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December 21, 2020

Stroock Client Alert

By: Jeffrey R. Keitelman, Kim Pagotto, Matthew J. Davis, Raymond "Rusty" Pomeroy II

The D.C. Department of Energy and Environment (“DOEE”) recently published a Notice of Proposed Rulemaking regarding Application of the Building Energy Performance Standards for Privately-Owned Buildings (“BEPS Rule”), as required under the Clean Energy D.C. Omnibus Act of 2018 (the “Energy Act” or the “Act”). The DOEE also has published Notice of Rulemaking regarding Energy Performance Benchmarking of Privately-Owned Buildings (further discussed in part IV below).

The Energy Act is intended to address issues related to climate change. The Act sets aggressive goals for the District to achieve 100% renewable energy usage by 2032; promotes a doubling of solar deployment in the District; provides energy bill assistance to low and moderate income residents; provides funds for clean energy projects; requires public transportation and private fleet vehicles to be emissions free by 2045; and, as relevant here, mandates energy efficiency improvements in buildings through implementation of Building Energy Performance Standards (“BEPS”).  The BEPS establish specific energy performance criteria for certain building classifications, based on EPA Energy Star scores or through energy use intensity values (“EIUs”), with the goal of significantly reducing greenhouse gas emissions and energy usage.

The proposed BEPS Rule (available here[1])  is intended to assist owners and operators of privately owned buildings by providing instructions on how to comply with the BEPS. Specifically, the proposed BEPS Rule (i) provides guidance to building owners with respect to identifying the buildings to which the BEPS are applicable, and (ii) establishes performance and procedural requirements for buildings that are not in compliance with the BEPS.  The public may comment on both of the proposed rules and the process for making such comments is outlined in part V below.

I. Building Energy Performance Standards

BEPS are standards set forth by the DOEE for the energy performance of certain types of buildings based largely on EPA’s Energy Star and Portfolio Manager tools. The BEPS are minimum performance standards, and the Act requires that they be set no lower than the local median Energy Star score by property type. The goal of the BEPS is to reduce greenhouse gas emissions and energy consumption from covered buildings.  The BEPS applicable to the Act’s initial compliance cycle, which commences January 1, 2021 and applies to buildings of 50,000 sq. ft. or more, have not yet been released. The proposed BEPS Rule, however, requires that BEPS be established prior to the commencement of each compliance cycle; therefore, we expect the initial BEPS to be released imminently.  Thereafter, the revised BEPS are issued every six years (“BEPS Periods”), and expand the universe of covered buildings based on a phased-in schedule as follows:

  • buildings greater than or equal to 25,000 square feet commencing on January 1, 2027; and
  • buildings greater than or equal to 10,000 square feet commencing on January 1, 2033.

A building that does not meet the required BEPS at the commencement of each BEPS Period enters into a compliance cycle and the building owner must elect one of the “compliance pathways” provided for in the proposed BEPS Rule.[2] Once a compliance pathway is selected, the building owner must take steps to bring the building into compliance within five years (i.e., by the end of the compliance cycle).[3] If a building does not meet the applicable BEPS and the building owner does not demonstrate complete implementation of a compliance pathway prescribed by the proposed BEPS Rule, then the owner may be subject to penalties, termed “alternative compliance penalties.” The proposed BEPS Rule provides alternative compliance penalty maximums, based on building size, as follows:

 

Building Gross Square Feet

Maximum Penalty Amount

500,000 and up

$ 7,500,000

200,000 – 499,999

$ 5,000,000

100,000 – 199,999

$ 2,000,000

50,000 – 99,999

$ 1,000,000

25,000 – 49,999

$    500,000

10,000 – 24,999

$    250,000

 

These maximum penalties may be reduced proportionally to the building’s performance relative to its compliance pathway target. The method by which such reductions are calculated is set forth in the proposed BEPS Rule.

II. Reporting and Verification Requirements

The proposed BEPS Rule includes a number of reporting and verification requirements of which building owners should be aware. These requirements principally relate to the owners of buildings that are not in compliance with the BEPS at the outset of the BEPS Period, and require the building owner to select one of the available compliance pathways, and verify the plans and activities undertaken by the building owner to bring the building into compliance with the BEPS.

Importantly, the proposed BEPS Rule also imposes obligations on building owners who sell buildings during any compliance cycle. Sellers are required to provide information to buyers, prior to the sale, including information submitted to the DOEE regarding the BEPS, the most recent benchmarking and compliance reports for the building, and information on the building’s progress toward meeting the BEPS.

As a result of the COVID-19 pandemic, the proposed BEPS Rule provides that all reporting and verification requirements for the initial BEPS period are to be extended for one year.

III. Exemptions and Compliance Delays

The proposed BEPS Rule authorizes the DOEE to grant requests for delays to the various performance and reporting requirements, and in very limited circumstances grant exemptions from the BEPS.

Building owners may apply for a delay in the performance and reporting requirements via an online BEPS portal. Delays may be granted by the DOEE for up to three years (longer for qualifying affordable housing) upon a showing of good cause. In order to show good cause, a building owner must provide substantial evidence that meeting the requirements is “practically infeasible” due to financial distress; a change of ownership; major renovations; the building becoming unoccupied; pending demolition; or change in the primary classification of the property.

The proposed BEPS Rule also includes an obligation of the DOEE to grant an exemption from BEPS for buildings that are demolished immediately prior to or during a compliance cycle.

The proposed BEPS Rule also includes a broadly applicable one-year delay option as a result of the COVID-19 pandemic.

IV. Proposed Rulemaking for Benchmarking

Energy benchmarking was a program that originally required owners of private buildings in excess of 200,000 square feet of gross floor area to benchmark their energy and water efficiency and report the results to the DOEE. Pursuant to the Energy Act, and commencing January 1, 2021, all privately owned buildings over 25,000 square feet of gross floor area will be required to benchmark. The benchmarking requirement will further extend to all privately owned buildings over 10,000 square feet of gross floor area on January 1, 2024. The update to the benchmarking rule (available here[4]) implements these changes and other requirements of the Energy Act. The proposed rulemaking is also currently open for public comment. 

V. Providing Comments on the Proposed Rules

Comments to the proposed BEPS rule should be clearly marked “Public Comments: BEPS” and may be submitted to the DOEE, Benchmarking, 1200 First Street, N.E., 5th Floor, Washington, D.C. 20002, Attention: Building Performance and Enforcement Branch; or e-mailed to info.BEPS@dc.gov.  Comments must be received prior to February 2, 2021.

Comments to the proposed benchmarking rule should be clearly marked “Public Comments: Energy Performance Benchmarking” and maybe be submitted to DOEE, Benchmarking, 1200 First Street, N.E., 5th Floor, Washington, D.C. 20002, Attention: Katie Bergfeld; or e-mailed to info.benchmark@dc.gov. Comments must be received prior to January 3, 2021.

All comments are treated as public documents and will be made available by the DOEE for public viewing.

*  *  *

Stroock’s national team of accomplished real estate lawyers are highly experienced in the Energy Act and other, similar measures such as New York City’s Climate Mobilization Act. Our team of specialists can help you assess the implications of these measures on your buildings, assist with the process of developing and submitting comments, and help you navigate the Act’s requirements to provide you with a clear path to achieve your business objectives. 

VI. Resources

The following are resources that are available to the public relating to the Energy Act:

1. The DOEE offers numerous resources relating to the Energy Act. The homepage of the DOEE can be accessed here.

a. The BEPS portion of the DOEE website can be accessed here.

2. The Building Innovation Hub (“HUB”) provides a multitude of resources for building owners, operators, designers, contractors, and tenants with the goal of helping the same improve their buildings.  The HUB can be accessed here.

a. You can sign up for periodic updates from the HUB here.

3. The DOEE holds monthly updates via webinar on BEPS.  These webinars are open to the public free of charge and can be registered for at here.  You will have to create an account with Eventbrite to register for the webinars and you must register for each specific webinar you wish to attend.

a. Notes: 

i. The Energy Act also created a BEPS task force. The purpose of the BEPS task force is to advise the DOEE on how to implement the BEPS program. The BEPS task force webpage can be accessed here; and
ii. Slide decks for prior BEPS webinars are available here.

4. The DOEE has also released a report (available here) the provides the thought process behind the various proposed rules.

______________________________

For More Information:

Jeff Keitelman

Kim Pagotto

Matthew J. Davis

Raymond "Rusty" N. Pomeroy II

[1] To view the text of the proposed BEPS Rule you must click on “View text” in the “Notice File” portion of the linked website.

[2] If a building owner fails to select a compliance pathway, the DOEE may assign one to the building.

[3] The proposed BEPS Rule provides a one-year extension of the initial compliance cycle, commencing in January 2021, as a result of the COVID-19 pandemic (i.e., the original compliance period for the initial BEPS Period would have ended on December 31, 2025; however, with the one-year extension, the compliance period for the initial BEPS Period will end on December 31, 2026).  

[4] To view the text of the proposed rule you must click on “View text” in the “Notice File” portion of the linked website.

This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome

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