Building Performance Standards (BPS) Coming to a Building Near You
Since 1999, the City of Fort Collins has actively pursued strategies to measure and reduce communitywide greenhouse gas emissions (GHG), leading to the adoption of the Climate Action Plan Framework in March 2015. With estimates of GHG emissions in 2005 used as the benchmark, the headline objectives within the Plan are commitments to show a 20% reduction in GHG emissions, measured in metric tons, by 2020; 80% reduction by 2030; and achieve carbon neutrality by 2050. According to the most recent dashboard report, the City reports a 24% reduction to the benchmark as of 2021.
Now known as Our Climate Future (“OCF”), interim goals and new metrics have been plugged in to address, “climate, energy and waste goals while improving our community’s equity and resilience.” By 2030, we are now collectively committed to 100% renewable electricity with grid and local sources and 100% landfill diversion (“Zero Waste”).
The year 2030 is scheduled to appear in 5½ years. While tremendous advancements have been introduced, the next generation of technology required to achieve these objectives is in high demand, nascent or remains theoretical. Yet certain elements of the proposed solution are proving to be problematic with a growing recognition that many of the envisioned benefits merely shift the environmental burdens elsewhere.
Undeterred and with the proverbial low hanging fruit plucked, we’re now moving on to more advanced tactics. Tactics that will directly impact nearly every business located within the city. For now, efficiency standards under consideration only cover commercial buildings (which includes multifamily residential) between 5,000 and 50,000 square feet in size. The State has already established standards for larger properties. Smaller buildings, detached residential, industrial, manufacturing, and indoor agriculture are follow-on targets.
Known as Building Performance Standards, this policy will require all existing and future buildings meet heightened water, energy, and air quality standards to meet the energy-source transition timelines outlined in climate policies. Though the hidden tax of compliance is based upon models developed pre-pandemic, the stated benefits seem to lack any awareness of market dynamics. According to the City website, more efficient buildings can lead to:
- Lower utility bills (The electric meter may spin slower, but the cost of a kilowatt hour will doublewithin 10 years[1]. To gain any savings, electric use would need to decrease by more than rate inflation each year with no loss in economic output.)
- Increased occupancy and tenant retention (All else being equal, occupancy and retention are inversely related to rent levels.)
- Higher property values (Commercial property valuation is a function of net operating income rather than cost. Since landlords generally don’t pay for utilities, higher rents and expectation of a lower return on investment are required to make this claim true. As a property owner, it’s very difficult to command higher rents if all other properties exhibit similar efficiencies, while requiring fresh investment will tend to raise, not lower, expectations of return.)
- Higher paying jobs and more competitive economic environment (If demonstrable, validity relates to the larger effort of energy source conversion rather than a specific tactic.)
For illustrative purposes, on May 5, City staff presented to Council a cost-benefit analysis for building owners based upon average renovation costs over the preceding 10-year period, as gleaned from permit applications. Background materials fail to acknowledge rapid inflationary pressure since 2020 and prevailing cost drivers such as acquisition of newer equipment and appliances, supply chain limitations, technical expertise, and skilled labor deficiencies. Nor does the background describe lifetime operating and replacement costs versus existing systems.
Economic benefits, on the other hand, included utility cost savings and massive communitywide cost savings attributed to a cleaner environment. As noted, any utility cost “savings” accure to tenants, not the party required to comply with the rules[2]. And while we may all enjoy better health outcomes as result, the notion of attributing that benefit to a property owner is patently absurd. Or perhaps it’s a harbinger of the day such benefit is required to be claimed as business income.
The presentation further outlined the preferred metric of Energy Use Intensity (“EUI”), which incorporates both natural gas and electricity sources. Greenhouse gas emissions may be introduced as a secondary measurement. At least initially, buildings between 5,000 and 10,000 s.f. will need to demonstrate a 15% reduction in EUI by 2035. Buildings between 10,001 and 50,000 s.f. must show a 25% reduction by 2030. Larger buildings subject to state oversight must show a 20% reduction by that date with additional interim benchmarking.
Locally, penalties for non-compliance have not been disclosed. However, the State has issued rules that establish a $2,000 penalty for not meeting interim reporting requirements or the final goal. Subsequent non-compliance elicits a $5,000 penalty. Each month of non-compliance constitutes a new violation, presenting property owners with a perplexing dilemma. “Do I accept an increase in overhead by $57,000 a year and wait for technology and skill sets to catch up, or invest $250,000 on the premise of recovery?”
For those that choose to move forward with improvements, a list of resources is provided as evidence of public support for the mandate. These include: provision of technical assistance, federal stimulus programs, and loan programs such as Commercial Property Assessed Clean Energy
Technical assistance must be a mandatory offering as approximately 1,100 properties within the city are estimated to be out of compliance with the proposed standards. Whether there are a sufficient number of experts available within our market to assess that many properties within a confined timeframe is a concern.
Federal stimulus programs don’t appear relevant to most property owners as those funds are depleting quickly and unlikely to reach most property owners by the time awareness is achieved. That leaves loan programs and owner equity as the most viable financing mechanisms. Either way, the cost of doing business will rise, which means consumer-level inflation will stick around for the foreseeable future.
We invite the business community to engage fully in the conversation with the City related to implementing Building Performance Standards. Based on the Council conversation on June 11, there will be several additional business community conversations about final implementation and adoption. Join in the conversation today!
[1] In a November 2023 forecast, Fort Collins Utilities projected electric rates to increase 5% annually through 2030. That preceded the most recent forecast from Platte River Power Authority suggesting wholesale electric rates will increase between 6% and 9% annually through that date. At a 7% retail rate, the compounded rate would double the monthly electric bill in 10 years, 3 months.
[2] While the property owner must comply, the actual energy consumer – occupants – are held harmless. This sets up another flash point between private parties.