o p e r a t i n g c o s t on t h e n e t p r e s e n t v a l u e on c o m m e r c i a l b u i l d i n g s . G i v e n t h e s e t o f t e c h n i c a l f o r e -c a s t s o r g r o w t h r a t e s o f e n e r g y c o s t p r e s e n t e d , i t i s d e m o n s t r a -t e d t h a t t h e n e t p r e s e n t v a l u e o r i n t e r n a l r a t e o f r e t u r n , and h e n c e m a r k e t v a l u e was n o t h i g h l y s e n s i t i v e t o c h a n g e s i n t h e f o r e c a s t e d c o s t o f e n e r g y c o n s u m p t i o n . However, t h e q u e s t i o n r e m a i n s w h e t h e r d i f f e r e n c e s i n t h e l e v e l o f e n e r g y c o n s u m p t i o n w i l l be r e f l e c t e d i n t h e ma r k e t v a l u e o f c o m m e r c i a l o f f i c e b u i l d i n g s . I n t h e n e x t c h a p t e r , we w i l l a t t e m p t t o d e t e r m i n e w h e t h e r d i f f e r e n t l e v e l s o f e n e r g y c o n s u m p t i o n i n f l u e n c e m a r k e t v a l u e f o r a sample o f a c t u a l o f f i c e b u i l d i n g s . The e m p i r i c a l s t u d y l o o k s a t t h e e f f e c t t h a t t h e l e v e l o f e n e r g y o p e r a t i n g e x p e n s e h a s on t h e ma r k e t v a l u e o f an o f f i c e b u i l d i n g , and s p e c -i f i c i a l l y w h e t h e r a r e d u c t i o n i n t h e l e v e l o f e n e r g y u s e d ( t h r o u g h i n v e s t m e n t i n eq u i p m e n t o r p l a n t ) h a s t h e e f f e c t o f i n -c r e a s i n g t h e ma r k e t v a l u e o f t h e b u i l d i n g . 45 CHAPTER I I I  EMPIRICAL STUDY; ENERGY AND MARKET VALUES R e g r e s s i o n A n a l y s i s I n t h e p r e v i o u s c h a p t e r s , a a n a l y t i c a l model was de v -e l o p e d w h i c h d e m o n s t r a t e d t h e s e n s i t i v i t y o f a change i n t h e l e v e l o f e n e r g y e x p e n s e on t h e n e t p r e s e n t v a l u e , and h e n c e on m a r k e t v a l u e s o f r e a l p r o p e r t y . T h i s model was a n a l y z e d u s i n g a " b e s t e f f o r t s " f o r e c a s t o f f u t u r e e n e r g y c o s t s and a l l o t h e r c o s t s and b e n e f i t s ( r e n t s ) a s s o c i a t e d w i t h t h e o w n e r s h i p o f com-m e r c i a l p r o p e r t y . I n t h i s c h a p t e r a sample o f c o m m e r c i a l o f f i c e p r o p e r t i e s w i l l be a n a l y z e d t o d e t e r m i n e w h e t h e r v a r i a t i o n s i n e i t h e r t h e l e v e l o f o r t h e r a t e o f change i n e n e r g y c o s t a r e r e f l e c t e d i n m a r k e t p r i c e s . R e a d e r s w i l l r e c a l l t h a t t h e a n a l y t i c a l model i n t r o -d u c e d i n t h e l a s t c h a p t e r was as f o l l o w s : N C F t R n NPV = + E Q t = l ( l + r ) t ( l + r ) n I n o r d e r t o d e m o n s t r a t e more c l e a r l y t h e r o l e o f e n e r -gy c o s t s , t h i s model was r e - w r i t t e n i n a f o r m w h i c h i s o l a t e d e n e r g y c o s t s . ^ 1 W i t h no d e b t and i n e q u i l i b r i u m , M a r k e t P r i c e = NPV + E Q [ a n d i n e q u i l i b r i u m e x p e c t e d NPV = 0] 46 Hence, t h e r e - w r i t t e n model i s as f o l l o w s : N N O I t E N t R n PRICE (P) = - + t = l ( l + r ) t ( l + r j t ( l + r ) N WHERE: PRICE = E Q (assumes no d e b t and e q u i l i b r i u m c o n d i t i o n s p r e v a i l , b i d = a s k e d ) To e s t i m a t e t h e r e l a t i v e i m p o r t a n c e o f e n e r g y i n a m a r k e t v a l u e model, a model i s d e v e l o p e d t o show how r e a l e s t a t e m a r k e t s c a p i t a l i z e e n e r g y s a v i n g s i n t o v a l u e . The method o f e s t i m a t i n g t h e e f f e c t o f changes i n e n e r g y c o s t s on v a l u e i s m u l t i p l e r e g r e s s i o n a n a l y s i s . M u l t i p l e r e g r e s s i o n a n a l y s i s (MRA) employs h i s t o r i c a l d a t a f o r b o t h p r e d i c t i o n and s t r u c t u r a l a n a l y s i s . The a v a i l a -b i l i t y o f c o m p u t e r s h a s made p o s s i b l e t h e i n c o r p o r a t i o n o f v e r y l a r g e d a t a b a s e s i n e m p i r i c a l m o dels, e i t h e r t o t e s t h y p o t h e s e s o r t o p r e d i c t v a l u e s o f s p e c i f i c v a r i a b l e s . The c o n s t r u c t i o n o f MRA models i n r e a l e s t a t e a p p r a i -s a l h a s been t h e s u b j e c t o f a l a r g e body o f l i t e r a t u r e , p a r t i c u -l a r l y i n t h e a r e a o f r e s i d e n t i a l a p p r a i s a l . R e s e a r c h i n t h e a r e a o f c o m m e r c i a l a n a l y s i s i s l e s s w e l l documented, b u t most o f t h e i n f o r m a t i o n c o n t a i n e d i n p a p e r s c o n c e r n i n g r e s i d e n t i a l a p p r a i s a l c a n be a p p l i e d i n t h e c o m m e r c i a l a r e a . W i t h i n t h e l i t e r a t u r e c o n c e r n i n g r e s i d e n t i a l a p p r a i -s a l , a d e t a i l e d d e s c r i p t i o n o f m u l t i p l e r e g r e s s i o n a n a l y s i s , 47 u s i n g l e a s t - s q u a r e s t e c h n i q u e , i s p r e s e n t e d by C h u r c h ( 1 9 7 5 ) . The m o t i v a t i o n f o r d e v e l o p i n g t h i s m u l t i p l e r e g r e s s i o n a n a l y s i s m o del f o r mass a p p r a i s a l stems f r o m t h e l e g a l r e q u i r e m e n t s f o r f r e q u e n t a s s e s s m e n t o f a l l p r o p e r t y . The model u s e d by C h u r c h e s t a b l i s h e s t h e e q u a t i o n f o r t h e q u a n t i t y demanded ( w h i c h depends on t h e v a r i o u s a t t r i b u t e s o f t h e h o u s e ) and s e t s t h i s e q u a l t o t h e q u a n t i t y s u p p l i e d . I n i t s i n t e r m e d i a t e form, t h i s m odel ( c a l l e d t h e s t r u c t u r a l model) c a n be s t a t e d as f o l l o w s : ( F ! - H 3 ) (F3-H3) F(n+2)-H(n+2) p h = + C i + C n + e ( H 2 - F 2 ) ( H 2 - F 2 ) ( H 2 - F 2 ) where H2 > 0 and H 2-F2 > 0 H 2 > 0 = P r i c e F = S u p p l y C o e f f i c i e n t H = Demand C o e f f i c i e n t C = I n d e p e n d e n t V a r i a b l e C o e f f i c i e n t s e = Random E r r o r Term E a c h c o e f f i c i e n t i n t h e e q u a t i o n h a s b o t h s u p p l y and demand f a c -t o r s , w h i c h may be e i t h e r p o s i t i v e o r n e g a t i v e , and t h e s i g n o f t h e v a r i a b l e r e s u l t i n g f r o m e m p i r i c a l a n a l y s i s may be d i f f i c u l t t o e x p l a i n . The e s t i m a t e d c o e f f i c i e n t s o f t h e i n d e p e n d e n t v a r i a b l e s a r e t h e n combined t o p r o v i d e t h e c l o s e s t f i t between t h e o b s e r v e d d a t a and t h e r e g r e s s i o n e q u a t i o n . T h i s i n t e r m e d i a t e f o r m o f t h e e q u a t i o n i s f u r t h e r s i m -p l i f i e d t o what i s t r a d i t i o n a l l y c a l l e d t h e r e d u c e d f o r m o f t h e 48 t h e e q u a t i o n . T h i s f u r t h e r s i m p l i f i c a t i o n i s p o s s i b l e a s s u m i n g t h a t e q u i l i b r i u m c o n d i t i o n s e x i s t i n r e a l e s t a t e m a r k e t s ( i . e . Demand e q u a l s S u p p l y ) . P n = A + BT.C1 + B 2 C 2 + B n C n + e WHERE: F l ~ H 3 A = H 2 - F 2 F3-H3 Bi = e t c . H 2 - F 3 e = random e r r o r t e r m PRICE = I n d e p e n d e n t v a r i a b l e C-[ = Dependent v a r i a b l e 1 — 1 / ^ # ^ t * • • • XX and C i r e p r e s e n t s t h o s e f a c t o r s w h i c h w i l l r e f l e c t e i t h e r n e t o p e r a t i n g income (NOI), e n e r g y c o s t o r t h e r e v e r s i o n v a l u e . I t i s t h i s r e d u c e d f o r m o f t h e e q u a t i o n w h i c h i s u s e d t o e m p i r i c a l l y t e s t o u r mo d e l . V a r i o u s p r o b l e m s and l i m i t a t i o n s w i t h t h e u s e o f mul-t i p l e r e g r e s s i o n a n a l y s i s a r e d e s c r i b e d i n t h e c o n c l u s i o n t o C h u r c h ' s a r t i c l e . One o b v i o u s l i m i t a t i o n a r i s e s b e c a u s e o f t h e l i m i t on t h e number o f t h e c h a r a c t e r i s t i c s i n t h e e q u a t i o n . To overcome t h i s p r o b l e m t h e c h a r a c t e r i s t i c s t o be i n c l u d e d c a n be d e t e r m i n e d i n a number o f ways, s u c h as t h r o u g h t h e u s e o f s t e p -49 s i o n 1 . T h i s p r o c e s s e n s u r e s t h a t t h e most s t a t i s t i c a l l y s i g n -i f i c a n t c h a r a c t e r i s t i c s a r e i n c l u d e d i n t h e mo d e l . A s e c o n d p r o b l e m d e s c r i b e d by C h u r c h r e l a t e s t o t h e i n t e r a c t i o n e f f e c t s o f t h e c h a r a c t e r i s t i c s . I n t e r a c t i o n o c c u r s when t h e u s e o f two o r more v a r i a b l e s p r o d u c e s an e f f e c t w h i c h i s d i f f e r e n t f r o m t h e sum o f t h e i n d i v i d u a l e f f e c t s o f t h e s e p -a r a t e e v e n t s . Where t h e r e i s h i g h c o r r e l a t i o n among i n d e p e n d e n t v a r i a b l e s , t h e s e p a r a t e e f f e c t s o f t h e v a r i a b l e s c a n n o t be d i s -t i n g u i s h e d . A s i m i l a r , b u t s e p a r a t e p r o b l e m , i s c a l l e d m u l t i c o l l i -n e a r i t y . M u l t i c o l l i n e a r i t y i s d e f i n e d by Gau and K o h l e p p (1979) as f o l l o w s : " . . . t h e l a c k o f s t a t i s t i c a l i n d e p e n d e n c e o f t h e e x p l a n a t o r y v a r i a b l e s . " The m e t h o d o l o g y u t i l i z e d w i t h l e a s t - s q u a r e s r e g r e s s i o n a n a l y s i s i s b a s e d on t h e a s s u m p t i o n t h a t t h e e x p l a n a t o r y ( i n d e p e n d e n t ) v a r i a b l e s a r e l i n e a r l y i n d e p e n d e n t . Where t h i s a s s u m p t i o n i s v i o l a t e d , m u l t i c o l l i n e a r i t y i s p r e s e n t i n t h e d a t a s e t . T h r o u g h o u t t h i s s t u d y , t e s t s w i l l be a p p l i e d t o d e t e r m i n e w h e t h e r t h e v a r i a b l e s a r e h i g h l y c o r r e l a t e d and w h e t h e r m u l t i -c o l l i n e a r i t y i s s u f f i c i e n t t o r e p r e s e n t a p r o b l e m . 1 T h i s s t a t i s t i c a l t e c h n i q u e i n c o r p o r a t e s t h e method o f a c -c e p t i n g t h e e n t r y o f v a r i a b l e s i n t h e e q u a t i o n i n d i v i d u a l l y a c c o r d i n g t o " t " t e s t s i g n i f i c a n c e t o m i n i m i z e i n t e r e l a -t i o n . 50 G r e t h e r and M i e s k o w s k i (1974) p r o v i d e s a good a n a l y s i s o f t h e p r o c e s s o f s e l e c t i o n o f i n d e p e n d e n t v a r i a b l e s i n r e s i d e n -t i a l r e g r e s s i o n a n a l y s i s w h i c h a r e u s e d , i n p a r t , t o s e l e c t v a r -i a b l e s f o r t h i s c o m m e r c i a l b u i l d i n g m o d e l . G r e t h e r and M i e s k o w s k i p o s t u l a t e t h a t t h e p r i c e o f t h e h o u s e c a n be p r e d i c t -ed on t h e b a s i s o f i t s p h y s i c a l c h a r a c t e r i s t i c s . G r e t h e r and M i e s k o w s k i s e p a r a t e d t h e v a r i a b l e s i n t o t h r e e c a t e g o r i e s : 1) s t r u c t u r a l c h a r a c t e r i s t i c s , 2) l o t c h a r a c t e r i s t i c s , and 3) n e i g h b o u r h o o d c h a r a c t e r i s t i c s . The a u t h o r s c o n c l u d e d t h a t , g i v e n t h e s t a t i s t i c a l r e -s u l t s o f t h e r e d u c e d f o r m l i n e a r r e g r e s s i o n , i t a p p e a r s p o s s i b l e t o e s t i m a t e t h e m a g n i t u d e o f s t r u c t u r a l a n d n e i g h b o u r h o o d e f -f e c t s u s i n g a l i m i t e d number o f c o n t r o l s f o r t h e a t t r i b u t e s o f t h e p r o p e r t y . The l i s t o f v a r i a b l e s u s e d by B e r r y and B e d n a r z (1975) was much s h o r t e r t h a n t h o s e u s e d by G r e t h e r , b u t t h e y i n c l u d e d s t r u c t u r a l c h a r a c t e r i s t i c s , n e i g h b o u r h o o d v a r i a b l e s and a l o c a -t i o n v a r i a b l e . C o l l i n e a r i t y between v a r i a b l e s s u c h as h o u s e s i z e and l o t s i z e and h i g h income n e i g h b o u r h o o d s and a i r c o n d i -t i o n i n g , were i g n o r e d , as i t was s t a t e d t h a t t h e s e must be i n -c l u d e d i n a minimum s e t t o r e t a i n t h e e x p l a n a t o r y power o f t h e r e g r e s s i o n model. A more s p e c i f i c t o p i c was r e s e a r c h e d by M o r t o n ( 1 9 7 6 ) . M o r t o n p r e s e n t e d i n f o r m a t i o n on t h e s t r a t i f i c a t i o n t e c h n i q u e s 51 r e l a t e d t o t h e a c c u r a c y o f r e g r e s s i o n a n a l y s i s f o r r e s i d e n t i a l p r o p e r t i e s . Two samples o f p r o p e r t i e s were n a r r o w l y s t r a t i f i e d a nd two were w i d e l y s t r a t i f i e d . 1 B e t t e r r e s u l t s were o b t a i n e d u s i n g t h e w i d e l y s t r a t i -f i e d sample. The h i g h e r s t a n d a r d e r r o r f o u n d f o r t h e w i d e l y s t r a t i f i e d sample was j u s t i f i e d by s h owing a b e t t e r r e l a t i o n s h i p when t h e s t a n d a r d e r r o r i s compared w i t h t h e s t a n d a r d d e v i a t i o n o f t h e d e p e n d e n t v a r i a b l e . S t r u c t u r a l E q u a t i o n s t o T e s t E n e r g y H y p o t h e s e s F o r t h e p u r p o s e s o f t h i s s t u d y an i n i t i a l sample o f 100 o f f i c e b u i l d i n g s was drawn f r o m t h e f i l e s o f t h e B r i t i s h C o l u m b i a A s s e s s m e n t A u t h o r i t y . I n s t a t i s t i c a l t e r m s , t h e u n i -v e r s e f o r t h i s s t u d y i s a l l b u i l d i n g s i n t h e G r e a t e r V a n c o u v e r a r e a w i t h t h e a t t r i b u t e o f e x c l u s i v e o f f i c e u s e , h a v i n g no r e -t a i l , r e s t a u r a n t o r r e s i d e n t i a l components. From t h i s u n i v e r s e t h o s e b u i l d i n g s s o l d d u r i n g t h e y e a r s 1978 t o t h e f i r s t q u a r t e r o f 1981 were c h o s e n . T h i s t i m e p e r i o d was s e l e c t e d s i n c e d a t a were a v a i l a b l e f r o m b o t h t h e A s s e s s m e n t A u t h o r i t y and f r o m B.C. H y d r o d u r i n g t h i s t i m e . P r o p e r t y r e c o r d s p r i o r t o 1978 l a c k e d t h e d e t a i l r e q u i r e d f o r t h i s a n a l y s i s . T h e r e f o r e i t i s n e c e s -s a r y t o assume t h a t t h e r e i s no s y s t e m a t i c d i f f e r e n c e between t h e sample s e l e c t e d and t h e u n i v e r s e . I n o t h e r words, t h e r e i s 1 Wide and n a r r o w s t r a t i f i c a t i o n r e f e r s t o t h e d e g r e e o f hom-o g e n i e t y i n p h y s i c a l c h a r a c t e r i s t i c s . 52 no d i f f e r e n c e i n t h e c h a r a c t e r i s t i c s , e n e r g y c o n s u m p t i o n o r mar-k e t v a l u e s o f t h o s e p r o p e r t i e s i n t h e sample ( w h i c h s o l d i n t h e y e a r s 1978-79) and t h o s e p r o p e r t i e s w h i c h d i d n o t q u a l i f y f o r t h e sample. T h i s a s s u m p t i o n i s n e c e s s a r y s i n c e t h e m a r k e t v a l u e i s t h e d e p e n d e n t v a r i a b l e i n t h e r e g r e s s i o n e q u a t i o n and t h e b e s t e s t i m a t e o f m a r k e t v a l u e i s t h e s a l e s p r i c e . The i n i t i a l sample was t h e n r e d u c e d i n s i z e by m a t c h -i n g t h e b u i l d i n g s f o r w h i c h d a t a on e n e r g y c o n s u m p t i o n c o u l d be o b t a i n e d f r o m t h e B r i t i s h C o l u m b i a H y d r o and Power A u t h o r i t y . Due t o t h e u n a v a i l a b i l i t y o f e n e r g y d a t a on some b u i l d i n g s , t h e sample was f u r t h e r r e d u c e d t o i n c l u d e t h o s e b u i l d i n g s w h i c h s o l d d u r i n g t h e d e s i g n a t e d t i m e and f o r w h i c h e n e r g y d a t a were a v a i l -a b l e . I t i s assumed t h a t t h e l a c k o f e n e r g y d a t a f o r some 27 o u t o f 100 b u i l d i n g s w o u l d n o t s y s t e m a t i c a l l y m o d i f y t h e a c c u r -a c y o f t h e sample. D a t a o b t a i n e d f r o m t h e B r i t i s h C o l u m b i a A s s e s s m e n t A u t h o r i t y f o r t h e 73 r e m a i n i n g p r o p e r t i e s c o n s i s t o f a b u i l d i n g s c h a r a c t e r i s t i c s . T h e s e i n c l u d e : a) p h y s i c a l d i m e n s i o n s measured i n f e e t , i n c l u d i n g l e n g t h , w i d t h and h e i g h t o f o u t s i d e s u r f a c e ; b) n e t r e n t a b l e a r e a i n s q u a r e f e e t m e a s u r e d i n s i d e ; c) l o t s i z e i n s q u a r e f e e t ; d) p r o p e r t y l o c a t i o n ; e) b u i l d i n g use, i . e . o f f i c e , r e t a i l o u t l e t ; f ) a c t u a l age s i n c e c o n s t r u c t i o n ; 53 g) e f f e c t i v e age s i n c e c o n s t r u c t i o n on l a s t m a j o r r e n o v a -t i o n ; h) t y p e o f c o n s t r u c t i o n m a t e r i a l ; i ) number and l o c a t i o n o f p a r k i n g s t a l l s ; j ) p r e s e n c e o f e l e v a t o r s ; k ) g r o s s and n e t income i n f o r m a t i o n ; 1) s a l e s p r i c e ; and m) s a l e s d a t a . The d a t a were c a r e f u l l y g a t h e r e d by t h e A s s e s s m e n t A u t h o r i t y and u p d a t e d as b u i l d i n g s were r e n o v a t e d . The d a t a o b t a i n e d f r o m B.C. H y d r o c o n s i s t o f a n n u a l c o n s u m p t i o n t o t a l s f o r b o t h e l e c t r i c i t y and n a t u r a l g a s . I n a d d i t i o n i n f o r m a t i o n c o n c e r n i n g t h e d e b t s t r u c t u r e o f a s u b - s a m p l e o f p r o p e r t y was o b t a i n e d . T h e s e d a t a c o n c e r n i n g d e b t were o b t a i n e d f r o m t h e B r i t i s h C o l u m b i a L a n d T i t l e O f f i c e . T h e s e d a t a were o b t a i n e d f o r 24 p r o p e r t i e s o u t o f t h e t o t a l sam-p l e o f 73 p r o p e r t i e s . The r e g r e s s i o n a n a l y s i s i s i n c l u d e d t o d e t e r m i n e i f t h e a d d i t i o n o f t h e d e b t i n f o r m a t i o n h a d an e f f e c t on t h e m a r k e t v a l u e model as i t r e l a t e s t o t h e e n e r g y consump-t i o n v a r i a b l e . E a c h p r o p e r t y i n t h e t o t a l sample i s r e p r e s e n t e d w i t h 15 v a r i a b l e s , w h i l e t h e s u b-sample o f 24 p r o p e r t i e s h a s an a d d -i t i o n a l 4 v a r i a b l e s p e r p r o p e r t y r e l a t i n g t o t h e d e b t s t r u c -t u r e . The r e a s o n s f o r a d o p t i n g t h e s e v a r i a b l e s , a l o n g w i t h g r e a t e r d e s c r i p t i v e d e t a i l s f o r e a c h v a r i a b l e , a r e d e s c r i b e d i n t h e f o l l o w i n g s e c t i o n . 54 DESCRIPTION OF VARIABLE M a r k e t V a l u e ( V - l ) The m a r k e t v a l u e ( s a l e s p r i c e ) o f c o m m e r c i a l o f f i c e b u i l d i n g s i s t h e d e p e n d e n t v a r i a b l e i n t h e r e g r e s s i o n e q u a t i o n . The m a r k e t v a l u e i s t a k e n as t h e a c t u a l s a l e p r i c e o f t h e r e a l p r o p e r t y ( i n d o l l a r s ) t a k e n f r o m f i l e s a t t h e B r i t i s h C o l u m b i a A s s e s s m e n t A u t h o r i t y . 1 A l l non-arm's l e n g t h t r a n s a c t i o n s were e x c l u d e d . F o r t h e p u r p o s e s o f t h i s sample, p r o p e r t i e s were ex-c l u d e d i f t h e A s s e s s m e n t A u t h o r i t y b e l i e v e d t h e s a l e t o be non-arm's l e n g t h . 2 F u r t h e r m o r e , b u i l d i n g s w h i c h were i n l o c a t i o n s o f imminent r e - d e v e l o p m e n t were a l s o e x c l u d e d , s i n c e t h e i n f l a -t e d v a l u e o f t h e l a n d w o u l d d i s t o r t t h e r e g r e s s i o n r e s u l t s . A p p r o x i m a t e l y 30 p e r c e n t o f a l l s a l e s t r a n s a c t i o n s were e x c l u d e d f o r t h e s e two r e a s o n s . N e t R e n t a b l e A r e a (V-2) The n e t r e n t a b l e a r e a o f e a c h b u i l d i n g i n t h e sample i s t h e f i r s t i n d e p e n d e n t v a r i a b l e , and i s m e a s u r e d i n s q u a r e f e e t . 3 T h i s measurement o f a r e a e x c l u d e s basement a r e a s w h i c h 1 I n f o r m a t i o n on v a r i a b l e s i s t a k e n f r o m A s s e s s e m e n t A u t h o r -i t y f i l e s u n l e s s o t h e r w i s e n o t e d . 2 A non-arm's l e n g t h t r a n s a c t i o n i s one where t h e r e a r e o t h e r t h a n m o n i t a r y c o n s i d e r a t i o n i n c l u d e d i n t h e p r o p e r t y t r a n s -f e r . F o r example, where a s a l e t a k e s p l a c e w i t h i n a f a m i l y o r between two s u b s i d i a r i e s o f t h e same company. 3 I m p e r i a l measures i s u s e d , as d a t a f r o m a l l s o u r c e s were c o n s i s t e n t . 55 are used for storage. The net rentable area i s used to trans-form other variables which are dependent upon building size. (The SCALE Factor) Lot Size (V-3) The size of the l o t i s calculated i n square feet from dimensions i n the Assessment Authority f i l e s . The l o t size i s assumed to have an e f f e c t on the reversion value (Rn) ^ n t n e regression equation. Number of Stories (V-4) The number of stories above grade i s included as an independent variable. Where basement areas are shown as storage areas, t h i s are not included as a storey. Below grade areas used as o f f i c e s are included as a f u l l storey. Below grade areas used for parking are considered to be included i n indepen-dent variable V-9. Consideration i s not given to differences i n f l o o r to c e i l i n g heights. The number of stories i s assumed to have an e f f e c t on income, since high buildings (with elevators) may tend to command higher rents. The variable w i l l also have a minor e f f e c t on energy due to building configuration, and on re-version value. 56 T y p e o f C o n s t r u c t i o n (V-5) A s i n g l e v a r i a b l e i s i n c l u d e d t o d i f f e r e n t i a t e between frame c o n s t r u c t i o n and masonry o r c o n c r e t e c o n s t r u c t i o n . The v a r i a b l e i s i n c l u d e d t o e x p l a i n any v a l u e v a r i a t i o n due t o t h i s d i f f e r e n c e i n p h y s i c a l c o n s t r u c t i o n . Masonary c o n s t r u c t i o n w o u l d r e l a t e t o l o n g e r l i f e and w o u l d e f f e c t r e v e r s i o n v a l u e . Lower m a i n t e n a n c e c o s t s and c h e a p e r f i r e i n s u r a n c e w i t h masonary w i l l r e l a t e t o ex p e n s e , and n e t o p e r a t i n g income. The u s e o f a s i m p l e v a r i a b l e ( y e s - n o ) t o i n d i c a t e w h e t h e r t h e b u i l d i n g i s masonary c o n s t r u c t i o n i s r e f e r r e d t o as a dummy v a r i a b l e . A i r C o n d i t i o n i n g (V-6) A s i n g l e dummy v a r i a b l e ( y e s / n o v a r i a b l e ) i s u s e d t o e x p l a i n t h e d i f f e r e n c e i n t h e m a r k e t v a l u e o f b u i l d i n g s w h i c h h a ve a i r c o n d i t i o n i n g . I t i s e x p e c t e d t h a t t h i s v a r i a b l e w i l l be r e f l e c t e d i n t h e a n n u a l income o f t h e p r o p e r t y , t h e r e v e r s i o n v a l u e o f t h e p r o p e r t y and t h e e n e r g y c o n s u m p t i o n f o r t h e b u i l d -i n g . Q u a l i t y (V-7 and V-8) To a l a r g e e x t e n t , t h e q u a l i t y o f t h e b u i l d i n g i s a f u n c t i o n o f age. I n t h e c a s e o f o l d e r b u i l d i n g s , e x t e n s i v e r e n -o v a t i o n s may have c h a n g e d t h e q u a l i t y . F o r t h i s r e a s o n , a dummy v a r i a b l e i s u s e d t o s e p a r a t e p o o r , a v e r a g e and good q u a l i t y (00, 01, 1 0 ) . T h e s e q u a l i t y v a r i a b l e s were t a k e n d i r e c t l y f r o m 57 A s s e s s m e n t A u t h o r i t y f i l e s , and r e p r e s e n t t h e judgments o f t h e c o m m e r c i a l s e c t o r a s s e s s o r s . The v a r i a b l e w i l l h a v e an e f f e c t on t h e a n n u a l income and t h e r e v e r s i o n v a l u e . E f f e c t i v e Age (V-9) I n s e l e c t i n g t h e v a r i a b l e t o be u s e d t o r e p r e s e n t age, t h e e f f e c t i v e age o f t h e b u i l d i n g i s s e l e c t e d . The e f f e c t i v e age o f t h e b u i l d i n g i s t a k e n as t h e number o f y e a r s f r o m 1981 t o e i t h e r t h e y e a r o f c o n s t r u c t i o n , o r t h e y e a r o f t h e l a s t m a j o r r e n o v a t i o n . The e f f e c t i v e age v a r i a b l e w i l l r e l a t e t o n e t o p e r -a t i n g income a s w e l l a s r e v e r s i o n v a l u e . I t i s assumed t h a t o l d e r b u i l d i n g s a r e l e s s e n e r g y e f f i c i e n t . P a r k i n g (V-10) The m a r k e t v a l u e o f an o f f i c e b u i l d i n g i s assumed t o i n c r e a s e as t h e number o f p a r k i n g s t a l l s i n c r e a s e . The number o f p a r k i n g s t a l l s w i t h i n p r o p e r t y l i n e s i s i n c l u d e d as a v a r i -a b l e t o t e s t t h i s a s s u m p t i o n . T h i s v a r i a b l e w i l l a f f e c t b o t h t h e a n n u a l income and t h e r e v e r s i o n v a l u e . T y pe o f P a r k i n g ( V - l l ) To d i f f e r e n t i a t e between o n - g r a d e and u n d e r g r o u n d p a r k i n g , a s i n g l e dummy v a r i a b l e ( y e s / n o ) i s i n c l u d e d . U n d e r -g r o u n d p a r k i n g i s assumed t o add t o b o t h t h e a n n u a l income an d t h e r e v e r s i o n v a l u e . 58 E l e v a t o r s (V-12) The p r e s e n c e o r a b s e n c e o f an e l e v a t o r , p a r t i c u l a r l y i n t h e two and t h r e e s t o r e y segment o f t h e sample i s e x p e c t e d t o h a v e an e f f e c t on t h e m a r k e t v a l u e o f t h e o f f i c e b u i l d i n g . A s i n g l e dummy v a r i a b l e ( y e s / n o ) i s i n c l u d e d t o e x p l a i n t h i s d i f -f e r e n c e . T h i s v a r i a b l e w i l l r e l a t e t o e n e r g y c o n s u m p t i o n and t h e a n n u a l income. S a l e s D a t e (V-13) Due t o t h e s e c u l a r i n c r e a s e i n m a r k e t v a l u e o f commer-c i a l o f f i c e b u i l d i n g s , a v a r i a b l e r e p r e s e n t i n g t h e number o f months t o t h e s a l e s d a t e f r o m J a n u a r y 1 s t , 1977 t o t h e s a l e s d a t e i s i n c l u d e d . I t i s assumed t h a t t h i s v a r i a b l e w i l l r e f l e c t t h e e f f e c t o f i n f l a t i o n on m a r k e t v a l u e . L o c a t i o n (V-14, V-15, V-16) A s s e s s m e n t A u t h o r i t y e x p e r i e n c e h a s s e p a r a t e d t h e c i t y i n t o g e o g r a p h i c z o n e s o f c o m p a r a b l e v a l u e . F o r t h i s e q u a t i o n , t h e v a r i a t i o n between d i f f e r e n t z o n e s o f t h e c i t y i s a c c o u n t e d f o r by u s i n g dummy v a r i a b l e s f o r t h e f o l l o w i n g ( a r e a s u s e d by t h e A s s e s s m e n t A u t h o r i t y ) : a) C e n t r a l B u s i n e s s D i s t r i c t ; b) C e n t r a l B u s i n e s s F r i n g e ; c) C o u r t House A r e a ; and d) E l s e w h e r e . 59 I t i s assumed t h a t t h e l o c a t i o n a l c o n t r i b u t i o n t o v a l u e r e m a i n s c o n s t a n t w i t h i n e a c h o f t h e s e a r e a s , and h e n c e t h e dummy v a r i -a b l e w i l l r e l a t e t h e d i f f e r e n c e s between l o c a t i o n s i n t h e a n n u a l income and t h e r e v e r s i o n v a l u e . G r o s s Income (V-17) G r o s s income p e r y e a r p e r p r o p e r t y i n d o l l a r s i s t a k e n f r o m t h e A s s e s s m e n t A u t h o r i t y f i l e s . T h i s v a r i a b l e r e q u i r e d t h e most judgment i n a t t e m p t i n g t o e s t a b l i s h t h e g r o s s income w h i c h t h e i n v e s t o r i n t h e o f f i c e b u i l d i n g w o u l d u s e i n e s t a b l i s h i n g t h e p u r c h a s e p r i c e . I n o v e r o n e - h a l f o f t h e sample, where t h e b u i l d i n g s were n e a r f u l l o c c u p a n c y , t h e a c t u a l income d a t a a r e u s e d . Where t h e r e was a s e r i o u s c o n f l i c t between t h e a c t u a l and t h e p o t e n t i a l income, t h e p o t e n t i a l o r e c o n o m i c r e n t s o f t h e b u i l d -i n g a r e u s e d . T h i s p o t e n t i a l r e n t o r income f r o m t h e p r o p e r t y i s c a l c u l a t e d by t h e a s s e s s o r s b a s e d on c o m p a r a b l e b u i l d i n g r e n -t a l s i n e f f e c t a t t h a t same t i m e i n t h e same a r e a , w i t h a r e a -s o n a b l e a l l o w a n c e f o r e x p e n s e s , management and v a c a n c i e s . T h i s method, a c c o r d i n g t o t h e A s s e s s m e n t A u t h o r i t y , h a s p r e v i o u s l y p r o v e n t o be s u c c e s s f u l as one o f t h e methods o f d e t e r m i n i n g v a l u e f o r a s s e s s e m e n t p u r p o s e s . I n some c a s e s i t was n e c e s s a r y t o a d j u s t t h i s income f i g u r e by an a n n u a l i n f l a t i o n f a c t o r up t o t h e y e a r o f s a l e , where t h e income d a t a and t h e s a l e a r e f r o m d i f f e r e n t p e r i o d s . 60 E n e r g y E x p e n s e (V-18) E n e r g y c o n s u m p t i o n , a d j u s t e d f o r changes i n u n i t c o s t s and w e a t h e r d i f f e r e n c e s t o t h e y e a r o f s a l e , a r e f r o m t h e f i l e s o f B.C. H y d r o and Power A u t h o r i t y , and i n c l u d e t h e c o s t s o f power and n a t u r a l g a s . The a d j u s t m e n t s f o r d i f f e r e n c e s i n w e a t h e r between t h e y e a r t h e d a t a i s a v a i l a b l e and t h e y e a r o f s a l e i s c a l c u l a t e d u s i n g d i f f e r e n c e s i n t h e number o f d e g r e e d a y s f o r b o t h h e a t i n g and c o o l i n g . Where t h e r e h a s b e e n a d e -mand c h a r g e f o r e l e c t r i c a l l o a d , t h e demand i s c o n v e r t e d i n t o an e q u i v a l e n t c o n s u m p t i o n u n i t t o a l l o w c o m p a r i s o n . U t i l i t y c o n -s u m p t i o n was c o n v e r t e d t o k i l o w a t t h o u r s as t h e most c o n v e n i e n t u n i t , and t h i s was u s e d as a p r o x y f o r e n e r g y e x p e n s e . C o n d i -t i o n s o f c o n f i d e n t i a l i t y s e t o u t by B.C. H y d r o t o a l l o w t h e u s e o f c u s t o m e r d a t a were r e s p e c t e d , and i n d i v i d u a l c o n s u m p t i o n i n -f o r m a t i o n was l e f t i n t h e H y d r o o f f i c e s . 1 Debt (V-19) The t o t a l m ortgage d e b t o f e a c h p r o p e r t y i s t a k e n f r o m t h e f i l e s o f t h e P r o v i n c i a l L a n d T i t l e s O f f i c e . 1 No i n d i v i d u a l p r o p e r t i e s and no i n d i v i d u a l p r o p e r t y owners a r e i d e n t i f i e d t h r o u g h o u t t h i s t h e s i s s i n c e no i n d i v i d u a l r e c o r d s were o b t a i n e d . The a u t h o r w i s h e s t o e x p r e s s h i s a p p r e c i a t i o n t o t h e o f f i c i a l s o f B.C. H y d r o f o r p r e p a r i n g t h e a g g r e g a t e d a t a f o r u s e i n t h i s t h e s i s . 61 D e b t Payment (V-20) The d e b t s e r v i c e c o s t s f o r m o r t g a g e s r e g i s t e r e d upon t h e p r o p e r t y a r e t a k e n f r o m t h e P r o v i n c i a l L a n d T i t l e s O f f i c e and c o n v e r t e d t o an a n n u a l f i g u r e . I n t e r e s t (V-21) A w e i g h t e d a v e r a g e o f i n t e r e s t r a t e s i s u s e d where t h e r e i s more t h a n one mortgage r e c o r d e d . Where o n l y one m o r t g a g e , t h e c o n t r a c t r a t e i s u s e d . M o r t g a g e Term (V-22) I n an e f f o r t t o c a p t u r e t h e i m p a c t o f t h e t i m e f a c t o r s f o r b o r r o w e d c a p i t a l a t t h e t i m e o f p u r c h a s i n g a c o m m e r c i a l o f -f i c e p r o p e r t y , t h e r e m a i n i n g t e r m o f t h e mortgage ( i n months) i s i n c l u d e d as an i n d e p e n d e n t v a r i a b l e . Where t h e r e i s more t h a n one mortgage, a w e i g h t e d a v e r a g e o f r e m a i n i n g months i s u s e d . Consumer P r i c e I n d e x f o r V a n c o u v e r (V-23) To a d j u s t f a c t o r s a f f e c t e d by i n f l a t i o n , t h e a c c u r a c y o f t h e r e g r e s s i o n e q u a t i o n was compared u s i n g a t e s t w i t h t h e t e r m s m a r k e t v a l u e , e n e r g y e x p e n s e , and income d i v i d e d by t h e consumer p r i c e i n d e x f r o m S t a t i s t i c s Canada as l i s t e d i n t h e f o l l o w i n g as "CPI". T h i s v a r i a b l e i s u s e d i n t h e t r a n s f o r m a t i o n so t h a t i n f l a t i o n d e p e n d e n t v a r i a b l e s a r e r e d u c e d t o r e a l t e r m s . i n c a s e s t h e r e i s 62 The r e d u c e d f o r m r e g r e s s i o n e q u a t i o n i s e s t a b l i s h e d and v a r i a b l e s V-4 t h r o u g h V-9, V - l l t h r o u g h V-16 a s p r e v i o u s l y d e s c r i b e d , and t r a n s f o r m e d v a r i a b l e s V-25, V-30, V-35, V-40 a n d V-45 a r e t e s t e d . The t r a n s f o r m e d v a r i a b l e s r e p r e s e n t f i v e o f t h e o r i g i n a l v a r i a b l e s ( V - l , V-3, V-10, V-17 a n d V-18) e a c h c o n v e r t e d t o a measure p e r " n e t r e n t a b l e a r e a " . T h e s e t r a n s f o r m e d v a r i a b l e s were t h e n r e c o r d e d a s f o l l o w s : DEPENDENT VARIABLE MARKET VALUE/UNIT AREA (V-25) = MARKET VALUE ( V - l ) / N E T RENTABLE AREA (V-2) INDEPENDENT VARIABLES LOT SIZE/UNIT AREA (V-30) = LOT S I Z E ( V - 3 ) / N E T RENTABLE AREA (V-2) GROSS INCOME/UNIT AREA (V-35) = GROSS INCOME (V-17)/NET RENTABLE AREA (V-2) ENERGY CONSUMPTION/UNIT AREA (V-40) = ENERGY CONSUMPTION (V-18)/NET RENTABLE AREA (V-2). NUMBER OF PARKING STALLS/UNIT AREA (V-45) = NUMBER OF PARKING STALLS (V-10)/NET RENTABLE AREA (V-2) A number o f r e g e s s i o n s were r u n u s i n g t h e MIDAS p a c k -age t o i d e n t i f y t h e b e s t p o s s i b l e e q u a t i o n . The r e s u l t s o f t h e s e e q u a t i o n s a r e d i s c u s s e d i n t h e n e x t c h a p t e r o f t h i s t h e s i s . 63 CHAPTER IV  REGRESSION ANALYSIS RESULTS COMPLETE SAMPLE ( R e f e r r e d t o as DATA-1 i n t h e r e s u l t s ) As a f i r s t s t e p i n t h e a n a l y s i s o f e n e r g y c o n s u m p t i o n and i t s e f f e c t on p r o p e r t y v a l u e s , t h e c o r r e l a t i o n m a t r i x f o r t h e f u l l sample was d e v e l o p e d (TABLE 4 . 1 ) . W i t h one e x c e p t i o n , t h e c o r r e l a t i o n c o e f f i c i e n t s have t h e e x p e c t e d s i g n ( p o s i t i v e o r n e g a t i v e ) . The one e x c e p t i o n i s , however, o f some c o n s e q u e n c e s i n c e i t r e p r e s e n t s t h e r e l a t i o n s h i p b etween e n e r g y c o n s u m p t i o n and m a r k e t v a l u e . I t was e x p e c t e d t h a t t h e c o r r e l a t i o n c o e f f i -c i e n t w o u l d be n e g a t i v e , b u t i n f a c t i t i s p o s i t i v e . T h e r e a r e a number o f p o s s i b l e e x p l a n a t i o n s f o r t h i s u n e x p e c t e d r e s u l t and h o p e f u l l y some i n s i g h t s w i l l become a p p a r e n t as t h e a n a l y s i s c o n t i n u e s . T h e r e i s e v i d e n c e o f h i g h c o r r e l a t i o n between t h e e n e r g y v a r i a b l e (V-40) and; t h e number o f s t o r i e s (V-4) o f .4737, t h e p r e s e n c e o f a i r c o n d i t i o n i n g (V-6) o f .4138 a n d t h e p r e s e n c e o f e l e v a t o r s (V-12) o f 0.4788. T h i s w o u l d i n d i c a t e t h e l i k e l y p r e s e n c e o f m u l t i c o l l i n e a r i t y . T h e s e v a r i a b l e s a r e p o s i t i v e d e t e r m i n a t e s o f v a l u e and may n o t a l l o w t h e a n a l y s i s t o s e p a r a t e t h e e f f e c t o f e n e r g y c o n s u m p t i o n on m a r k e t v a l u e . The s e c o n d s t e p i n t h e a n a l y s i s i n v o l v e d t h e l e a s t s q u a r e s r e g r e s s i o n s u s i n g t h e e n t i r e sample and a l l 16 i n d e p e n -d e n t v a r i a b l e s . The r e s u l t s o f t h i s a n a l y s i s , as shown i n 64 t h e TABLE 4.2 a r e s t a t i s t i c a l l y s i g n i f i c a n t ! . F u r t h e r m o r e , t h e model " e x p l a i n s " 69.3 p e r c e n t o f t h e v a r i a t i o n i n t h e mar-k e t v a l u e ( R 2 = 69.3 p e r c e n t ) . A t t h e s t r u c t u r a l a n a l y s i s l e v e l , v a r i a b l e s w h i c h a r e s i g n i f i c a n t ( o v e r 10 p e r c e n t t - t e s t 2 ) a r e d i s t i n g u i s h e d f r o m t h o s e w h i c h a r e n o t s i g n i f i c a n t a t t h e 10 p e r c e n t l e v e l as f o l l o w s : SIGNIFICANT NOT SIGNIFICANT L o t S i z e (V- 30) E n e r g y C o n s u m p t i o n (V- 40) A n n u a l Income (V- 35) P a r k i n g S t a l l s (V- 45) Q u a l i t y 1 (V- 7) E l e v a t o r (V- 4) E l e v a t o r ( v - 12) M asonry (V- 5) S a l e s Date (V- 13) A i r C o n d i t i o n i n g (V- 6) L o c a t i o n 1 ( v - 14) Q u a l i t y 2 (V- 8) L o c a t i o n 2 (V- 16) Age U n d e r g r o u n d P a r k i n g L o c a t i o n 2 (V-(V-(V-9) I D 15) The c o e f f i c i e n t s f r o m t h e r e g r e s s i o n f o r t h e s i g n i f i -c a n t v a r i a b l e s a r e m o s t l y c o n s i s t e n t i n s i g n w i t h t h e c o r r e l a -t i o n m a t r i x , w i t h t h e one e x c e p t i o n b e i n g t h e f i r s t l o c a t i o n v a r i a b l e ( V - 1 4 ) . However, t h e d e g r e e o f c o r r e l a t i o n between m a r k e t v a l u e (V-25) and l o c a t i o n (V-14) i s v e r y low and t h e c hange i n t h e s i g n i s n o t assumed t o be a p r o b l e m . 1 The "F" s t a t i s t i c i s an a n a l y s i s o f v a r i a n c e f o r t e s t i n g t h e s i g n i f i c a n c e o f t h e r e g r e s s i o n l i n e . I n t h i s r e g r e s -s i o n , t h e F s t a t i s t i c was 7.91, compared w i t h an F - s t a t i s -t i c o f 2.11 w h i c h i n d i c a t e s a s t a t i s t i c a l s i g n i f i c a n c e a t t h e 5 p e r c e n t l e v e l . The r e s u l t s show t h a t t h i s F - s t a t i s -t i c i s s i g n i f i c a n t a t t h e 0 p e r c e n t l e v e l . 2 The " t " t e s t i s u s e d t o e l i m i n a t e p o o r p r e d i c t o r s o f t h e d e p e n d e n t v a r i a b l e . 65 The r e l a t i o n s h i p between e n e r g y c o n s u m p t i o n (V-35) and m a r k e t v a l u e (V-20) i s p o s i t i v e as was t h e c a s e i n t h e c o r r e l a -t i o n m a t r i x . The c o e f f i c i e n t f o r e n e r g y i s 0.136. T h i s r e s u l t d o e s n o t a g r e e w i t h t h e o r i g i n a l h y p o t h e s i s , b u t i t s h o u l d be n o t e d t h a t t h e c o e f f i c i e n t f o r e n e r g y c o n s u m p t i o n (V-40) i n t h e m o del ha s a " t " 1 s t a t i s t i c o f 0.993 w h i c h r e s u l t s i n s t a t i s -t i c a l s i g n i f i c a n t s o n l y a t t h e 32.7 p e r c e n t l e v e l . 2 A number o f f u r t h e r r e g r e s s i o n s o f t h e c o m p l e t e sample were r u n i n an a t t e m p t t o b e t t e r i s o l a t e t h e e n e r g y v a r i a b l e . E l i m i n a t i n g v a r i a b l e s w i t h h i g h c o r r e l a t i o n w i t h ^ e n e r g y , t h e c o - e f f i c i e n t o f t h e e n e r g y v a r i a b l e was s t a b l e and p o s i t i v e as t h e v a r i a b l e s w i t h h i g h c o r r e l a t i o n c o e f f i c i e n t were d r o p p e d . A d d i t i o n a l r e g r e s s i o n s were r u n i n c l u d i n g t h e a r e a v a r i a b l e (V-2) and e x c l u d i n g t h e income v a r i a b l e , however, t h e s e r e g r e s s i o n s h a d l i t t l e e f f e c t on t h e o r t h e c o e f f i c i e n t o f t h e e n e r g y v a r i a b l e . 1 The " t " s t a t i s t i c i s a measure o f t h e v a r i a t i o n o f t h e c o -e f f i c i e n t o f t h e i n d e p e n d e n t v a r i a b l e f r o m n o r m a l d i s t r i b u -t i o n . 2 An a t t e m p t was made t o i m p r o v e t h e r e g r e s s i o n r e s u l t s by i n c o r p o r a t i n g t h e Consumer P r i c e I n d e x (CPI) f o r V a n c o u v e r . M a r k e t V a l u e (V-25) and a n n u a l income (V-35) were c o n v e r t e d t o r e a l terms by d i v i d i n g by t h e Consumer P r i c e I n d e x f o r t h e month o f s a l e . T h i s r e g r e s s i o n y i e l d e d an o f 65.3 p e r c e n t compared t o 69.3 p e r c e n t i n t h e o r i g i n a l sample and an F - s t a t i s t i c o f 6.65 compared t o 7.91 i n t h e o r i g i n a l s ample. I t was assumed t h a t t h e u s e o f t h e CPI t o c o n v e r t t o r e a l t e r m s does n o t i m p r o v e t h e r e s u l t s , and i s t h e r e f o r e n o t u s e d i n f u r t h e r r e g r e s s i o n s . 66 TABLE 4.1 CORRELATION MATRIX OF THE DATA-1 SAMPLE in CO 0) CO CO CM CM CM 10 0) oo T o O o o - 3 O O o o O co CO CO o co CO CO O co 10 o ID CO LU CM — — O O O • O o o o o 10 •<- CM CO CD O co CO in CO in 10 T r- CD in ID O 01 O CM CO O CM o CO 01 CM CO ID CO o CM 01 CM CM in CO *r UO ID 01 ID CM r~ O o CM — CM I f) 10 CM 01 CM CM 01 o co CO CO CM 01 ^ ~ CO ID 0) •»- o 01 io a CO in CO CO in — O O o • CO co o O CM in CM ID 01 CD CM o O O in CO CO CM CO O CO 01 01 o CO in — — CM CM O CM o — in s UJ CO CD CO CM CM ~- CM ID CO rr •q- in co in co 01 o CO O in in CO co O O CM CM O O O CM in O CO O i/o o CM ID 01 ID ID CM CM — i o ID ID o co ID l ~ r~ CO i o CO in CO ID CO ID CO o O CM < o O *~ CM O O O o CO in t-I 1 1 1 i - i/) o o o o CO • <_> ID O o o o o (D CM co in CM CO ID GO CO CM CO in CO in CO ~- O o co co 01 r~ r» ID CO t— co 01 r- .— <* CM CM CO — CM CM — O O (5 or o z o o CM CM o CM • C J o — in o — _ i I o o o o CO co 01 ID CM CM ID o CO CM CD in CO CM O CM CO in co co co ID ID o CO ^ - ID 00 CM CO CO CO o CM r~ CM CM O o CM O O CO CO CM o CM o in O CO 01 O O -— -•— o co 01 • u o CM in ^ o 1 * - _J o o o o in 00 in CO ~- ID 01 CO ID in CO ID CM CM CM CD CM O 01 co 00 ID »— 01 CM CO ID ID T CO O in ID ID 01 00 01 • r -O CO o in CM o O CM in O in O CM O O o CO i n *T o CM CO ID U J o r- T in • I -o O o O co <t 1 — Q o o o o CD •3- co 01 r- in co O o O in U J CO C» in ID 01 r~ CM co in o in 01 00 *- CO 01 r- f- CO 01 01 CM 01 ID CO • _ l *- CO CM O CM O CM CM CM CO O o CM in < O o T- T-O in in in > O CO CM • U J O CM CM O O CM _J U J UJ _1 co > CO UJ > Ul UJ or < UJ E _J *—i Z 1-1 O or _j or o or U UJ < O in or UJ < < o z Z h- < *—» CM O > > _J UJ </) s < O O < in o in O in in ID r- oo 01 CM CO co 1 -> U J CM CO > U J ~^ CM CO U J 1 - C J U o U J r- u O o C3 _ l < o O o _> < O O O U J Q -1 - 1 _ J U J Q _ l _1 _ i - CM CO in ID CM CO T in CD TABLE 4.2 REGRESSION RESULTS OF DATA-1 SAMPLE <REG VAR=25,30,35,40.45.4-9. 1 1-16> LEAST SQUARES REGRESSION ANALYSIS OF VARIANCE OF 25.VALUE N = 73 OUT OF 73 SOURCE DF SUM SORS MEAN SQR F-STAT SIGNIF REGRESSION 16 25122 . 1570.1 7.9078 .0000 ERROR 56 11119. 198.56 TOTAL 72 3624 1 . MULT R= .83258 R-SOR= .69319 SE = 14.091 VARIABLE PARTIAL COEFF STD ERROR T-STAT SIGNIF CONSTANT .86246 13 . 112 .65776 -1 .9478 30 . LOT .60330 32.707 5.7776 5.6610 .0000 35 .INCOME .2 1962 1.8004 1.0688 1.6846 .0976 40 .ENERGY .13 150 .13598 .13698 .99271 . 3251 45 .STALLS .12232 1704.9 1848 . 5 .92229 . 3603 4 .STORIES .11607 .52612 .60162 .87451 . 3856 5 . MASONRY -.00298 -.11583 5.1857 -.22336 -1 . 9823 6 . AIR -.06826 -3.1053 6.0645 -.51204 .6106 7 .01 .25409 12.507 6.3621 1 .9659 .0543 8 . 02 .18098 10.005 7.2654 1.3771 . 1740 9 . AGE -.2 1454 -.23027 .14009 -1 .6438 . 1058 1 1 . UG . 19281 7.689 1 5.2291 1.4704 . 1470 12 . ELEV .283 13 12.8 16 5.8011 2.2091 .0313 13 . DATE .49120 .77388 .18339 4.2199 .0001 14 . L0C1 -.34033 - 19.04 2 7.0306 -2.7085 .0089 15 . L0C2 -.05747 -4.4498 10.330 -.43076 .6683 16 . L0C3 -.22550 -11.425 6.5961 - 1 .7321 .0888 68 STRATIFIED SAMPLE WITH DEBT DATA ( R e f e r r e d t o as DEBT-DATA-1 i n t h e r e s u l t s ) A f u r t h e r r e g r e s s i o n was r u n u s i n g a sub-sample o f 24 p r o p e r t i e s f o r w h i c h d e b t i n f o r m a t i o n was o b t a i n e d . T h i s d e b t i n f o r m a t i o n r e p r e s e n t e d an a d d i t i o n a l f o u r v a r i a b l e s . A summary o f r e s u l t s ( T a b l e 4.3) show some p r o b l e m s w i t h t h e c o r r e l a t i o n m a t r i x . A g a i n , t h e r e l a t i o n s h i p between a n n u a l e n e r g y c o n s u m p t i o n (V-40) and m a r k e t v a l u e (V-25) i s p o s -i t i v e , c o n s i s t e n t w i t h t h e r e g r e s s i o n on t h e c o m p l e t e sample. The o u t s t a n d i n g b a l a n c e v a r i a b l e (V-50) and t h e payment v a r i a b l e (V-55) a r e b o t h p o s i t i v e l y r e l a t e d t o m a r k e t v a l u e i n d i c a t i n g t h a t i n c r e a s i n g d e b t l o a d s c a n be s u p p o r t e d by p r o p e r t i e s o f h i g h e r v a l u e . 1 The r e m a i n i n g r e l a t i o n s h i p s a r e a s e x p e c t e d e x c e p t f o r masonry w i t h a n e g a t i v e s i g n . I n t h i s sample, t h e r e i s a h i g h i n v e r s e c o r r e l a t i o n (-.716) between t h e number o f s t o r i e s and l o t s i z e . S i n c e b o t h a r e t r a n s f o r m e d t o a s q u a r e f o o t b a s i s , t h i s r e l a t i o n s h i p i s assumed t o be c o i n c i d e n t a l due t o t h e s m a l l sample s i z e . An e x p e c t e d h i g h p o s i t i v e c o r r e l a t i o n e x i s t s i n t h i s s t r a t i f i e d sample between t h e number o f s t o r e y s and t h e p r e s e n c e s o f an e l e v a t o r , and between a n n u a l income (V-35) and m a r k e t v a l u e . 1 V a r i a t i o n s i n t h e o u t s t a n d i n g b a l a n c e / p r o p e r t y v a l u e ( l o a n / v a l u e r a t i o ) and p a y m e n t / g r o s s income ( g r o s s d e b t s e r v i c e r a t i o were i n c l u d e d i n a s e p a r a t e r e g r e s s i o n t o i n d i c a t e t h e i m p a c t o f l e v e r a g e on v a l u e , b u t were f o u n d t o h a v e no e f f e c t on t h e e n e r g y c o n s u m p t i o n v a r i a b l e s / v a l u e r e l a t i o n -s h i p . 69 The r e g r e s s i o n r e s u l t s f o r t h e DEBT-DATA-1 sample i n T a b l e 4.4 show an o f 95.32 p e r c e n t b u t an t e s t s i g n i f i c a n c e o f o n l y 19.45 p e r c e n t (F=3.05). The o n l y v a r i a b l e t o h a v e a " t - t e s t " s i g n i f i c a n c e a t t h e 15 p e r c e n t l e v e l i s a n n u a l income. A l t h o u g h t h e sample s i z e i s s m a l l , t h e d e b t v a r i a b l e s s e l e c t e d a r e shown n o t t o be s i g n i f i c a n t and i t i s assumed, f o r t h e p u r p o s e o f t h i s p a p e r , t h a t t h e r e s u l t s o f t h e c o m p l e t e sample o r o t h e r s t r a t i f i e d s amples a r e n o t a f f e c t e d by t h e a b s e n c e o f t h e s e d e b t v a r i a b l e s . TABLE 4.3 CORRELATION MATRIX FOR THE DEBT-DATA 2 SAMPLE o o o o — O o o in o CM o — — O CM O O in O CD O CM — — O CO CO O 05 in O c- CO O co O CM — O in O 01 CM o r- in o tn in r- in o CM — CM — O in in CM Q CO * r co 10 O 10 ro ro CO ro O 0) — — CM *r — o 10 CM CO o »- ro co O o 00 o CO 01 o O CM — — ro — — o CO o r- T o CM *r ro o 0) co CM o r* O o co O •~ o co — CM ro ro CM — 1 O p- ID f - co o r- 00 10 ID r- r- ro * r ro 10 ro CM CM CM i O OO 00 CD i— ro CM T CO in — in o — CO r* ro O O i 1 : ,' co ro ro 10 co in CN in o t — in OO co •3 CM O i ro in > > i/i LU _ i 1—i z to: or o LU < CO r- o I/O OL Z r- I/O r- < LU l/l o a in < o O in b in in 10 r-1 in in O CO in co P» ro in r~ ro o O CO 10 co CO O r- 00 in O CM CM O ro ID O co O CM O O .— ro O • CM CO O 1 1 1 1 r- O CM ID r~ co oo r» ID r- ID o OO CM 10 O o •V CO CO CM CO r~ oo ID 10 o in f- CM ~- CM o o -• ' •' 1 ! 1 t» o r- in r» oo 10 oo oo co r- CM CM ro in CM r- 10 ID oo in 00 CM in CO cr in *r CO O O n CM CO O O • w ,' i 1 ,' i 10 < >-0 ! in CO CM CM CO oo o in oo r~ z 10 CO 00 CO r» r- o CM 10 CM f- o O O T l/l O CM CM ro CM ro T— O O • < 1 i in £ !/> 10 o ID T co O f » 0) 10 CM 00 ID CM T- r~ ro a. 10 in CM p~ O O ' CM r- CM o CM in CO OI T~ O O • r -1 1 ! I/O CM oo CO 00 in o in CM O O o to CO r- •a 10 CO 10 CM CO o CO 10 ro o O CO • h-T- O CM ^~ O o in in in s 1 '' in o. CO ID r- r- r» O ro ro CM r~ O CO O 00 CM co ro in in ro CM ro ro oo in • CO O O O — O O in 10 O i/i i i ,' in o 10 o co oo oo — r- 00 •r- r* o _ i o O »- CM *- (O TT <T O CO ID in o in CO in ro • < O CM CO O O CM CM CM CM in h -i \ i ' 1 ! > CO in in CO r~ O o ro r r T o o o r~ 10 to Q; O ID O CO O CM CO ' LU *— •3- r- CO ro O O CM CM CM O Z '' i '' T LU (0 co ro CM in CM co ME 00 CO r~ CO O CO ro in ro o o "3- r- to in O r- ID 0) • o ro co • *- O T ro CM in z i •' '' CO i-c CO (O O O co CO CO ID CM «T in r- in * r CO CO ID in 00 ID in O CO • h-CM 1— CM 10 ro in O O O o o 1 1 i 1 i ro _ i CO 00 CM in f - 00 10 CO UJ co CO O ro o r- CM CM r- n co CO co to 10 O • _J O CO CM O o in < t i 1 1 1 CM > CM ro LU (_> O CJ ID 1 - a CM O O o z LU o < _ l - J LU > r-CO CO — CM ro in ID CM CM CM TABLE 4.3 ( c o n t i n u e o o o o s • or CM UJ o o O O CD — z CM >-i o CO ,-o r - m o O in • ID o co CM ID — > CO o in CO r~ c~ CO ' 00 CO O O in o o o o CM oo *— CO O 10 CM o -O co O O O co CD CO CO O co T CD CD CO O • CJ CM CO CO O — _ l o co O o in o I -o CN — I o o CD o CO r~ CN o r - CO o o in O O r -O CD CO CM O ^ - • U CM O O CM O CM 1^ O CD *T CO CM CD CD • CJ CO CO CM — O o o o o in CM O CD in in CM in CO O O in CD co CD CO CO O in UJ O CO CM • O CD < CM CO UJ CJ c j CJ CJ o o o < -J _1 _J •-l CD — CM CO *— E CD t - a z UJ > -1 r-CO CM ••- CM CM TABLE 4.4 REGRESSION RESULTS FOR THE DEBT-DATA 2 SAMPLE <REG VAR = 25,30,35,40,45,50.55,4-9, 1 1 - 16.2 1 , 22> LEAST SQUARES REGRESSION ANALYSIS OF VARIANCE OF 25.VALUE N= 24 OUT OF 24 SOURCE SUM SQRS MEAN SQR F-STAT SIGNIF REGRESSION 20 7952 . 6 397 .63 3.0538 . 1945 ERROR 3 390.62 130.21 TOTAL 23 8343 . 2 MULT R= .9763 1 R-SQR= .95318 SE= 11.411 VARIABLE PARTIAL COEFF STD ERROR T-STAT SIGNIF CONSTANT 40.907 93 . 4 18 .43789 .691 1 30 . LOT .79185 34. 198 15.228 2.2457 . 1 104 35 .INCOME -.02950 - . 25519 4.9921 -.51118 -1 .9624 40 .ENERGY .61735 .74187 .54581 1.3592 . 2672 45 .STALLS .49748 27 12 . 5 2730.8 .99330 . 3938 50 . OSB -.29949 -.58283 1.0720 -.54370 .6245 55 . PMT .39019 60.8 12 82.849 .73402 .5161 4 . STORIES -.55491 -4.3348 3.75 19 - 1 . 1553 . 3316 5 .MASONRY -.66739 - 17.862 11.507 - 1 .5522 . 2 184 6 .AIR .59659 25.834 20.065 1.2875 . 2882 7 .01 .43827 16.579 19.631 .84453 . 4604 8 . 02 -.1502 3 -3.071 1 11.668 -.26320 . 8094 9 . AGE .01677 . 17043 - 1 .58670 .29049 -1 .9786 1 1 . L0C1 -.42092 -22.047 27.431 -.80372 . 4803 12 . L0C2 .71982 74.572 4 1 .520 1 .796 1 . 1704 13 . L0C3 -.037 11 -.11739 1.8251 -.64317 -1 .9528 14 . I -.54513 -24.743 21.969 - 1 . 1263 . 3420 15 . E .31748 15.050 25.954 .57989 . 6027 1S . V 16 .19305 10.214 : 29.973 .34078 . 7557 21 . I NT -. 16917 -2.0108 6.7638 -.29729 . 7856 22 . TERM -.02266 - . 273 12 -2 .69572 -1 -.39256 -1 .9712 72 "HOMOGENEOUS" SAMPLE RESULTS The c o m p l e t e sample i s s t r a t i f i e d f u r t h e r t o p r o d u c e more homogeneous s u b - s a m p l e s . I t i s e x p e c t e d t h a t , i f t h e h y p o -t h e s i s i s t o be s u p p o r t e d , t h e a s s u m p t i o n o f a n e g a t i v e r e l a -t i o n s h i p between e n e r g y c o n s u m p t i o n and v a l u e may be p r e s e n t i f t h e o f f i c e b u i l d i n g s a r e b r o k e n down i n t o g r o u p s w h i c h a r e more homogeneous. The s t r a t i f i c a t i o n t e c h n i q u e u s e d was t o s p l i t t h e c o m p l e t e sample i n two p a r t s , w i t h as c l o s e t o an e v e n s p l i t as p o s s i b l e . The c r i t e r i a u s e d f o r p u r p o s e s o f s t r a t i f y i n g t h e sample i n c l u d e : a) age; b) number o f s t o r i e s ; a nd c) q u a l i t y o f c o n s t r u c t i o n . I t was f e l t t h a t t h e s e t h r e e c r i t e r i a p r o v i d e d t h e b e s t homogeneous g r o u p i n g s f o r p u r p o s e s o f t h i s a n a l y s i s . The f o l l o w i n g r e g r e s s i o n s were r u n and t h e r e s u l t s summarized i n T a b l e 4.5: a) Age - 10 ( b u i l d i n g s o f age 10 y e a r s and y o u n g e r ) b) Age - 11 ( b u i l d i n g s o f age 11 y e a r s and o l d e r ) c ) S t . - 2 ( b u i l d i n g s o f two s t o r i e s and fewer) d) S t . - 3 ( b u i l d i n g s o f t h r e e s t o r i e s and more) e) Age -S t . -15 3 ( b u i l d i n g s and t h r e e o f o r age 15 y e a r s and y o u n g e r f e w e r s t o r i e s ) 73 f ) GOOD ( B u i l d i n g s o f "good" q u a l i t y u s i n g t h e Q-v a r i a b l e f o r s t r a t i f i c a t i o n ) The computer p r i n t o u t o f c o r r e l a t i o n m a t r i c e s and r e g r e s s i o n r e s u l t s f o r t h e s e s t r a t i f i e d s a m p l e s a r e g i v e n i n Ap p e n d i x A. TABLE 4.5 SUMMARY OF REGRESSION RESULTS NUMBER OF I BUILDINGS I COT I INCOME I ENERGY ST M A S I I I I S T O R E Y S I MASONARYl I l l 32.71 I 1.80 I 0.136 i 1704.9 I •(0.00011 ' (0.098)1 (0.32S1I (0.360)1 0.531 I (0.306)1 • 0.126 I (0.982 ) I - 3.U I 12.51 I 10.01 (0.611)1 '(0.054)1 (0.174 25.24 | (0.128)1 3.17 | (0.195)I 0.029 I (0.896 I I 717.1 | (0.871)| 1.81 I •(0.072) I 11.39 I - 4.61 I 4.99 I 3.93 (0.316)1 (0.670)1 (0.640)1 (0.420) -0.29 I (0.434)I 2.03 I (0.252)1 0.092 I 1477.2 I - l.u I - 8.13 I - 3.56 I 17.06 I 3 19 (0.707)1 (0.S48II (0.229)1 (0.176)1 (0.585)1 '(0.075)1 (0.468 40.49 0.144 I * 0.403 I 945. 2 I - 0.9O I -U.I9 I 1.77 I 20 07 I 13 17 - - - - I 0 0 ! . ! . . . ' 0 - 9 4 9 ' 1 ( 0 - 2 8 4 " <0.697 ) l (0.927)1 (.1531)1 (0.36011 - °o al2)\ tl'.lls) 39.38 I 2.10 I '(0.026)1 (0.277)1 -0.034 3127.4 I 0.95 I 3.21 I i.44 I 10.95 I 10.14 (0.87611 (0.464)1 (0.283)1 (0.635)1 (0,927)1 (0.328)1 (0.377) 51.47 I -0.491 I - 0.U91I-5OS1.5 I 9.86 I 8.33 I - 5.52 I 3 31 I I7~ s f l " .'-J.11VI < 0 - ' , 3 1 ) L (0 - « O S ) l (0.106)1 (O.UOII (0. 314)1 (0.626 )1 (Si4«0 ) I (I'.llT) 31.56 I - 0.681 I 0.150 I 1504.6 I 0.42 I -15.5 I '(0.028)1 (0.799)1 (0.521)1 (0.678)1 (0.703)1 (0.23811 1 1 1 1 1 1 1 1 1 1 1 LOC 1 1 LOC 1 LOC 1 1 - 1 1 SAMPLE 1 AGE UG 1 ELEV 1 DATE 1 1 1 2 1 3 1 a STAT 1 CONSTANT 1 1 1 I DATA-1 1 - 0. 2 30 1 7. 69 1 12 1 82 1 1 0.774 1 -19 1 .04 1 1 - 4.45 1 -11 .43 1 69 . 32 7 1 91 1 0 362 I 1 1 (0. 106) (0.147) 1 MO 031) 1 '(0.000)1 MO .009 ) 1 (0. 669 ) 1 MO 089 )1 (0 000 ) 1 1 AGE-10 1 - 0. 996 - 0.791 1 U 57 1 0.635 1 0 201 ! 22.20 1 - 9 40 1 81 . 14 5 11 1 - 7 37 1 1 1 (0. 384) (0.911)1 (0 140) 1 MO.033) 1 (0 998)1 (0. 258 )1 (0 33511 (0 001 ) 1 1 AGE-11 1 - 0. 593 25.19 I 3 59 1 L.025 1 -35 13 1 -26.34 1 - 7 48 ! 31 64 5 20 1 11 17 1 1 (0. 756) '(0.025 ) 1 (0 476) 1 •(0.003)1 '(0.001)1 '(0.062)1 I 0 470 ) 1 (0 000 ) 1 1ST-2 1 - 0. 298 5. 36 1 - 0 39 | 0.550 1 -20 60 1 -0.631 1 - 1 39 1 75 65 3 11 1 4 29 1 1 1 (0. 317) (0.659)1 (0 "601 1 (0.128)1 MO 980) 1 (0.949)1 MO 002 ) 1 (0 14) 1 1 ST-1 | - 0. 164 7. 37 1 - 0 361 1 - 0.977 1 -20 17 1 11.34 1 -16 12 1 75 69 4 06 1 - 3 95 1 1 1 (0. 559) (0.366)1 (0 971)1 MO.00911 (0 103) 1 (0. 539)1 MO 073 )1 (0 001 ) 1 1 AGE-15 1 - 0. 108 14.54 1 3 48 1 0.350 1 -16 48 1 33.14 1 -15 22 1 30 35 4 75 1 -22 71 1 1ST-3 1 (0. 903) MO.067) 1 (0 700) 1 •(0.007)1 (0 276 )1 (0.129)1 (0 269 ) 1 (0 001 ) 1 1 GOOD 1 - 0. 870 11.78 1 20 "4 1 0.3 48 1 -20 37 1 0 1 -16 94 1 69 56 3 43 1 55 98 1 1 1 (0. 049 1 (0.198)1 (0 164) 1 (0.564)1 (0 129 ) 1 0 1 (0 131 ) 1 (0 009 ) 1 NOTE I THE FIGURES IN BRACKETS BELOW THE VARIABLE COEFFICENTS ARE THE LEVEL OF SIGNIFICANCE OF THE VARIABLE. THE • INDICATES A VARIABLE WITH A SIGNIFICANCE OF 101 OR LESS 75 The c o r r e l a t i o n m a t r i c e s , s i m i l a r t o t h a t o f t h e com-p l e t e sample, i n d i c a t e t h a t t h e r e i s h i g h c o r r e l a t i o n between t h e e n e r g y v a r i a b l e (V-40) and o t h e r i n d e p e n d e n t v a r i a b l e s w h i c h a r e p o s i t i v e d e t e r m i n a n t s o f v a l u e . T h e s e i n c l u d e : t h e number o f p a r k i n g s t a l l s p e r s q u a r e f o o t , t h e h e i g h t o f t h e o f f i c e b u i l d i n g s and t h e p r e s e n c e o f masonry c o n s t r u c t i o n , a i r c o n d i -t i o n i n g and e l e v a t o r s . I n a l l c a s e s i n t h e c o r r e l a t i o n m a t r i c e s o f t h e s t r a t -i f i e d sample r e s u l t s t h e r e a r e a t l e a s t t h r e e c o r r e l a t i o n c o e f -f i c i e n t s w h i c h a r e p o s i t i v e d e t e r m i n a t e s o f v a l u e w h i c h a r e o v e r 0.4, w i t h t h e e x c e p t i o n o f t h e ST.-2 r e g r e s s i o n . The p r e s e n c e o f t h i s h i g h c o r r e l a t i o n i s an i n d i c a t i o n t h a t m u l t i c o l l i n e a r i t y e x i s t s i n t h e d a t a s e t . An i n i t i a l i n d i c a t i o n , r e f e r r i n g t o t h e c o r r e l a t i o n m a t r i c e s f o r t h e c o m p l e t e sample, and t h e s t r a t i f i e d sample, i s t h a t t h e e x p e c t e d n e g a t i v e r e l a t i o n s h i p between e n e r g y consump-t i o n and m a r k e t v a l u e c a n n o t be p r o v e n , s i n c e , i n a l l c a s e s t h e c o r r e l a t i o n c o e f f i c i e n t s a r e p o s i t i v e . R e f e r r i n g t o T a b l e 4.5, t h e R 2 f o r t h e s t r a t i f i e d s ample r e g r e s s i o n s a r e between 69.56 and 81.64, w i t h a h i g h l y s i g n i f i c a n t "F" s t a t i s t i c o f a t l e a s t t h e 0.9 p e r c e n t l e v e l . T h i s i n d i c a t e s t h a t t h e d a t a a r e s t a t i s t i c a l l y s i g n i f -i c a n t and t h e model i s a good p r e d i c t o r o f v a l u e s . REGRESSION RESULTS: A SUMMARY T h i s i s a summary o f t h e r e g r e s s i o n a n a l y s i s i n d i c a -t i n g t h e e f f e c t o f t h e e n e r g y c o n s u m p t i o n v a r i a b l e on t h e m a r k e t v a l u e o f o f f i c e b u i l d i n g s : TABLE 4.6 ENERGY CONSUMPTION VARIABLE ENERGY LEVEL OF NUMBER OF DATA F I L E C O E F F I C I E N T 1 SIGNIFICANCE BUILDINGS DATA-1 0.136 32.50% 73 AGE 10 0.029 89.60% 36 AGE 11 0.092 70.70% 36 ST 2 0.403 28.41% 33 ST 3 - 0.034 87.60% 39 AGE 15 ST 3 - 0.119 60.50% 35 GOOD 0.150 52.10% 31 R e f e r r i n g t o T a b l e 4.6, t h e p o s i t i v e r e l a t i o n s h i p ex-h i b i t e d between t h e e n e r g y v a r i a b l e and v a l u e h a s been r e v e r s e d i n t h e e n e r g y c o e f f i c i e n t f r o m t h e r e g r e s s i o n a n a l y s i s f o r two o f t h e s t r a t i f i e d s a mples (ST-3 a n d AGE 15 ST 3 ) . T h i s g i v e s a f u r t h e r i n d i c a t i o n t h a t m u l t i c o l l i n e a r i t y may be a p r o b l e m . I n t h e r e g r e s s i o n o f t h e s e two s t r a t i f i e d s a m p l e s t h e e n e r g y c o e f -f i c i e n t v a r i e s between -0.119 and 0.403 d o l l a r s / k i l o w a t t h o u r 1 The u n i t s o f t h e c o e f f i c i e n t a r e d o l l a r s / k i l l o w a t t h o u r p e r s q u a r e f o o t . 77 p e r s q u a r e f o o t , and t h e c o e f f i c i e n t t u r n s o u t t o have v e r y low " t " t e s t s i g n i f i c a n c e a t between 28.41 p e r c e n t and 89.6 p e r c e n t . W i t h t h e e x c e p t i o n o f t h e n e g a t i v e s i g n s i n t h e ST-3 and AGE-15 ST-3 r e g r e s s i o n , t h e r e s u l t s do n o t s u p p o r t t h e h y p o -t h e s i s as o r i g i n a l l y s t a t e d . I n t h e c o m p l e t e sample, t h e r e -s u l t s o f t h e a n a l y s i s s u g g e s t s t h a t t h e e f f e c t o f t h e l e v e l o f e n e r g y c o n s u m p t i o n i s t o i n c r e a s e t h e v a l u e o f an o f f i c e b u i l d -i n g as t h e e n e r g y c o n s u m p t i o n i n c r e a s e s . The s t r a t i f i c a t i o n o f t h e sample i n t o more homogeneous g r o u p i n g s o f age, s i z e and q u a -l i t y , e n e r g y c o n s u m p t i o n , and t h e r e f o r e e n e r g y expense, does n o t a p p e a r t o have a s i g n i f i c a n t e f f e c t on t h e r e s u l t s o f t h e r e -g r e s s i o n a n a l y s i s . The f i r s t h y p o t h e s i s , t h a t : An i n c r e a s e i n  t h e e x p e n s e o f e n e r g y consumed by a c o m m e r c i a l o f f i c e b u i l d i n g  h a s t h e e f f e c t o f r e d u c i n g t h e m a r k e t v a l u e o f an o f f i c e b u i l d -i n g , i s t h e r e f o r e r e j e c t e d . T h a t t h e r e s u l t s i n d i c a t e t h a t no r e l a t i o n s h i p e x i s t s between v a l u e and e n e r g y c o n s u m p t i o n , i s e v i d e n c e d by t h e l a c k o f s i g n i f i c a n c e o f t h e e n e r g y v a r i a b l e i n t h i s sample. T h e r e a r e a number o f p o s s i b i l i t i e s t o a c c o u n t f o r t h e l a c k o f s i g n i f i c a n c e . One p o s s i b i l i t y i s t h a t t h e sample i s t o h e t e r o g e n e o u s i n terms o f s i z e and age o f b u i l d i n g s . F u r -t h e r m o r e , a l a c k o f i n f o r m a t i o n on v a c a n c y r a t e s w o u l d t e n d t o d i s t o r t t h e r e s u l t s s i n c e h i g h e r o c c u p a n c y r a t e s w o u l d be r e -f l e c t e d i n h i g h e r m a r k e t v a l u e s , and s i m u l t a n e o u s l y i n h i g h e r i n c r e a s e e n e r g y c o n s u m p t i o n , t h e r e b y s u g g e s t i n g t h a t h i g h e r e n e r g y c o n s u m p t i o n and c o s t s a r e p o s i t i v e l y c o r r e l a t e d w i t h h i g h e r m a r k e t v a l u e s . 78 One f u r t h e r f a c t o r w h i c h may c o n t r i b u t e t o t h e s e r e -g r e s s i o n r e s u l t s r e l a t e s t o t h e c o n t r a c t u a l l e a s e t e r m s as b e -tween l a n d l o r d and t e n a n t . I n t h i s s t u d y , e n e r g y c o n s u m p t i o n r e l a t e s t o t h e e n t i r e b u i l d i n g , whereas t h e r e n t a l d a t a r e f e r s t o t h e c o n t r a c t u a l r e n t s . To t h e e x t e n t t h a t t h e s e l e a s e c o n -t r a c t s p r o v i d e t h a t t h e t e n a n t b e a r s t h e r e s p o n s i b i l i t y f o r t h e  e n e r g y c o s t , t h e l a n d l o r d (and g r o s s r e n t s u s e d i n t h i s s t u d y )  a r e s i m p l y a n e u t r a l c o n d u i t . I n most c a s e s , f l o o r s p a c e i s l e a s e d on what i s t e r m e d a " t r i p l e n e t l e a s e " . Under t h e t e r m s o f t h e l e a s e , t h e t e n a n t p a y s a b a s i c r e n t , p l u s a p r o r a t a s h a r e o f t h e c o s t o f u t i l i t i e s , t a x e s and m a i n t e n a n c e . Hence, a s t e n a n t s h a v e a c o n t r a c t u a l r e s p o n s i b i l i t y f o r e n e r g y c o s t s , a change i n e n e r g y c o s t s i s u n l i k e l y t o r e f l e c t i n m a r k e t v a l u e s u n t i l s u c h t i m e as t h e l e a s e i s renewed. U n f o r t u n a t e l y , t h i s c a n n o t be t e s t e d w i t h t h e d a t a a v a i l a b l e . F i n a l l y , as p r e v i o u s l y m e n t i o n e d , t h e s e i s some i n d i c -a t i o n t h a t m u l t i c o l l i n e a r i t y d i s t o r t e d t h e r e g r e s s i o n r e s u l t s . T h i s p o s s i b i l i t y was t e s t e d by r e m o v i n g t h e v a r i a b l e s w h i c h a r e h i g h l y c o r r e l a t e d w i t h t h e e n e r g y v a r i a b l e . The p o s i t i v e c o e f -f i c i e n t f o r e n e r g y r e m a i n s as c a n be s e e n i n A p p e n d i x B i n d i c a t -i n g t h a t t h e e f f e c t o f m u l t i c o l l i n e a r i t y i s m i n i m a l . P r i o r t o d r a w i n g c o n c l u s i o n s f r o m t h e s e r e s u l t s i n t e r m s o f t h e s e c o n d h y p o t h e s i s o r o f t h e i r i m p o r t a n c e t o t h e p r i v a t e and p u b l i c s e c t o r s , a s t u d y o f t h e p o l i c y q u e s t i o n s s u r -r o u n d i n g e n e r g y i n g e n e r a l , and o f f i c e b u i l d i n g e n e r g y consump-79 t i o n i s n e c e s s a r y . The n e x t c h a p t e r o f t h i s t h e s i s i s t h e r e f o r e d i r e c t e d t o q u e s t i o n s o f p o l i c y . 80 CHAPTER V ENERGY POLICY I n v i e w o f t h e n a t i o n a l i m p o r t a n c e o f r e d u c i n g t h e c o n s u m p t i o n o f e n e r g y and i n c o n s i d e r a t i o n o f b o t h s o c i a l and e c o n o m i c f a c t o r s , a r e v i e w o f t h e v a r i o u s p o l i c y m e a sures i s p r e s e n t e d . T h i s i n c l u d e s p o l i c i e s w h i c h a r e e i t h e r c u r r e n t l y e m p l o y e d o r c o u l d be i m p l e m e n t e d i n Canada and t h e U n i t e d S t a t e s . S u p p o r t f o r t h e argument t h a t new p o l i c y m e a sures a r e n e c e s s a r y comes f r o m many s o u r c e s . T h e r e e x i s t s a w i d e l y - h e l d b e l i e f t h a t e n e r g y c o n s e r v a t i o n i s n o t v e r y n e c e s s a r y b e c a u s e t h e r e i s no e n e r g y p r o b l e m a t e i t h e r t h e n a t i o n a l o r p r o v i n c i a l l e v e l . An a t t i t u d e t h a t " o t h e r s " w i l l c u t back on e n e r g y u s e g i v e s way t o t h e t e n d e n c y t o t a k e t h e " i f t h e y d o n ' t , why s h o u l d I b o t h e r ? " a p p r o a c h . I n a s u r v e y c a r r i e d o u t by CANADIAN BUILD- ING ( 1 9 8 1 ) , t h e f o l l o w i n g r e s u l t s were r e p o r t e d : 1) The c o s t o f e n e r g y has n o t y e t r i s e n o r been p a s s e d on t o t h e consumer t o t h e e x t e n t t h a t i t m i g h t p r o d u c e a m a j o r change i n c o n s u m p t i o n b e h a v i o r . 2) E n e r g y c o s t s , compared t o o t h e r e x p e n s e s , a r e n o t f i r s t o r e v e n s e c o n d , b u t f i f t h i n o r d e r o f i m p o r t -a n c e . 3) T h e r e i s a l a c k o f u n d e r s t a n d i n g a b o u t t h e q u a n t i t y o f e n e r g y b e i n g u s e d o r t h e r a t e a t w h i c h c o s t s a r e r i s -i n g . 81 4) T h e r e i s l i t t l e u n d e r s t a n d i n g o f o r i n f o r m a t i o n a b o u t m e t e r i n g o r r a t e s t r u c t u r e s , m a k i n g i n t e l l i g e n t d e c i s -i o n s a b o u t c o n s e r v a t i o n measures i m p o s s i b l e . L u r z (1981) c o n t e n d s t h a t i f w o r l d m a r k e t p r i c e s were u s e d i n s t e a d o f s u b s i d i e s , t h i s w o u l d b r i n g a b o u t an e x p l o s i o n o f a c t i v i t y i n b o t h new c o n s t r u c t i o n and t h e r e t r o - f i t m a r k e t s t h a t w o u l d be o f b e n e f i t t o C a n a d i a n s as i n d i v i d u a l s and as a n a t i o n . W r i t i n g i n F i n a n c e & D e v e l o p m e n t M a g a z i n e , Q u i r l s (1980) a d v o c a t e s a p o l i c y o f a l l o w i n g p r i c e s t o i n c r e a s e w i t h m a r k e t demand and s u p p l y . P r i c e s , he m a i n t a i n s , s h o u l d be a l l o w e d t o i n c r e a s e and t h e i n c r e a s e p a s s e d on t o consumers t o p r o v i d e t h e n e c e s s a r y m a r k e t s i g n a l s . He q u e s t i o n s t h e e x t e n t t o w h i c h a d d i t i o n a l government p o l i c i e s a r e n e c e s s a r y when mar-k e t p r i c e s r e f l e c t t h e f u l l c o s t o f e n e r g y , and t h e p o s s i b i l i t y i s e m p h a s i z e d o f l o n g - r u n d i s t o r t i o n s i n r e s o u r c e a l l o c a t i o n i n -d u c e d by i n a p p r o p r i a t e p o l i c i e s . He adds t h a t t h e r e i s l i t t l e j u s t i f i c a t i o n f o r d i m i n i s h i n g p r e s e n t t a x r a t e s o r t a r i f f s on e n e r g y p r o d u c t s , where t h e s e r a t e s h a v e b e e n e s t a b l i s h e d . I n h i s o p i n i o n , a r e d u c t i o n w o u l d l o w e r i n c e n t i v e s t o c o n s e r v e e n e r g y . He s u g g e s t s r e c o n s i d e r a t i o n o f b u l k d i s c o u n t s and b l o c k p r i c i n g o f e n e r g y , and f i n d s t h a t t h e u s e o f t h e s e p r i c i n g methods ha s d e c r e a s e d f o r n a t u r a l gas and f u e l o i l s i n c e 1975, b u t has i n c r e a s e d f o r e l e c t r i c i t y . 82 The f o l l o w i n g m a t r i x summarizes t h e p o s s i b l e a r r a y o f p o l i c y v e h i c l e s a v a i l a b l e f o r t h e c o n t r o l o f e n e r g y c o n s u m p t i o n i n c o m m e r c i a l b u i l d i n g s . TABLE 5.1 P o l i c y I n s t r u m e n t s A v a i l a b l e t o C o n t r o l E n e r g y Use i n C o m m e r c i a l B u i l d i n g s F i n a n c i a l N o n - f i n a n c i a l P e r s u a s i v e 1) Tax i n c e n t i v e s 2) P r i c e i n c e n t i v e s 3) S u b s i d i e s 4) Tax p e n a l t i e s 5) I n t e r - g o v e r n m e n t f u n d i n g 1) E d u c a t i o n 2) R e s e a r c h , d e v e l o p m e n t and i m p l e m e n t a t i o n M a n d a t o r y 1) F i n e s 2) W i t h d r a w a l o f f i n a n c i n g 1) Codes 2) O r d i n a n c e s E a c h o f t h e s e g e n e r a l p o l i c y t o o l s w i l l be d i s c u s s e d i n t h e n e x t s e c t i o n o f t h i s p a p e r . 83 F i n a n c i a l P e r s u a s i v e P o l i c i e s Tax I n c e n t i v e s A t t h e p r e s e n t t i m e , t h e C a n a d i a n government does n o t h a v e a t a x i n c e n t i v e p r o g r a m e i t h e r t o p r omote c o n v e r s i o n t o a l t e r n a t e f u e l s , o r f o r p e r s u a d i n g b u i l d i n g owners t o i n s t a l l c o n s e r v a t i o n e q u i p m e n t . I n t h e U n i t e d S t a t e s , t a x i n c e n t i v e s a r e p r o v i d e d by v a r i o u s l e v e l s o f government t o e n c o u r a g e b o t h c o n s e r v a t i o n and i n t e r - f u e l s u b s t i t u t i o n . The E n e r g y P r o d u c t i o n and C o n s e r v a t i o n  Tax I n c e n t i v e A c t (USA 1978) p r o v i d e s a good example o f s u c h a p o l i c y . A t a x c r e d i t o f 10 p e r c e n t o f t h e c o s t s c a n be a p p l i e d t o i n v e s t m e n t s i n c o n s e r v a t i o n e q u i p m e n t a g a i n s t t a x a b l e p r o -f i t s . The t a x c r e d i t a p p l i e s t o w a s t e h e a t r e c o v e r y e q uipment, s t o r a g e s y s t e m s , h e a t p i p e s , a u t o m a t i c e n e r g y c o n t r o l s y s t e m s , c o m b u s t i b l e gas r e c o v e r y s y s t e m s , and p r e h e a t e r s f o r f e e d w a t e r u s i n g f l u e g a s e s . The l e g i s l a t i o n i n c l u d e s an a d d i t i o n a l i n c e n t i v e i n t h e f o r m o f a t a x c r e d i t f o r i n v e s t m e n t i n c o n v e r s i o n p r o p e r -t i e s . The e x t e n t o f t h i s t a x was f i n a l l y e s t a b l i s h e d a t 10 p e r -c e n t , a l t h o u g h i n 1977 t h e government h a d o r i g i n a l l y p r o p o s e d a 40 p e r c e n t t a x c r e d i t . To be e l i g i b l e f o r t h e t a x c r e d i t , ex-p e n d i t u r e s must be u s e d t o c o n v e r t e q u i p m e n t t o u s e s u b s t a n c e s o t h e r t h a n c r u d e and s h a l e o i l , r e f i n e d p e t r o l e u m p r o d u c t s , n a t -u r a l gas, g e o p r e s s u r i z e d methane and l i q u i f i e d n a t u r a l g a s . The 84 f u e l s w h i c h a r e e l i g i b l e f o r t h e c r e d i t i n c l u d e c o a l , and a g r i -c u l t u r a l and m u n i c i p a l w a s t e s . The c r e d i t i s g i v e n f o r b o i l e r s , b u r n e r s , p r o d u c t i o n o f s y n t h e t i c f u e l , i n c l u d i n g t h a t e q u i p m e n t w h i c h u s e s a m i x t u r e o f o i l o r n a t u r a l gas i n c o m b i n a t i o n w i t h an a l t e r n a t i v e s u b s t a n c e . The i n s t a l l a t i o n c o s t s o f p o l l u t i o n c o n t r o l e q u i p m e n t became e l i g i b l e f o r t h e t a x c r e d i t and were a p p l i c a b l e t o t h e c o s t s o f new e q u i p m e n t i n s t a l l e d a f t e r 1977. A s i m i l a r p r o v i s i o n a l s o e x i s t s i n Canada. E q u i p m e n t i n s t a l l e d t o a l l o w t h e u s e o f r e n e w a b l e r e s o u r c e s , i n c l u d i n g o c e a n and t i d a l , s o l a r and w i n d e q u i p m e n t and g e o t h e r m a l e n e r g y was a l s o e l i g i b l e f o r t h e c o n v e r s i o n c r e d -i t . A t t h e t i m e i t went i n t o e f f e c t , t h e t a x c r e d i t p r o g r a m was p r o j e c t e d t o c a u s e a b u d g e t r e v e n u e l o s s t o t h e U.S. f e d e r a l g o vernment o f $5 b i l l i o n by 1985 and a t a x c r e d i t o f $407 m i l -l i o n on c o n v e r s i o n e q u i p m e n t . T h i s r e v e n u e e f f e c t was e s t i m a t e d u n d e r t h e a s s u m p t i o n t h a t t h e r e w o u l d be no e x t r a o r d i n a r y i n c r e a s e i n p r i c e s o f q u a l i f y i n g p r o p e r t y . An a d d i t i o n a l f e a t u r e o f t h e E n e r g y Tax C r e d i t i s t h a t i t i s n o t l i m i t e d t o t a x l i a b i l i t y , b u t i s r e f u n d a b l e where t h e t a x l i a b i l i t y i s i n s u f f i c i e n t . T h i s f e a t u r e a l l o w s t h e c r e d i t t o t a k e t h e f o r m o f a g r a n t o r p r i c e i n c e n t i v e t o i m p r o v e t h e e c o n o m i c s o f t h e i n s t a l l a t i o n o f c o n v e r s i o n o r c o n s e r v a t i o n e q u i p m e n t . A f u r t h e r e v a l u a t i o n o f t h e e f f e c t s o f t h e Tax C r e d i t P r o -gram was p r o v i d e d by K i n c e l ( 1 9 7 8 ) . The p r o j e c t e d e n e r g y s a v i n g 85 i n 1985 was e s t i m a t e d a t 7.7 q u a d s . L o o k i n g a t t h e t o t a l c o n -s u m p t i o n , t h e p o s s i b i l i t y o f c o n s u m p t i o n s a v i n g s i n t h e commer-c i a l s e c t o r a r e much l e s s s i g n i f i c a n t t h a n p o s s i b l e s a v i n g s i n t h e i n d u s t r i a l s e c t o r . I t was a l s o n o t e d t h a t s e c o n d o r d e r p r i c e e f f e c t s c o u l d be e x p e c t e d b e c a u s e i n d u s t r i a l i n t e r f u e l s u b s t i t u t i o n s w o u l d make more gas a v a i l a b l e f o r o t h e r u s e s . K l e p p e r (1980) h a s w r i t t e n a number o f a r t i c l e s on i s s u e s r e l a t e d t o t h e E n e r g y C o n s e r v a t i o n and S o l a r Tax C r e d i t s . The W i n d f a l l P r o f i t s Tax A c t (USA, 1979) was added as an amend-ment t o t h e E n e r g y Tax C r e d i t A c t (USA, 1978), and a c c o r d i n g t o K l e p p e r , i t makes t h r e e s i g n i f i c a n t c h a n g e s i n t a x c r e d i t s f o r e n e r g y c o n s e r v a t i o n e x p e n d i t u r e . P u r c h a s e o f s o l a r o r w i n d e n e r g y e q u i p m e n t now q u a l i f i e s f o r a s p e c i a l 15 p e r c e n t t a x c r e d i t w h i c h r e m a i n s a v a i l a b l e u n t i l 1985. E x p e n d i t u r e s on s o l a r e n e r g y w h i c h p r o v i d e p r o c e s s h e a t f o r c o m m e r c i a l a p p l i c a -t i o n , as w e l l as e q u i p m e n t t h a t g e n e r a t e s e l e c t r i c i t y o r i s u s e d t o h e a t o r c o o l a b u i l d i n g , a r e e l i g i b l e . I f t h e s o l a r e q u i p -ment does n o t become a p a r t o f t h e b u i l d i n g as a s t r u c t u r a l com-p o n e n t , i t may q u a l i f y f o r t h e 15 p e r c e n t e n e r g y c r e d i t as w e l l a s t h e r e g u l a r b u s i n e s s i n v e s t m e n t t a x c r e d i t o f 10 p e r c e n t . The s e c o n d change a f f e c t i n g c o m m e r c i a l b u i l d i n g c o v e r s i n v e s t -ments i n c o - g e n e r a t i o n e q u i p m e n t . T h i s w o u l d i n c l u d e e q u i p m e n t t h a t a l l o w s a b o i l e r t o p r o d u c e b o t h steam f o r h e a t as w e l l as e l e c t r i c i t y . I n h i s p a p e r , K l e p p e r a n a l y z e s owner's a t t i t u d e s t o w a r d t h e l e g i s l a t i o n . He f i n d s owners a r e r e l u c t a n t t o make 86 s i g n i f i c a n t c a p i t a l i n v e s t m e n t s i n new and u n t e s t e d e q uipment, and u n w i l l i n g t o w a i t f o r a 5 - y e a r p a y o u t . I n v i e w o f t h i s , he m a i n t a i n s t h a t t h e t a x c r e d i t w i l l be u n l i k e l y t o promote s i g n i -f i c a n t i n v e s t m e n t i n e n e r g y c o n s e r v a t i o n o r c o n v e r s i o n p r o p e r -t i e s . A f u r t h e r r e v i e w o f t h e N a t i o n a l E n e r g y A c t (USA, 1978) i s p r o v i d e d by Shoup ( 1 9 7 9 ) . The a c t i s c r i t i z e d f o r e n -c o u r a g i n g e n e r g y p r o d u c t i o n i n f a v o r o f d i s c o u r a g i n g c o n s u m p t i o n and he s t a t e s t h a t t h e e n e r g y code i s a c l o s e r i v a l t o t h e i n -t e r n a l r e v e n u e code i n c o m p l e x i t y . He s u p p o r t s t h e s e c t i o n o f t h e A c t d e a l i n g w i t h t a x r e l i e f i n d u c e m e n t s , e v e n i n l i g h t o f an u p s u r g e o f a d v e r s e p u b l i c s e n t i m e n t . J a c k s o n ( 1 9 7 9 ) , d e s c r i b e s an e c o n o m e t r i c e n g i n e e r i n g model w h i c h a n a l y z e s a number o f U.S. f e d e r a l e n e r g y c o n s e r v a -t i o n p r o g r a m s . The model e m p h a s i z e s p l a n t and e q u i p m e n t o r c a p -i t a l s t o c k e n e r g y demand, and makes u s e o f d e t a i l e d e n g i n e e r i n g e s t i m a t e s o f e n e r g y u s e by equipment, s t r u c t u r e , f u e l t y p e and age o f c a p i t a l s t o c k . The model e x p l i c i t l y r e c o g n i z e s t h a t e n e r g y i s p r o d u c e d by c a p i t a l goods t o p r o v i d e s e r v i c e s demand-ed. I n t h e s h o r t r u n , t h e model assumes a f i x e d c a p i t a l s t o c k w h i l e , i n t h e l o n g r u n , changes i n s t o c k and i n t h e e n e r g y u s i n g c h a r a c t e r i s t i c s o f t h e s t o c k a r e a l s o c o n s i d e r e d . An example o f t h e model i n t h e s h o r t r u n i s p r o v i d e d u s i n g t h e demand f o r e l e c t r i c s p a c e h e a t i n g . 87 The q u a n t i t y o f e l e c t r i c i t y demanded e q u a l s t h e m a x i -mum p o t e n t i a l demand t i m e s a u t i l i z a t i o n r a t e t h a t r e p r e s e n t s a c t u a l use r e l a t i v e t o p o t e n t i a l u s e . The u t i l i z a t i o n r a t e i s a f u n c t i o n o f t h e p r i c e o f p r o v i d i n g t h e s p a c e h e a t i n g s e r v i c e s . W i t h t h e s t o c k and t h e e f f i c i e n c y n o t f l u c t u a t i n g i n t h e s h o r t r u n , t h e demand f o r e n e r g y f l u c t u a t e s o n l y i n r e s p o n s e t o f u e l p r i c e c h a n g e s . U s i n g 1970 as a b a s e , b a s e l i n e p r o j e c t i o n s a r e d e v e l o p e d f o r c o m m e r c i a l e n e r g y use and a r e u s e d as a r e f e r e n c e f o r e v a l u a t i o n o f f e d e r a l c o n s e r v a t i o n p r o g r a m s . The d r o p i n e n e r g y r e q u i r e m e n t s o f 11 p e r c e n t on an a r e a - a d j u s t e d b a s i s does n o t seem as s i g n i f i c a n t as p r e v i o u s l y i n d i c a t e d . The more e f f -i c i e n t u s e o f e n e r g y i s d i s g u i s e d somewhat i n t h i s measure b e c a u s e an i n c r e a s e i n e n e r g y use f r o m i n c r e a s e s i n a i r c o n d i -t i o n i n g p e n e t r a t i o n and i n c r e a s e d e l e c t r o m e c h a n i c a l u s e s o f f s e t t h e more e f f i c i e n t p r o d u c t i o n o f end-use s e r v i c e s . A d r o p o f 34 p e r c e n t i n e n e r g y use i s i n d i c a t e d where s p a c e h e a t i n g e n e r g y i n t e n s i t y i s i s o l a t e d . An i n v e s t m e n t t a x c r e d i t i s assumed t o i n f l u e n c e e f f i c i e n c y i n two ways i n t h e mo d e l . The p l a n n e d i n v e s t m e n t i s assumed t o be i n i t i a t e d w i t h o u t t h e c r e d i t , w i t h t h e c o s t b e i n g r e d u c e d by 10 p e r c e n t 1 . E n g i n e e r i n g c u r v e s a r e u s e d t o e s t i -mate t h e i n c r e a s e i n e f f i c i e n c y t h a t c a n be e x p e c t e d t o f o l l o w . C o n s i d e r a t i o n i s g i v e n t o an a c c e l e r a t e d p r o g r a m o f i n v e s t m e n t s 1 The 10 p e r c e n t f i g u r e i s s e t by t h e f e d e r a l government i n t h e U n i t e d S t a t e s . 88 p r i o r to the 1982 c u t - o f f date. This e f f e c t i s capture by as-suming that planned investments i n 1983 and 1984 are undertaken i n 1982. Table 5.2 includes information on grants and tax c r e d i t s , but comparision of other factors are also of i n t e r e s t . TABLE 5.2 ENERGY SAVINGS AND CAPITAL COST IMPACTS OF FEDERAL CONSERVATION PROGRAMS PRESENT WORTH OF CUMULATIVE EXPENDITURE. ANNUAL ENERGY SAVINGS (QBtu) ANNUAL CAPITAL COSTS (10* 1975-$) (106 1975-$) 1978 1980 1982 1996 206O 1978 1980 1982 1990 2606 Fuels Capital 1. Thermal performance standards 0.15 0.39 1.74 4.31 0.39 0.40 0.36 0.57 30.36 2.88 2. FEMP 0.02 0.03 0.05 0.09 0.16 0.03 0.03 0.03 2.04 0.16 3. Grants - program 0.04 0.12 0.10 0.06 0.04 0. 79 0.65 2.01 1.64 4. Investment tax credit 0.02 0.04 0.10 0.05 0.03 0.06 0.07 0.30 1.38. 1.11 5. Combined programs 0.08 0.34 0.63 1.88 4.33 0.88 1.14 0.73 0.36 0.57 34. 77 5.79 SOURCE; JACKSON, J.R., "An Econometric-Engineering Analysis of Federal Energy Conservation Programs i n the Commercial Sector", U.S. Department of Commerce, Oak Ridge Nat-i o n a l Laboratory, 1979. This table shows that the saving from current l e v e l s of energy consumption i n Qbtu 1 increases from 0.02 i n 1978 to a peak of 0.05 i n 1982, f a l l i n g to 0.03 i n the year 2000. The present work of the f u l l saving i s estimated at 1.38 b i l l i o n 1 A Qbtu i s 1 0 1 5 B r i t i s h Thermal Units of energy. 89 d o l l a r s , w h i l e t h e c a p i t a l e x p e n d i t u r e s h a v e a p r e s e n t w o r t h o f $1.11 b i l l i o n , i n d i c a t i n g t h a t t h e p r o g r a m w o u l d be c o s t e f f e c t -i v e . S t u d i e s on t a x i n c e n t i v e programs d e s i g n e d t o p e r s u a d e b u i l d i n g owners t o c o n s e r v e e n e r g y have i n d i c a t e d t h a t s u c h p l a n s a r e c o s t l y t o t h e t a x p a y e r , a l t h o u g h t h e c o s t o f t h e p r o g r a m w o u l d be d i f f i c u l t t o a s s e s s e x c e p t f o r f i r s t o r d e r and p o s s i b l y some s e c o n d o r d e r e f f e c t s . The b e n e f i t s o f a r e d u c e d r e l i a n c e on f o r e i g n o i l , s o c i a l c o s t s o f u s i n g up n a t i o n a l non-r e n e w a b l e r e s o u r c e s and a r e d u c e d r e l i a n c e on n u c l e a r e n e r g y a r e d i f f i c u l t t o q u a n t i f y . I n t h e v i e w o f b u i l d i n g owners, t h e r a t h e r s i m p l i s t i c ORNL model d e v e l o p e d by J a c k s o n i n d i c a t e s t h a t , b a s e d on p r e s e n t v a l u e s o f money and e n e r g y , t h e p l a n i s b e n e f i c i a l . C a l c u l a t i o n o f l i f e c y c l e c o s t s o f e n e r g y c o n s e r -v i n g p r o p e r t y , u s i n g t h e s a v i n g s due t o t a x i n c e n t i v e s , r e m a i n s i n c o n c l u s i v e b e c a u s e o f t h e u n c e r t a i n t y o f t h e f u t u r e c o s t o f e n e r g y . T h i s f a c t i s b o r n o u t by t h e a p a t h y shown by b u i l d i n g owners o r t h e i r i n s i s t e n c e on v e r y s h o r t p a y - o u t p e r i o d s . Most o f t h e b e n e f i t o f t h e t a x i n c e n t i v e s p rograms have a c c r u e d t o t h e e q u i p m e n t m a n u f a c t u r e r s and t h e i n s t a l l i n g c o n t r a c t o r s . M a n u f a c t u r e r s o f f i b r e g l a s s i n s u l a t i o n , d o u b l e g l a s s and c o n t r o l s y s t e m components have e x p e r i e n c e d a m e a s u r a b l e s u r g e i n b u s i -n e s s and p r o f i t s and, o f c o u r s e , t h e s e c o n d o r d e r t a x e f f e c t s f r o m t h i s s u r g e a r e a v a i l a b l e t o t h e government t o o f f s e t t h e c o s t o f t h e pr o g r a m . 90 P r i c e I n c e n t i v e s P o l i c y p r o g r a m s b a s e d on p e r m i t t i n g f r e e m a r k e t f l u c -t u a t i o n s i n t h e p r i c e o f o i l w h i l e s i m u l t a n e o u s l y e l i m i n a t i n g g overnment s u b s i d i e s and r e g u l a t i o n s have b e e n p r e v i o u s l y d i s -c u s s e d . The U n i t e d S t a t e s h a s d e - r e g u l a t e d o i l p r i c e s (1979) b u t Canada, i n t h e i n t e r e s t o f what i s t e r m e d " f a i r n e s s t o e a s t e r n p r o v i n c e s " , a d o p t e d The N a t i o n a l E n e r g y Program ( 1 9 8 0 ) , w h i c h s u b s i d i z e s and c o n t r o l s t h e p r i c e o f d o m e s t i c o i l . A s u b s i d y e q u a l t o t h e d i f f e r e n c e between d o m e s t i c and w o r l d o i l p r i c e s i s p a i d t o r e f i n e r i e s w h i c h us e i m p o r t e d o i l t h u s a l l o w -i n g t h e c o m m e r c i a l p r i c e o f o i l t o r e m a i n a r t i f i c i a l l y low. The p r o g r a m s t a t e s t h a t p r i c e i s o n l y one r o u t e t o c o n s e r v a t i o n and i t blames e n t r e n c h e d s o c i a l and e c o n o m i c p a t t e r n s w h i c h were e s t a b l i s h e d when o i l was r e l a t i v e l y c h e a p f o r t h e need t o p r e -v e n t a r a p i d p r i c e r i s e . E m p i r i c l e s t u d i e s have shown t h a t p r i c e c a n be e f f e c -t i v e i n p r o m o t i n g o r d i s c o u r a g i n g t h e use o f an e n e r g y s o u r c e . The e f f e c t s o f p r i c e and p r i c i n g p o l i c y on e n e r g y c o n s e r v a t i o n i s t h e t o p i c o f a p a p e r p u b l i s h e d i n 1975 by t h e U.S. F e d e r a l E n e r g y A d m i n i s t r a t i o n . The p a p e r i s a v e r y c u r s o r y a n a l y s i s and, i n summary, s t a t e s t h a t h i g h e r p r i c e s f o r e n e r g y e n c o u r a g e p e o p l e t o c o n s e r v e . The c o n c l u s i o n i s s u p p o r t e d by f i v e a r g u -ments : (1) E n e r g y c o n s u m p t i o n i n 1973 a n d 1974 r e v e r s e d h i s t o r i -c a l t r e n d s and d e c l i n e d w h i l e p r i c e s r o s e . 91 (2) E n e r g y use p e r p e r s o n i s l e s s i n c o u n t r i e s where e n e r -gy p r i c e s a r e h i g h e r . (3) E c o n o m i c s t u d i e s h a v e d e m o n s t r a t e d t h a t h i g h e r p r i c e s l e a d t o r e d u c t i o n s i n amounts o f e n e r g y consumed. (4) O p i n i o n s u r v e y s i n d i c a t e t h a t most consumers c i t e h i g h e r c o s t s as a r e a s o n f o r c o n s e r v a t i o n . (5) I n d i v i d u a l s and b u s i n e s s e s t a k e s p e c i f i c a c t i o n t o c o n s e r v e when p r i c e s i n c r e a s e . The i n t u i t i v e l y a c c e p t a b l e r e m a r k s i n t h e r e p o r t a r e f o l l o w e d by a number o f r e p o r t s on p r i c e e l a s t i c i t i e s , most o f w h i c h a r e i n c o n c l u s i v e . I n e c o n o m i c s t u d i e s c a r r i e d o u t by RAND (1 9 7 8 ) , r e s e a r c h e r s a r e q u o t e d as p r o v i d i n g e x t e n s i v e e v i d e n c e t h a t a 10 p e r c e n t i n c r e a s e i n e l e c t r i c i t y p r i c e s r e d u c e s e l e c t r i c a l demand by g r e a t e r t h a n 10 p e r c e n t , and t h a t a 10 p e r c e n t i n c r e a s e i n n a t u r a l gas p r i c e s r e d u c e s demand by more t h a n 20 p e r c e n t . The r e p o r t q u o t e s d i s a g r e e m e n t among r e s e a r c h e r s as t o t h e m a g n i t u d e o f p r i c e - i n d u c e d c o n s e r v a t i o n , and t h e c o n c l u s i o n r e a c h e d i s t h a t p r i c e i n c r e a s e s l e a d t o r e d u c e d c o n s u m p t i o n o f e n e r g y , im-p l y i n g a downward s l o p i n g demand c u r v e . A r e p o r t w h i c h a d d r e s s e s t h e q u e s t i o n o f t h e p r o p e r v a l u e f o r e n e r g y u s e d i n t h e d e v e l o p m e n t o f c o s t - e f f e c t i v e e n e r -gy c o n s e r v a t i o n p e r f o r m a n c e s t a n d a r d s f o r b u i l d i n g s was p u b l i s h -ed by Weber (1978) f o r t h e U.S. D e p a r t m e n t o f E n e r g y . The 92 r e p o r t was w r i t t e n i n r e s p o n s e t o t h e E n e r g y C o n s e r v a t i o n P r o -d u c t i o n A c t , (USA, 1978), w h i c h s e t o u t t h e d e v e l o p m e n t o f b u i l d i n g p e r f o r m a n c e s t a n d a r d s as an u l t i m a t e g o a l . The A c t s p e c i f i c a l l y s t a t e d t h a t t h e s e s t a n d a r d s were t o p r o v i d e a b a l a n c e between s a v i n g s o f e n e r g y and c o s t s o f s t a n d a r d s . The c o n c e p t o f a R e s o u r c e Impact F a c t o r ( R . I . F . ) i s d e v e l o p e d t o a d d r e s s t h e p r o b l e m o f t h e s o c i a l c o s t o f t h e r e s o u r c e compared w i t h t h e m a r k e t v a l u e . D i s c u s s i o n s c o n c e r n i n g t h e d e v e l o p m e n t o f s t a n d a r d s u s i n g R . I . F . ' s w i l l be c o v e r e d l a t e r i n t h i s p a p e r . T h e i r p r i c e e f f e c t s w i l l be d i s c u s s e d h e r e . The a s s u m p t i o n i s t h a t s t a n d a r d s a r e t o be s e t a t a l e v e l w h i c h i s s o c i a l l y o p t i m a l , u s i n g t h e s o c i a l v a l u e o f e n e r g y . The u n d e r l y i n g p u r p o s e o f d e v e l o p i n g a n a t i o n a l e n e r g y c o n s e r v a t i o n s t a n d a r d i s t o e n c o u r a g e e n e r g y c o n s e r v a t i o n meas-u r e s i n b u i l d i n g w h i c h a r e o p t i m a l f o r t h e n a t i o n . The o p t i m a l p o i n t f o r t h e n a t i o n , i n t h i s r e g a r d , w i l l n o t n e c e s s a r i l y c o i n -c i d e w i t h t h e m a r k e t i n d u c e d l e v e l . T h i s d i v e r g e n c e i s c o n s i d -e r e d t o e x i s t due t o c e r t a i n d i s t o r t i o n s i n m a r k e t s f o r e n e r g y r e s o u r c e s . What i s o p t i m a l f o r t h e n a t i o n may n o t be o p t i m a l f o r t h e b u i l d i n g owner. I n t r a d i t i o n a l e c o n o m i c t h e o r y , p e r f e c t c o m p e t i t i o n i s s a i d t o e x i s t u n d e r v e r y r e s t r i c t i v e a s s u m p t i o n s , where t h e p r i c e s p a i d f o r r e s o u r c e s a r e e q u a l t o t h e i r t r u e s o c i a l v a l u e . The f i r s t d i v e r g e n c e between s o c i a l and m a r k e t p r i c e i s u n i t t a x e s . A t a x on t h e number o f u n i t s o f gas o r k i l o w a t t 93 h o u r s o f e l e c t r i c i t y consumed f o r c e s t h e m a r k e t e q u i l i b r i u m p r i c e t o d i f f e r f r o m t h e t r u e s o c i a l c o s t o f s u p p l y i n g t h e r e s o u r c e . T h i s i s s a i d t o be t r u e u n l e s s t h e p u r p o s e o f t h e t a x i s t o o f f s e t n e g a t i v e e n v i r o n m e n t a l e f f e c t s o r e x c e s s p r o f i t s . A s i t u a t i o n s i m i l a r t o t h e u n i t t a x e x i s t s where t h e r e a r e t o o few f i r m s c o m p e t i n g i n t h e m arket, l e a d i n g t o a d e g r e e o f monopoly power. The r e s o u r c e u s e r s w i l l n o t be g u i d e d by^ t h e t r u e c o s t o f t h e r e s o u r c e , s i n c e s u p p l i e r s w i l l t e n d t o r e s t r i c t t h e q u a n -t i t y s u p p l i e d so t h a t t h e p r i c e p a i d i s g r e a t e r t h a n t h e t r u e c o s t o f p r o d u c i n g t h e r e s o u r c e . E x t e r n a l i t i e s o r e n v i r o n m e n t a l e f f e c t s a r e a n o t h e r s o u r c e o f d i v e r g e n c e between t h e p r i c e p a i d f o r a r e s o u r c e and t h e s o c i a l c o s t o f m a k i n g t h e r e s o u r c e a v a i l a b l e t o t h e consum-e r . T h e s e e f f e c t s a r e p r e s e n t when a p r o d u c t i o n o r c o n s u m p t i o n p r o c e s s g e n e r a t e s a c o s t o r b e n e f i t n o t d i r e c t l y i n v o l v e d i n t h e p r o c e s s . I n t h e c a s e o f e n e r g y r e s o u r c e s , most o f t h e e x t e r n a l e f f e c t s t a k e t h e f o r m o f c o s t s , and a r e n o t r e f l e c t e d i n t h e p r i c e e s t a b l i s h e d by t h e s u p p l y and demand f o r t h e e n e r g y r e s o u r c e . I n t h e a b s e n c e o f an a d e q u a t e p o l l u t i o n t a x , t h e e f f e c t s o f p o l l u t i o n a r e c a l c u l a t e d as a p a r t o f t h e s o c i a l c o s t o f p r o d u c i n g e n e r g y . To t h e e x t e n t t h a t t h e n a t i o n i s v u l n e r a b l e b e c a u s e o f e c o n o m i c dependence on t h e s e c u r i t y o f s u p p l y o f i m p o r t e d o i l , t h e i n f l u e n c e o f o i l embargos and OPEC p r i c e i n c r e a s e s must be i n c l u d e d i n t h e c a l c u l a t i o n o f R . I . F . ' s . 94 T h e r e f o r e , f o r e a c h u n i t o f e n e r g y consumed, t h e r e i s an e x t r a s o c i a l c o s t d e f i n e d i n terms o f an i n c r e a s e d r e q u i r e -ment f o r o i l i m p o r t s and v u l n e r a b i l i t y t o s u p p l y i n t e r r u p t i o n s . A l t h o u g h q u a n t i f y i n g t h e i m p a c t o f i m p o r t d e p endency i s n o t p r e -s e n t l y p o s s i b l e , i t i s c e r t a i n t h a t t h e c o s t t o a n a t i o n ' s e c o n o m i c i n d e p e n d e n c e makes t h e s o c i a l c o s t o f e n e r g y consump-t i o n e x c e e d i t s m a r k e t c o s t . D e v i a t i o n s between t h e p r i c e s p a i d f o r r e s o u r c e s and t h e i r s o c i a l v a l u e grow when p r i c e c o n t r o l s a r e i n t r o d u c e d . T h i s s i t u a t i o n a r i s e s where t h e p r i c e i s a c t u a l l y s e t by l e g i s l a t i o n o r r e g u l a t i o n , and n o t by t h e f o r c e s o f t h e m a r k e t r e f l e c t i n g t h e c o s t s o f s u p p l y and t h e b e n e f i t s f r o m u s e . Whether t h e ob-j e c t i v e o f s u c h r e g u l a t i o n i s t o make t h e r e s o u r c e a f f o r d a b l e t o a l l o w i n d u s t r y t o be c o m p e t i t i v e , o r t o c o n t r o l e x c e s s p r o f i t s i n an i n d u s t r y w i t h l i t t l e c o m p e t i t i o n , t h e a d m i n i s t e r e d p r i c e w i l l g e n e r a l l y d e v i a t e f r o m t h e s o c i a l v a l u e o f t h e r e s o u r c e . A n o t h e r f a c t o r w h i c h must be c o n s i d e r e d i n e s t i m a t i n g t h e s o c i a l v a l u e i s t h e e f f e c t on m a r k e t p r i c e c a u s e d by u n c e r -t a i n t y . B e c a u s e o f i n a d e q u a t e i n f o r m a t i o n a b o u t t h e l o n g - r u n s c a r c i t y o f e x h a u s t i b l e e n e r g y r e s o u r c e s , p r e s e n t s u p p l y and d e -mand f o r c e s may l e a d t o e q u i l i b r i u m p r i c e s w h i c h do n o t r e f l e c t t r u e v a l u e , and c o u l d r e s u l t i n r a t e s o f r e s o u r c e e x p l o i t a t i o n w h i c h a r e s u b - o p t i m a l . A s i m i l a r p r o b l e m e x i s t s b e c a u s e p r i v a t e d i s c o u n t r a t e s a r e l i k e l y t o be g r e a t e r t h a n t h e s o c i a l r a t e . P r i v a t e e n e r g y p r o d u c e r s , i n t h i s c a s e , w i l l t e n d t o u n d e r v a l u e 95 t h e f u t u r e e a r n i n g s f r o m r e s o u r c e s s a v e d f o r l a t e r e x p l o i t a t i o n , a n d t h i s w i l l l e a d t o e x t r a c t i o n a t a r a t e w h i c h i s t o o r a p i d f r o m a s o c i a l v i e w p o i n t . I t i s n e c e s s a r y t o d e s c r i b e t h e s e f a c t o r s w h i c h a f f e c t s o c i a l v a l u e and m a r k e t p r i c e i n o r d e r t o p r o v i d e some i n s i g h t i n t o t h e d i f f i c u l t y o f r e p r e s e n t i n g t h e v a l u e o f a r e s o u r c e a t i t s a c t u a l m a r k e t p r i c e as a b a s i s f o r d i s c u s s i n g e n e r g y - r e l a t e d p o l i c i e s where e c o n o m i c a l l y b a l a n c e d s t a n d a r d s a r e r e q u i r e d . T h e s e f a c t o r s make up a p a r t i a l c h e c k l i s t w h i c h s h o u l d be c o n s i -d e r e d i n t h e d e v e l o p m e n t o f q u a n t i f i e d R . I . F . ' s . C o n f l i c t i n g o b j e c t i v e s w h i c h may e x i s t i n s o c i e t y must be t a k e n i n t o a c c o u n t . C o n f l i c t s must be r e s o l v e d b e f o r e s o c i a l v a l u e s c a n be d e t e r m i n e d . 96 Some h y p o t h e t i c a l q u a n t i t y m u l t i p l e r R . I . F . ' s a r e o u t -l i n e d i n t h e f o l l o w i n g t a b l e . TABLE 5.3 HYPOTHETICAL QUANTITY MULTIPLIER R I F ' s UNITS NEEDED* HEATING LOAD (10 B t u ) RIF IMPACT E n e r g y Type (1) (2) (3) ( 4 ) = ( 2 ) x ( 3 ) Nat. Gas (MCF) 60 36 1.3 46.2 O i l ( G a l . ) 4.29 36 1.2 43.2 E l e c t r i c (kWh) 10,548 36 2.0 72.0 The number o f p h y s i c a l u n i t s o f i n p u t o f t h e e n e r g y t y p e n e e d e d t o s a t i s f y t h e g i v e n a n n u a l h e a t i n g l o a d o f 36 x 1 0 6 B t u . The h e a t i n g s y s t e m o u t p u t o f 36 x 1 0 6 B t u was c o n v e r t e d t o c o r r e s p o n d i n g i n p u t r e q u i r e m e n t s by a s s u m i n g t h e f o l l o w i n g e n e r g y c o n t e n t s and c o n v e r s i o n e f f i -c i e n c i e s . (1) N a t u r a l Gas: 1 0 6 Btu/MCF and 60% e f f i c i e n c y . (2) O i l : 140,000 B t u / G a l . and 60% e f f i c i e n c y . (3) E l e c t r i c : 3.413 Btu/kWh and 100% e f f i c i e n c y . SOURCE: WEBER, S., The E f f e c t o f R e s o u r c e Impact F a c t o r s on  E n e r g y C o n s e r v a t i o n S t a n d a r d s f o r B u i l d i n g s ; ( N a t i o n a l B u r e a u o f S t a n d a r d s : W a s h i n g t o n , D.C., September 1978) page 32. A l s o p r e s e n t e d a r e h y p o t h e t i c a l p r i c e m u l t i p l i e r R . I . F . ' s . TABLE 5.4 HYPOTHETICAL PRICE MULTIPLIER R I F ' s ACTUAL PRICE ( $ / U n i t ) E F F E C T I V E PRICE* ( $ / l 0 B t u ) RIF SOCIAL PRICE ($/10 B t u ) E n e r g y Type (1) (2) (3) ( 4 ) = ( 2 ) x ( 3 ) N a t . Gas (Mcf) 2.00 3.33 2.0 6.66 O i l ( G a l . ) .40 4.76 1.5 7.14 E l e c t r i c (kWh) .03 8.79 1.1 9.67 E n e r g y c o n t e n t s and c o n v e r s i o n e f f i c i e n c i e s f o r e a c h t y p e a r e as f o l l o w s : (1) N a t u r a l Gas: 10^ Btu/MCF and 60% e f f i c i e n c y . (2) O i l : 140,000 B t u / G a l . and 60% e f f i c i e n c y . (3) E l e c t r i c : 3.413 Btu/kWh and 100% e f f i c i e n c y . SOURCE: WEBER, S., The E f f e c t o f R e s o u r c e Impact F a c t o r s on  E n e r g y C o n s e r v a t i o n S t a n d a r d s f o r B u i l d i n g s ; ( N a t i o n a l B u r e a u o f S t a n d a r d s : W a s h i n g t o n , D. C. , September 1978) page 32. o 98 Weber d e f i n e s t h e l i m i t a t i o n s i n c a l c u l a t i n g s o c i a l p r i c e s ( T a b l e 5.4, Column 4 ) . The e v i d e n c e p r e s e n t e d i n T a b l e 5.2 i n d i c a t e s t h e r a n g e o f R I F ' s o v e r t h e m a j o r s o u r c e s o f e n e r -gy. I t i s n o t e d t h a t e l e c t r i c a l e n e r g y ( g e n e r a l l y c o n s i d e r e d a l o c a l s o u r c e o f e n e r g y ) i s a s s i g n e d a low RIF (1.1) w h i l e n a t u r -a l gas and o i l ( l a r g e i m p a c t i t e m s ) a r e a s s i g n e d much h i g h e r R I F ' s (2.0 and 1 . 5 ) . T h i s r e f l e c t s t h e g r o w i n g s o c i a l c o n c e r n w i t h t h e b a l a n c e o f payments i s s u e . The methods u s e d i n c o r p o r a t e a s t u d y o f c o s t compon-e n t s r a t h e r t h a n q u a n t i f y i n g s o c i a l s t a n d a r d s o v e r t h e l i f e c y c l e o f t h e p r o p e r t y . C o n s t a n t m a r g i n a l c o s t o f r e s o u r c e s i s assumed, r e g a r d l e s s o f t h e t o t a l l e v e l o f r e s o u r c e u s e . Second, i t i s assumed t h a t t h e t e m p e r a t u r e b a s e f o r c a l c u l a t i n g d e g r e e d a y s d i d n o t change w i t h i n c r e a s e s i n p r i c e s . Weber c o n c l u d e s t h a t , as R . I . F . v a l u e s r o s e , t h e maximum e n e r g y c o n s u m p t i o n r a t e a l l o w e d by t h e s o c i a l l y o p t i m a l s t a n d a r d w o u l d be r e d u c e d . S i n c e p r i c e a f f e c t s e n e r g y use, i t i s w o r t h i n v e s t i g a -t i n g how e n e r g y t a r i f f s c h e d u l e s may be c o n s t r u c t e d . I n t u i t i v e -l y one w o u l d e x p e c t t h a t l e v e l p r i c e s o r p r i c e s w h i c h i n c r e a s e a c c o r d i n g t o t h e amount o f e n e r g y u s e d w o u l d promote c o n s e r v a -t i o n . C h a r g e s t o consumers have h i s t o r i c a l l y b e e n b a s e d on d e -c r e a s i n g b l o c k p r i c i n g f o r b o t h e l e c t r i c i t y and n a t u r a l g a s . C o n s u m p t i o n i n l a r g e r b l o c k s i s c h a r g e d a t l o w e r r a t e s . I n Canada, p r i v a t e d i s c u s s i o n s w i t h p e r s o n n e l a t B.C. H y d r o have i n d i c a t e d a t r e n d , w h i c h w i l l t a k e 10 t o 15 y e a r s 99 f r o m now t o c o m p l e t e , t o w a r d r e d u c i n g b l o c k p r i c i n g and e v e n t u -a l l y d e v e l o p i n g a l e v e l p r i c e s y s t e m a t s e t r a t e s p e r KWH o r BTU. C o m m e r c i a l u s e r s o f power have b e e n f a c e d w i t h demand c h a r g e s so, where b l o c k o r s t e p p e d r a t e s t e n t t o e n c o u r a g e c o n -s u m p t i o n o f e l e c t r i c a l e n e r g y , t h e demand c h a r g e s w i l l h a v e a dampening e f f e c t . I n s t i t u t i n g demand c h a r g e s [ S e e C h a p t e r I ] , however, do n o t s i g n i f i c a n t l y r e d u c e t h e t o t a l c o n s u m p t i o n o f power, f o r example, power g e n e r a t e d by n o n - r e n e w a b l e r e s o u r c e s . I n s t e a d , demand b i l l i n g r e d u c e s t h e peak demand, and t h i s i n t u r n w i l l h a v e t h e e f f e c t o f r e d u c i n g t h e t o t a l amount o f g e n e r -a t i n g c a p a c i t y r e q u i r e d . T h i s e f f e c t o f demand b i l l i n g c a n be s e e n f r o m t h e p r e v i o u s e x p l a n a t i o n o f demand m e t e r i n g . I n t h e a r e a o f n u c l e a r e n e r g y , o r new c o a l - f i r e d g e n e r a t i n g p l a n t s , t h e new p l a n t s may n o t be r e q u i r e d as e a r l y when u t i l i z i n g a p o l i c y o f demand p r i c i n g o f e l e c t r i c a l e n e r g y as w o u l d be t h e c a s e w i t h o t h e r p r i c i n g m o d e l s . T i m e - o f - d a y and s e a s o n a l demand p r i c i n g o f e l e c t r i c i t y a r e s i m i l a r methods o f a l t e r i n g demand by s p r e a d i n g peak demand o v e r l o n g e r t i m e p e r i o d s . T h e s e methods a r e e x p l a i n e d i n an a r t i c l e by T a y l o r ( 1 9 7 9 ) . S e a s o n a l demand p r i c i n g i s s i m i l a r i n n a t u r e t o demand m e t e r i n g and b i l l i n g p r e s e n t l y i n u s e i n Can-a d a . T i m e - o f - d a y (T.O.D.) p r i c i n g , a l t h o u g h u s e d e x t e n s i v e l y i n W e s t e r n E u r o p e , h a s been u s e d i n o n l y a few s m a l l s c a l e e x p e r i -ments i n N o r t h A m e r i c a . 100 E x p e r i e m e n t s p r e s e n t l y underway by t h e U.S. F e d e r a l E n e r g y A d m i n i s t r a t i o n a r e e x p e c t e d t o g e n e r a t e d a t a s h o w i n g t h e e f f e c t o f T.O.D. p r i c i n g on l o a d c u r v e s . I t i s e x p e c t e d t h a t b o t h t i m e - o f - d a y and s e a s o n a l p r i c i n g w i l l l e v e l o u t t h e l o a d c u r v e and r e d u c e t h e r e q u i r e m e n t f o r p e a k - l o a d p r o d u c t i o n o f power, j u s t as s e a s o n a l demand b i l l i n g h a s . I n d e s i g n i n g a model o f t h e l o a d c u r v e f o r t h e demand f o r e l e c t r i c i t y , s h o r t and l o n g r u n e f f e c t s a r e c o n s i d e r e d as a r e t h e e f f e c t s o f d e c r e -a s i n g b l o c k t a r i f f s . B l o c k t a r i f f p r i c i n g i s s i m u l a t e d i n t h e l o a d c u r v e model by c o n s i d e r i n g t h a t i t i s s i m i l a r t o a change i n income i n an e c o n o m i c a n a l y s i s . I n t h e c o m m e r c i a l a r e a , t h e r e i s a com-p l i c a t i o n i n t r o d u c e d by t h e f a c t t h a t e l e c t r i c i t y i s s o l d u s i n g a KW c h a r g e as w e l l as a KWH c h a r g e . The model i s d e v e l o p e d t o f o r e c a s t t h e 24-hour l o a d c u r v e f o r t h e u t i l i t y , u s i n g b a s i c d e t e r m i n a n t s s u c h as p r i c e , t e m p e r a t u r e , summer and w i n t e r s e n -s i t i v e p l a n t , n o n - w e a t h e r s e n s i t i v e p l a n t , and s o c i o - d e m o g r a p h i c c h a r a c t e r i s t i c s . The hope i s t o d e v e l o p a model w h i c h w i l l p r e -d i c t t h e e f f e c t o f T.O.D. p r i c i n g , and i t i s e x p e c t e d t h a t t h e i n f o r m a t i o n w i l l be u s e f u l t o u t i l i t i e s and p o l i c y - m a k i n g b o d i e s i n e s t a b l i s h i n g t h e p r i c e o f e l e c t r i c i t y on t h e b a s i s o f c o n s u m p t i o n , s e a s o n a l demand and t i m e - o f - d a y demand. 101 S u b s i d i e s and G r a n t s The use o f s u b s i d i e s t o e n c o u r a g e t h e i n s t a l l a t i o n o f e n e r g y c o n s e r v i n g p l a n t s i s e x p e c t e d t o b r i n g a b o u t r e s u l t s w h i c h a r e s i m i l a r t o t h e t a x i n c e n t i v e p o l i c i e s . However, i t i s assumed t h a t t h e a d m i n i s t r a t i o n c o s t s o f a s u b s i d y p r o g r a m w i l l be c o n s i d e r a b l y h i g h e r t h a n f o r t a x i n c e n t i v e p o l i c i e s . I n a d d i t i o n t o t h e e f f e c t i v e s u b s i d y g i v e n t o c onsumers i n t h e f o r m o f l o w e r t h a n w o r l d p r i c e f o r o i l i n Canada (NATIONAL ENERGY POLICY), and t h e e x i s t i n g s u b s i d y u n d e r t h e C a n a d i a n Home I n s u l a t i o n P r o g r a m ( C . H . I . P . ) , t h e C a n a d i a n government h a s a s u b s i d y p r o g r a m t o promote i n t e r f u e l s u b s t i t u -t i o n w h i c h i s o u t l i n e d i n t h e N a t i o n a l E n e r g y Program. A g r a n t o f $800 o r 50 p e r c e n t o f t h e c o s t o f c o n v e r s i o n i s a v a i l a b l e t o homeowners f o r s u b s t i t u t i o n s f r o m o i l t o gas, e l e c t r i c i t y o r a r e n e w a b l e r e s o u r c e . The p r o g r a m a l s o r e f e r s t o " o t h e r s t e p s " t o e n s u r e t h a t c o n v e r s i o n s f r o m o i l t o gas o c c u r i n t h e c o m m e r c i a l s e c t o r . 1 An E c o n o m i c - E n g i n e e r i n g A n a l y s i s o f F e d e r a l E n e r g y  C o n s e r v a t i o n Programs i n t h e C o m m e r c i a l S e c t o r ( J a c k s o n , 1979) p r e s e n t s a t h e o r e t i c a l l o o k a t g r a n t p rograms w h i c h i s s i m i l a r t o t h e s t u d y o f t h e i n v e s t m e n t t a x c r e d i t . The p a p e r d e s c r i b e s t h e p r o p o s e d U.S. f e d e r a l p r o g r a m o f p r o v i d i n g m a t c h i n g g r a n t s 1 I n t h e N a t i o n a l E n e r g y Program, " o t h e r s t e p s " i s l e f t u nde-f i n e d . 102 t o s t a t e s f o r e n e r g y c o n s e r v a t i o n i m p r o v e m e n t s t o s c h o o l s and h o s p i t a l s . As p r e s e n t e d i n T a b l e 5.1, t h e c a p i t a l c o s t o f t h e p r o g r a m was e x p e c t e d t o t o t a l $1.18 b i l l i o n t h r o u g h 1980. The t o t a l e n e r g y s a v i n g i n QBTU was p r o j e c t e d a t 0.04 i n 1978, i n -c r e a s i n g t o 0.12 i n 1980, and r e d u c i n g t o 0.04 i n t h e y e a r 2000. C a l c u l a t i o n s show t h e p r e s e n t w o r t h o f c a p i t a l a t $1.64 b i l l i o n a s t h e c o s t o f t h e program, w i t h e n e r g y s a v i n g s e s t i m a t e d a t $2.01 b i l l i o n . The n e t p r e s e n t w o r t h t o t h e t a x p a y e r , i n c l u d i n g g r a n t s f o r p u b l i c b u i l d i n g s , i s t h e r e f o r e p o s i t i v e . Tax P e n a l t i e s A p a p e r by Hudson and J o r g e n s e n (1974) p r o v i d e s an o v e r v i e w on v a r i o u s methods o f t a x i n g e n e r g y u s e . The t a x i s d e s c r i b e d as a wedge between t h e p r i c e p a i d by consumers and t h a t r e c e i v e d by p r o d u c e r s . I f t h e t a x i s added t o t h e s a l e p r i c e , t h e s u p p l y p r i c e i s u nchanged and a c t s on t h e demand s i d e o n l y . An e c o n o m e t r i c model o f macro v a r i a b l e s i s d e v e l o p e d t o d e t e r m i n e t h e p a t t e r n o f e c o n o m i c i n t e r a c t i o n s t h a t r e s u l t f r o m a g i v e n t a x s p e c i f i c a t i o n . The model c o n t a i n s a s i m u l a t e d p i c t u r e o f t h e i n t e r - i n d u s t r y s u p p l y and demand d e t e r m i n a n t s i n t h e U.S. economy. The model i s u s e d t o a n a l y z e t h e BTU t a x d e -s i g n e d t o r e d u c e f u e l consumption-'-. The a l t e r n a t i v e o i l 1 The BTU t a x i s a u n i f o r m r a t e e n e r g y t a x on t h e BTU c o n t e n t o f a l l f u e l s a l e s t o t h e n o n - e n e r g y p r o d u c i n g s e c t o r . 103 p r i c e s u s e d i n t h e model were $4.00, $7.00 and $11.00 p e r b a r -r e l , and i t i s e x p e c t e d t h a t some d i s t o r t i o n i n t h e r e s u l t s w o u l d o c c u r a t a 1981 w o r l d p r i c e . The BTU t a x was t o be impos-e d on e n e r g y a s i t emerges f r o m t h e f u e l p r o d u c e r i n t o d o m e s t i c u s e s ; h e n c e , f u e l e x p o r t s and f u e l t o g e n e r a l e l e c t r i c i t y a r e exempt. The BTU t a x r a t e was e s t i m a t e d f o r t a x e s on c o a l , gas, p e t r o l e u m and e l e c t r i c i t y a n t i c i p a t i n g s u b s t a n t i a l c u t s i n i n -t e r m e d i a t e and f i n a l u s e . I n t h e 1980 e s t i m a t e , s e r v i c e c o n -s u m p t i o n w o u l d be r e d u c e d by 9.5 p e r c e n t i n r e s p o n s e t o a $ . 5 0 / m i l l i o n BTU's t a x r a t e . T h i s r a t e was e s t i m a t e d t o p r o d u c e t a x r e v e n u e s o f $31 b i l l i o n . S t u d i e s o f e l a s t i c i t y by t h e a u t h o r s showed t h a t d i s -c r e t i o n a r y c o n s u m p t i o n , d e s c r i b e d as h e a t i n g and c o o l i n g o f h o u s i n g and gas f o r c a r s , was more e l a s t i c t h a n i n d u s t r i a l u s e . A l t e r n a t i v e t a x p o l i c i e s d e s i g n e d t o r e d u c e t h e u s e o f i m p o r t e d o i l t o 0.5 m i l l i o n b a r r e l s p e r day, and n a t u r a l gas t o 0 by 1985 were a l s o d i s c u s s e d . One s u c h a l t e r n a t i v e t a x p o l i c y t h e E n e r g y S a l e s Tax, i s a u n i f o r m s a l e s t a x on a l l s a l e s f r o m t h e f u e l p r o d u c i n g s e c t o r . The t a x was f o u n d t o c a u s e a s u b s t i -t u t i o n f r o m e n e r g y t o i n p u t s o f l a b o u r and c a p i t a l . A n o t h e r example, t h e P e t r o l e u m Tax i s a u n i f o r m r a t e s a l e s t a x on a l l p e t r o l e u m p r o d u c t s s o l d t o t h e n o n - e n e r g y p r o -d u c i n g s e c t o r . The m odel i n d i c a t e d a r e d u c t i o n i n c o n s u m p t i o n , w i t h l i t t l e i n t e r - f u e l s u b s t i t u t i o n . The model d i d n o t i n d i c a t e a d e c r e a s e i n n a t u r a l gas demand. 104 I n t h e model, t h e e f f e c t o f t h e BTU t a x was t o g e n e r -a t e a s u b s t a n t i a l change i n t h e r e l a t i v e p r i c e s o f f u e l . P r i c e s f o r c o a l i n c r e a s e d t h e most a t 36 p e r c e n t , p e t r o l e u m was s e c o n d a t 35 p e r c e n t , and e l e c t r i c i t y t h e l e a s t a t 12 p e r c e n t . F i g u r e s f o r n a t u r a l gas were n o t g i v e n . Q u i r l s (1980) f a v o u r s t h e u s e o f t a x p e n a l t i e s t o p r o -mote e n e r g y c o n s e r v a t i o n . Where t a x e s a r e u s e d t o s p e e d up an e x p e c t e d r e s p o n s e t o m a r k e t - d e t e r m i n e d p r i c e i n c e n t i v e s and t o c o r r e c t t h e p r o b l e m o f b a l a n c e o f payments p e r t a i n i n g t o b a s i c e n e r g y r e s o u r c e s , t h e s e p o l i c i e s a r e a p p r o p r i a t e . I n o r d e r f o r c o n s e r v a t i o n t o t a k e p l a c e and t o a c h i e v e t h e most e f f i c i e n t c o m b i n a t i o n o f r e s o u r c e s , t h e p r i c e o f t h e e n e r g y - c a p i t a l com-b i n a t i o n s h o u l d r i s e r e l a t i v e t o o t h e r e x p e n s e s . U s i n g t a x e s as a s u b s t i t u t e f o r r e g u l a t i o n i s t h e t o p i c o f a p a p e r by B r e y e r and D r a p k i n ( 1 9 7 9 ) . S e t t i n g t h e p r i c e o f e n e r g y t h r o u g h r e g u l a t i o n i s c r i t i c i z e d i n two m a j o r a r e a s . F i r s t , p o l i c y a g e n c i e s a r e u n a b l e t o d e t e r m i n e a p r i c e w h i c h a l l o w s n o r m a l p r o f i t s and e n s u r e s s u f f i c i e n t new p r o d u c -t i o n . Second, t h e p r o b l e m o f a l l o c a t i n g t h e r e s o u r c e a t t h e r e -g u l a t e d p r i c e c a n be v i r t u a l l y i m p o s s i b l e t o s o l v e . S t a n d a r d s d e v e l o p e d by t h e F e d e r a l Power C o m m i s s i o n a t t e m p t e d t o a l l o c a t e n a t u r a l gas r e s o u r c e s by e s t a b l i s h i n g i n t e r r u p t i b l e c a t e g o r i e s d e p e n d i n g on a p r i o r i t y l i s t . The p r o b l e m was o n l y p a r t i a l l y s o l v e d by c r e a t i n g a p r o c e s s t h a t a l l o c a t e d gas i n a manner s i m i l a r t o t e l e v i s i o n l i c e n s e s , by u s i n g e x c e p t i o n s t o t h e r u l e 105 t o e l i m i n a t e u s e r s . The p u b l i c i n t e r e s t was d e t e r m i n e d i n e a c h c a s e , and was u s e d as a measure f o r c u r t a i l m e n t . B r e y e r and D r a p k i n s u g g e s t t h a t t h e e x c e s s p r o f i t s t a x be u s e d as an a l t e r n a t i v e t o a c c o m p l i s h t h e same ends as r e g u l a -t i o n , b u t more d i r e c t l y . The t a x w o u l d r e d i s t r i b u t e e x c e s s p r o -f i t s f r o m t h e p r o d u c e r t o t h e consumer and w o u l d a v o i d t h e p r o b -lems c a u s e d by r e g u l a t i o n . The p r o b l e m t h a t t h e p o l i c y a u t h o r -i t y must f a c e i s d e t e r m i n i n g what p r o f i t i s n o r m a l and what i s e x c e s s i v e . T h i s p r o b l e m i s s o l v e d by s e t t i n g t h e t a x a t a l e v e l e q u a l t o t h e d i f f e r e n c e s b e t w e e n c o s t and w o r l d m a r k e t p r i c e . T h i s w o u l d a p p l y s i m i l a r l y t o n a t u r a l gas and o i l . The u p p e r bound o f t h e t a x i s t h e f r e e - m a r k e t p r i c e o f t h e p r o d u c t . T h i s i s n o t e a s y t o d e t e r m i n e i n t h e c a s e o f c r u d e o i l and n a t u r a l gas s i n c e t h e s e p r o d u c t s a r e n o t homogeneous; v a r i a t i o n s o c c u r i n g r a d e s o f c r u d e o i l , d i s t a n c e f r o m s e a p o r t and t i m e o f y e a r d i f f e r e n c e s . The u p p e r bound t h e r e f o r e depends on e s t a b l i s h i n g s p e c i f i c c a t e g o r i e s . The l o w e r bound i s d e s i g n e d t o c a p t u r e w i n d f a l l p r o f i t s . I t i s e q u a l t o t h e d i f f e r e n c e between t h e c o s t o f o l d e r , c h e a p e r p r o d u c t s o r d o m e s t i c p r o d u c t s , and t h e f r e e - m a r k e t p r i c e . A g a i n , c a t e g o r i e s must be e s t a b l i s h e d t o a c c o u n t f o r t h e h e t e r o g e n e o u s n a t u r e o f t h e p r o d u c t . B r e y e r and D r a p k i n a n t i c i p a t e no p r o b l e m s i n t h e c o l l -e c t i o n o r e n f o r c e m e n t o f t h e w i n d f a l l p r o f i t s t a x , g i v e n t h a t c a t e g o r i e s c a n be e s t a b l i s h e d and a g r e e d t o by t h e t a x c o l l e c t o r and t h e p r o d u c e r s . 106 S e r i o u s p r o b l e m s a r e o b v i o u s i n t h e u s e o f a t a x as a s u b s t i t u t e f o r r e g u l a t i o n . However, t h e p r o b l e m s seem l e s s s e r -i o u s t h a n t h o s e a c c o m p a n y i n g p r i c e r e g u l a t i o n , p a r t i c u l a r l y s i n c e t h e t a x s y s t e m i s a b l e t o r e l y on t h e m a r k e t f o r a l l o c a -t i o n . D e s p i t e t h e s e a d v a n t a g e s , t h e t a x s y s t e m as a s u b s t i -t u t e f o r r e g u l a t i o n i s n o t e x p e c t e d t o be a c c e p t a b l e t o t h e pub-l i c . The r e s u l t i n g l a r g e i n c r e a s e s i n p r i c e w o u l d be p e r c e i v e d as l a r g e p r o f i t s f o r p r o d u c e r s , and w o u l d p r o d u c e a p o l i t i c a l demand f o r r e g u l a t i o n t o h o l d down p r i c e s . As emphasis s h i f t s f r o m r e g u l a t i o n t o t a x a t i o n , t h e c o r r e s p o n d i n g l e g i s l a t i v e j u r i s d i c t i o n and b u r e a u c r a t i c r e s p o n -s i b i l i t y p r e s e n t s p r o b l e m s . D u r i n g t h e t i m e o f t r a n s i t i o n , r e g -u l a t o r y c o m m i t t e e s w o u l d be l e s s f a m i l i a r w i t h t h e p a r t i c u l a r a r e a r e g u l a t e d , and more i n t e r e s t e d i n t h e g e n e r a l macro e f f e c t o f t a x e s . Examples o f t a x e s a r e p r e s e n t e d by t h e Government o f C anada's r e c e n t N a t i o n a l E n e r g y Program. T a x e s were c r e a t e d t o compensate f o r r e v e n u e s f o r e g o n e when a n a t u r a l gas e x p o r t t a x was n o t i m p o s e d . T a x e s were p l a c e d on o i l and gas i n g e n e r a l . The o i l t a x i s c a l l e d t h e P e t r o l e u m C o m p e n s a t i o n C h a r g e , and p r o d u c e s a " b l e n d e d p r i c e " o f c r u d e o i l by s u b s i d i z i n g i m p o r t e d o i l . I n a d d i t i o n t o t h e t a x on o i l , t h e f e d e r a l g overnment t a x e s t h e s a l e o f a l l n a t u r a l gas, b o t h d o m e s t i c and e x p o r t . The government a l s o m a i n t a i n s a t a x on e x p o r t e d o i l e q u a l t o t h e 107 d i f f e r e n c e between t h e d o m e s t i c p r i c e and t h e e x p o r t p r i c e . The e f f e c t o f t h e t a x i s t o remove t h e i n c e n t i v e f o r p r o v i n c e s o r p r o d u c e r s t o e x p o r t o i l . 108 M a n d a t o r y F i n a n c i a l P o l i c y I n s t r u m e n t s F i n e s I n t h e U n i t e d S t a t e s i t c a n be s e e n t h a t r e g u l a t i o n s g o v e r n i n g t h e q u a n t i t y o f e n e r g y w h i c h may be consumed by a com-m e r c i a l b u i l d i n g h a v e a l r e a d y been e s t a b l i s h e d a t t h e c i t y , s t a t e and f e d e r a l l e v e l s . A t o t a l o f 15 o u t o f 21 s t a t e s s u r -v e y e d by t h e F e d e r a l E n e r g y A d m i n i s t r a t i o n h a d e n e r g y r e g u l a -t i o n s i n 1977. I n most c a s e s t h e s e r e g u l a t i o n s a p p l i e d t o new b u i l d i n g s o n l y , and r e q u i r e d t h e p r e - s u b m i s s i o n o f b u i l d i n g d o c -uments and p r o o f t h a t t h e r m a l c h a r a c t e r i s t i c s c o n f o r m e d t o t h e r e g u l a t i o n s . The p o s s i b i l i t y e x i s t s t h a t n o n - c o m p l i a n c e w i t h t h e s e r e g u l a t i o n s o r f a i l u r e t o meet r e g u l a t i o n s a f t e r i n i t i a l a p p r o v -a l w o u l d be s u b j e c t t o r e v i e w by t h e j u d i c i a l s y s t ems and f i n e s w o u l d be l e v i e d as a method o f e n s u r i n g c o m p l i a n c e . I n t h e f u t u r e , when t h e h i g h c o s t a n d / o r t h e a v a i l a -b i l i t y o f e n e r g y becomes more a c u t e , i t i s a l s o p o s s i b l e t h a t r e g u l a t i o n s w i l l be e x t e n d e d t o t h e e x i s t i n g s t o c k o f c o m m e r c i a l b u i l d i n g s , demanding t h a t t h e s e b u i l d i n g s r e d u c e c o n s u m p t i o n o r be s u b j e c t t o f i n e s . The i m p o s i t i o n o f f i n e s w o u l d r e q u i r e e n f o r c e m e n t p r o -c e d u r e s a l o n g w i t h a d e t e c t i o n s y s t e m w h i c h w o u l d i m p l y t h e c o o p e r a t i o n o f f u e l s u p p l i e r s . As w i t h v i o l a t o r s o f p o l l u t i o n 109 r e g u l a t i o n s , f i n e s w o u l d be l e v i e d a f t e r an a d e q u a t e t i m e i s a l l o w e d f o r c o m p l i a n c e . 1 T h i s p o l i c y measure w o u l d o n l y be u n d e r t a k e n when t h e p r o b l e m becomes much more a c u t e , and p e r s u a s i o n and code r e g u l a t i o n s h a v e n o t e l i c i t e d t h e d e s i r e d r e s p o n s e . F i n a n c e W i t h d r a w a l The U.S. f e d e r a l government h a s i n s t i t u t e d a s y s t e m s i m i l a r t o t h e u s e o f f i n e s . A s y s t e m o f g r a n t s ( n e g a t i v e f i n e s ) a l l o w s t a t e b u i l d i n g s t o be u p g r a d e d w i t h e n e r g y c o n s e r v i n g m e a s u r e s . T h e s e g r a n t s w i l l be w i t h d r a w n u n l e s s t h e s t a t e a d o p t s p r o v i s i o n s s i m i l a r t o ASHRAE 90-75 (1975) i n i t s b u i l d i n g code, r e q u i r i n g a l l new b u i l d i n g s t o meet e n e r g y c o n s e r v a t i o n r e q u i r e m e n t s . 1 I t s h o u l d be n o t e d t h a t t h e s e f i n e s a r e e s s e n t i a l l y a " p o l l t a x " w h i c h i s u n r e l a t e d t o e n e r g y c o n s u m p t i o n o r e n e r g y w a s t i n g . 110 P e r s u a s i v e N o n - F i n a n c i a l P o l i c y I n s t r u m e n t s R e s e a r c h and D e v e l o p m e n t R e s e a r c h and d e v e l o p m e n t i n a l l a r e a s o f e n e r g y c o n -s e r v a t i o n and c o n v e r s i o n i s s e e n as one o f t h e most i m p o r t a n t p o l i c y a r e a s . T h i s may i n c l u d e r e s e a r c h i n t e c h n i c a l a r e a s as w e l l as b e h a v i o r a l r e s e a r c h . F o r example, t h e C a n a d i a n government i s c o n d u c t i n g 10 o n g o i n g r e s e a r c h p rograms a t a t o t a l e s t i m a t e d e x p e n d i t u r e o f $12 m i l l i o n . I n t h e a r e a o f c o n s e r v a t i o n , t h e p r i n c i p a l e f f o r t i s on r e l i a b i l i t y , p r a c t i c a l i t y and e c o n o m i c s o f t h e a p p l i c a t i o n o f e n e r g y c o n v e r s i o n p r o c e s s e s . By c o m p a r i s o n , t h e government i s a l s o s p e n d i n g $160 m i l l i o n i n t h e same p e r i o d o f 1979-80 on n u c l e a r r e s e a r c h , i n c l u d i n g r e s e a r c h on n u c l e a r f u s i o n . E d u c a t i o n E d u c a t i o n t o c o n s e r v e n o n - r e n e w a b l e r e s o u r c e s c o v e r s a b r o a d r a n g e o f p o s s i b i l i t i e s . F o r t h e most p a r t , e f f o r t s i n t h i s d i r e c t i o n l a c k c o n c r e t e , q u a n t i f i a b l e and q u i c k l y e v i d e n t r e s u l t s . T h i s may n o t be t h e c a s e i n " k i l l - a - w a t t t o d a y " t y p e p r o g r a m s . W i t h t h i s program, o c c u p a n t s o f a b u i l d i n g a r e e d u c a -t e d t o t u r n o f f n o n - e s s e n t i a l e l e c t r i c a l l o a d s . O t h e r e d u c a t i o n p r o g r a m s b e i n g d e v e l o p e d i n c l u d e t h o s e d e s i g n e d t o c o n v i n c e o c c u p a n t s t h a t i t i s d e s i r a b l e t o a d j u s t c l o t h i n g i n s t e a d o f s p a c e t e m p e r a t u r e , t o c l o s e d r a p e s on a n i c e sunny day t o r e d u c e I l l h e a t g a i n , o r t o r e f r a i n f r o m o p e n i n g windows i n o l d e r b u i l d i n g s t o c o n t r o l s p a c e t e m p e r a t u r e d u r i n g t h e h e a t i n g s e a s o n . T h e s e p r o g r a m s w i l l n o t l e n d t h e m s e l v e s t o e a s y m o n i t o r i n g and e v a l u a -t i o n . E d u c a t i o n p rograms f o r t h e g e n e r a l p u b l i c and f o r b u i l d i n g o c c u p a n t s i n c o m m e r c i a l b u i l d i n g s a r e i n e x p e n s i v e r e l a -t i v e t o r e t r o f i t and c o n v e r s i o n o f b u i l d i n g s y s t e m s , and h a v e p r o v e n t o be c o s t - e f f e c t i v e i n s a v i n g e n e r g y . Programs o f t h i s n a t u r e c a n a l s o h a v e t h e e f f e c t o f p r e p a r i n g p e o p l e t o e x p e c t l e s s t h a n i d e a l s p a c e c o n d i t i o n s due t o t h e a c t i v i t i e s e l s e w h e r e t o c o n s e r v e e n e r g y . I n t h i s r e g a r d , i f l o c a l g o v e r n m e n t s f o l -l o w e d a p o l i c y o f p r o v i d i n g i n f o r m a t i o n and s u p p o r t t o b u i l d i n g owners, i t w o u l d be b e n e f i c i a l i n t h e s h o r t r u n by a c h i e v i n g i m m e d i a t e r e d u c t i o n s i n c o n s u m p t i o n , and i n t h e l o n g r u n by c h a n g i n g p e o p l e ' s a t t i t u d e s t o e n e r g y as a "cheap" good. Programs d e s i g n e d t o e d u c a t e b u i l d i n g owners and mana-g e r s h a ve been d e v e l o p e d by g o v e r n m e n t s , and a r e d e s i g n e d t o remove some o f t h e u n c e r t a i n t y s u r r o u n d i n g e n e r g y c o s t , as w e l l a s t o change a t t i t u d e s t o w a r d s c o n s e r v a t i o n . An example o f t h i s t y p e o f p r o g r a m i s c o n t a i n e d i n t h e P r o v i n c e o f B r i t i s h Colum-b i a ' s E n e r g y C o n s e r v a t i o n Manual, ( u n d a t e d ) , p u b l i s h e d by t h e M i n i s t r y o f E n e r g y , M i n e s and P e t r o l e u m R e s o u r c e s , E n e r g y Con-s e r v a t i o n and T e c h n o l o g y D i v i s i o n . The M a n u a l c o n t a i n s i n f o r m a -t i o n on f u t u r e e n e r g y c o s t s and p o t e n t i a l a r e a s f o r s a v i n g . A f o u r - p a r t e n e r g y management p r o g r a m i s o u t l i n e d . The f i r s t p a r t 112 i s t h e e v a l u a t i o n phase, where an e n e r g y a u d i t i s recommended. U p g r a d i n g o p e r a t i n g and m a i n t e n a n c e p r o c e d u r e s , r e d u c i n g e n e r g y l o a d s and i m p l e m e n t i n g r e t r o f i t p r ograms a r e s u g g e s t e d . The p o t e n t i a l s a v i n g s i n e a c h a r e a a r e d e s c r i b e d and t h e manual c o n -c l u d e s w i t h o p e r a t i o n s and m a i n t e n a n c e c h e c k l i s t s and forms f o r r e c o r d i n g e l e c t r i c a l and o i l o r gas c o n s u m p t i o n . The document a l s o d e s c r i b e s t h e E n e r g y Bus p r o g r a m . The bus, a l o n g w i t h t r a i n e d e n g i n e e r s and t e c h n i c i a n s , i s a v a i l a b l e t o c o m m e r c i a l and i n d u s t r i a l e n e r g y u s e r s t o i d e n t i f y a r e a s o f e n e r g y s a v i n g s . The p r o g r a m i n use i s r e s t r i c t e d t o f i r m s and i n s t i t u t i o n s whose e n e r g y c o n s u m p t i o n c o s t s a minimum o f $10,000. E d u c a t i o n programs aimed a t b u i l d i n g owners s h o u l d p r o v i d e i n f o r m a t i o n , as e x p l a i n e d above, b u t s h o u l d a l s o work t o change a t t i t u d e s , and t o l e t owners know t h a t e n e r g y c o n s e r v a -t i o n i s n o t o n l y e c o n o m i c a l , b u t a l s o i s one o f t h e r e q u i s i t e s o f b e i n g a good c o r p o r a t e c i t i z e n . P r o v i d i n g i n f o r m a t i o n t o b u i l d i n g owners a b o u t t h e c u r r e n t s t a t e o f e n e r g y a v a i l a b i l i t y a nd f u t u r e p r i c i n g s h o u l d f o r m t h e b a s i s o f an e d u c a t i o n p r o c e s s t o d i s p e l t h e c o n v e n t i o n a l c o n c e p t o f an i n e x h a u s t i b l e s u p p l y a t an a c c e p t a b l e p r i c e . An a r e a o f c o n s e r v a t i o n e d u c a t i o n w h i c h h a s r e c e i v e d l i t t l e a t t e n t i o n and i s t h e k e y t o a c h i e v i n g m e a s u r a b l e r e s u l t s i s t h e t e c h n i c a l e d u c a t i o n o f o p e r a t i n g and m a i n t e n a n c e p e r s o n -n e l . The s t a t e o f t h e a r t i n d e s i g n h a s met t h e c h a l l e n g e , and b u i l d i n g s a r e b e i n g d e s i g n e d w h i c h o p e r a t e a 20 p e r c e n t o f p r e -113 v i o u s l y a c c e p t e d c o n s u m p t i o n f i g u r e s . Some owners a r e making s u b s t a n t i a l i n v e s t m e n t s i n p l a n t , w i t h t h e hope o f r e c e i v i n g a r e t u r n on t h a t i n v e s t m e n t t h r o u g h r e d u c e d c o n s u m p t i o n o f e l e c t -r i c i t y , o i l and n a t u r a l g a s . W i t h o u t t r a i n e d p e r s o n n e l t o o p e r -a t e t h e s e s y s t e m s i n an o p t i m a l manner, t h e e x p e c t e d r e s u l t s w i l l n o t be a c h i e v e d . I t i s e s t i m a t e d by b u i l d i n g s y s t e m s d e s i g n e r s t h a t i t t a k e s f o u r y e a r s f o r t r a i n e d o p e r a t i n g and m a i n t e n a n c e p e o p l e t o a c h i e v e t h e f u l l e n e r g y s a v i n g p o t e n t i a l o f a c o m m e r c i a l b u i l d i n g . I f a t i m e a l l o w a n c e h a s t o be made t o t r a i n p e o p l e on t h e j o b , t h i s p e r i o d c a n be e x p e c t e d t o be doub-l e d t o e i g h t y e a r s , w i t h t h e r e s u l t i n g l o s s i n o p e r a t i n g e f f i c i -e n c y . W h i l e a c o s t - b e n e f i t s t u d y o f t e c h n i c a l e d u c a t i o n f o r t h e o p e r a t i o n and m a i n t e n a n c e o f e n e r g y u s i n g s y s t e m s i s n o t a v a i l a b l e , t h e r e i s some i n d i c a t i o n t h a t p rograms a r e b e i n g d e v -e l o p e d . Thomson (1980) e x p l a i n s p rograms a t T o r o n t o ' s George Brown C o l l e g e w h i c h c o v e r h e a t i n g t e c h n o l o g y , c h a n g i n g a t t i -t u d e s , p r i o r i t i e s and e n e r g y s a v i n g t a c t i c s f o r t h e p u b l i c . The c o u r s e o f s t u d i e s e m p h a s i z e s t h e o r y , t o e q u i p s t u d e n t s f o r new a d v a n c e s i n b u i l d i n g h e a t i n g t e c h n o l o g y . The c o u r s e i n c l u d e s m a r k e t i n g o f improvements i n e n e r g y - e f f i c i e n t u n i t s , t o a l l o w t e c h n i c i a n s t o go i n t o i n d u s t r y w i t h t h e n e c e s s a r y s k i l l s . The demand f o r t h i s t y p e o f p e r s o n i s e v i d e n c e d by t h e f a c t t h a t t h e p r o g r a m p l a c e s 100 p e r c e n t o f i t s s t u d e n t s i n j o b s a t an a n n u a l r a t e o f 250 s t u d e n t s p e r y e a r . 114 M a n u f a c t u r e r s w i l l t r a i n o p e r a t i n g p e r s o n n e l i n t h e us e and programming c a p a b i l i t i e s o f c o m p u t e r - b a s e d c o n t r o l s y s -tems i n b u i l d i n g s . T h i s t y p e o f p r o g r a m t e n d s t o c o v e r t h e i r own p i e c e o f e q u i p m e n t w h i c h l i m i t s f l e x i b i l i t y . W i t h o u t t r a i n -e d p e r s o n n e l , t h e s y s t e m s c a n be t h e c a u s e o f e n e r g y waste r a t h e r t h a n c o n s e r v a t i o n . I n t h e p r i v a t e s e c t o r , o r g a n i z a t i o n s h a v e t a k e n t h e l e a d i n e d u c a t i n g t h e i r members a b o u t t h e e c o n o m i c a d v a n t a g e s o f c o n s e r v a t i o n . The A m e r i c a n A r c h i t e c t u r a l I n s t i t u t e h a s a com-p l e t e c o u r s e on l i f e - c y c l e c o s t i n g , w h i l e t h e B u i l d i n g Owners and Managers A s s o c i a t i o n h a s a f u l l - t i m e e n e r g y d i v i s i o n t o a s s i s t members and t o d i s s e m i n a t e i n f o r m a t i o n . The I n t e r n a t i o n -a l A s s o c i a t i o n o f S h o p p i n g C e n t r e Owners p r o v i d e s e d u c a t i o n a l m a t e r i a l ; i t a l s o p r e s e n t s awards t o members f o r b u i l d i n g s w h i c h a c h i e v e t h e h i g h e s t s t a n d a r d o f e n e r g y e f f i c i e n c y . 115 M a n d a t o r y N o n - F i n a n c i a l P o l i c y M e a s u r e s R a t i o n i n g I n t h e p a s t , g o v e r n m e n t s have u s e d r a t i o n i n g i n t i m e s o f c r i s i s t o d i s t r i b u t e a commodity w h i c h i s i n s h o r t s u p p l y . P o l i c i e s i n v o l v i n g r a t i o n i n g o f e n e r g y r e s o u r c e s , p a r t i c u l a r l y a u t o m o t i v e g a s o l i n e , h a v e been d i s c u s s e d r e c e n t l y . A f o r m o f r a t i o n i n g was employed i n L o s A n g e l e s i n 1973-74 d u r i n g t h e s e v e r e s h o r t g a g e o f o i l f o r h e a t i n g and g e n e -r a t i n g e l e c t r i c i t y ( A c t o n , 1 9 7 5 ) . M a n d a t o r y c u r t a i l m e n t o f u s a g e was e s t a b l i s h e d b a s e d on p a s t u s a g e . V i o l a t o r s were f a c e d w i t h t h e t h r e a t o f s u s p e n s i o n o f u t i l i t y s e r v i c e . I t was r e p o r -t e d t h a t t h e d e c r e a s e i n c o n s u m p t i o n by r e s i d e n t i a l , c o m m e r c i a l and i n d u s t r i a l u s e r s was g r e a t e r t h a n l e g i s l a t e d , and t h a t t h e r e were no r e c o r d e d c a s e s where r a t i o n i n g l i m i t s h a d b e e n e x c e e d e d . I n t h e o p i n i o n o f A c t o n , t h e c u r t a i l m e n t p l a n a d o p t e d by L o s A n g e l e s was h i g h l y s u c c e s s f u l i n t h e s h o r t r u n , b u t t h e r e a r e d o u b t s as t o w h e t h e r i t w o u l d be e f f e c t i v e i n t h e l o n g r u n . Codes and S t a n d a r d s Code s t a n d a r d s c a n be v i e w e d f r o m d i f f e r e n t p e r s p e c -t i v e s . A p a p e r by Phung and Rohn (1979) e x p l o r e s owners' m o t i v -a t i o n f o r c o n s e r v i n g e n e r g y . From t h e owners' v i e w p o i n t , t h e f o l l o w i n g q u e s t i o n i s a d d r e s s e d " s h o u l d e n e r g y c o n s e r v a t i o n be i m p l e m e n t e d s i m p l y b e c a u s e t h e e n e r g y p l a n n e r s f o r e s e e a w i d e 116 gap between e n e r g y s u p p l y and demand?". A n o t h e r c o n c e r n r e l a t e s t o t h e i m p a c t o f r e s o u r c e d e p l o y m e n t on t h e e a r t h ' s e n v i r o n m e n t and a b o u t t h e d e p l e t i o n o f n o n - r e n e w a b l e r e s o u r c e s . The p a p e r t a k e s t h e v i e w o f p r i v a t e c o n c e r n s t h a t e n e r g y c o d e s must s a v e money by t h e a d o p t i o n o f new ways o f u s i n g e n e r g y . T h i s v i e w i s c o n t r a s t e d w i t h l a t e r comments a b o u t s o c -i a l c o s t s c o n t a i n e d i n a p a p e r by B r o o k s ( 1 9 7 9 ) . B r o o k s f e e l s t h a t i t i s n e c e s s a r y t o s e t s t a n d a r d s t o e n c o u r a g e e c o n o m i c a l l y r a t i o n a l demand r e s p o n s e s t o h i g h e n e r g y p r i c e s . The f a c t t h a t owners a r e i n f l u e n c e d more by f i r s t c o s t t h a n by o p e r a t i n g c o s t , and t h a t i t i s n e c e s s a r y t o a n t i c i p a t e f u t u r e f u e l p r i c e i n c r e a s e s p r o v i d e s j u s t i f i c a t i o n f o r m a n d a t o r y s t a n d a r d s . The e s t a b l i s h m e n t o f b u i l d i n g c o d e s t o promote e f f i c -i e n t c o n s t r u c t i o n i s t h e p o l i c y measure most f r e q u e n t l y u s e d by s t a t e g o v e r n m e n t s i n t h e U n i t e d S t a t e s and t h e f e d e r a l g o v e r n -ment i n Canada. In t h e e a r l y s t a g e s o f t h e e n e r g y c r i s i s c a u s e d by t h e c u t - o f f o f OPEC o i l , v a r i o u s b u i l d i n g c o d e s were e s t a b -l i s h e d t o p r e s c r i b e t h e a l l o w a b l e t y p e s o f c o n s t r u c t i o n f o r com-m e r c i a l b u i l d i n g s . I n Canada, t h e p r e s c r i p t i o n o f i n s u l a t i o n s t a n d a r d s , maximum window a r e a s , i n f i l t r a t i o n s t a n d a r d s and mec-h a n i c a l s y s t e m s t a n d a r d s f o l l o w e d f r o m t h e p u b l i s h i n g o f ASHRAE S t a n d a r d 90-75, E n e r g y C o n s e r v a t i o n i n New B u i l d i n g D e s i g n . T h e s e s t a n d a r d s were a d o p t e d by t h e C a n a d i a n government f o r a l l f e d e r a l l y - f u n d e d p r o j e c t s . 117 S t a r t i n g w i t h t h e E n e r g y P o l i c y and C o n s e r v a t i o n A c t (USA, 1975), f e d e r a l law r e q u i r e d t h a t s t a t e s a d o p t ASHREA 90-75 o r s i m i l a r s t a n d a r d s i n o r d e r t o be e l i g i b l e f o r f e d e r a l f u n d i n g f o r t h e e n e r g y c o n s e r v a t i o n p l a n s . C r i t i c i s m o f p r e s c r i p t i v e s t a n d a r d s a r e t y p i f i e d i n comments by E r i c k s o n ( 1 9 7 7 ) . I n s t r o n g t e r m s , E r i c k s o n s t a t e s t h a t t h e government h a d shown an i n a b i l i t y t o come t o g r i p s w i t h t h e p r o b l e m . He c o n t e n d s t h a t i s s u e s a r e c l o u d e d i n a "haze o f b u r e a u c r a t i c miasma". S t a n d a r d s , a c c o r d i n g t o E r i c k s o n , s h o u l d be f o r p e r f o r m a n c e and n o t t e c h n i c a l i t i e s w h i c h w i l l v a r y w i t h e a c h c a s e . T h i s s e n t i m e n t seemed t o be e c h o e d by P u b l i c Works Canada i n d e v e l o p i n g a p e r f o r m a n c e t y p e c o d e . The u s e o p f a p e r f o r m a n c e code i s r e c o g n i z e d by The  N a t i o n a l E n e r g y A c t (USA, 1977) i n a s e c t i o n d e a l i n g w i t h b u i l d -i n g s , c a l l e d "The New B u i l d i n g s A c t (USA, 1 9 7 7 ) " . The A c t p r o -v i d e s t h a t , by 1979, e n e r g y p e r f o r m a n c e s t a n d a r d s be d e v e l o p e d and t h a t t h e y be i m p l e m e n t e d no l a t e r t h a n A u g u s t 1981. Comments on The N a t i o n a l E n e r g y A c t a r e c o n t a i n e d i n a p a p e r by K l e p p e r ( 1 9 7 9 ) . K l e p p e r s t a t e s t h a t t h e A c t e s t a b -l i s h e s e n e r g y b u d g e t s f o r a wide r a n g e o f b u i l d i n g s i n s e v e n c l i m a t i c r e g i o n s and p e r m i t s any c o m b i n a t i o n o f c o n s e r v a t i o n m e a s u r e s t o s a t i s f y t h e b u d g e t . The c a s e f o r p e r f o r m a n c e - b a s e d c o d e s was t a k e n t o c o u r t i n C a l i f o r n i a , when a n o n - r e s i d e n t i a l code was a d o p t e d i n 1976. A c c o r d i n g t o a p u b l i c a t i o n by t h e L a w r e n c e B e r k l e y L a b -118 o r a t o r y ( 1 9 7 8 ) , t h e code was c h a l l e n g e d by t h e b u i l d i n g i n d u s t r y w h i c h a r g u e d t h a t , a l t h o u g h t h e s t a t e l e g i s l a t u r e h a d s p e c i f i e d a p e r f o r m a n c e code, t h e p r o p o s e d code was i n f a c t p r e s c r i p t i v e . The code d i d p e r m i t a l t e r n a t i v e d e s i g n s b u t t h e d i f f i c u l t y i n h a v i n g a l t e r n a t i v e s a p p r o v e d a p p e a r e d p r o h i b i t i v e . The c o u r t o r d e r e d t h e s t a t e t o r e w r i t e t h e code t o i n c l u d e p e r f o r m a n c e e n e r g y b u d g e t s , and t o p r o v i d e a computer p r o g r a m t o c a l c u l a t e e n e r g y b u d g e t s . The same Lawrence B e r k l e y L a b o r a t o r y p u b l i c a -t i o n recommended t h a t p e r f o r m a n c e c o d e s be a d o p t e d as r e q u i r e d by t h e New B u i l d i n g A c t . The p r o b l e m o f i m p l e m e n t a t i o n i s men-t i o n e d and s p e c i a l s t a f f and f a c i l i t i e s a r e recommended t o h a n d l e p l a n c h e c k i n g , i n s p e c t i o n and a p p r o v a l o f new d e s i g n s . I n t h e U n i t e d S t a t e s t h e f a i l u r e o f The New B u i l d i n g A c t (USA, 1977) t o r e c e i v e t h e n e c e s s a r y government b a c k i n g h a s l e d t o a c o n t i n u i n g d e b a t e o v e r p r e s c r i p t i v e v e r s u s p e r f o r m a n c e t y p e c o d e s . The ASHRAE S t a n d a r d 90-75 h a s b e e n u p d a t e d t o ASHRAE 90A-80 w i t h changes o u t l i n e d i n an a r t i c l e by P a t t e r s o n ( 1 9 8 0 ) . The p r e s c r i p t i v e s e c t i o n s o f t h e s t a n d a r d h a ve been u p g r a d e d b u t t h e p e r f o r m a n c e s e c t i o n s r e m a i n u n d e r r e v i e w . S t a n d a r d s o f e q u i p m e n t e f f i c i e n c y have been i n c r e a s e d . The e f f e c t s o f t h e p r o p o s e d model code f o r e n e r g y c o n s e r v a -t i o n , w h i c h i n t u r n i s b a s e d on ASHRAE 90-75 i n New Y o r k C i t y , i s s t u d i e d i n a document a u t h o r e d by F l a c k ( 1 9 7 7 ) . The i m p l i c a -t i o n s w i t h r e s p e c t t o f i r s t c o s t , o p e r a t i n g c o s t , e n e r g y c o n -s u m p t i o n and m a r k e t a b i l i t y o f new o f f i c e b u i l d i n g s a r e 119 p r e s e n t e d . The s t u d y was u n d e r t a k e n t o e v a l u a t e c o n c e r n s ex-p r e s s e d by b u i l d i n g d e v e l o p e r s t h a t t h e new c o d e w o u l d i n c r e a s e c o n s t r u c t i o n c o s t s e x c e s s i v e l y on new h i g h r i s e o f f i c e b u i l d -i n g s . The f i n d i n g s o f t h e s t u d y i n d i c a t e d t h a t t h e code w i l l n o t m e a s u r a b l y i n c r e a s e t h e c o s t o f c o n s t r u c t i n g new b u i l d i n g s . The s e c o n d f i n d i n g was t h a t t h e new b u i l d i n g s , d e s i g n e d i n a c -c o r d a n c e w i t h t h e code, w i l l u s e l e s s e n e r g y t h a n c o m p a r a b l e e x i s t i n g o f f i c e b u i l d i n g s w h i c h have u n d e r g o n e e n e r g y c o n s e r v a -t i o n p r o g r a m s . A s s u m i n g 85 p e r c e n t e f f i c i e n c y 1 , t h e c o d e -d e s i g n e d b u i l d i n g a v e r a g e d 63.0 MBTU/FT^. T h i s i s 54 p e r c e n t l e s s t h a n t h a t a c h i e v e d i n e x i s t i n g b u i l d i n g s . I t i s a l s o w i t h -i n t h e 55 MBTU/FT^ s t a n d a r d recommended by t h e G e n e r a l S e r v i c e s A d m i n i s t r a t i o n . The c o s t o f u t i l i t i e s f o r t h e New Y o r k C i t y a r e a w o u l d be r e d u c e d by 32 p e r c e n t , o r $0.67 p e r s q u a r e f o o t p e r y e a r i f t h i s s t a n d a r d were a c h i e v e d ^ . An a d d i t i o n a l r e c o m m e n d a t i o n i n c l u d e s t h a t o f s u b -m e t e r i n g t e n a n t e l e c t r i c a l s y s t e m s . The r e p o r t i n d i c a t e s t h a t , a l t h o u g h s u b - m e t e r i n g i s n o t c u r r e n t l y i n f o r c e , c o n s i d e r a t i o n s h o u l d be g i v e n t o i t i n t h e f u t u r e s i n c e s u b - m e t e r i n g g e n e r a l l y r e s u l t s i n l o w e r t e n a n t e l e c t r i c a l c o n s u m p t i o n . 1 E f f i c i e n c y i s d e f i n e d as t h e n e t - t o - g r o s s a r e a f o r a r e n t -a b l e b a s i s . 2 F u r t h e r , f o r t h e o f f i c e b u i l d i n g m a r k e t , a s u b s t a n t i a l g r o w t h i s p r e d i c t e d i n t h e m a n u f a c t u r e o f i n s u l a t i o n , doub-l e g l a z i n g and e f f i c i e n t l i g h t i n g f i x t u r e s . 120 Where p e r f o r m a n c e c o d e s a r e c o n t e m p l a t e d , and i n c a s e s where s t a n d a r d s i n p r e s c r i p t i v e c o d e s a r e d e s i g n e d t o y i e l d n e t p o s i t i v e r e t u r n t o b u i l d i n g owners, t h e r e h a s been some d i s c u s -s i o n c o n c e r n i n g t h e p r i c e o f u t i l i t i e s w h i c h s h o u l d be i n c l u d e d i n t h e a n a l y s i s . The c a l c u l a t i o n o f t h e p r i c e o f a u t i l i t y , i n c l u d i n g t h e s o c i a l c o s t s i n v o l v e d i n d e l i v e r i n g f u e l t o t h e s i t e as w e l l as n o r m a l e c o n o m i c c o s t s , was c o v e r e d i n a p r e v i o u s s e c t i o n . The r e p o r t by Weber (1978) on R e s o u r c e Impact F a c t o r s makes e x t e n s i v e r e f e r e n c e t o t h e i n c l u s i o n o f t h e s e f a c t o r s i n t h e e s t a b l i s h m e n t o f code s t a n d a r d s . The c o n c l u s i o n s t o t h a t a n a l y s i s d e a l w i t h t h e e f f e c t on t h e e c o n o m i c e f f i c i e n c y o f t h e s e l e c t e d e n e r g y c o n s e r v a t i o n s t a n d a r d . The r e p o r t c o n c l u d e s t h a t , t o r e f l e c t t h e n a t i o n a l v i e w p o i n t , t h e s t a n d a r d s h o u l d be b a s e d on t h e s o c i a l v a l u e o f t y p e s o f e n e r g y , w h i c h c a n be d e t e r m i n e d by t h e p r i v a t e p r i c e m u l t i p l i e d by t h e a p p r o p r i a t e r e s o u r c e i m p a c t f a c t o r ( R . I . F . ) v a l u e . I n t h e c a s e where t h e R . I . F . v a l u e i s g r e a t e r t h a t one, t h e s a v i n g s i n e n e r g y w i l l be g r e a t e r t h a n when p r i v a t e c o s t s a l o n e a r e c o n s i d e r e d . A p a p e r by N i e v e s (1980) s u p p o r t s t h e v i e w t h a t s o c i a l c o s t s s h o u l d be c o n s i d e r e d i n d e t e r m i n i n g t h e c h o i c e and c o s t o f f u e l i n new b u i l d i n g s . T h i s s u p p o r t i s b a s e d on t h e a s s u m p t i o n t h a t t h e p r e s e n t m a r k e t s y s t e m does n o t promote o p t i m a l c h o i c e s o f e n e r g y r e s o u r c e s . The s o c i a l c o s t s m e n t i o n e d i n c l u d e t h e v a l u e t o t h e p r o d u c e r o f s p e c i a l t a x i n c e n t i v e s , t h e v a l u e o f d i r e c t and i n d i r e c t s u b s i d i e s , a d m i n i s t r a t i v e c o s t s o f r e g u l a -121 t o r y a g e n c i e s and t h e c o s t t o s o c i e t y o f e n v i r o n m e n t a l and h e a l -t h damages. T h e s e c o s t s , added t o m a r k e t c o s t s , g i v e t h e t o t a l s o c i a l c o s t o f t h e f u e l . I n a d d i t i o n t o a d v o c a t i n g t h e u s e o f R . I . F . ' s t o s e t e n e r g y code p e r f o r m a n c e s t a n d a r d s , t h e a u t h o r f u r t h e r recommends t h a t m a r g i n a l r a t h e r t h a n a v e r a g e c o s t s f o r t h e m a r k e t v a l u e o f t h e f u e l be u s e d . The use o f m a r g i n a l c o s t s , s i m i l a r t o t h e u s e o f R . I . F . ' s , w o u l d a l s o i m p r o v e t h e e n e r g y p e r f o r m a n c e s t a n d a r d s o f new b u i l d i n g s , by r e d u c i n g t h e r e f e r e n c e l e v e l o f consump-t i o n . A summary o f t h e a p p r o a c h e s t o B u i l d i n g E n e r g y P e r f o r -mance S t a n d a r d s (B.E.P.S.) i s c o n t a i n e d i n an a r t i c l e by P a t t e r s o n ( 1 9 8 0 ) . F o u r methods o f a p p l y i n g e n e r g y p e r f o r m a n c e s t a n d a r d s a r e l i s t e d . The f i r s t a p p r o a c h i s t h e one f a v o u r e d by p o l i c y makers, namely, m a n d a t o r y e n e r g y p e r f o r m a n c e s t a n d a r d s f o r d e s i g n . The s e c o n d and t h i r d p o s s i b i l i t i e s a r e v o l u n t a r y , i n c l u d i n g v o l u n t a r y s t a n d a r d s and a "how-to" a p p r o a c h . The f o u r t h and most r i g i d i s t h e a n n u a l b u i l d i n g e n e r g y u s e s t a n d -a r d . The f i r s t o p t i o n , u s i n g m a n d a t o r y s t a n d a r d s , h a s been e x p l a i n e d p r e v i o u s l y . An e c o n o m i c a l l y sound l i f e - c y c l e c o s t method i s s u g g e s t e d f o r t h e v o l u n t a r y o p t i o n s w i t h no m e n t i o n o f s o c i a l c o s t s i n c a l c u l a t i n g f u e l c o s t s . The l a s t method, t h e b u i l d i n g a n n u a l e n e r g y use s t a n d a r d , combines t h e m a n d a t o r y p e r -f o r m a n c e s t a n d a r d s f o r d e s i g n w i t h a s t a n d a r d o f o p e r a t i o n 122 and m a i n t e n a n c e w h i c h r a i s e s q u e s t i o n s o f a v a i l a b i l i t y o f p e r -s o n n e l , and d i f f i c u l t y i n e n f o r c e m e n t due t o v a r i a t i o n s i n c l i m -a t e and b u i l d i n g o p e r a t i o n . The a u t h o r s u g g e s t s t h a t B.E.P.S. f o l l o w l o g i c a l l y f r o m t h e ASHRAE 90-75 p r e s c r i p t i v e s t a n d a r d , by u s i n g p r e s c r i p -t i v e methods t o c a l c u l a t e a p e r f o r m a n c e s t a n d a r d . O r d i n a n c e s The b e s t example o f an o r d i n a n c e c o n c e r n i n g e n e r g y c o n s e r v a t i o n i s t h e m a n d a t o r y c u r t a i l m e n t l e g i s l a t i o n i n L o s A n g e l e s i n 1973-74 ( A c t o n , 1 9 7 5 ) . The g overnment p a s s e d o r d i n -a n c e s w h i c h mandated a r e d u c t i o n i n e n e r g y u s e by r e s i d e n t i a l , c o m m e r c i a l and i n d u s t r i a l c o n sumers. O t h e r p o s s i b i l i t i e s p r e s e n t t h e m s e l v e s w h i c h r e l a t e i n p a r t t o p e r f o r m a n c e s t a n d a r d s . I n t h e c a s e o f r e s i d e n t i a l p r o p -e r t i e s , a l l homes i n P o r t l a n d , Oregon, w h i c h a r e e i t h e r new o r r e s o l d , must meet s t a n d a r d s by 1982, ( H o u s i n g and U r b a n D e v e l o p -ment, 1 9 7 7 ) . T h i s amounts t o an o r d i n a n c e a g a i n s t t h e s a l e o f a h o u s e w h i c h does n o t meet t h e s t a n d a r d . T h i s method c o u l d a l s o a p p l y t o t h e c o m m e r c i a l s e c t o r on t h e s a l e o f c o m m e r c i a l p r o p e r -t y . I n t h e c a s e o f c o m m e r c i a l p r o p e r t i e s , a more e f f e c t i v e o r d i n a n c e h a s been s u g g e s t e d f o r g e n e r a l a p p l i c a t i o n . The o r -d i n a n c e w o u l d p r o h i b i t l e n d i n g a g e n c i e s f r o m a d v a n c i n g mortgage f i n a n c i n g on c o m m e r c i a l b u i l d i n g s w h i c h do n o t meet e n e r g y s t a n -d a r d s . 123 G e n e r a l C o n s i d e r a t i o n s - E n e r g y P o l i c y R e s e a r c h h a s been c a r r i e d o u t t o d e t e r m i n e t h e r e l a -t i v e e f f e c t o f v a r i o u s p o l i c y methods d e s i g n e d t o r e d u c e t h e c o n s u m p t i o n o f n o n - r e n e w a b l e r e s o u r c e s i n c o m m e r c i a l b u i l d i n g s . The f i r s t o f t h e s e i s a s t u d y c a r r i e d o u t by t h e De p a r t m e n t o f H o u s i n g and U r b a n Development (H.U.D.) (1977) on " E n e r g y C o n s e r v a t i o n C h o i c e s f o r t h e C i t y o f P o r t l a n d " . The r e p o r t i n d i c a t e s a s a v i n g i n t h e new c o m m e r c i a l b u i l d i n g a r e a o f 42.8 p e r c e n t by 1995 w i t h t h e u s e o f s t a t e -i m p l e m e n t e d c o n s e r v a t i o n s t a n d a r d s and a r e v i s e d b u i l d i n g c o d e . U s i n g t h e v o l u n t a r y method o f i n v e s t m e n t t a x c r e d i t , i t was e s t -i m a t e d t h a t t h e s a v i n g w o u l d be r e d u c e d t o a b o u t 20 p e r c e n t . The 42.8 p e r c e n t r e d u c t i o n w o u l d amount t o 5.4 p e r c e n t o f t o t a l e n e r g y u s e i n P o r t l a n d i n 1995. I n t h e a r e a o f e x i s t i n g commer-c i a l b u i l d i n g s , a w e a t h e r i z a t i o n code s t a n d a r d was f o u n d t o be t h e most e f f e c t i v e , w h i l e t h e v o l u n t a r y p r o g r a m w o u l d be l e s s t h a n 50 p e r c e n t as e f f e c t i v e . A s t u d y by W i l l i a m s e t a l . (1976) d e a l s s p e c i f i c a l l y w i t h p o l i c y a l t e r n a t i v e s t o a c h i e v e e n e r g y s a v i n g s i n e x i s t i n g c o m m e r c i a l b u i l d i n g s . The p o l i c y a l t e r n a t i v e s s u g g e s t e d were: (1) a 15 p e r c e n t t a x c r e d i t ; 1 (2) a t h r e e - y e a r r a p i d d e p r e c i a t i o n w r i t e - o f f o f r e t r o f i t c o s t s ; and 1 Not t o be c o n f u s e d w i t h t h e 10 p e r c e n t t a x c r e d i t c u r r e n t -l y i n use i n t h e U n i t e d S t a t e s . 124 (3) low i n t e r e s t , s u b s i d i z e d l o a n s . The r e s u l t s o f t h e a n a l y s i s i n d i c a t e d t h a t where r e t r o f i t a c t i o n s were m a r g i n a l l y p r o f i t a b l e u n d e r p r e s e n t law, i m p l e m e n t i n g t h e a l t e r n a t i v e p o l i c i e s w o u l d s u b s t a n t i a l l y i n c r e a s e p r o f i t a b i l i t y . T h i s l e d t o t h e c o n c l u s i o n t h a t t h e p o l i c y a l t e r n a t i v e s w o u l d y i e l d s u b s t a n t i a l e n e r g y s a v i n g s . I n g e n e r a l , W i l l i a m s c o n c l u d e d t h a t t h e p r o p o s e d 15 p e r c e n t t a x c r e d i t p o l i c y p r o v i d e d t h e g r e a t e s t e c o n o m i c i n c e n t -i v e t o r e t r o f i t . I n t h e s t u d y c a r r i e d o u t i n 1977 by t h e E n v i r o n m e n t a l R e s e a r c h C e n t r e o f W a s h i n g t o n S t a t e U n i v e r s i t y , t h e v o l u n t a r y a c c e p t a n c e o f v a r i o u s s t a n d a r d s were a s s e s s e d f o r t h e i r a b i l i t y t o r e d u c e e n e r g y . The r e s u l t s o f t h i s s t u d y a r e shown i n T a b l e 5.5. 125 TABLE 5.5 ECONOMIC RETURNS AND OTHER FACTORS AFFECTING ADOPTION OF ENERGY CONSERVATION MEASURES, COMMERCIAL SECTOR TYPICAL ANNUAL SAVINGS NET OF AMORTIZED COST Estimated Ultimate 1976 Prices Q u a l i t a t i v e Factors Adoption (S/year/1000 sq. f t . ) (percent) Temperature Setting Change 72* winter - 78* summer 20-30 40-70 Less comfortable, more approval 40 68" winter - 78" summer 45-75 90-140 Less comfortable, more approval 20 Reduced I n f i l t r a t i o n , V e n t i l a t i o n and Lighting 75-210 150-420 Less comfortable, lese a t t r a c t i v e 20 New Building Construction Standards 170-240 340-480 None 20 R e t r o f i t with Insulation and Double Pane Glass 15-65 90-200 More comfortable 5 Total Energy Systems - Direct Heating - 250 - 100 Possible r e l i a b i l i t y problems 0 , SOURCE; Washington State University, "NORTHWEST ENERGY POLICY PROJECT", Environmental Research Centre, 1977 It i s noted that the research centre estimates that no program w i l l achieve better than 40 percent adoption. Moreover, the programs which provide the lea s t comfort and have the lowest c a p i t a l cost w i l l have the highest adoption rate. 126 The r e p o r t a l s o g i v e s t h e o p i n i o n t h a t s i n c e e n e r g y c o s t s a r e a r e l a t i v e l y s m a l l p r o p o r t i o n o f a b u d g e t , an e n e r g y p r i c e change has an i n s i g n i f i c a n t i m p a c t on t o t a l e n e r g y consum-p t i o n , whereas l a r g e i n c r e a s e s o r r a t i o n i n g w o u l d r e q u i r e a l t e r -e d l i f e s t y l e s . They s u g g e s t t h a t where r e s p o n s e t o e c o n o m i c i n c e n t i v e s w i t h p o s i t i v e r e t u r n s i s low, p rograms o f i n f o r m a t i o n a n d e d u c a t i o n s h o u l d be i m p l e m e n t e d . G i v e n t h e r e s u l t s o f t h e r e g r e s s i o n model p r e s e n t e d i n t h e l a s t c h a p t e r , i t w o u l d f o l l o w t h a t p rograms o f e d u c a t i o n and i n f o r m a t i o n a r e n e c e s s a r y t o promote e n e r g y c o n s e r v a t i o n . ENERGY POLICY: A SUMMARY I t i s o b v i o u s t h a t t h e government h a s a v a i l a b l e a v a r i e t y o f p o l i c y i n s t r u m e n t s . The a v a i l a b l e e m p i r i c l e e v i d e n c e s u g g e s t s t h a t some o f t h e s e p o l i c i e s w i l l be e f f e c t i v e i n t h e s h o r t r u n , o t h e r s w i l l be more e f f e c t i v e i n t h e l o n g r u n , w h i l e y e t o t h e r s a p p e a r i n e f f e c t i v e by t h e m s e l v e s . M o r e o v e r , t h e e v i d e n c e s u g g e s t s t h a t some c o m b i n a t i o n s o f p o l i c i e s w i l l be more e f f e c t i v e t h a n t h e sum o f t h e i r p a r t s . The e v i d e n c e f u r t h e r s u g g e s t s , a t l e a s t w i t h i n t h e p r i c e s e s t a b l i s h e d t o d a t e , t h a t p r i c i n g p o l i c y a l o n e i s l i k e l y i n a d e q u a t e . However, p r i c i n g p o l i c y c o m b i n e d w i t h an a c t i v e r e s e a r c h and e d u c a t i o n p r o g r a m may be e f f e c t i v e . 128 CHAPTER V I CONCLUSIONS I n C h a p t e r I , i t was shown t h a t t h e i n v e s t m e n t o f c a p -i t a l i n e n e r g y c o n s e r v i n g e q u i p m e n t f o r an a v e r a g e C a n a d i a n o f f i c e b u i l d i n g y i e l d s an a d e q u a t e r e t u r n r e l a t i v e t o t h e i n v e s -t o r ' s d i s c o u n t r a t e . G i v e n t h i s i s t r u e , b u i l d i n g owners and managers s h o u l d d e v o t e t i m e and c a p i t a l t o a c h i e v e t h e o p t i m a l l o w e r e n e r g y c o n s u m p t i o n l e v e l . A r e v i e w o f c u r r e n t p e r i o d i c a l s r e l a t i n g t o b u i l d i n g d e s i g n and management s u g g e s t s t h a t t h i s i s o c c u r i n g , s i n c e a s u b s t a n t i a l number o f a r t i c l e s and a d v e r t i s e -ments r e l a t e d t o e n e r g y a r e a p p e a r i n g . To p l a c e t h i s i n v e s t o r ' s i n t e r e s t i n p e r s p e c t i v e , how-e v e r , t h e t h e o r e t i c a l a n a l y s i s shows t h a t t h e h y p o t h e t i c a l v a l u e o f t h e t y p i c a l o f f i c e b u i l d i n g , t a k e n a s t h e p r e s e n t v a l u e o f f u t u r e b e n e f i t s , h a s a v e r y low s e n s i t i v i t y a t p r e s e n t p r i c e l e v e l s , t o changes i n e n e r g y e x p e n s e s i n t h e r a n g e s t u d i e d ( C h a p t e r I I ) . When a change o f e n e r g y e x p e n s e was s t u d i e d r e l a -t i v e t o t h e change i n i n t e r n a l r a t e o f r e t u r n , i t was f o u n d t h a t t h e r e t u r n was i n e l a s t i c w i t h r e s p e c t t o a m a j o r change i n e n e r g y e x p e n s e . T h i s l e a d s one t o t h e c o n c l u s i o n t h a t even t h o u g h r e d u c i n g e n e r g y e x p e n s e i s c u r r e n t l y t h e t o p i c o f c o n s i d -e r a b l e i n t e r e s t , i t does n o t p r e s e n t l y p l a y a s i g n i f i c a n t r o l e i n i n c r e a s i n g t h e i n t e r n a l r a t e o f r e t u r n . 129 T h i s c o n c l u s i o n i s s u p p o r t e d by t h e r e s u l t s o f t h e e m p i r i c a l a n a l y s i s , where t h e f i r s t h y p o t h e s i s r e l a t i n g an i n c r e a s e i n e n e r g y e x p e n s e t o m a r k e t v a l u e was r e j e c t e d ( C h a p t e r I I I ) . I n b o t h t h e a n a l y s i s o f t h e c o m p l e t e sample, and i n t h e s t r a t i f i e d s a m p l e s , t h e r e i s no c o n s i s t e n c y e i t h e r i n t h e s i g n o f t h e v a r i a b l e n o r i n i t s m a g n i t u d e and a l t h o u g h m u l t i c o l l i n -e a r i t y i s p r e s e n t i n t h e d a t a s e t . I t i s c o n c l u d e d t h a t a s t a t i s t i c a l l y s i g n i f i c a n t l i n k does n o t e x i s t between e n e r g y c o n s u m p t i o n and m a r k e t v a l u e s , a t p r e s e n t p r i c e l e v e l s . I n l o o k i n g f o r t h e l o g i c t o e x p l a i n t h i s r e s u l t , one s h o u l d c o n s i d e r t h e a t t i t u d e s t o w a r d s e n e r g y c o n s e r v a t i o n i n c o m m e r c i a l o f f i c e b u i l d i n g s . One c a n s t a r t by d i f f e r e n t i a t i n g b etween t h o s e b u i l d i n g s owned by a d e v e l o p e r and l e a s e d t o t e n a n t s , and t h o s e b u i l d i n g s owned and o c c u p i e d by t h e same management. A t y p i c a l d e v e l o p e r - o w n e d o f f i c e b u i l d i n g h a s m u l t i p l e t e n a n t s , l e a s i n g f l o o r s p a c e u n d e r " t r i p l e n e t l e a s e s " a s p r e v -i o u s l y d e s c r i b e d . I t c a n be s e e n , t h e r e f o r e , t h a t i n a d e v e l o p e r - o w n e d b u i l d i n g , t h e c a p i t a l e x p e n d i t u r e on e n e r g y c o n -s e r v a t i o n e q u i p m e n t i s b o r n e , a t l e a s t i n t h e s h o r t r u n , by t h e d e v e l o p e r , b u t t h e s a v i n g i n o p e r a t i n g e x p e n s e i s r e c e i v e d by t h e t e n a n t . T h i s e l i m i n a t e s t h e d i r e c t i n c e n t i v e f r o m t h e d e v e -l o p e r t o i n v e s t i n t h e r e d u c t i o n o f t h e amount o f e n e r g y consumed u n l e s s he c a n c h a r g e i n c r e a s e d r e n t s . 130 A s e c o n d a r e a w h i c h may be c o n s i d e r e d i s t h e " B e t t e r Manager Syndrome". G i v e n t h a t e n e r g y c o n s u m p t i o n c a n be r e d u c e d i n t h e t y p i c a l o f f i c e b u i l d i n g f r o m 30 p e r c e n t t o 50 p e r c e n t w i t h minimum c a p i t a l e x p e n d i t u r e , an a s t u t e i n v e s t o r w i l l n o t p a y a premium f o r a b u i l d i n g w i t h low e n e r g y c o n s u m p t i o n i f he c a n p u r c h a s e a s i m i l a r b u i l d i n g w i t h a h i g h e r e n e r g y c o n s u m p t i o n and a c h i e v e t h e r e d u c t i o n h i m s e l f . T h e r e a p p e a r s t o be a number o f e f f e c t s r e l a t i n g t o t h i s a n a l y s i s w h i c h c o u n t e r - b a l a n c e one a n o t h e r . The i n c r e a s e i n m a r k e t v a l u e w h i c h a c c o m p a n i e s an i n c r e a s e i n e n e r g y u s e may be e x p l a i n e d by t h e r e q u i r e m e n t by o c c u p a n t s f o r q u a l i t y s e r v i c e s p r o v i d e d t h r o u g h t h e use o f e n e r g y . Hence a b u i l d i n g t h a t p r o v i d e s t h e s e ( e n e r g y ) s e r v i c e s may be more v a l u a b l e . C o u n t e r i n g t h i s i s t h e e f f e c t o f t h e c o s t o f e n e r g y , where a h i g h e r p r i c e s h o u l d h a ve t h e e f f e c t o f r e d u c i n g t h e amount o f e n e r g y consumed. To t h e e x t e n t t h a t i t i s t r u e t h a t Canada f a c e s e n e r g y s h o r t a g e s i n t h e s h o r t r u n , w h e t h e r o r n o t new e n e r g y s o u r c e s a r e f o u n d , and p o s s i b l y s e v e r e s h o r t a g e s i n t h e l o n g r u n , t h e c o n c l u s i o n s o f t h i s s t u d y a r e t h r e e f o l d . F i r s t , i t i s i n t h e n a t i o n a l and l o c a l i n t e r e s t t o r e d u c e t h e a g g r e g a t e c o n s u m p t i o n o f e n e r g y i n b o t h new and e x i s t i n g c o m m e r c i a l o f f i c e b u i l d i n g s . Second, i t i s i n t h e n a t i o n a l i n t e r e s t t o p r omote i n t e r - f u e l s u b s t i t u t i o n . T h i r d , t h e p o l i c i e s e mployed t o d a t e do n o t a p p e a r t o h a ve a p r o f o u n d e f f e c t on r e d u c i n g e n e r g y c o n s u m p t i o n . 131 The F e d e r a l Government h a s a v a i l a b l e a number o f p o l i -c i e s w h i c h may be combined t o p r o d u c e m e a n i n g f u l e n e r g y s a v i n g s . The p o l i c y measures w h i c h c o u l d be i n s t i t u t e d t o a c h i e v e t h i s end i n c l u d e : (1) The p r i c e o f e n e r g y , i n t h e s h o r t r u n , c o u l d be e s t -a b l i s h e d a t i t s s o c i a l c o s t , as p r e v i o u s l y d e s c r i b e d . (2) An e x c e s s p r o f i t s t a x c o u l d be i n s t i t u t e d b a s e d on t h e i n c r e a s e d p r i c e s o f e n e r g y . (3) P e r f o r m a n c e c o d e s , b a s e d i n i t i a l l y on a method s i m i l a r t o t h e r e s o u r c e i m p a c t f a c t o r s p r e v i o u s l y d e s c r i b e d , c o u l d be d e v e l o p e d and e n f o r c e d f o r a l l new b u i l d i n g s . (4) A s y s t e m o f t a x i n c e n t i v e s c o u l d be i n s t i t u t e d i n i t i -a l l y t o e x p e d i t e t h e r e t r o f i t o f e x i s t i n g b u i l d i n g s t o c u r r e n t s t a n d a r d s . T h i s would, a f t e r a s u i t a b l e v o l u -n t a r y p e r i o d , be s u p p l e m e n t e d by a m a n d a t o r y p e r -f o r m a n c e code. (5) B l o c k p r i c i n g o f e l e c t r i c i t y and n a t u r a l gas c o u l d be g r a d u a l l y e l i m i n a t e d as t h e p r i c e o f e n e r g y i s i n c r e a s e d . P o i n t - o f - u s e m e t e r i n g o f e l e c t r i c i t y by o f f i c e t e n a n t s s h o u l d be m a n d a t o r y . (6) A s u b s t a n t i a l i n c r e a s e i n f u n d i n g c o u l d be p r o v i d e d t o t e c h n i c a l e d u c a t i o n f a c i l i t i e s t o expand programs t o u p g r a d e t h e p e r f o r m a n c e o f o p e r a t i n g and m a i n t e n a n c e p e r s o n n e l . 132 I f t h e government c h o s e t o r a i s e e n e r g y p r i c e s (and t a x e x c e s s p r o f i t s ) , owners o f c o m m e r c i a l b u i l d i n g s w o u l d s e e k t o p a s s t h i s p r i c e i n c r e a s e on t o t e n a n t s , a s s u m i n g an e x c e s s demand m a r k e t , e i t h e r t h r o u g h e x p e n s e e s c a l a t i o n c l a u s e s , n e t l e a s e s , o r h i g h e r g r o s s r e n t s . The i n c r e a s e d p r i c e w i l l n o t , o f and by i t s e l f , p romote e n e r g y c o n s e r v a t i o n by l a n d l o r d s . How-e v e r , i n t h e l o n g r u n , t e n a n t r e s p o n s e t o h i g h e r r e n t s o r o c c u p a n c y c o s t s o c c a s i o n e d by i n c r e a s i n g e n e r g y c o s t s w i l l r e -f l e c t i n v a c a n c y r a t e s , n e t r e n t s , y i e l d s t o l a n d l o r d s and mar-k e t v a l u e s o f b u i l d i n g s . G i v e n t h e e x i s t i n g s t r u c t u r e o f l e a s e s , t h i s may t a k e a l o n g t i m e t o a c h i e v e . The use o f p e r f o r m a n c e c o d e s f o r new b u i l d i n g s may, i n t h e s h o r t r u n , p l a c e t h e s e l a n d l o r d s a t a c o m p e t i t i v e d i s a d v a n -t a g e v i s - a - v i s e x i s t i n g b u i l d i n g s ( t h o s e w h i c h do n o t have t o a c h i e v e t h e p e r f o r m a n c e c o d e s ) . T h i s d i s a d v a n t a g e i s l i k e l y t o d i s a p p e a r as t h i s new f i x e d c o s t ( o f a c h i e v i n g p e r f o r m a n c e s t a n -d a r d s ) i s i n c o r p o r a t e d i n t o t h e i r b i d p r i c e f o r l a n d . The s y s t e m o f t a x i n c e n t i v e s f o r r e t r o f i t o f e x i s t i n g b u i l d i n g s i s n o t l i k e l y t o be s u c c e s s f u l u n l e s s t h e l a n d l o r d c a n f i n d a way t o n e g a t e e x i s t i n g l e a s e c o n t r a c t s and c a p t u r e t h e r e s u l t i n g g a i n s f o r h i m s e l f . As l o n g a s t e n a n t s r e a p t h e e n e r g y c o s t s a v i n g s , t h e l a n d l o r d h a s no i n c e n t i v e s t o u n d e r t a k e r e t r o -f i t t i n g and i t i s u n l i k e l y t h a t t h e t a x i n c e n t i v e s would, by t h e m s e l v e s , be a d e q u a t e . C o m p u l s o r y u s e o f p o i n t - o f - u s e m e t e r -i n g w o u l d be one method o f c a p t u r i n g t h e b e n e f i t s f o r t h e l a n d -133 l o r d p r o v i d i n g r e n t s c o u l d be a d j u s t e d t o r e f l e c t t h e change i n e n e r g y u s e . The c o s t . o f e n e r g y would, u s i n g p o i n t - o f - u s e m e t e r -i n g , p l a c e t h e r e s p o n s i b i l i t y f o r e n e r g y e x p e n s e s w i t h t h e u s e r ( i . e . t h e t e n a n t ) . The f i n a l p r o g r a m s , r e l a t i n g t o r e s e a r c h and e d u c a -t i o n , a r e o b v i o u s l y needed. A c l o s i n g c a v e a t i s o f f e r e d w i t h r e s p e c t t o t h e e m p i r -i c a l r e s u l t s . The sample u s e d i n t h i s s t u d y was r e l a t i v e l y s m a l l , i n one c a s e as low as 31 b u i l d i n g s , and w i d e l y d i v e r s i -f i e d i n b o t h l o c a t i o n and q u a l i t y . I t i s s u g g e s t e d t h a t f u r t h e r a n a l y s i s u s i n g a l a r g e r , more homogeneous sample ( i f t h i s sample c o u l d be f o u n d ) w o u l d p r o v i d e r e s u l t s w i t h more c o n s i s t e n c y and s t a t i s t i c a l s i g n i f i c a n c e . The r e s u l t s o f t h i s r e s e a r c h a r e n o t d e f i n i t i v e . W h i l e a good d e a l o f e f f o r t has gone i n t o t h e a s s e m b l y o f d a t a i n t h e most a c c u r a t e p o s s i b l e f a s h i o n , t h e l a c k o f s i g n i f i c a n t r e s u l t s i l l u s t r a t e s t h e p r o b l e m o f e s t i m a t i n g t h e i m p a c t o f e n e r g y c o s t s on t h e m a r k e t v a l u e s o f c o m m e r c i a l b u i l d i n g s and i n v e s t o r s ' y i e l d s r e s u l t i n g f r o m t h e o w n e r s h i p o f c o m m e r c i a l b u i l d i n g s . F u r t h e r work i s n e c e s s a r y i n t h i s s u b j e c t a r e a . An e v a l u a t i o n o f u t i l i t y r a t e s t u d i e s , g o v e r n m e n t a l r e g u l a t i o n s i n i n v e s t m e n t s i n e n e r g y c o n s e r v a t i o n e q u i p m e n t and p e r s o n n e l t r a i n i n g a r e s u g g e s t e d t o e v a l u a t e more f u l l y t h e e f f e c t s o f e n e r g y c o s t s and c h a n g es i n e n e r g y c o s t s on b u i l d i n g v a l u e . 134 L I S T OF TABLES TABLE NO. DESCRIPTION PAGE FIGURE 1.1 Breakdown Of I n d i v i d u a l V a r i a b l e C o s t s 11 TABLE 1.1 12 FIGURE 1.2 Space H e a t i n g and A i r C o n d i t i o n i n g Energy-Use vs C a p i t a l C o s t F o r T y p i c a l O f f i c e B u i l d i n g W i t h D u a l D u c t S y s t e m 18 FIGURE 1.3 E l e c t r i c a l E n e r g y Usuage 21 TABLE 2.1 Net P r e s e n t V a l u e O f H y p o t h e t i c a l B u i l d i n g 40 TABLE 2.2 E l a s t i c i t y o f N e t P r e s e n t V a l u e 41 TABLE 2.3 I n t e r n a l R a t e s o f R e t u r n C a l c u l a t i o n s 42 TABLE 2.4 E l a s t i c i t y o f I n t e r n a l Rate o f R e t u r n 43 TABLE 4.1 C o r r e l a t i o n M a t r i x o f t h e DATA-1 Sample 66 TABLE 4.2 R e g r e s s i o n R e s u l t s o f DATA-1 Sample 67 TABLE 4.3 C o r r e l a t i o n M a t r i x f o r DEBT-DATA-1 Sample 70 TABLE 4.4 R e g r e s s i o n R e s u l t s f o r DEBT-DATA-1 Sample 71 TABLE 4.5 Summary o f R e g r e s s i o n R e s u l t s 74 TABLE 4.6 E n e r g y C o n s u m p t i o n V a r i a b l e 76 TABLE 5.1 P o l i c y I n s t r u m e n t s A v a i l a b l e t o C o n t r o l E n e r g y I n Use I n C o m m e r c i a l B u i l d i n g s 82 TABLE 5.2 E n e r g y S a v i n g s and C a p i t a l C o s t I m p a c t s o f F e d e r a l C o n s e r v a t i o n Programs 88 TABLE 5.3 H y p o t h e t i c a l Q u a n t i t y M u l t i p l i e r RIF'S 96 TABLE 5.4 H y p o t h e t i c a l P r i c e M u l t i p l i e r RIF'S 97 TABLE 5.5 E c o n o m i c R e t u r n s and O t h e r F a c t o r s A f f e c t i n g A d o p t i o n o f E n e r g y C o n s e r v a t i o n M e a s u r e s , C o m m e r c i a l S e c t o r 125 1 3 4 a APPENDIX A 135 TABLE A . l CORRELATION MATRIX FOR THE AGE-10 SAMPLE o 10 05 r t in . r t o r» 10 05 to CO o rr CM O CN n m UJ o O o CN O CN O • CJJ i 1 1 05 < o o o o 1- O r- r f 01 o o in 05 10 10 01 r t O to CO r t 10 10 CM CN in • CM CO O o o o o p- CM CO co co CO 05 t~ r- 01 co 01 CO 01 P- ro in CO P- O o in o CM 01 ro CO 05 ro CM O O r t r » —• 05 CN ^— r f ro ro in CM 05 r- CO oo r t co to - or CO * t o CN in O O O • »•* to < > in P- O CM in CM r- O 01 r- Z r f co p~ to in in oo p- 05 o ro r t co i - r r to to I/O to ro CM O r t CN O O • < in s UJ r f in to 05 . t CM O to O r r to p- 05 p- r r 01 in in CM cr O in to *— O p- O in o o CN CM O o ro O r f O ro O • h-rr 1/5 I I I o o o o CN i n to 00 00 CM CO to r f to CO ro co r - 00 r t i n r - r r P - oo 01 — - r t ro 05 CM CO O O CM — CO ro — CN o i n CM r t — CM • < in K r t i/i O O O O to • cj to o > in ••- in r t CO r t p- p- CO to CO O ro C3 O CO CO CM r t O p- 05 p- CO p- in ro r t cr O t CM r f r f 01 r» CM oo to co ro CO in CM CM . UJ O o • CJ ro <T ro r t ro ro CM CM ro O O 1 O Z r t UJ O in o LU in 01 •»- co O r r in r f p- CM ro 00 00 oo 2 o r» to CO CO r- r r m to r r ro to I - r r in p~ to o o CO in r f CM CM CM ro r t to r f 10 p~ co 00 r t CJ o P- in • CJ O ro 7 ro t CM CO r f CM CM O in CO z o t to r t O r - _l to 01 CO O to p- r t P~ r t 05 05 r t o CM CO CN 00 r t CO 00 ^- r t -^ to in 01 in 00 CO o o r t 01 UJ oo CM r t CO CM r t CO CO o i— 05 to o CM m • r- o to CM • h-O i 1 ro in i CM 1 o 1 1 CM CM O i CO 1 o 1 p- o 1 CO i O O CO _ l o o 1 1 o co < — O o o o o o 01 CO to r t CO CM to in co CM -V- o UJ CM r t in 00 CM CM r t p- p- CO 00 ro CM co o 15 oo r- in O CM ro co CM ro 01 CN CO ro CM CO O • _ l O in ro r t CM ro r t ro in CM ro in in CM . r t in < o o o o in 05 co to in CM r t > in ro r t O . uj CM CM »- CN _ l —J oo cr CO UJ > t/1 UJ < UJ £ - 1 z 1—1 D o • cr cr o cr _l h- CJ UJ < o t/5 or UJ < < O z z r- t- < CM O > > _1 UJ tn t/5 < o o < in b in b in r t in to r- co 05 CM ro C5 r t r t > UJ CM CO > UJ CM ro UJ h- CJ CJ CJ UJ r- CJ CJ CJ C3 _i < o O o _J < o o o UJ Q _l • _l _i UJ o - 1 _l _i - CM ro r t in to CN r t in to TABLE A.2 REGRESSION RESULTS FROM THE AGE-10 SAMPLE <REG VAR = 25,30,35,40,45,4-9, 1 1-16> LEAST SQUARES REGRESSION ANALYSIS OF VARIANCE OF 25.VALUE N= 36 OUT OF 36 SOURCE DF SUM SQRS MEAN SQR F-STAT SIGNIF REGRESSION 16 15941. 996.34 5.1100 .0005 ERROR 19 3704.6 194.98 TOTAL 35 19646. MULT R= .90080 R-SQR= .81143 SE = 13.964 VARIABLE PARTIAL COEFF STD ERROR T-STAT SIGNIF CONSTANT -7.3697 30.425 -.24222 .8112 30 . LOT .34290 25.243 15.865 1.591 1 .1281 35 .INCOME .29440 3.1699 • 2.3607 1.3428 . 1952 40 .ENERGY .03345 .29157 -1 .19985 . 14590 . 8855 45 .STALLS .03767 717.07 4364 . 1 .16431 .8712 4 . STORIES .40078 1.8140 .95131 1.9068 .0718 5 . MASON .RY .23003 1 1 .388 11.053 1.0303 .3158 6 .AIR - .09883 -4.6053 10.638 -.43293 .6699 7 Q1 .10851 4.9910 10.490 .47578 .6397 8 . 02 . 18581 8.9280 10.831 .82429 . 4200 9 , AGE .20012 -.99553 1. 1 182 -.89030 . 3844 1 1 . , UG - .02603 -.78917 6.9533 -.11349 .9108 12 . ELEV .33318 12.566 8.1582 1.5403 . 1400 13 . DATE .46712 .63510 .27580 2.3028 .0328 14 . L0C1 .00362 .20177 12.801 .15761 -1 . 9876 15 . L0C2 25838 22.192 19.035 1.1658 .2581 16 . L0C3 22124 -9.3999 9.5056 -.98888 . 335 1 137 TABLE A.3 CORRELATION MATRIX OF THE AGE-11 SAMPLE o o o o CM t - CM CO co 0 ) cn ~-to in O CM to •3- CM O o o o cn CO 10 o in o to CD in O t- o CM to * — to UJ O O CM o o •»- • C3 i i ] 1 0) < CO to CM CO CM to O CO O CO CO 0) 00 co T— o •*- O O O CM -- CO O in O O p- in CM co in 0) CO 0 ) 00 in CM CD »— in in in co o p- CM CM O CM I l l I o o o o CM CO CO o in o in CO CO 00 to CM in O O oo CM O *- O oo ex CM in CO CM co O - 1—t o o o o oo 0 ) CM 0) CO o in •3-•q- to o CM to 0) CM O in o to v— to CO o o O CO o CO o or z a to • < in s o o o o CO 0) to CO 0) CM 00 00 o to •T 00 •<* CO co T— to in CM -— cr to CO CM o 00 in CM in CO o CO o O in O *- O • i -o o o o oo — CO CD co to CM CM CO _ l CD CO CO in CO o CM CO CD CM O co to CD O CO CO T • < o CM CM O CO CO O CM CM O O r-o o o o co • cj co O O O O o in CM 00 CM CM in ^ - co t~ co in in to in CO r- CO in to CO t - o CO co in r- T in CM in CM CM CM O CO, in in O o • O CM CJJ or in z CO UJ O O O O • o in o UJ co ~- CM CO CO CO T in in p- CD s. o o •q-p - 00 CO co CD T- in oo p- CD CD co a o 00 co CO p- CM CD in •»- co CO O -^ in •r- co • cj o p- O • CJ CM O 1 O CO 1 1 CM 7 O i CM CM CO I o z CO o co i in i T o m to oo co in CO co •o- in CO — O CM 00 O P- in co CM CM in CM CM CO to p- o r~ T- O UJ P~ O P- O CM T— to p- *t CM co CO CD CM r- o co m p-T O 1 CD i 1 CM 1 O i O CO 1 to O i in 1 CM in CM L0 o o 1 O t CO < — • o o o o CO O CO co CD p- CO r- O in oo o UJ CD p- O O CD CD co ^~ CM O o in p- rj co r- O O o in CO p- in co in CM CM CD co • -J CO CM CM o O CO ••- O •a- O o •*- o < o o o o oo CO O p-CO p- CD > CD CO oo CD ' UJ CM O CM _J _ i to or UJ > to UJ < UJ S CJJ _ i t-t z >—* o or _ i or o or _) K CJ LU < o cn or LU < < O z z r- i - < CM > > _ l UJ C/l t/i < o O < O in 6 in 6 in CD CO CD CM CM CO CO > UJ CM CO > UJ ••- CM CO UJ r - o CJ CJ UJ h- CJ CJ CJ _ l < o O o _ l < o O o UJ Q _ l - 1 - i UJ Q _J _1 _ i - CM CO in CD CM CO •3- in to TABLE A.4 REGRESSION RESULTS FOR AGE-11 SAMPLE <REG VAR = 20,25,30,35,40,4-9, 1 1-16> LEAST SQUARES REGRESSION ANALYSIS OF VARIANCE OF 20.VALUE N= 36 OUT OF 36 SOURCE DF SUM SQRS MEAN SOR F-STAT SIGNIF REGRESSION 16 12897. 806.07 5.2817 .0004 ERROR 19 2899 . 7 152.62 TOTAL 35 15797. MULT R= .90357 R-SQR= = .81644 SE = 12.354 VARIABLE PARTIAL COEFF STD ERROR T-STAT SIGNIF CONSTANT 11.166 20.38 1 .54786 . 5902 25 . LOT .67657 28.162 7.0319 4.0049 .0008 30 .INCOME .26147 2.0283 1 .7178 1.1808 . 2523 35 .ENERGY .08716 .92334 -1 .24210 .38138 . 7071 40 . STALLS .13884 1477 . 2 2417.3 . 61109 . 5484 4 . STORIES -.27421 - 1 . 1428 .91945 - 1 .2429 . 2290 5 .MASON RY -.30706 -8.1841 5.8193 - 1 .4064 . 1758 6 .AIR -.09407 -3.5554 8.6325 -.41 186 .6850 7 .01 .39624 17.059 9.0686 1 .881 1 .0754 8 .02 .16748 8.1884 11.058 .74049 .4681 9 . AGE -.07217 -.59258 -1 .18788 - .31541 . 7559 1 1 . . UG .48897 25.185 10.307 2.4434 .0245 12 . ELEV .16449 8.5938 11.823 .72688 . 4762 13 . DATE .61696 1.0251 .29999 3.4172 .0029 14 . L0C1 -.66639 -35.130 9.0175 -3.8958 .0010 15 . L0C2 -.41353 -26.343 13.306 - 1.9797 .0624 16 . L0C3 -.16661 -7.4839 10. 16 1 -.73654 .4704 139 TABLE A.5 CORRELATION MATRIX FOR ST-2 SAMPLE o oi CM o O o m m r r o o o in re uo o o o O O — o — 3 i 1 1 1 in i— CO ro OO oo in r r ID r r O o in OO UJ CM O O o '*- • U o o o o o o O O O — — CM CM CM -CM o O ro P~ ID ID ID o in O cn CO ro rt O CM r- o CM CM o O •'- 00 o o o o o ID in O rr O r- r-rr 01 r- 00 p~ 00 rr p- ID p- ID CM CM 00 CO i - O O — — O CM — 01 in 03 O ID o T- o O co in ro p- CO in p^  p~ r~ CO r r 00 p- 01 ro CM p- p~ or CO ID CM O — O O O O o o o o O i n c M O i m o i i n c M — c n o o z O o o c o c M r o i n - ^ c M i n i n i D o in CM 0) m 0) in CM 01 00 oo CO CM CO in »— CM in in (D 01 ro rr 01 r- O in 00 O CO O o ro O *- r~ CO O ro o o o o O o i r o r r ^ o i r - O i n o o o uo O r o O O r o o — — r o o r o • < . . . . . . • in E uo UJ 00 in ^- ID p- 01 co 00 01 CM O *— in r- r r re or 00 CM ID CM in 0) CM CO ID 01 o o O r r CM ro CO o — O — O • r -o O co O • o O CD O O - - - c 0 C M 0 i r r m — - " - o i i o r - r o p - . C3 O O O i n r o i D O r ^ o i r - c M O c M o o i n i n or O O CM O — — c o r - r r r e r e c M O l O c M r o c o - u j O O • cj O O O C M O O O C M — C M C O ' - O O O Z O — in o T  UJ _ i • • - i I I i i — i o CM 00 CO O r- co oo in CM CO 10 _ i o CM CO ID in re r r O ID CD 01 ID •r-o CO o T— O 01 in 00 CM O p~ CM -^ • < o CM O in H-r r uo — 1 i i 1 - ' > co CM 01 r r in 01 ID p~ ro p- C3 in CO CD o r- 01 CM o CM oo in in or CD p- r r re re C  01 O CM ro co . UJ o O CM O O O CM M CO — O O o zo o o o O . . . . . . . -O i n r r r - o t D O i i n c D O l o i r e i n r e c M o o O CO oi o r r p- CM CM p~ re 01 . 01 E O r r r r p- CM oo re co p- CM CM 1- 01 p~ in O o 01 01 *— r~ »— o in O (D co CO P- IS> ID O co ~- CJ o o o • CJ CM i o I o O o o CM O CM 1 in re IN o ID ID I r r o r- — I p- 00 o CM in 10 re 00 p~ ID o co in 01 in r r p- o CO 01 in CD 01 01 re in ro CM 00 O 00 O CM in CN CM in CM CM re CN 10 • t-•*- o CM o •*- r r o CM re re — o o O O o o O c M m c N C M i n c M C M " - r e c N t o r -  t- O O - -. - _ . . O i o p - o m r r o i i D O o O ' - p - r e p - ' - c o O UJ O O o o o i r e c D i n — o i P ~ O c o c M O i c o i n > - ' - r) O in re r r r r 01 Ul oo O CM •*- r~ O C0 < CD r - o in t 01 ID O co -T- p- re p~ CO O J 00 01 re CD in 01 p~ O 00 CM 01 co in ^* r> in in O in O r r ro CM re CN *— re O O re p~ • _ i CD CM O O — O — O — o O in O O O in < O i n m o m O r r r o c M r o c N - - r e o o r e p -  - O O C O C M —       O O m o O m < O oo 01 01 p~ in in > CM 01 in in . UJ o O O CM _ l CO UJ > uo UJ < UJ E _ l »—i z O or _J or o > UJ r- CN re > UJ r- CM re or _J r- CJ UJ < o uo or UJ UJ K CJ CJ CJ UJ r- o CJ CJ < < O z Z r- r- < 1—4 CM C3 C9 — I < o O o _ l < o O o > > _ l UJ uo uo E < O o < UJ Q _ l _ l _ i UJ o -J -J _J in o in 6 in r r in CD P- CO 01 CM re r r in CD CM re r r in CD CM re re r r r r TABLE A.6 REGRESSION RESULTS FOR ST-2 SAMPLE <REG VAR = 25,30,35,40,45,4-9, 1 1- 16> LEAST SQUARES REGRESSION ANALYSIS OF VARIANCE OF 25.VALUE N= 33 OUT OF 33 SOURCE DF SUM SQRS MEAN SOR F-STAT SIGNIF REGRESSION 16 10157. 634.83 3.1062 .0147 ERROR 16 3270.0 204.38 TOTAL 32 13427 . MULT R= .86975 R-SQR= .75647 SE = 14.296 VARIABLE PARTIAL COEFF STD ERROR T-STAT SIGNIF CONSTANT 4.2935 30.971 . 13863 .8915 30 . LOT . 70936 40.487 10.057 4.0256 .0010 35 .INCOME .01631 .14408 2.2075 .65266 -1 .9488 40 .ENERGY . 26701 .40317 .36379 1.1083 . 284 1 45 . STALLS .09854 945.19 2386 . 3 .39608 . 6973 4 .STORIES -.02336 -.89908 9.6175 -.93484 - 1 . 9267 5 .MASON RY -.351 1 1 -11. 190 7.4601 -1.4999 . 1531 6 AIR .04491 1.7652 9.8157 .17984 .8595 7 . 01 .42058 20.067 10.822 1.8543 .0822 8 . Q2 .23174 13.373 14.033 .95291 . 3548 9 , .AGE -.24981 -.29760 .28839 - 1.0319 .3174 1 1 . . UG . 11 167 5.3635 11.933 .44948 . 6591 12 . ELEV -.01272 -.89374 17.569 -.50870 -1 .9601 13 . DATE .37261 .55012 .34252 1.6061 . 1278 14 . L0C1 -.27126 -20.602 18.275 -1 . 1273 . 2762 15 . L0C2 -.00646 -.63107 24.408 - . 25855 - 1 . 9797 16 . L0C3 .01607 1.3855 21.546 .64302 - 1 . 9495 141 TABLE A.7 CORRELATION MATRIX FOR ST-3 SAMPLE p- CO CD in 00 03 in !•» *r CD in CO CO oo • CO CM CO CM — 3 o CO CO UJ T- CO o o in O 03 CO co o is o o CM o CN CM — o CM o CD 10 •7 m CO CO o 0) CO t- T o 10 P- T- O CM CM UJ O O o CM r- • C3 ,_ l 1 1 i i 0) < CD O CM p- in CD T CM CD CD CO CM p- CO CO CO *r CM CD CM CO CD CM CM CM O — T *— — I I I I oo CM CM in CO CD oo CO p- CO f» P- p- CO in 10 O p- O CD co CO r- — CO CM O CO O CM O CD *- O T- p~ •»- CD CO CD —- co in in p-O P- CO CO o CD p- CD CM <T CM in o O O CM or P- in CD CO m CD CO p- p-p- o oo O CO ~- CO p- oo *~ CO O CM CM 03 co •g-CO CM — — CM O — o CO i n £ O o o o CO in 0) CM CO CO ^~ in in CO CD *r CO 00 in P- 00 co CD co to o co P- CM co CO CO CM CO CO o CO — O o CM in CO CM or o O O O o co • O CO o o ^ - o CD O in in co co CD CD CM CM >• a o CO i n CO CO O CM p- O O CO cc o CD co 05 CD to in CM CO CO CD CM o CO . UJ o CO •Q- o CM CM in CO CM CM o CO i n 2 1 i 1 1 CO UJ o o o o 03 CM o • o — in o o 8 in P- r» co CD 0) CD CO •r~ oo O CM CM CM CM P- 0) P- 00 CM CD CD CM CD CD 00 in CO CO — O CO CM O CM CM o UJ CD CO S T — o CO ^ • u CM T- O 2 CO H-» O O O O CM CO O P-CM in • c_> T O o o o CO ••- P- CD in o CM 0) CM CO CM p- CD CM «-CO CO co co in CM CD p- CM p- CO O in in CO 00 p~ *«— CO CD o oo O in co P- CO • i -— o in O o O — CO — CM O CD O in o o p- oo •3 o o CO co UJ o o CD CM • r-o CM CM CD < 1 — Q o o o o 1- in CM O m CM p- in in p- T CD t- UJ o in in CO in o T p- r- in CD CO CO CO 00 O D p- p- *- in CD CO O CM CO CM O CM • _l CO T co O — CO o CO in — CO CO CO CM in O < o o o o CD P- 0) o P- 00 CO CM in 00 CM — O o CM UJ _l CQ < UJ >-• r j or - i < < > > in CM c/i UJ > UJ S CJ * H o or cc u UJ o 2 2 (->-H UJ l/) O CO in co Z o c/i or < >-H >-S < O CM O C3 < in CD C3 3 O -> UJ ^~ CM CO > UJ ^~ CM CO UJ 1 - CJ CJ o UJ h- CJ U CJ _l < o o o - 1 < o a o UJ a _1 —J _1 UJ a _j , - i CN CO in CO CM CO in CD TABLE A.8 REGRESSION ANALYSIS FOR ST-3 SAMPLE <REG VAR = 20,25,30,35,40,4-9, 11- 16> LEAST SQUARES REGRESSION ANALYSIS OF VARIANCE OF 20.VALUE N= 39 OUT OF 39 SOURCE DF SUM SQRS MEAN SQR F-STAT SIGNIF REGRESSION 16 15333. 958.29 4.0584 .0014 ERROR 22 5194.8 236 . 13 TOTAL 38 20527. MULT R= .86425 R-SQR= .74694 SE = 15.366 VARIABLE PARTIAL COEFF STD ERROR T-STAT SIGNIF CONSTANT -8.9519 29.872 -.29968 . 7672 25 . LOT .45244 39.379 16.548 2 .-3796 .0264 30 .INCOME .23116 2.1044 1 . 8883 1.1144 . 2771 35 .ENERGY -.03377 -.33700 -1 .2 1261 -.15850 .8755 40 .STALLS .15698 3127.4 4 194;8 .74553 . 4638 4 . STORIES .22858 .94993 .86254 1.1013 . 2827 5 .MASON RY .10198 8 . 2106 17.076 .48082 .6354 6 .AIR .01974 1.4437 15.589 .92613 -1 .9270 7 .01 .20880 10.945 10.930 1.0014 . 3275 8 , Q2 . 1887 1 10. 143 1 1 .254 .90135 . 3772 9 . AGE -. 12539 -.16363 .27603 -.59280 . 5594 1 1 . . UG .19328 7.3749 7.9815 .92400 . 3655 12 . ELEV -.00783 -.35502 9.6723 -.36704 -1 . 97 1 1 13 . DATE .51960 .97655 .34236 2.8524 .0093 14 . L0C1 -.34 1 15 -20.166 11.847 - 1 .7022 . 1028 15. L0C2 .13183 1 1 . 839 18.978 .62380 . 5392 16 . L0C3 -.37315 - 16. 117 8.5432 - 1 . 8865 .0725 143 TABLE A.9 CORRELATION MATRIX FOR AGE-15, ST-2 SAMPLE o rr co O in o o re in re p- rr CM o 01 CD in O co CJ o o re o in 0 _ l " t 1 O re o o ^ 01 in O re rr CN O 01 CM O in o re rr re CJ O CN co r- r - O re rr 0 r - _ l " 1 1 1 O co co re CM p~ CO O CM 01 o f~ CO rr O LU O o 01 p- CN CN O r-o CM o r - O rr O re < 1 i i o 01 in re rr in rr co o r» re in CN re o co > o in O in r- O CM in rr LU o CN CM CM O i CM 1 rr . CM O t CN EL O CO p- P- in CO 01 CM co O in co 10 ~— rr in CN O O •r- 01 CD rr in rr O re r - CN o CM CN re C5 3 X 1 O re r~ re 01 in CM in rr in in O 00 0) rr CM re 01 co rr rf re O rr p- r- in CN r- p- to CM LU O CN CN CN CM CM •»- re in o re CJ 01 < i 1 1 ' 1 O re CN CD re in rr CO o to rr to o O CD CD p- re !•» CD CD to CM 01 o re rr p-' O in rr o rr *- to o CN r - CN re O o re rr CM CN 00 O — t 1 t/i o T— •— o in 01 re in re re 0 _ i o CN r. in p- CM p~ CD co CM CO CM O 0 _ i o rr co CM rr CN 00 CM i — o to 0 • < o co -^ o r - re f- CM O re re CM 0 in r -p- O rr CO — 1 1 i I i i 1 1 — O > CO rr co rr CM 01 co CO 01 re p- CO CM CJ in O) o y~ o rr re CN o rr O re oc oo O r- CO CM co re rr CN O in 0C O p- • UJ r- CN in O o r - O re rr O -•— 0 z l' 1 to < rr UJ > OC UJ cn in P~ rr CM re p- in O CN CN co z O 01 to CO CD rr p» 00 01 in co re CM in to 0 O to 01 0 O CN o CM CN rt in O rr ID rr CN in CO O to O • CJ re re CN CN rT O -^ O CM rr < O CM O in z ,' 1 ,' 1 in 2 _ 1 re ~ CO UJ re O CN r - o CM re re O CD 01 p- re t—t O r- p- CO rr rr co cn O CO p- oo in co p- rr oc O 01 P- CM rr co co CD ID CO CD CN CM rr CO re a O re p- 1- • r-O CN re O in CM re CM in re h- O O re O O — rT t/1 re _J 1 i 1 i ' in in O re O CD in CN CD rr r- p~ LU O re p-O 0) re re in CM rr 01 CO in O o O 3 O CM re in f- re CN O CN re re rr -^ co CN ID CN rr _ l O CM co n CO • 0 CN rr re re in in O CM CN CN in re O in < O in O O CM to 0 1 i '' CM > 1 1 >' — _ j LU > oo LU > CO E _ i 2 _J > LU T - CN re O or _ i re 0 oc LU LU r- o o CJ r- CJ LU < CJ r- 0 LU < CN O O _J < o a o O z z r- 0 0 z z r-o o < 3 LU O _ l _ i _ l _1 LU 00 _J _J I - 1 LU 1/1 p- co •r- CN re rr in CD b in o in CD O in b in re re rr rr — re re rr rr TABLE A.10 REGRESSION RESULTS FOR AGE-15, ST-3 SAMPLE <REG VAR=25,4-9, 11 - 1S,30,35,40,45> LEAST SQUARES REGRESSION ANALYSIS OF VARIANCE OF 25.VALUE N= 35 OUT OF 35 SOURCE DF SUM SQRS MEAN SQR F-STAT SIGNIF REGRESSION 16 14213. 888.31 4.7501 .001 1 ERROR 18 3366 . 1 187.01 TOTAL 34 17579. MULT R= .89917 R-SQR= .80852 SE = 13.675 VARIABLE PARTIAL COEFF STD ERROR T-STAT SIGNIF CONSTANT -22.705 27 . 886 -.814 19 . 4262 4 .STORIES .36839 9.8604 5.8652 1 .6812 . 1 100 5 .MASONRY .23733 8.3309 8.0375 1.0365 .3137 6 .AIR -.11601 -5.5224 11.144 -.49555 .6262 7 .Q1 .17529 8.3067 10.996 .75540 . 4598 8 .02 .28261 17.875 14.301 1.2499 . 2273 9 . AGE -.02928 -.10839 .87216 -.12427 . 9025 1 1 . UG .41720 14.544 7.4675 1.9476 .0672 12 . ELEV .09179 3.4779 8.8933 .39107 . 7003 13 . DATE .58073 .84985 .28081 3.0264 .0073 14 . LOC 1 -.25597 - 16.481 14.671 -1 . 1234. . 2760 15 . L0C2 .35090 33 . 140 20.845 1.5898 . 1293 16 . L0C3 -.25959 -15.219 13 . 345 - 1 . 1404 . 2691 30. . LOT .59479 51.465 16.395 3.1391 .0057 35 . INCOME -.05419 -.48691 ' 2. 1 148 -.23024 . 8205 40. ENERGY -.12331 -. 1 1872 .22518 -.52719 .6045 45 . STALLS -.37280 -5051 . 5 2963 .6 - 1 .7045 . 1055 145 TABLE A.11 CORRELATION MATRIX FOR THE "GOOD" SAMPLE CM • CJ in o O O in O CM in > O CM TT • UJ O CO O CM —J UJ - i O o ID p- ID CO o CM in CO CM o o CM in 01 o CO CO O • CM 0 ) O i i O 1 i >-QC o ID CM in CO 2 CM CO 00 CM O O co 01 l/l in CO T CO • < CO CO in CO t in 00 or (D CD o p- o CM o o in o • r -•9 cn i o i co p- 0 ) CM CO •»- CO CM co CO CO CM oo CD P-p- CD CD CO CO *— • < CM •*- •3- in r -i/i i O i CM in co *- in 01 CM CD C3 in CO CO in •q- T— CM or 01 00 in in T- CM ' UJ CO •*r CO co T o O 2 LU I O I CM in CO co oo O 01 01 co CD p- CM p- T- 01 CD CM p- O CM p-O •- CM O in •sr CM i i o t» 01 O co ^~ in CO o CM CM CO co CO in CM in CM in in p- co i- P» P- CM • r -"~ CO in CM CD CO CO O O CO _ l i i i i i O t O O O o o CM p- p- t CO p~ CO f- p- o UJ CM CO co p- CO 01 co 01 CO o in co co CO p- p- o co • _ i O CO CO O CM m co o in < o o o o CO • CJ CD O UJ > 1 c/1 or m UJ > C/l UJ < UJ _ j i—i 2 3 O or or o > CM CO CO or _J h- c j UJ < O 1/1 UJ CJ CJ CJ CJ < < O 2 2 r- h- < CM es _ i o O O o > > _ l " UJ C/l C/l o 3 UJ _J _ l _ i _J in 6 in d in in 01 CM in CD CO CM co CO TABLE A.12 REGRESSION RESULTS FOR THE "GOOD" SAMPLE <REG VAR=20.25.30,35,40,4.5,9,11,12,13,14,16> LEAST SQUARES REGRESSION ANALYSIS OF VARIANCE OF 20.VALUE N= 31 OUT OF 31 SOURCE OF SUM SQRS MEAN SQR F-STAT SIGNIF REGRESSION 12 10391 . 865,89 3 .4281 .0092 ERROR 18 4546 . 5 252.59 TOTAL 30 14937. MULT R= .83404 R-SQR= .69562 SE = 15.893 VARIABLE PARTIAL COEFF STD ERROR T-STAT SIGNIF CONSTANT 55.983 38.250 1.4636 . 1605 25 . LOT .49 165 3 1 . 568 13.179 2.3954 .0277 30. .INCOME -.06075 - . 67686 2 . 62 14 -.25820 . 7992 35 , .ENERGY . 15234 .15033 .22987 . 65395 . 52 14 40 . STALLS .09897 1504.6 3565 . 7 .42196 .6781 4 .STORIES .09091 .42020 1.0849 .38731 . 703 1 5 .MASON RY -.27629 - 15.502 12.7 10 - 1 . 2 197 . 2383 9 . AGE - . 44522 -.86935 .41211 -2.1095 .0492 1 1 . UG .30036 11.782 8.8189 1 . 3360 . 1982 12 . ELEV . 3237 1 20.935 14 . 423 1 .4515 . 1638 13 .DATE . 13735 .34778 . 591 15 .58831 . 5636 14 . LOC 1 -.35157 -20.374 12.788 - 1.5933 . 1285 16 . L0C3 -.31151 - 16.943 12.182 - 1.3908 .1812 146a APPENDIX B TABLE B.1 REGRESSION RESULTS REMOVING VARIABLES HIGHLY CORRELATED WITH THE ENERGY VARIABLE <REG VAR = 25,30,35,40,45,7-9, 13-16> LEAST SQUARES REGRESSION ANALYSIS OF VARIANCE OF 25.VALUE N= 73 OUT OF 73 SOURCE REGRESSION ERROR TOTAL OF SUM SQRS 1 1 6 1 72 22550. 13692. 36241. MEAN SQR 2050.0 224.45 F-STAT 9 . 1332 SIGNIF .OOOO MULT R= .78880 R^SOR= .62221 SE= 14.982 VARIABLE PARTIAL COEFF STD ERROR T -STAT SIGNIF CONSTANT 4.0434 11.779 34327 . 7326 30. . LOT . 48 1 14 22.454 5.2381 4 . 2866 .0001 35 . INCOME .33598 2.8880 1.0366 2 . 7860 .007 1 40. .ENERGY .29244 .30395 .12726 2 .3885 .0200 45 . STALLS .18834 2702.8 1804.5 1 .4978 . 1393 7 . 01 .28734 15.280 6.5214 2 . 3430 .0224 8 . Q2 .21705 11.443 6.5891 1 . 7366 .0875 9 . AGE -.10167 -.10753 . 13472 79821 .4278 13 . DATE .50198 .81211 . 17915 4 .5331 .0000 14 . L0C1 -.41867 -22 . 648 6.2900 -3 .6007 .0006 15 . L0C2 -.19703 -14.992 9.5510 - 1 . 5696 .1217 16 . 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