A Dissenting Opinion on Letter Grades for Buildings

Beginning in 2020, New York City co-ops and condos larger than 25,000 square feet will be required to post a letter grade, from A to F, that reflects the building’s energy efficiency. These letter grades will be derived from the building’s Energy Star score, which is based on energy consumption data gathered annually under Local Law 84, the city’s benchmarking law. The federal Environmental Protection Agency computes Energy Star numbers by using a nationwide database to compare the energy consumption of buildings of comparable size, usage, occupancy, hours of operation, and location. 

Energy Star scores range from 1 to 100. An A grade will be awarded to buildings with an Energy Star score of 90 or above, meaning they’re more energy-efficient than 90 percent of comparable buildings nationwide. The grade of B will be awarded to buildings that score 50 to 89; a C for 20 to 49; a D for 0 to 19; and an F for buildings that are required to submit benchmarking information but failed to do so. There are three very obvious problems that compromise the credibility of this grading system: 

Square Footage. Benchmarking uses a formula to establish Energy Use Intensity (EUI), which is the amount of energy used per square foot in the building. The lower the EUI, the more efficient the building. The problem with this metric is the use of square footage rather than cubic footage. Some older buildings have heights of 12 feet between floors, while others may have 8 feet. A building with higher ceilings may have almost one-third more space to both heat and cool than a building with lower ceilings. It’s easy to see how buildings with the same energy use per cubic foot, the correct metric, could be awarded an artificially low letter grade. 

Building Demographics. Certain segments of the population spend considerably less time in their apartments than others. For instance, at a large apartment building in Midtown Manhattan, electricity usage during the summer months was lower than at other times of the year. At first blush, the building appeared enormously energy efficient. But in truth during the summer the occupancy of the building was only about 40 percent – and considerably less during weekends. Thus buildings where wealthy people live may score very well compared with moderate- or low-income buildings, simply due to occupancy. The metrics do not take this into account. 

Density and Apartment Size. Buildings with large apartments often use considerably less electricity than buildings with smaller units. Except in extreme cases, most apartments have one kitchen and one living room. Larger units may have home offices and playrooms, while in smaller apartments these functions are concentrated in fewer rooms. A building with five 400-square-foot units would have the same space as one 2000-square-foot unit. And yet the Energy Star rating would treat the two buildings identically, even though the former has five kitchens with appliances, probably computers, too. 

Of course co-op and condo boards have little if any control over the way residents use energy in their apartments. As discussed above, buildings with smaller apartments, higher densities and higher ceilings will receive a worse letter grade, while buildings with more affluent residents and larger units will score much better. The letter grades, it turns out, have little to do with energy efficiency. The intention of grading buildings is good, but the way they’re doing it is terrible. 

Lewis Kwit is president of Energy Investment Systems.