By Marika Erdely, Founder and CEO of Green EconoME
It’s official! On March 1, 2018, the State of California’s Energy Commission (CEC) has reinstituted a statewide energy disclosure law, called AB 802, requiring building owners to annually disclose their building’s energy usage. This new law replaces the former AB 1103 disclosure requirement. Significant changes from AB 1103 include the incorporation of multi-family buildings and publicly disclosing the energy usage on an annual basis. This public reporting will provide investors valuable information regarding the efficiency of their potential investment and will ultimately affect market values.
AB 802’s schedule of implementation is as follows:
California’s former disclosure law, AB 1103, was repealed at the end of December 2015 due to issues with accessing tenant energy-usage data. Without this data it was difficult to ascertain the true energy efficiency of a building with multiple types of meters. Since then, utilities have been required to develop the ability to download “whole building” data into the EPA’s Energy Star Portfolio Manager software. This data now includes common-area and tenant energy-usage data. AB 1103 also did not have any enforcement mechanism while, with AB 802, the CEC has the authority to enforce the disclosure through Public Resource Code 25321.
The energy disclosure process, called Energy Star “Benchmarking,” requires a minimum of twelve months of energy usage data, along with certain physical and operational characteristics of a building, to be entered into the EPA’s software. The result is an Energy Star “Score” of 0 to 100, with 100 meaing the most energy efficient, when comparing the building against other similar building uses in the software. A weather-normalization process occurs by zip code.
The EPA software also provides Energy Utilization Index (EUI) scores, which are compared against the latest Commercial Building Energy Consumption Survey (CBECS). Since there are over 80 different building uses in the EPA software, almost every type of property can be benchmarked.
So, what are the benefits of benchmarking and why did California re-institute this disclosure? It’s simple: building owners/operators know that their building consumes energy and rightly become flustered when utility costs go up. Proponents of energy disclosure laws believe that if building owners/ operators knew their specific inefficiencies, especially when compared to other similar building uses, they’d work to become more efficient and save money in the process.
Considering that energy costs are a significant expense for any building owner/operator, increasing the operating income produces a more attractive building valuation and ultimately means that the more energy-efficient buildings will have higher market val uations. Some say this doesn’t matter since the real estate market is so “hot,” but when one considers buying and operating a building, it’s hard to imagine that this Energy Star Score won’t be considered and compared to determine the best investment.
In 2017 BOMA conducted a study on Energy Star Certified Buildings (Energy Star Score exceeds 75), showing that they experience indisputably higher rental values, higher sales prices, and lower occupancy rates compared to standard buildings. Energy Star scores are also a component of the LEED rating system. Thus, energy efficiency results in higher LEED credits.
Energy efficiency not only means LED lamps and wireless, programmable thermostats, it also means complying with Title 24, California’s energy building code. The State’s focus on providing increasingly stringent code requirements when completing retrofits pushes the industry to include occupancy sensors, dimming, lower wattages and higher lumens, all resulting in increased efficiency and, in many spaces, more comfort. Who wouldn’t want to dim their fixtures to their personal preference?
Though hard to believe in today’s culture, Title 24 projects that by 2030 all commercial buildings constructed in California will be Zero Net Energy (ZNE). ZNE simply means that all the energy consumed by a building ultimately gets offset, or canceled-out, by the amount of energy generated during the same time period. These buildings will have higher Energy Star scores.
So, as building operators retrofit their buildings and increase their Energy Star Scores, those not focused on the importance of efficiency will be left behind in their obsolete buildings with low scores and even lower market values.
This trend towards energy efficiency has already caught the attention of real estate professionals and those in large REITs or with large portfolios. In fact, many have been benchmarking their buildings for years. These investors know that the next generation considers it morally important to reside in Energy Star-certified or LEED buildings. These forward-thinking investors are ensuring the relevance of their buildings by making this investment. Those with smaller portfolios, or with one or two buildings, have made some progress, but many find the investment difficult to swallow and continue to feel that in a “hot” real estate market, it might not matter.
For anyone holding out, there are options to consider. Those currently developing projects can take advantage of the Savings by Design incentive program. By building at an efficiency of at least 10% above the current building code, the owner and their design team can receive utility incentives to build more efficiently. It is a great opportunity to receive incentives while building better than your peers. One of our clients used the proceeds of this program to invest in an energy-monitoring system, allowing them to understand the energy usage of their hotel and to uncover areas of energy waste. It’s a guarantee that the operator will save energy with the knowledge of when kW peaks occur – among the most expensive line items in any electric bill.
For those operating in existing buildings, both SCE and the LADWP are currently offering LED and HVAC incentives, which can greatly reduce the payback period on any type of energy-efficiency retrofit. Delaying means missing the window on these incentive opportunities.
Naturally, Solar PV systems are a great investment, even with the recent tariff increase. However, it is important to first make your building energy efficient, as these systems are based on your kWh usage and kW peak. The Federal 30% tax credit begins its decline after Dec. 2019.
Finally, although more expensive than conventional financing, PACE financing has become more popular for building owners who don’t want to invest any of their cash into the building. The PACE assessment can absorb the entire cost of an efficiency project and now can also include seismic retrofits to be added to the property taxes of the building. These assessments can be made for 20 or 30 years and stay with the building.
The bottom line is this: energy disclosure reporting is here to stay. And with energy efficiency tethered to the building code, understanding how your building measures up will undoubtedly affect your investment.
Marika Erdely is Founder and CEO of Green EconoME. In her previous life, she was a CFO for a land developer and home builder in Calabasas. Marika has an MBA, is a LEED AP BD+C, is a Certified Energy Auditor and a License B Contractor (#1001368). Marika has happily become a grandmother since she last wrote for the Bradco High Desert Report.
Green EconoME is a woman-owned, multi-disciplinary energy consulting and construction firm providing full-scale energy efficiency services to diverse public- and private-sector clients. Their objective is to increase the net operating income of a property to positively affect market valuations. They are accountable and committed to the performance of each project.
Contact Marika if you need help with energy disclosure reporting or wish to discuss making your building more energy efficient.