New Laws Are Taking Effect
Two laws pertaining to energy efficiency and climate change that were promulgated in 2019 are now sinking in and causing many buildings to change their ways. This could be a portend of things to come in other cities and nationally affecting many businesses.
Local Laws 133 and 95 assign energy grades to large buildings in NYC. These grades are based on Portfolio Manager ratings for which buildings are already required to upload total energy data annually. Buildings are required to post these grades in their front lobbies prominently. Like a restaurant with a grade based on cleanliness, these grades are based on energy usage per sq. ft. And NYC is a tough grader. Even buildings that would qualify for an Energy Star award from the USEPA could get only a B in the NYC system. Even being slightly above the median would give one a D. I have already gotten projects of buildings ashamed of their grades, looking for a better one.
Local Law 97 was promulgated in 2019. While it does not go into effect until 2024, it is beginning to shake up the NYC real estate world now. Initial studies show that buildings that are even in decent shape when it comes to energy efficiency are potentially liable for high annual fines (6 figures) and they only have 2½ years to implement upgrades to comply. Some upgrades may be major construction projects. Therefore, NYC buildings need to assess their energy usage, plan, and begin to implement very soon. Remember that a building’s total energy usage is assessed, even of your tenants who you may have no control over. Therefore, an understanding of their energy usage is critical.
Here are a couple of examples. I reviewed the historic energy usage and equipment of a subject, but relatively small, office building in a poor section of NYC. The temperature the day I visited was about 70⁰F, a pleasant day. Yet, the building’s boiler was on and radiators were hot to the touch. It was so hot in the tenant spaces that several were operating their air conditioners! Think of that: simultaneous heating and cooling when neither should be on (a beautiful day). And the building was full of T12 fluorescent tubes, the most inefficient tubes available. I plugged in their recent historic energy usage and calculated that if they used the same energy in 2024, they would pay a fine of $62,000 that year. This is a building with a lot of small, family-owned businesses; ownership cannot have a high revenue. A $62,000 annual fine would impact them greatly.
On the other end of the spectrum, I reviewed the historic energy usage and equipment of a subject, large office building in the financial district of NYC. Although they went through a major renovation of their heating system, they faced a $132,000 per year fine if their current energy usage continued in 2024. We developed several potential strategies, ranging from modest to robust in impacts. The property manager was wise enough to realize that just meeting their limit was not sufficient. They had to go well below it. What if there is a very severe winter or summer in 2024 and they have to give more heat or cooling that year than in the base year? They realized they had to give themselves a buffer to take into account an unpredictably severe season and are working to install smart strategies to get well under the limit.
NYC PACE Financing
The NYC PACE (Property Assessed Clean Energy) Financing Program has finally released its program guidelines and is beginning to take shape. The program was officially approved in New York City on June 16. This is critical as building owners need to work toward complying with Local Law 97 soon, requiring large capital expenditures for which affordable financing is critical. The NYC PACE Program will provide building owners with low-interest (usually around 6%), long-term (usually 20-30 year) financing for energy efficiency retrofits and renewable energy projects resulting from professional energy audit study recommendations. PACE financing will also result in significant mortgage tax savings.
In summary, new NYC laws are mandating many buildings upgrade their energy usage and equipment to be more efficient, burn cleaner fuels, and consider renewable energy sources with the threat of major fines and embarrassing grades which could affect rentability and asset value for not meeting standards. Yet the tools are coming into place to pinpoint the problems of energy waste, determine smart solutions, and financing to allow implementation sooner, rather than later to avoid Local Law 97 fines.
CCES has the technical expertise to determine your Local Law 97 compliance status and potential fine for non-compliance in 2024. If you provide CCES with complete, concise full-year energy usage, CCES can tell you your LL 97 status FREE of charge. CCES also performs energy audits and project management to provide you the information about numerous smart strategies to comply with LL 97 and improve your energy grade and to implement the strategies most effectively. Contact us today at 914-584-6720 or at karell@CCESworld.com.