Lease


First ever mobile post, so excuse the brevity.
Mayor Lee will sign the proposed ordinance into law tomorrow.

WHERE: Adobe headquarters, 601 Townsend

WHEN: 10 A.M., Friday, February 18, 2011

I wish I could be there, but I’m out of town.
Congrats, San Francisco!

For our comprehensive analysis, please click here

The San Francisco Board Of Supervisors unanimously passed the Commercial Buildings Energy Performance Ordinance.  The ordinance now goes to Mayor Edwin Lee for signature.  Mayor Lee is expected to sign the ordinance, and its provisions will go into effect as law. 

This is a major step for San Francisco.  Under the ordinance, San Francisco has the opportunity to make drastic cuts to energy use by existing buildings.  It is believed that San Francisco is the largest city to require energy audits of commercial buildings.

For our full analysis of the ordinance, click here

On Tuesday, the San Francisco Board of Supervisors unanimously approved the Commercial Buildings Energy Performance Ordinance on the first reading.  The ordinance will be read one more time at next week’s meeting of the Board of Supervisors, and if it passes again without changes, it will be sent to the Mayor for signature.  All indications suggest this ordinance will pass.

For our full analysis and a copy of the proposed ordinance, click here

As we’ve been reporting, the San Francisco Board of Supervisors may vote on the Commercial Buildings Energy Performance Ordinance this week.  The first reading of the ordinance will be Tuesday, February 1, 2011 at 2pm in the Board of Supervisors chamber at City Hall.   It is possible that the Board will vote at that time.  We will let you know how it goes.

For our full analysis and a copy of the proposed ordinance, click here

As mentioned on Friday, the Land Use and Development Committee for the City and County of San Francisco is holding a hearing on Monday, January 24, 2011 to discuss the proposed Existing Commercial Buildings Energy Performance Ordinance.  I encourage you to attend if possible.

The proposed ordinance would require certain commercial buildings to produce two reports, (1) an energy and performance audit every five years and (2) an Annual Energy Benchmark Summary (AEBS).   Save for any confidential information, the audit and the AEBS would be made available to the public.  The ordinance makes sense, but may place a cost on building owners that will inevitably be passed on to renters.  The upside is that renters usually pay for utilities, so energy savings may offset the cost of the audit…something to think about in a green lease, that’s for sure.

Here’s a short summary:

The proposed ordinance will require two reports.  The first report is the AEBS, and that will use the Energy Star Portfolio Manager Energy Performance Rating as a basis.  This report will likely not cost too much money as it is based on the Portfolio Manager software that is freely available, and the data is generated from the local utility (in the case of San Francisco, PG&E).

The second report is a building-wide audit (as defined by ASHRAE Procedures for Commercial Building Energy Audits) conducted by a third-party vendor.  As such, I am guessing the audit likely carries a higher price tag.  Full disclosure, I have never hired someone to do an energy audit for a commercial building, so I am only guessing that the fees are more than nominal.

After the initial three-year staggered start period (which will also be used for the AEBS), the required energy audit would be required once every five years.  As proposed, the audit requirement is as follows:  Level I audits (as defined by ASHRAE) are essentially “walk-through” audits.  These are required for buildings between 10,000 to 49,999 sq ft (smaller buildings).  Level II audits (as defined by ASHRAE) are comprehensive surveys and analyses, and they are required for all buildings 50,000 sq ft and above. (larger buildings).

If owners do not comply with the requirements they may face fines.  The fines are $100/day (for larger buildings) or $50/day (for smaller buildings) for every day of non-compliance up to 25 days per 12 month period.  In other words, the maximum fine per year is $2,500 for a large building and $1,250 for a small building.

In general I like the ordinance but there are some issues that should be addressed… (more…)

In Part One of our analysis of the report from the Mayor’s Task Force on Existing Commercial Buildings, we discussed the task force’s four themed approach to improving the energy efficiency of existing commercial buildings: 1) “maximize transparency,” 2) partner with the private sector, 3) attract game-changing capital, and 4) lead by example.  We now turn to theme two, “partner with the private sector.”

As discussed in Part One of this post, the transparency mandates suggested by the task force, and/or mandated under AB 1103 will force private industry to report energy use.  These reporting requirements will generate market forces that push buildings to higher energy efficiency.  But, will developers, owners, and tenants really compete in a race to the top of efficiency based on AB 1103 alone? The answer is “probably not,” or maybe I should say, “probably not quickly enough.”

Sure, required energy reporting will occur, but the desired reduction in energy use will not manifest rapidly.   Without government mandate and assistance for developers, owners, and tenants, the measures suggested by the task force, including mandatory energy audits, will create resentment and real hardship for businesses.  Also, the local taxpayers might not be happy with the incentives and rebates suggested to assist in deferring the cost (though some of the underwriting will come from state and federal grants).

The task force suggests two low-cost “tools” to rapidly generate efficiency results and ease the private burden of implementing energy efficiency.  The first suggestion is a “no-brainer,” but the second might not be as simple.

The first tool is the “Green Tenant Toolkit” (“GTT”).  Rather than simply mandating energy efficiency, the GTT proposes a “toolkit” with suggestions for developers, owners, and tenants regarding “best practice recommendations, a model green lease, [and] a standardized checklist to identify green features of spaces for lease.”  Also, as a part of the “partner with the private sector” theme, the task force suggests a public/private (dare I say) task force to come up with the language and suggestions for the GTT.  The proposed GTT is a quick and easy resource, and one that will ease the burden of implementing energy efficiency measures.

The second tool suggested by the task force is “unilateral submetering.”  This strategy proposes allowing tenants or landlords to implement submetering at the requester’s expense.  This is risky, and not completely thought out. First, this option likely already exists for a majority of tenants and landlords, and second the suggestion ignores the issues that arise from such a policy.

For example, unlike other tenant-level capital improvements, submetering affects the operating costs of other tenants.  Generally, a building’s utility costs are averaged, and then allocated to tenants based on square feet.  If a large tenant has a significant amount of space that is below the average energy use in a building, and that space is removed from the building energy calculation, the average cost will rise for other tenants.  Conversely, a landlord, at the bequest of other tenants, may submeter a power-sucking data center.  This action will lower rent for a majority of other tenants, but send operating costs for the data center through the proverbial roof.  It’s not quite that simple, but the example above is closer to the reality than the task force lets on.

To achieve the equity the task force seeks, unilateral submetering will need further analysis, or testing before city-wide implementation.  Perhaps if a tenant submeters, a landlord could be forced for one year to keep the submetered tenant in as part of the calculation for the building’s energy use averages until other tenants can take action to either lower energy costs or also submeter?  Or perhaps the city will limit the amount a landlord can raise an energy charge thus encouraging energy efficiency?  Perhaps other tenants will just have to “get with the program,” submeter, and increase their efficiency to realize ROI.  There are no easy solutions to this question, but submetering is an effective tool to reducing energy use, and is required for any effective energy efficiency policy.

The task force’s next suggestions – including the suggestion of a government fund to cover expenses for implementation of energy efficient technologies – will be covered in part three of our analysis.  Stay tuned…

In December, 2009, a task force convened by San Francisco Mayor, Gavin Newsom, issued a report on the steps necessary to make existing commercial buildings more efficient.  (Click here for the full report) It’s not as comprehensive or technical as reports one expects from the specialists and experts that comprise the task force, but it is a good policy report. Why am I slightly “cool” on the report?  It’s no fault of the task force.

The reason is because it’s a policy report, and until the policies are enacted, the report is just hot air blowing in December. (Cue sly grin for “hot air” pun).  The reason this post is coming up now, however, is not only the fact that I’m finally getting around to it, but also the fact that Mayor Newsom seems to be as well…(getting around to the report, that is).

San Francisco has arguably the best green building track record of any city in the United States, so if anyone can enact the recommendations, San Francisco can. As you will read below, Mayor Newsom is reportedly going to propose enacting one of the recommendations into law.  Before addressing the proposed law, let’s look at how the task force recommends we fix the existing commercial buildings.

Rather than reinvent the wheel, the task force recommends following the California Long Term Energy Efficiency Strategic Plan (CEESP).  CEESP sets a goal of zero net energy for new (and some existing) residential buildings by 2020 and commercial buildings by 2030. Regarding existing buildings in San Francisco, the task force believes the CEESP goal could be achieved with a 50% reduction in all existing building energy use by 2030.  That amounts to a 2.5 % reduction in energy use every year . . . daunting, but doable.

The task force report uses four general “themes” to suggest meeting and exceeding CEESP:  1) maximize transparency, 2) partner with the private sector, 3) attract game-changing capital, 4) lead by example.  I will address each of these in turn, but don’t worry, I only address number 1 in this post. The rest will wait for Part 2.

1) Maximize Transparency:  The task force recommends the disclosure of energy performance for all existing commercial buildings.  Sounds pretty good, right?  Well, the requirement to disclose energy efficiency in commercial buildings has been law for some time now.  AB 1103, enacted in 2007, with requirements set to trigger in 2009 (delayed until July 2010), requires “electric and gas utilities . . . to maintain records of the energy consumption data of all nonresidential buildings to which they provide service.”  And the utilities must provide those records to property buyers, tenants, or investors.

According to the San Francisco Examiner, the mayor will propose a similar requirement shortly, but with the added bonus that the energy consumption data would be available to the general public.

This idea sets off a slew of potential legal issues, and here’s one: From a transaction side, a lease now has new potential incentives and benchmarks.  If a tenant reduces energy consumption over a series of years, that could be worth a bonus from the landlord because it makes the property more valuable from a public relations standpoint and also from a re-sale re-lease perspective.  On the contrary, a landlord may simply require that a tenant improve energy efficiency every year, and set penalties if they fail to meet the benchmarks.  A successful business relationship will find a middle ground, but these are certainly new bargaining chips.  Just think we haven’t even entered the world of cap and trade…

Lets also remember there is no current penalty for failing to increase efficiency.  The rest of the task force recommendations rely on private help and public leadership.  Is that enough? I’m not so sure…

Stay tuned for Part 2….

(Editor’s Note: check out the Institute for Market Transformation – a great resource I found in researching some of this post.)

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