On October 11, 2009, Governor Schwarzenegger signed into law AB 531, which amends Public Resources Code section 25402.10 (also known as AB 1103). AB 1103 was enacted in 2007 and requires that beginning January 1, 2009, electric and gas utilities maintain records of the energy consumption data of all nonresidential buildings to which they provide service. The utilities are to maintain the data in a format compatible for uploading to the United States Environmental Protection Agency’s ENERGY STAR Portfolio Manager, for at least the most recent 12 months.
Prior to the recent amendment, AB 1103 additionally provided that beginning January 1, 2010, an owner or operator of a nonresidential building must disclose the United States Environmental Protection Agency’s ENERGY STAR Portfolio Manager benchmarking data and ratings for the most recent 12-month period to a prospective buyer, lessee of the entire building, or lender providing financing to the entire building. While the substantive disclosure requirements of AB 1103 remain unchanged, AB 531 amends the timing of the owner/operator disclosure requirements. The details of this change are discussed below.
Purpose of the Legislation
The purpose of AB 1103 is to “track and compare the energy use of commercial buildings by comparing the energy consumption per square foot of floor space. It is a tool for assessing the relative energy efficiency of buildings to better inform investment decisions made by building operators, owners and prospective owners.” (AB 531 Bill Analysis, Chuck Nicol, Assembly Committee on Appropriations.)
The California Energy Commission reports that commercial buildings account for 36% of the state’s electricity, which it says is the most of any sector. The Commission maintains, “benchmarking  allow[s] building owners and managers to compare their buildings’ energy efficiency performance in two ways: against the performance of similar buildings, and as a baseline to demonstrate changes in building performance over time. This tool will not reduce energy use; its purpose is to inform building managers about energy performance and to motivate them to make their buildings more energy efficient. It can also help establish investment priorities to take advantage of energy efficiency opportunities.”
Details of the Amended Law
Under the new amendment, Public Resources Code section 25402.10 no longer provides for owner/operator disclosure of benchmarking data and ratings to begin on January 1, 2010, but instead provides for the owner/operator disclosure requirements to be “based on a schedule developed by the California Energy Commission.” The purpose of the amendment is to allow “the [California Energy Commission] to develop an implementation schedule in order to ensure that the goals of AB 1103 are met without harming potential building transactions.” (AB 531 Bill Analysis, Chuck Nicol, Assembly Committee on Appropriations.)
Although not yet adopted, the California Energy Commission has created “Draft Regulations Implementing AB 1103” which would amend California Code of Regulations. Under the Commission’s current draft regulations, California Code of Regulations section 1685 would provide an implementation schedule for owner/operator disclosures to begin on July 1, 2010, July 1, 2011, or July 1, 2012 depending on building size and type.
During the worst recession since the great depression, the legislature has responded to building owner/operator concerns that AB 1103 would have a chilling effect on sales and leasing. Whether this relatively simple disclosure requirement would have such an impact remains to be seen as, for example, many “green” leases already promote or require energy disclosures between an owner/operator and a prospective tenant in the leasing process. Thus, even if the state were not imposing disclosure requirements, a savvy prospective tenant may ask for the kinds of disclosures contemplated by AB 1103, as most “green” lease due diligence checklists instruct tenants to ask for energy disclosures.
In addition, where an owner is seeking LEED Existing Buildings: Operations & Maintenance (EBOM) certification, it may already be making AB 1103 disclosures because, through these disclosures, the owner is able to receive credit toward the necessary requirements to receive LEED EBOM certification.
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