Category Archives: Legislation

How the Sequester will Impact the Home Energy Efficiency Industry

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By Johnny Ritzo

Home Performance with Energy StarThere has been considerable speculation about how the mandatory budget cuts, known as the sequester, will impact key government functions beginning March 1, 2013.  Primary concern has focused on large-ticket items such as national defense, education, and transportation.  But what about the Home Performance Industry?  The White House has made broad claims that the sequester will hurt the Renewable Energy Industry, but details regarding home energy efficiency, in particular, have been sparse.

The hardest-hit agencies in the energy efficiency sector will be the Department of Energy (DOE) and the Environmental Protection Agency (EPA).  Under the Budget Control Act of 2011, such non-exempt federal departments, such as the DOE and EPA, are required to trim roughly 8.2% from their budgets during FY2013.  Lacking the authority to prioritize particular goals, the budget cuts will apply evenly across the DOE and EPA’s programs and projects alike.  The following is a summary of the anticipated cuts and their impact.

Less Focus on Scientific Innovation: Both the DOE and the EPA fund significant grants for scientific research in energy efficiency, solar energy, battery storage, and other critical areas of the Renewable Energy Industry.  In addition to reducing available grants, both organizations will have to downsize research labs and operations.

Cuts to Weatherization Programs: The DOE is expected to reduce contributions to state programs providing weatherization services to low-income families.  Department experts project that the budget cuts will lead to 1,000 fewer homes being retrofitted during FY2013.  Another significant result is that up to 1,200 weatherization professionals could lose their jobs, according to the DOE.

Cuts to HPwES Programs:  Both the DOE and EPA fund state programs providing incentives for home energy retrofits.  In his recent letter to the Senate Appropriations Committee, Steven Chu, Secretary of Energy, contended that the sequester could threaten the ongoing viability of state retrofit programs and training centers.  Details on the impact to state programs, however, were not provided.

Fewer Energy Star Certified Products:  The EPA predicts the budget cuts will hinder its ability to maintain its Energy Star product specifications.  Currently covering more than 65 categories of goods and appliances, the EPA will no longer be able to label as many products, which could lead to slow downs in energy-efficient electronics, appliances and home heating and cooling systems.

Decreased Involvement with Industry:  The EPA estimates it will have to terminate partnerships with several “energy-intensive industrial sectors” and will not be able to publish as many Energy Efficiency Guides.

Less Software Development and Support: The EPA created a software tool called “Portfolio Manager,” which enables users to track energy and water usage across a portfolio of buildings.  EPA officials are concerned the cuts may jeopardize planned software upgrades as well as its ability to provide ongoing support for its users, which include several major cities, states, and the federal government.

In conclusion, the EPA and DOE are scrambling to determine the exact impact of the budget sequester scheduled to take place this Friday.  Originally intended to pressure Congress into enacting comprehensive budget reform, the sequester poses harsh consequences to many industries, including Home Performance.  Lacking the ability to prioritize certain projects, such as Home Performance with Energy Star, the DOE and EPA need to trim spending across the board.  The impact of some cuts are fairly obvious, like decreased support for Portfolio Manager, whereas others will take quite some time to shake out.

One thing seems fairly clear, though: The Home Performance Industry needs to take steps to reduce its reliance on federal and state programs beginning immediately.  The introduction of cheap natural gas, coupled with sensationalized stories of waste, has placed the industry on the back burner.  Political support for large subsidies and incentives seems very unlikely moving forward.  So, from this position, we must pull ourselves up by the bootstraps and begin to market the many benefits of Home Performance: comfort, sustainability, monthly savings, indoor air quality, and more.  These benefits more than justify the cost of a home energy retrofit, so it’s our job to begin spreading the word of home energy efficiency through collaborative marketing tactics.

Energy Efficiency Financing Part 2: On-Bill Financing

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By Johnny Ritzo

On-Bill FinancingOn-bill financing refers to a type of loan available to property owners to help pay for the high upfront costs associated with energy efficiency and renewable energy upgrades. Whereas PACE loans are repaid through assessments added to property tax bills, on-bill loans get repaid through charges added to the borrower’s utility bill. Ideally, on-bill loans are structured in such a way that borrowers’ energy savings offset their increased monthly debt obligations.

Utility Involvement and On-Bill Funding Sources

Similar to PACE, on-bill finance programs typically rely on state legislation–either by requiring utilities to contribute funds to the program or, in the alternative, by opening up their billing systems for program use. Due to their unique relationships with customers, the theory goes, utilities are well-positioned to collect loan payments and promote the program benefits.

Picture 1However, a 2011 ACEE report concludes that utilities often resist participating in on-bill programs, as they don’t want the hassle of dealing with consumer lending laws. A way around these regulations, though, is to have the utility perform the upgrades and add service charges to their customers’ bills. Such tariffs are not considered “loans” and, thus, aren’t subject to state consumer lending laws.

In addition to utility contributions, there are a plethora of other funding sources ranging from the elementary to the sophisticated. On one end of the spectrum, numerous on-bill programs have received ARRA grants to establish revolving loan funds. On the other end, some municipal governments have issued energy bonds to establish loan-loss reserves, which were used to attract private investors to the program. Other funding options include:

  • State Rate Payers;
  • Private Foundation Grants; and
  • Proceeds from Cap and Trade Programs.

What should property owners know about on-bill repayment?

The loan amount and the repayment terms are determined by the estimated monthly savings from the energy retrofit. To determine energy savings, some programs require two energy audits–one to identify energy-saving opportunities and another to validate that the target reductions were indeed met.

Unlike PACE, though, on-bill financing loans are usually unsecured, meaning the borrower doesn’t have to pledge collateral. Since unsecured loans are riskier for lenders, on-bill programs require a more rigorous application process to determine one’s creditworthiness. However, lenders find some comfort in the fact that loan repayment is tied to a utility account, and most customers prioritize paying utility bills to avoid interruptions in their power supply.

Apartments and On-Bill FinancingFinally, on-bill programs are mixed as to whether loans are transferable, meaning the “loan follows the meter.” Some programs require borrows to assume personal responsibility, so that the entire debt obligation must be repaid at transfer of the property.

Yet others tie the debt obligation to the meter, not the current owner. This option is particularly attractive for owners of rental properties. Although a long-term contract is usually required, landlords can have energy upgrades completed without incurring any upfront costs while the tenants pay for it via their utility bills. If done correctly, the monthly utility costs should be equal to like sized units on the market.  The tenant enjoys the benefits of the upgrade–improved comfort, indoor air quality, etc.– without paying more for heating and cooling than they otherwise would have if they rented a  non-efficient office or apartment.

Energy Efficiency Financing Part 1: PACE Financing

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By Johnny Ritzo

High upfront costs are a primary obstacle preventing wide-scale adoption of home energy efficiency improvements. Even though energy retrofits can be sound financial investments, homeowners are hesitant to spend money on purchases they perceive as “discretionary.” To overcome this hurdle, several public/private partnerships have developed low-interest “loans” with creative repayment options whereby the energy savings offset the monthly “loan” obligations. These financial models allow homeowners to enjoy the many benefits of home performance without incurring additional financial burdens.

This 2-part post will explore two types of financial products: PACE financing and on-bill financing. Although neither have dominated the marketplace to date, both could help the energy efficiency industry gain an important foothold in American homes.

Overview of Pace Financing

PACE AssessmentPACE stands for “Property Assessed Clean Energy.” These programs provide property owners with low-interest “loans” to pay for energy efficiency and renewable energy improvements. The borrower, either a homeowner or a business owner, repays the PACE funds via a special assessment added to his or her property tax bill. Although functionally equivalent to loans, proponents of PACE programs carefully describe the debt obligations as a series of “assessments.”

To compel property owners to pay their taxes along with special assessments, municipalities put a lien on your property until your tax bill is paid in full. Since the local government always takes it’s slice first, tax liens enjoy priority status over other liens–meaning if you don’t pay your taxes, the city or county can foreclose on your property to repay itself in full before any of your other creditors.

The practice of using special assessments to pay for municipal projects, like new sewers and sidewalks, is nothing new and dates back to the 1700′s. However, PACE programs are unique in that the assessments pay for projects completed on private property–not public property. State law governs what can and cannot be included in property taxes, so enabling legislation must be set in place prior to establishing a PACE program and collecting assessments.

How are PACE Programs Funded?

PACE BondA common method of funding is for a city or county to issue bonds. Most often the bond proceeds are loaned out to homeowners or business owners at an interest rate slightly higher than the bond rate. The resident borrowers repay the “loan” via their tax bills, the proceeds of which are used by the municipality to pay off the bond at its date of maturity. As for the difference in interest rates, that goes to the municipality to cover administrative costs associated with the PACE program.

A second option for funding a PACE program, which is harder to do nowadays, is to apply for a grant. For example, many cities and counties received grants under the American Recovery and Reinvestment Act to establish revolving loan funds. Since the ARRA dollars had to be spent as part of the stimulus package, this option is not as widely available as it was a few years back.

A third option is for a city or county to work with third-party lenders. Some banks will loan directly to property owners participating in PACE programs, yet others require the municipality to act as an intermediary: The city or county borrows the money from the bank and loans it back out to property owners. Even though the town may charge an administrative fee, homeowners still benefit because municipalities typically have access to lower interest rates than do homeowners.

What should property owners know about PACE?

PACE LienBeyond low-interest rates and convenient repayment options, PACE loans are particularly attractive for property owners who are on a tight budget. Since the loans are not dependent upon income, but rather upon the property’s assessed value, you don’t have to be a member of the 1% to qualify–just a financially responsible person. And, if done correctly, the value of the energy savings should offset the cost of the assessments.

PACE loans are also attractive for homeowners who don’t know how long they’ll live in a particular house, since the loans are secured by the improved property and “run with the land.” This means that if you sell your home, the purchaser is responsible for paying the PACE assessments. Note, however, that PACE liens are an encumbrance on your property, which may make it more difficult to sell your home in the future.

FHFA and the Future of PACE Financing

As mentioned earlier, PACE loans have not been widely implemented (with the exception of California), despite being an attractive option for financing home energy retrofits. So, why is this? Over the past few years, the Federal Housing Finance Authority (FHFA) has prohibited the Federal Home Loan Banks, two of which are Fannie Mae and Freddie Mac, from purchasing mortgages encumbered by PACE liens. Since cities and towns don’t want to sacrifice borrowers’ ability to obtain loans for the purchase of new homes, many jurisdictions put PACE on the back burner.

To really understand what happened, it may be helpful to examine what the FHFA does and its relationship to Fannie Mae and Freddie Mac. The FHFA was created in 2008 pursuant to the Housing and Economic Recovery Act, and was tasked with regulating the Federal Home Loan Banks, two of which are Fannie and Freddie. Acting as their watchdog, the FHFA keeps an eye on these Fannie and Freddie, since they play such an important role in the economy: They purchase home mortgage loans from lenders, so the lenders can re-loan the funds to more home buyers.

Fannie and Freddie then bundle their newly purchased mortgages and sell interests in the revenue streams, which are known as “mortgage backed securities.” As part of the process, though, the banks make some level of guarantee that the loans will be repaid. You may recall that some states enacted legislation granting PACE liens first priority status, which made investors feel more confident they’d get their money back if individual property owners defaulted on their payments. The unintended consequence, though, was that it made the mortgages held by Fannie and Freddie more risky, because if there was a foreclosure, the PACE lender would get repaid in full before Fannie or Freddie recouped anything. Obviously, the FHFA was not happy with this arrangement, so it put the kibosh on Fannie and Freddie buying mortgages encumbered by a PACE lien.

In response to the FHFA’s directive, numerous states filed lawsuits attacking both the FHFA’s decision-making process as well as the merits of its position. Most of these cases have been dismissed with the exception of California. In this case, California claimed that the FHFA, in making its directive to Fannie and Freddie, acted as a regulator–and not a conservator–and, thus, violated the Administrative Procedures Act (APA) by not using a notice and comment period.

The United States District Court for the Northern District of California, whose decision is being appealed to the US Court of Appeals for the 9th Circuit, required the FHFA to deliver a final rule by May 2013 after inviting comments for a period of 45 days. Although complying with the Notice of Proposed Rulemaking (NPR) process, the FHFA is challenging whether the District Court can force it to establish a formal rule subject to judicial review.

So, where does the litigation leave us? The FHFA is currently exploring risk mitigation measures that would allow PACE programs to proceed, although these measures may prove to be so cumbersome as to preclude adoption of PACE. If and when the FHFA issues its final rule, litigants will be able to challenge whether the FHFA acted arbitrarily or capriciously, given the record and comments. Another round of litigation is highly likely.

Meanwhile, Nan Hayworth (R-NY) sponsored the PACE Assessment Protection Act of 2011 and has been joined by 22 Republicans and 31 Democrats in the House of Representatives. This bill would preclude the FHFA from “adopting policies that contravene established State and local property assessed clean energy laws.”  However, experts are forecasting that this bill has little, if any, chance of passing, given the legislative climate in Washington.  Thus, we’ll most likely have to wait and see what the FHFA’s final rule entails and the ensuing litigation.

California’s Emerging Carbon Market – AB32

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By Johnny Ritzo

California’s Carbon Cap-and-Trade Program 

This November the state of California will hold its first carbon auction under its recently launched cap-and-trade program.  As part of the Global Warming Solutions Act of 2006 (a.k.a. AB32), this program imposes limits on the amount of carbon that certain businesses may emit (i.e. electric utilities, large industrial facilities, distributors of transportation, natural gas and oil refineries).  By targeting the worst polluters, California hopes to reduce its greenhouse gas emissions to 1990 levels by the year 2020.

A basic description of California’s carbon market is as follows:

  • At the beginning of the cap-and-trade program, covered businesses (i.e. the heavy polluters) are given free allowances, which are rights to emit a certain tonnage of CO2.
  • Firms then have one year to reform their practices and start cutting emissions.
  • Next, the compliance period begins, during which covered entities must periodically check in with the state and provide enough allowances and credits to cover their carbon emissions, or face a penalty.
  • Firms with unused allowances may sell them to other businesses who require extra allowances to cover their emissions for the AB32 compliance period.
Regional Greenhouse Gas Initiative, Photo Courtesy of State of New York

RGGI Member States

Significance

Cap-and-trade systems have been around since the 1970s, but their popularity has increased in recent years.  For example, several Northeastern and Mid-Atlantic states formed the Regional Greenhouse Gas Initiative (RGGI) in 2008.  This program caps power plant C02 emissions, and allows the covered power generators to trade allowances and credits to meet individual requirements.

Going one step further than RGGI, California’s AB32 program is significant because it extends carbon restrictions not just to power plants, but to large industrial facilities and transportation distributors as well.  By extending the scope of its carbon cap, and covering more polluters, the Golden State hopes to reduce its carbon emissions by 15% over the next 8 years.

Controversy Runs Deep in California

The primary point of contention surrounding AB32 in California is whether or not capping carbon emissions will have a material, negative impact on the state’s fragile economy.  The argument takes a few different forms:

  • Heavy-handed regulation will increase the cost of doing business in California, which could cause firms to become less profitable, prompt businesses to pass on the increased costs to consumers, or motivate companies to move out of state.
  • Others predict there will be a shortage carbon credits, because California has been too restrictive with the types of projects that can qualify as carbon offsets.  The crux of the argument is that operating costs will increase even more than originally expected for covered entities, thus exacerbating the projected results outlined above.

Yet other opponents are taking aim at how the cap-and-trade revenues will be spent.  The current program is expected to earn California roughly $500 million to $1 billion next year.  Rather than leverage the proceeds by investing in efficiency programs (as do RGGI states), the money will flow to the General Fund to help offset California’s projected budget deficit of $15.7 billion.  Such allocation of funds, some believe, will undermine trust in the Government and hinder its ability to accomplish other environmental initiatives in the future.

In Defense of AB32

Image

California’s cap-and-trade program is worth preserving for two primary reasons: (1) We need to make meaningful cuts in our carbon emissions quickly, and AB32 will make an impact next year; and (2) the cap and trade program will bring about positive change with as little economic disruption as possible.

Let’s start with looking at the timing issue.   Here are a few numbers from Bill McKibben’s recent Rolling Stone article that will blow your mind:

2° Celsius: The amount average temperatures could rise yet still be safe for the world’s populations (although many believe this number is too high).

0.8° Celsius: The increase in average temperature that has already occurred since 1880, which has caused more damage than expected (i.e. melting ice caps, acidification of oceans, increase in floods).  This number is also important because if we stopped emitting CO2 today, the earth’s atmosphere would continue to warm another 0.8° celsius before plateauing.  So, for budgeting purposes, we stand at 1.6° celsius.

565 Gigatons: The amount of carbon dioxide that may be emitted while staying below a 2° celsius threshold.

2,795 Gigatons: The amount of carbon contained in oil and coal reserves currently owned by large oil companies (and a few countries), which are listed as assets on their balance sheets.  As McKibben explains, this number represents “the fossil fuels we’re currently planning to burn.”

So, if we follow our “business as usual” outlook, we’re going to blast past the 2° celsius threshold in short order.  We need someone to lead us now, to tell us what to do, and to hold us responsible when we don’t listen.  California should be applauded for stepping up to fill this role when others are unwilling for fear of economic consequences.   It’s crazy to speak of repealing AB32 when it represents a viable, partial solution that is set to kick off next month.  Simply put, we’re out of time to be looking around for alternatives.

But I’ll go one step further and stand behind AB32 as a decent solution to mitigating Climate Change, even though a carbon market for Big Business represents only part of the answer.  First, cap-and-trade programs are considered to be the most “cost effective” way to curtail carbon emissions because they provide a flexible framework for identifying those persons best suited to make gains in efficiency.  Some firms are agile and can revise their business practices/processes without undue hardship.  Yet, others are heavily dependent on fossil fuels and antiquated procedures, so it’s cheaper for them to simply stay the course and pay other businesses to emit less.  At the end of the day, though, we don’t really care who emits, just as long as the total tonnage of CO2 emissions goes down.  So, in a sense, the market approach provides greater autonomy to firms making the economic decision to continue polluting at the same level or not.

The second economic benefit of cap-and-trade programs is that they create a fertile environment for innovation.  An opportunity for increased profits exists where the cost of reducing emissions is less than the market price of an allowance.  So, in addition to revenues from a firm’s primary business (i.e. refining oil), it can open a second channel of revenue from selling allowances.  This opportunity for double profit is believed to create a meaningful incentive to create efficient processes and technologies that would not otherwise exist without the carbon market.

What are some alternatives to AB32’s cap-and-trade carbon market?  One option is for California to simply require all businesses to comply with CO2 limits without being able to purchase additional allowances or credits to cover.  Obviously, this would be a less flexible approach and would cripple less agile firms.  Alternatively, California could levy a carbon tax across the board.  Yes, this would likely be easier to administer, but may not create as great an incentive for innovation as cap-and-trade.  The incentive to become more efficient under a carbon tax is to avoid being taxed, whereas with cap-and-trade, efficiency is motivated by the opportunity to sell excess allowances to the highest bidder.

Final Thoughts

Sure, there are going to be some snafus along the way with AB32, but I feel optimistic that California has created an atmosphere for innovation.  This carbon market may represent the “heavy hand” of government to some, but it’s time businesses get serious about cutting carbon emissions.  The free market has not yet produced the miracle innovation allowing us to maintain our status quo while stabilizing climate change.  Our time is up.  We need to act now.  Cap-and-trade programs, at the end of the day, are a step in the right direction.  However, they’re not everything: We need a blend of standards and incentives to address other GHG contributors.

The SAVE Act: Sensible Accounting to Value Energy

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By Johnny Ritzo

The Save Act was introduced to the Senate in October 2011 by Senators Bennet (D-CO) and Isakson (R-GA) and is now before the Senate Banking Committee.  This bill would promote residential energy efficiency by requiring federal lending agencies to consider a home’s heating and cooling costs when determining a home’s value as well as a buyer’s ability to repay the mortgage.   A home’s energy efficiency is determined by getting an energy audit or a home energy rating.

Impact on Underwriting Process

When purchasing a home with an FHA loan, a buyer must have a certain debt-to-income ratio, which measures one’s ability to make monthly mortgage payments in addition to other fixed expenses, such as insurance and taxes.  Historically, lenders haven’t considered energy costs when thinking about a mortgagee’s ability to repay a loan, so this would represent a fairly significant change to the underwriting process.The SAVE Act would also increase the allowable debt-to-equity ratio when purchasing an energy efficient home, since a greater portion of a buyer’s monthly income can go toward repaying the loan as opposed to purchasing energy.

Current homeowners will also be able to bundle the cost of energy efficiency upgrades into their home mortgages.  Under the SAVE Act, federal lenders will have to consider the net present value of home performance projects when calculating the loan-to-value ratio, another key metric that helps determine the loan amount.

Many Benefits

Proponents of the Save Act cite job creation (83,000 jobs over 5-7 years) and reducing dependence on foreign energy as primary benefits.  These would obviously be fantastic outcomes, but this bill is worth enacting simply for the benefits it bestows on homeowners, such as:

  • Nicer or less expensive homes. With less money going to the utilities each month, you can afford a more valuable home or simply repay your mortgage faster.
  • More comfortable homes.  Retrofit homes typically have less than a 2 degree temperature differential from room to room, so you can avoid having hot rooms and cold rooms.
  • Healthier homes. Generally, it’s preferable to control the quantity and quality of air entering your home through air sealing and mechanical ventilation, as opposed to filtering air through the old insulation and dead squirrels in your walls.
  • Greater financial security.  A 50% increase in the price of oil hurts less when you’ve reduced your energy consumption by 50%.

Sounds good, right?  What’s the holdup?

I recently attended a presentation held by the Leading Builders of America Association and the Institute for Market Transformation where the two primary criticisms against the bill were highlighted:

  1. Congress is nervous about touching anything involving the underwriting process given the fragile housing market.
  2. The recent recession has reignited the debates on federalism and Keynesian economics with groups like the Tea Party speaking out against governmental interference in markets.

These arguments should not stand in the way of the Save Act becoming law.  First, the bill would not inhibit the growth of the housing market, since homeowners will qualify for more money when purchasing efficient homes.  Remember, federal lending agencies will be instructed to raise the debt-to-equity ratio for loans used to purchase efficient homes.

With regard to the Washington intermingling with markets, it’s already happened.  Federal agencies are the only game in town, guaranteeing over 90% of all new residential loans.  So, if we’re going to address efficiency through the underwriting process, which seems to make sense, we have to look to the Federal Government before turning to the private market.

Austin’s Energy Conservation Audit and Disclosure Ordinance

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Austin Texas

Two weeks ago I attended the annual Residential Energy Services Network (RESNET) Conference in Austin, TX.  In addition to attending lectures by some of the brightest minds in building science and checking out a late night James McMurtry concert at the Continental Club, I got to learn first-hand about “Austin’s Energy Conservation Audit and Disclosure Ordinance”–the first of its kind in the U.S.

About the Ordinance

The Ordinance requires a person selling a single family home (or an apartment building with fewer than 4 units) to get an energy audit and provide a copy of the report to all prospective purchasers.  Homes built within the last 10 years are exempt.  On the other hand, owners of large apartment buildings have to get an audit, irrespective of intent to sell, and post the report within the building to alert renters and prospective tenants of the building’s energy use.

The primary goal behind the Ordinance is to give home buyers and renters complete information, so they can purchase (or rent) the best possible house (i.e. one that is efficient, comfortable and healthy).  On the community level, though, the Ordinance is important as it gets the market thinking about ongoing energy use as part of a property’s value.  

Opposition by Real Estate Agents

Such disclosure ordinances have been widely opposed by real estate agents, as they make it more difficult to sell older, less efficient homes.  Decreasing the pool of “attractive” homes leaves fewer opportunities for agents to turn a quick profit.

Opposition by real estate agents, though, is insignificant when compared with the importance of protecting buyers from getting into homes they can’t afford to carry from month to month.  Just as price and school districts are often guiding requirements in a home buyer’s search, so to should the ability to heat and cool the home throughout the year.  Before making appointments to view homes, buyers should know the energy efficiency of the home compared to its price, since they may be required to do a retrofit or pay significant utility bills.  Early notice would allow buyers to pass on all homes at the top of their price range that are energy hogs, which would sink their monthly budgets.  

Notions of Fairness

But is it unfair to require a seller to pay for the audit when it’s the buyer who will benefit?  Why not treat the audit like a home inspection?  In the absence of an audit subsidy by a state or utility-sponsored program, the seller is best positioned to shoulder the cost of the audit.  Typically running $300 to $500, the price of an audit is fairly insignificant compared to the total sale price of the home.  But to a prospective buyer using energy efficiency as a guiding criterion for their home search, it would be too expensive to purchase an audit for each home they want visit.  Thus, the seller is best positioned to pay for the audit.

Another Arrow for Your Quiver

The key point to take away from this post is that disclosure ordinances are yet another tool that communities can use to reduce energy consumption.  They should be considered alongside other mechanisms including:

  • Rebates for Efficiency Upgrades
  • Subsidized Audits
  • Tax Incentives
  • Building Codes
  • Contractor Training
  • Public Education and Outreach

For more information, check out www.imt.org, which is a great resource for disclosure ordinances.

Mandating Energy Efficient Public Buildings . . . Not in Maine.

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Two weeks ago Governor Paul LePage vetoed LD 1264, “An Act to Improve the Energy Efficiency of Public Buildings and Create Jobs.”  This bill would have required energy efficiency, alternative energies and load management systems to be considered during the design phase of new construction or renovations of buildings owned by the State, public schools, universities, counties and towns as well as projects financed with State funds.

Mandatory Design Considerations for New Construction and Renovations

Under this bill, architects and engineers designing new public buildings (or major renovations) would have had to:

  1. Consider whether renewable energy (wind, solar, geothermal, etc.), load management technology and energy efficiency measures made sense over the life of the building, which is roughly a 30 year period.  The consideration of “sensibility” did not include just economics, but public health and environmental factors as well; and
  2. Set a goal of reducing energy consumption by at least 20% over the level required of commercial buildings in Maine.

So, what is a load management system (LMS), as contemplated by the bill?  Typically, a LMS signals to the utility when a building uses the most energy during the day and gears down electrical demand during peak hours.  Incorporating a LMS into a building can help avoid dirty, less efficient power plants from running (or new ones from being built), as it allows utilities to better predict power demands.

Financing Options

LD 1264 provided financing options for public schools, the University of Maine System,  counties and towns, so they could address renewable energy, load management and/or energy efficiency.  Financing for energy efficiency upgrades from the Maine Municipal Bond Bank’s Efficiency Partners Program already exists, but the bill would have extended financing to LMS and renewable energy installations as well.

Rule Making Authority 

Under the bill, rule-making authority for the planning of new construction/renovation of  ”public” buildings would have been split among various agencies and quasi-governmental entities.  With respect to State-owned buildings or projects financed with State funds, the Bureau of General Services working with the Efficiency Maine Trust would have been tasked with making rules governing the consideration of efficiency measures and renewable energies.  Additionally, Efficiency Maine would have also been charged with developing a green building standard for energy efficient and sustainable building practices for the construction of State-owned buildings.

Rules governing the design of new and renovated schools, on the other hand, would have been created by the State board, the Department of Administrative and Financial Services, as well as the Public Utilities Commission.

Governor Lepage’s Veto Letter

In a letter to the Legislature of January 5, 2012, Governor LePage argued:

  1. The bill would have mandated higher building costs; and
  2. It would have “hurt State accountability” by “the delegation of authority to agencies outside the oversight of elected officials” (i.e. Efficiency Maine).

The Maine Legislature reconsidered LD 1264 on January 10, 2012, but  it did not garner the necessary 2/3rds support to override the veto.  Thereafter, State Senator Phil Bartlett made a Freedom of Information Act request to examine the documents relied on by Governor LePage in opposition to the bill.  In a recent interview, Senator Bartlett contended that either the Governor didn’t understand the bill or didn’t consider the final version of the bill when making his veto.

Does LePage’s Veto Make Fiscal Sense for a Cash-Strapped State?

A key point is that nowhere does this bill require energy efficiency measures to be implemented.  As Senator Bartlett argued, the goal of the bill was simply to make designers and architects think ahead and consider the cost savings associated with these new technologies as well as the public’s health and the environment.  If the cost of installing solar, for example, outweighed the benefits, solar need not be installed.  It’s counter-intuitive that a conservative Governor would find it appalling that people be required to think about how they’re spending the State’s money during the building process, and be prepared to justify why potential cost-saving measures were not implemented.

With regard to the assertion that “rule making authority” would have been delegated to Efficiency Maine, which lies outside the “oversight of elected officials,” that’s just not true.  The bill required the Bureau of General Services (who are squarely under the “oversight of elected officials”) to work with Efficiency Maine (the folks who actually know a thing or two about building science).  Shirking responsibility was not the goal of the bill, rather it was to require collaboration in implementing  standards based in sound building science.