Energy Disclosure: It’s the Law In Many Places

In the US, we are currently dealing with a real conundrum. It is in the nation’s interest to reduce our energy usage, to reduce greenhouse gas and other emissions, to reduce our need to build more power plants and energy infrastructure, and to be more energy independent. But, on the other hand, Americans fear new regulations and standards to comply with to achieve this. So, how can we reduce energy usage without “government intrusion.” One idea is to mandate a building owner to disclose its energy use, but not require the owner meet a standard. Diverse new rules have been passed in cities from Seattle to Washington, DC, and New York City (plus several states) mandating energy reporting. The thinking is that if comparative energy data is available for potential buyers or tenants to review, then building owners may be motivated to reduce energy usage without feeling that they have to.

Different Approaches in Different Areas

These recent rules differ between jurisdictions, but have the same approach: require submittal of easy-to-find, sufficient building-specific general and energy usage information to develop a score (usually through the USEPA’s Portfolio Manager) to rate the building. Some rules apply only to commercial buildings, some also apply to residences. Some jurisdictions require all subject buildings greater than a certain threshold size to report (i.e., New York City, >50,000 sq. ft. gross area – in some cities, the threshold is lower); others require disclosure of a subject building only when it is undergoing a transaction (i.e., California’s new rule, to go into effect in 2013, is only for a perspective buyer or new major tenant). The New York City rule (Local Law 84) exempts a commercial building which utilizes at least 10% of its floor space for energy-intensive operations, such as film studios, trading floors, and data centers. They still must submit data, but their scores will not be compared to standard office buildings.

How Public Will the Data Be?

A debate is ongoing about how available should this information be. In many cities, data and ratings will be published in full. New York City just published a summary report of 2011 submittals for 2010 energy usage and data from its first set of commercial buildings. This included data from tens of thousands of subject buildings, including energy intensity (kBtu/sq. ft), Energy Star score, and GHG emissions. The spreadsheet allows even a casual user to do “comparison shopping.” In California, data will be released only for buildings in a transactional situation, and the data will be shared only with affected parties. But in this era of open information it is unclear how to keep such data private (FOIA or the buyer posting data). In this era of Facebook, LinkedIn, and other social media, posted energy data and success can, in a short time, be shared with the general public or a specific segment, such as real estate brokers or potential renters and buyers.

How Will Energy Data Be Used and Perceived?

For most of the new rules, use of USEPA’s Portfolio Manager is required. It is a respected, free software program that allows entry of basic building and energy data (i.e., type, location, conditioned square footage, electricity and fuel usages, etc.) to develop an Energy Star “score,” a percentile from 0 to 100. A score of 50 means that the building fits in the median for similar building types and size.  A score of 75 or greater enables the building to earn the Energy Star label from the USEPA.

Some are concerned that a simple score cannot accurately describe a building. Each building may have unique features holding it back from a better score. The USEPA is currently revising Portfolio Manager to address such concerns, and will release its new version in early 2013.

Data gathering also depends on tenant cooperation. In some places, such as California, the owner cannot “force” a tenant to share its utility bills, even for mandatory energy disclosure. Thus, agencies must address data quality issues (for example, estimation of key values) and readers (stakeholders) must understand not to take scores too literally. Is a building with an Energy Star score of 70 better performing (energy-wise) than one with a score of 40? Probably. What about 70 compared to 69? There is probably no significant difference.

In addition, another concern is the changing modes of business. Business must be flexible. How a building operates now can change fairly quickly to respond to new tenants or their changing needs, such as needs for new equipment or changes in operation that may change energy usage patterns. These issues may not be reflected in an energy intensity or Energy Star score released.

What Are The Future Benefits of Energy Disclosure?

There are likely to be many. As discussed above, it gives the consumer (potential renter or buyer) more information about the energy characteristics of a building that was never available before for both budgeting and bidding purposes. Having a building’s energy performance available in a public forum could also give the owner/manager the motivation to invest in energy performance improvement strategies, reducing costs and emissions. Disclosure of actual energy performance emphasizes feats, rather than actions, which in some ways differs from green building programs like LEED, which, awards points for implementing practices even if results are unclear.

Energy disclosure will also likely impact real estate appraisals. Appraisers have historically not considered energy performance strongly when evaluating a building, mainly because of the lack of comparative industry-wide data and the appraisers’ lack of knowledge. Now with Energy Star scores and energy intensity issues better understood, energy performance will now likely influence building value, and will reward those becoming more energy efficient.

In summary, government agencies see energy disclosure as a relatively painless and inexpensive way to improve large scale management of energy resources, while not spending huge resources on enforcing energy standards. There is growing interest in this by more jurisdictions.

Marc Karell is the owner of Climate Change & Environmental Services. CCES experts can help you assess your site-specific energy usage, using Portfolio Manager, energy models, and other tools. We can manage your compliance with an energy disclosure rule or just for you to have the information. As important, we can also perform simple or more complex energy evaluations and develop reasonable strategies and options for you to consider to reduce your energy usage and to save you significant costs with reasonable return on investment. Call or e-mail for a free, no-obligation discussion or more information now.

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