Investigating energy use is part of the due-diligence process of many commercial property transactions now, but starting next year a formal report with that information will be required as part of the sale, lease or financing of nonresidential buildings under a new state benchmarking law.
Assembly Bill 1103, signed into law in 2007 and set to start taking effect in 2010, will require owners to provide 12 months' worth of comparable energy-use information to prospective buyers or full-building tenants as well as financiers. It was originally scheduled to take effect for all properties Jan. 1, but draft implementation regulations from the California Energy Commission last month proposed a three-year phase-in period, starting with the largest buildings in July 2010.
"The intent is to get the awareness of energy performance to go toward state goals of energy and greenhouse-gas reductions and to give metrics of importance of the use of buildings in the decision-making process," said Martha Brook, senior mechanical engineer in the high-performance buildings and standards-development office of the California Energy Commission.
AB 1103 is part of a statewide energy-use benchmarking effort that started with the electricity shortages early in this decade and gained momentum with the state's fight against climate change, which included a December 2004 executive order from Gov. Schwarzenegger. The order called for the energy commission to develop benchmarks that encourage owners of commercial property to reduce energy consumption in their buildings by 20 percent from 2003 state standards by 2015.
Commercial buildings account for 36 percent of electricity consumption in the state and are a significant contributor to California's tally of greenhouse-gas emissions, according to the order. The state's Title 24 energy-efficiency code has incorporated increasingly stringent standards on new and renovated homes and buildings since 1978, but developing a way to increase efficiencies in other existing buildings has been a goal of the implementation of Assembly Bill 32, the Global Warming Solutions Act of 2006.
AB 1103 starts addressing energy efficiency in standing commercial and institutional space through inclusion of an energy-use assessment along with other transaction- and financing-related disclosures.
Disclosure-only legislation isn't a problem for commercial real estate, according to Al Coppin, president of the North Bay's largest brokerage, Keegan & Coppin.
"It's a part of the greening of the industry," Mr. Coppin said.
Disclosure of electricity and natural gas usage for at least 12 months under AB 1103 is based on a performance report generated by the U.S. Environmental Protection Agency's Energy Star Portfolio Manager free online software.
Utilities were supposed to start compiling building data this year, but the law ran up against privacy issues because common lease structures put the tenant in control of energy meters. Upon request of the building owner or operator for utility data to get a rating, the utility would need to get permission from the customer before releasing the data.
"In most industrial buildings the tenant pays the utilities, so the owner has no control over how the tenant uses energy," said Ron Profili, a Napa-based owner of several hundred thousand square feet of space in south Napa and north Santa Rosa. He worries that, like U.S. Food & Drug Administration food-grade ratings for facilities, a low energy rating could devalue a property.
Pacific Gas & Electric Co. is working with the county of Sonoma to market the Sonoma County Energy Independence Program, which is property-tied AB 811-based energy-retrofit financing, to property owners that want to increase energy ratings without a huge upfront cost, according to Dave Brennan of the Sonoma County Transportation Authority.
A "clean-up" bill, AB 531, which loosens the Jan. 1 start of AB 1103 and resolves confidentiality issues with utilities' transmitting anonymous building data to the Energy Star database for rating purposes, moved to the governor's desk in late August.
The energy commission's August draft AB 1103 regulation calls for an additional benchmarking system, called the California Nonresidential Building Energy Performance Rating System, which all buildings would be required to use. It would also cover Energy Star rating gaps for buildings not able to receive an Energy Star rating.
"At the time, nobody knew that Energy Star would not provide a 1-to-100 rating for all buildings," Ms. Brook said.
The California rating would assess sources of inefficiency, known as an asset rating, rather than analyzing utility-bill data, which is a performance rating. A test version is online at www.gosolarcalifornia.org.
Real estate trade groups successfully encouraged the Legislature to limit ratings specifically to the widely used Energy Star system, rather than the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) system, and to not allow building ratings to be disclosed publicly, as was originally proposed, according to Matthew Hargrove, senior vice president of governmental affairs for the California Business Properties Association.
"We think it is a much better metric for greenhouse-gas reduction because it measures actual energy used," he said. "The commission's benchmark is very complicated, and it will hurt the economy because it will chill real estate transactions."
The implementation timetable currently being explored for disclosures is July 1, 2010, for large owner-occupied buildings that can be rated by Energy Star Portfolio Manager; July 1, 2011, for all medium and large buildings using both the Energy Star and California ratings; and July 1, 2012, for all commercial buildings.
Complex benchmarking issues still to be addressed include totally or substantially vacant buildings; commercial condominiums; varying industrial uses in the same space, such as fabrication and warehousing; and changing retail uses, such as restaurants and product sales, according to Ms. Brook.
For more information, visit www.energy.ca.gov/ab1103.
