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Would impact some transactions on Jan. 1; negotiations continuing

CALIFORNIA – Energy usage will soon be one of the disclosures involved in many California commercial real estate transactions under regulations being finalized as part of the state's fight against climate change.

Assembly Bill 1103 of 2007 will require property owners to provide a report with 12 months' worth of comparable energy-use information along with contracts for sales, refinancing and major leases.

Regulations to implement AB 1103 are set for completion this summer and California Energy Commission adoption by November. Currently, a year of energy usage for single-tenant buildings larger than 50,000 square feet and owner-occupied buildings larger than 1,000 square feet would be required starting Jan. 1. That would expand to non-owner, single-tenant occupied buildings larger than 10,000 square feet Jan. 1, 2012, and to all larger than 1,000 square feet July 1, 2012.

It's taken two and a half years to get to this point. That included passage of Assembly Bill 531 last year to phase implementation over 2011-12, rather than 2010 called for in AB 1103, and to protect energy usage information for tenants that pay their own utilities.

"They've come a long way," said Matthew Hargrove, senior vice president of governmental affairs for the California Business Properties Association, of the draft regulations after meetings with the commission last week. "We're down to basically four main issues that we're asking the CEC to address."

The Sacramento-based trade group wants clarity on what building energy-use information is required for compliance, a safe-harbor provision to prevent stalling of transactions and delay of the start date to June 1, 2011, to fully test software for reporting raw energy usage on buildings not fully addressed.

During the legislative process for AB 1103, the properties association and other groups pushed for use of the U.S. Environmental Protection Agency's Energy Star Portfolio Manager online property benchmarking software, rather than the newly created California Nonresidential Building Energy Performance Rating System proposed in early draft regulations.

The latter is part of a statewide energy-benchmarking program for homes and nonresidential buildings and linked to the Go Solar California initiative.

The Energy Star system provides one-to-100 energy-performance rating for buildings based on input information, with a custom California Energy Performance Disclosure Report produced for AB 1103 compliance.

However, the Portfolio Manager ratings aren't available for some types of buildings, particularly retail properties such as malls. So the draft AB 1103 rules call for submission of raw energy-use data, called the Portfolio Manager Energy Use Index. The ability to generate that index is still being created, but AB 1103 and similar laws coming from New York City and Florida, along with prodding from the International Council of Shopping Centers, could accelerate development, according to Mr. Hargrove.

"You're going to have a lot of people out there opening Energy Star accounts for buildings that will not be able to get a score," he said.

The fourth issue the properties association has been opposing is any regulation that would include the index data along with the report.

Standards on new and renovated homes and buildings in the state’s Title 24 energy-efficiency code have been increasing since 1978. Yet increasing efficiencies in other existing buildings has been a goal of the implementation of Assembly Bill 32, the Global Warming Solutions Act of 2006.

Commercial buildings account for more than a third of electricity consumption in the state and are a significant contributor to California’s tally of greenhouse-gas emissions, according to a December 2004 executive order from Gov. Arnold 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.

For more information, visit www.energy.ca.gov/ab1103.