Is your Portfolio Proactively Positioned to address the increasing number of Energy Performance Regulations?
On January 1, Washington DC's Building Energy Performance Standards became the latest jurisdiction to enact a Performance-Based Building Energy Standard
While most of the world remained focused on the politics which have seized the current news cycle, if you are a real estate owner in the District of Columbia of an asset over 50,000 square feet and already mandated to benchmark, the new Building Energy Performance Standards (BEPS) applies to your building.
What is deeper, however, is the potential implications to your portfolio outside of the District of Columbia as well. We have already witnessed the passage of New York City’s Local Law 97, which in 2024 will carry a civil penalty of $268 per ton of emissions above the limits set by LL97, potentially creating 6+ figure fines. Los Angeles has placed into law the Existing Buildings Energy and Water Efficiency Ordinance (EBEWE), designed to reduce 2016 level energy and water use by 30%. 2020 saw St. Louis adopt the midwest’s first Building Energy Performance Standard, similar to the DC ordinance also aimed at reducing instead of only reporting energy consumption. Boston likewise is well into the implementation of their own Building Energy Reporting and Disclosure Ordinance (BERDO) which includes a requirement of decreasing energy usage and carbon emissions every 5 years.
Managing a portfolio means mitigating risks related to regulatory requirements, including reporting and energy performance requirements. To manage risk, it is best to first understand the risk, so let’s dive a little deeper into the District of Columbia’s BEPS program as an example:
What does that mean?
Starting January 1, 2021, existing buildings that meet BEPS criteria will be required to meet a minimum threshold of energy performance. While past benchmarking requirements required buildings to report their performance of energy consumption - this new law actually sets minimum criteria that the building must perform. Every six years these criteria will be set into increasingly more efficient performance levels, called BEPS1, BEPS2, etc.
In addition to increasingly more efficient energy and water consumption minimums, the number and size of the included properties will also increase over time:
BEPS1: Private buildings >50,000 sq ft and DC owned > 10,000 sq ft
BEPS2: Private buildings > 25,000 sq ft and DC owned > 10,000 sq ft
BEPS3: Private buildings and DC owned >10,000 sq ft
There are multiple paths for compliance in each five-year compliance cycle:
Performance Path: reduce energy usage by 20%
Prescriptive Path: Implement cost-effective energy efficiency measures
Standard Target Path: For property types above the national median, meet the standard
Alternative Compliance Paths: Allows the building owner to apply to follow a path with an approved alternative special criteria
What does this really mean?
It means not only must you track your building energy use but also depending on where that building use falls against the BEPS1 standard, you may need to develop a plan to meet the BEPS1 standard. If you already meet the BEPS1 standard, you have no current legal requirements, but it is suggested that you look ahead to BEPS2 and start developing a strategy to stay above that standard as well. For those buildings below the standard, the five-year compliance path selected provides compliance.
Frequently asked questions can be found at this link.
So what if I decide to ignore it?
While the fine structure has not been published yet, the DC Department of Energy & Environment states that fines will be set at a level that results in non-compliance outweighing compliance. In recent webinars discussing the program, the proposed fine structure is substantial, as in your NOI will definitely be impacted (if not eliminated) if you choose to simply ignore the ordinance.
So what do I do?
The initial step, as in any sustainability initiative is making sure you have the data around the energy performance of your property. While building data is required and Energy Star’s Portfolio Manager is the reporting platform for DC’s currently required benchmarking ordinance.
Once you understand your energy consumption, you will need to determine how that consumption compares against the BEPS standard in effect. As noted, if you already exceed that standard, there is nothing immediate required to do.
This is where you will then want to engage with an Energy Efficiency Consulting Specialist, such as Bright Power. Working with an engineering team, you can access the compliance paths to determine which path delivers the most cost-effective strategy to meet the standard.
Real estate has always been called local, and when it comes to site-specific strategies this holds true. The specific measures to get to compliance in one property may be quite different in another property. In each case, an educated understanding of how the building is consuming energy is required and identification of effective energy efficiency measures will be critical. This is likely followed by boots on the ground audit, and then implementation of measures designed to reduce energy consumption, leveraging utility incentive programs when possible to help offset costs.
Get proactive in your portfolio.
You can see from the DC BEPS example, this is a time-consuming process that is complicated by geography. The more diverse your portfolio, the more likely you have buildings that are sitting in jurisdictions with reporting or performance ordinances. These ordinances are increasing in frequency and with a more regulatory friendly federal government, this trend is likely to continue.
This means you need to know not only the actual consumption data of your portfolio’s energy and water but also how does it compare against similarly benchmark properties. While Energy Star Portfolio Manager does provide this ability, like several other commercially available products, the tools fail to provide an analytical interpretation of the data. The user is going to have to interpret the results.
The data service you are using must have not only a robust number of like properties for benchmarking purposes but include assistance such as dedicated energy analysts looking at the data and helping identify action-ready insights and recommendations to decrease utility energy and water use. DYI can be done with a small number of properties, but the more complex or larger the portfolio, scale becomes a real issue and you need a trusted data service partner who can help you identify where you should be looking and what you should be looking for.
The larger the portfolio or the busier your workload, the inclusion of automated alerts and notifications can help manage your time and allow you to focus where that focus is most impactful.
As a prior owner representative, it was also critical to be able to distinguish between owner paid and tenant-paid expenses. While it is true, we want to reduce the overall impact of all of the built environment, understanding where the cost of the inefficiency is helps to focus on where the impact truly lies. If I am reducing tenant costs, I may well position that reduction differently then if I am reducing owner paid expenses.
While this may at first seem intimidating, the good news is there are existing solutions already in place that can focus specifically on energy and water efficiency, allowing you to focus more on the overall sustainability strategy of the organization. Don’t have a sustainability strategy? The same benefits can be applied to expenses managers, as every reduction in environmental impact is accompanied by a reduction in economic impact as well.
You can help reduce the impact of the built environment by sharing this blog with your peers. Together we can impact the 39% of greenhouse gasses attributed to the built environment. It starts with awareness and we succeed with teamwork.
Stay well!
Chris Laughman is the ThirtyNine Blog author, a blog dedicated to reducing the impact of the built environment. When not blogging, Chris is helping the real estate industry reduce energy and water impact as the Vice President of Sustainability for Conservice, the Utility Experts. Whether Multifamily, Single Family, Student Housing, Commercial, or Military, we simplify utility billing and expense management by doing it for you. Our insight into your utility consumption provides an opportunity to identify risks. Leveraging innovation and experience we ignite solutions with real impacts and track performance to ensure the trendline stays laser-focused on the goal. At Conservice we have developed a true bill-to-boardroom solution to help truly make a difference. We have before us a tremendous opportunity. Standing shoulder to shoulder, we will get this done. Contact me at claughman@conservice.com for more information.
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