Source: https://journal.firsttuesday.us/unlocking-commercial-energy-disclosures-with-portfolio-manager/40001/
Timestamp: 2019-11-14 17:24:42
Document Index: 498350439

Matched Legal Cases: ['§1681', '§1681', '§1681', '§1683', '§1684', '§1684', '§5', '§1684', '§1683']

Unlocking commercial energy disclosures with Portfolio Manager | first tuesday Journal
Posted by ft Editorial Staff | Jan 27, 2015 | Buyers and Sellers, Commercial, Feature Articles, Forms, Landlords and Tenants, Latest Articles, Laws and Regs, Your Practice | 0
Commercial brokers: This article takes a closer look at compiling energy use data and using the ENERGY STAR® Portfolio Manager to create disclosures for the Nonresidential Building Energy Use Disclosure Program. This is part two of a series on the energy benchmarking disclosure requirements under Assembly Bill 1103. Read the first installment here.
In commercial transactions, what has been your experience with tenants and utilities in gathering AB 1103 energy disclosure data?
Compliance has been difficult as tenants and/or utilities are hesitant to release data. (46%, 13 Votes)
Somewhere in between - the program works overall, but needs improvement. (36%, 10 Votes)
Most tenants and utilities are cooperative and the process has been smooth. (18%, 5 Votes)
Electricity, gas and other utility bills represent a meaningful portion of a property’s operating cost—up to 20% of the rent amount. To get this critical property information to buyers, tenants and mortgage lenders, commercial property owners and their agents are now required to disclose energy costs up-front, before the owner enters into a binding agreement.
The commercial energy use disclosure program
To recap from the prior article, energy use disclosures are currently required on commercial buildings with gross floor areas (GFAs) — all interior space contained within the building envelope — greater than 10,000 square feet. Disclosures also become mandatory for commercial buildings between 5,000 and 10,000 square feet GFA on July 1, 2016.
Commercial property owners are required, and their agents duty-bound, to disclose their property’s energy usage to:
prospective buyers, at least 24 hours before accepting or countering a written proposal to enter into a purchase agreement [20 Calif. Code of Regulations §1681(k)];
prospective and existing tenants negotiating to enter into or renew a lease for an entire building (single tenant property), at least 24 hours before accepting or countering a written proposal to enter into a lease agreement [20 CCR §1681(l)]; and
mortgage lenders at the time a loan application is submitted for financing to encumber the entire parcel. [20 CCR §1681(m); 20 CCR §1683(a)]
For owners and their agents, measuring and disclosing a commercial property’s energy use to prospective buyers, tenants and lenders is completed through an online service called the ENERGY STAR® Portfolio Manager. The service produces the required disclosure, called the Data Verification Checklist (DVC).
Neither the commercial property owner nor the broker fills out the DVC. Instead, utilities and other energy services (e.g., solar energy providers) compile the energy use data and generate the DVC on the owner’s request. The owner and/or agent simply download the DVC to provide as required.
Editor’s note — For a detailed look at the commercial building energy use disclosure timeline, see Part I of this series, “Energy benchmarking: disclosing commercial property energy use.”
The DVC supplies information about a building’s energy performance and, if available, the building’s ENERGY STAR® Energy Performance Score.
Portfolio Manager is equipped with energy use data gathered from nationwide surveys of commercial buildings. The data is used to illustrate a particular building’s efficiency relative to commercial properties of similar same size, use and age.
Portfolio Manager generates a numerical figure indicating a commercial building’s energy use intensity (EUI). Put simply, EUI is the amount of energy a building uses over a 12-month period per square foot of GFA, expressed in kilowatt-hours (kWh) for electricity or therms for natural gas.
Portfolio Manager’s benchmarking function compares a particular building’s EUI with the average for similar buildings. What it does not communicate, however, is the relative efficiency of a building, as typical usage intensities vary widely between types of buildings and their uses.
To address this comparison failure, Portfolio Manager also assigns an ENERGY STAR® Energy Performance Score to some buildings. The Energy Performance Score is an efficiency measurement represented on a scale of 1 to 100, normalized for a building’s characteristics, operations and regional weather.
Scores above 75 are considered exemplars of efficient energy use. When marketing a property, agents pull the score and use it to emphasize potential savings on operating costs in one property over another. Think of it as a measure of miles per gallon for commercial real estate.
Building types eligible for an Energy Performance Score include:
supermarkets and big-box retail;
churches, and more.
Editor’s note — For specific Energy Performance Score eligibility criteria for each property type please visit //www.energystar.gov/buildings/facility-owners-and-managers/existing-buildings/use-portfolio-manager/understand-metrics/eligibility.
The building’s eligibility for an ENERGY STAR® Energy Performance Score and its disclosure do not affect the owner’s responsibility to disclose the DVC. The score serves as a benchmarking tool to assist the owner, buyers and tenants in understanding a building’s energy performance. In contrast, the DVC serves as a measure of potential property operating costs for buyers, tenants and lenders.
Before marketing a listing for sale or lease or seeking financing, a property owner or manager creates the DVC by using Portfolio Manager to:
establish an account to benchmark all of the owner’s properties;
maintain a unique profile for each commercial property describing its size, use type, year of construction, occupancy characteristics and energy types;
define occupancy and energy consumption characteristics for each use of the building, including square footage, operating hours, total workforce and major equipment (computers, refrigerators etc.); and
authorize energy providers to release the past 12 months’ energy use data for the property; or
manually input energy usage data based on billings and metering for the prior 12 months’ energy use. [20 CCR §1684(a)]
Editor’s note — If 12 full months of energy use data is not available, Portfolio Manager will estimate the energy use for missing months based on available usage data and other information in the building profile.
The broker representing the owner has a duty to advise the owner to:
create their property’s Portfolio Manager profile promptly on listing the property; and
update it every 30 days.
Then, the owner’s broker can benchmark and report energy use up front with the click of a button for a prospective buyer, tenant or lender, at the outset of negotiations. Without attaching the DVC to the owner’s counter proposal, the prospective user’s broker may well believe the owner is not serious about entering into a deal.
ENERGY STAR® has published guidance on using Portfolio Manager to benchmark properties and generate the DVC. Click here to visit the ENERGY STAR® Portfolio Manager Quick Start Guide.
Buildings with multiple uses
The DVC details energy consumption characteristics for each unique use within a building. To do this, the building owner uses Portfolio Manager to profile multiple uses according to the portion of GFA each use occupies.
Consider, for example, a 500,000 square foot office tower containing:
a 100,000 square foot office tenant;
two 75,000 square foot office tenants;
a 50,000 square foot office tenant;
a 100,000 square foot office tenant with extended operating hours;
50,000 square feet of restaurant space;
50,000 square feet (10%) vacant space; and
a 6-level parking garage with one subterranean, four semi-open and one open-air parking levels, each 10,000 square feet, the energy use for which is captured on the building’s main meters.
The building’s standard occupancy hours are 7am-7pm Monday to Friday.
Portfolio Manager will prompt the building owner or manager to combine all similar uses. For this example, Energy Star’s analysis has determined that office and restaurant tenants keeping similar hours use similar amounts of energy. Thus, the Portfolio Manager system will prompt the user to combine these uses as well.
Thus, the owner combines the four office tenants keeping regular hours with the restaurant tenants, including information (or estimates) on their total number of employees, computers and other major equipment as prompted: 350,000 square feet.
Since one office tenant keeps extended hours, Portfolio Manager will prompt the user to create a separate category for that use: 100,000 square feet.
Finally, vacant office space keeps no hours. However, since the space consumes a minimal amount of energy, the owner needs to account for its energy use. Thus, the vacant space will receive its own use category: 50,000 square feet.
Parking areas also consume energy, which Portfolio Manager estimates by size and degree of enclosure. With Portfolio Manager, the owner creates a separate sub-profile for the parking facility. Delivery of the sub-profile is part of the full energy usage disclosure presented on the DVC.
Automated energy data uploads
One year’s worth of energy use information for each major type of use within a building is a daunting amount of data to manage even for smaller buildings. A major roadblock to wider compliance with the energy disclosure mandate is amount of time and effort required to track down, organize and enter all the usage data Portfolio Manager requires.
Fortunately, this is not the case for owners of properties in many major energy provider service areas. A growing number of energy providers cooperate with Energy Star to upload information to Portfolio Manager about a commercial property’s energy use on the request of a property owner, using just a meter number. Portfolio Manager provides owners with an automated request for data from the utility.
Editor’s note —For detailed tutorials on how to input energy use data into Portfolio Manager manually, using a spreadsheet or by requesting an automated upload from participating energy providers, visit the ENERGY STAR® website.
The following major California energy providers currently provide automated energy data uploads when requested by a building owner or broker:
Pacific Gas and Electric Company (PG&E);
Southern California Edison (SCE);
San Diego Gas & Electric (SDG&E); and
On a building owner’s request, utilities and energy providers have 30 days to supply energy use data for the most recent 12 months in the appropriate Portfolio Manager categories. Most providers offering automated data uploads respond to requests in minutes, provided the building owner or broker has obtained prior authorization from each energy user in the building. [20 CCR §1684(b)]
When energy providers have complied with the request for data (or manual data entry is complete) a DVC is ready to be created. Then, if the Portfolio Manager account has been active for more than 30 days, the commercial property owner logs into their account and downloads the DVC disclosure form to hand to the prospective buyer, tenant or lender.
Privacy concerns for utilities and tenants
Utilities, in addition to building owners and tenants, have expressed concerns over the release of privileged energy use.
To address this concern, utilities require a building owner to obtain an authorization from each individual tenant in a commercial building to release energy usage data from the utility to Portfolio Manager.
Not all tenants are ready — or willing — to hand over their utility metering information. This can cause headaches for brokers tasked with helping their clients make the necessary energy use disclosures associated with the sale, lease or application for financing involving the entire building.
To require a tenant to authorize the release of energy consumption data on a landlord’s request, commercial property lease agreement forms need a provision calling for the tenant’s cooperation in the Nonresidential Building Energy Use Disclosure program:
5.3 Tenant will, on request of Landlord, authorize their utility companies to release energy consumption data directly to Landlord for Landlord’s Data Verification Checklist used for energy benchmarking purposes and, upon further request, provide energy consumption data on the Premises. [first tuesday Form 552 §5.3]
Editor’s note — As a supplement to this provision, first tuesday will release Form 552-9 with which the tenant authorizes their energy provider to release data to the landlord.
When a tenant refuses to authorize the data release, Portfolio Manager does allow the building owner to substitute a generic energy consumption profile for the usage type. Portfolio Manager has enough survey data to produce a rough estimate of the monthly energy consumption of, say, a 4,000 square foot hair salon or 15,000 square feet of office space. Substituted data, called a Missing Data Protocol, is marked on the DVC. [20 CCR §1684(e)]
Some utilities have taken the further step of offering aggregate energy usage data for multi-tenant buildings when some tenants refuse to release actual data. Southern California Edison, for instance, will aggregate data based on a “15/15 rule”—that is, when a building has:
more than 15 tenants; and
no one tenant uses more than 15% of the building’s total energy consumption.
While creating the disclosure documents, the building owner has access to privileged data on a tenant’s energy use. The regulations prohibit the owner from using the data for anything other than compliance with the Nonresidential Building Energy Use Disclosure Program. [20 CCR §1683(b)]
A complete picture of a commercial property’s energy use is difficult to obtain under the current reporting and disclosure scheme. Portfolio Manager is a powerful program, but it depends heavily on the total cooperation of owners, brokers, tenants and utility providers to create an accurate portrait of energy efficiency. With limited experience to date, that has proven to be a very high bar.
A tenant’s refusal to authorize data release or a utility’s refusal to aggregate energy use forces the commercial property owner and broker to rely on estimates and Missing Data Protocols to rough out an idea of the property’s energy consumption. Reliance on such estimates is an obviously inferior way to disclose energy use and market a property’s efficiency. Even the most advanced algorithm can’t account for the vagaries and fluctuations in energy use like a bona fide meter readout does.
Concerns about inaccurate disclosures will persist until:
standard commercial property leasing forms contain provisions requiring all tenants to make their energy consumption data available; and
new legislation emerges requiring utilities to provide aggregate energy consumption data for commercial properties at the owner’s request.
Otherwise, any energy disclosure implicitly contains the caveat that the data is disclosed to the extent of the owner’s knowledge. At the current stage, commercial energy use disclosures are often no more than a rough sketch of the amount of consumption a buyer, tenant or lender may expect. It will take strengthening and streamlining the disclosure mandate to elevate energy efficiency to the core property value consideration it deserves to be.
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