Up in Flames? Impact of Court Decision to Overturn Berkeley’s Natural Gas Ban

Berkeley

Last week, the Ninth Circuit struck down the City of Berkeley’s “Natural Gas Ban” in new construction regulations.

The case, California Restaurant Association v. City of Berkeley, focused on whether the federal Energy Policy & Conservation Act, or EPCA, preempted Berkeley’s regulations. The Ninth Circuit broadly interpreted the EPCA’s preemption clause to prohibit state and local standards that interfere with “the end user’s ability to use installed covered products at their intended final destinations” (emphasis in original).

Instead of directly banning natural gas products in new buildings, Berkeley took a more circuitous route and prohibited natural gas piping, rendering gas-used appliances useless. The court held that the EPCA expressly preempts State and local regulations concerning the energy use of many natural gas appliances. Energy use is defined by the EPCA as “the quantity of energy directly consumed by a consumer product at point of use” – i.e., at the place where the products are used. By prohibiting a type of energy hookup like natural gas, it is indirectly saying there can be “zero” of that type of fuel use, which the court held was in fact a quantity (Berkeley argued that zero was not a quantity so its ordinance was not an energy use regulation). Because zero is a quantity in the court’s view, not allowing it at all is regulating the “quantity,” or the energy use of a product. Further, the court held, the ban interferes with the end user’s ability to use the product(s), which, in essence, is regulating the use of the appliances themselves. The Ninth Circuit held that this was a violation of the plain text of the EPCA.

What effect will this case have, if any, on San Francisco’s regulations covering natural gas appliances? Before discussing, here is some background:

  • The EPCA was passed in 1975 and tasks the Department of Energy to issue regulations that certain household appliances demonstrate the products’ “energy efficiency ratings” (42 U.S.C. § 6294). In simpler terms, the EPCA sets energy efficiency standards for a range of consumer products, including refrigerators/freezers, air conditioning systems, water heaters/furnaces, dishwashers, kitchen ranges, and other products (42 U.S.C. § 6292) – all called “covered products”.
  • EPCA contains a preemption clause that establishes that, once a federal energy conservation standard becomes effective for a covered product, “no State regulation concerning the energy efficiency, energy use, or water use of such covered product shall be effective with respect to that product” (42 U.S.C. § 6297).
  • Passed in 2019, Berkeley’s natural gas ban was the first in the county that completely prohibited the use of natural gas infrastructure in new construction, in this case, the piping and connections of natural gas from the point of metering (the property line) to the point of use (the appliances themselves). Berkeley’s regulations are located in the city’s Health and Service Code. Chapter 12.80, Prohibition of Natural Gas Infrastructure in New Buildings.
  • The California Restaurant Association sued the city, claiming that their members were harmed by Berkeley’s law and that it was preempted by the EPCA. The District Court held that the EPCA must be “interpreted in a limited manner” and local ordinances that do not “facially address any of the [energy conservation] standards” are not in violation of the EPCA’s preemption clause. It upheld Berkeley’s law. The CRA appealed this decision to the Ninth Circuit.
  • The DOE filed an amicus brief supporting Berkeley’s ordinance, claiming that the EPCA only preempts “energy conservation standards” that operate directly on the covered products themselves. Since Berkeley’s ordinance did not prohibit any covered products, the DOE argued that it was not preempted by the EPCA.
  • The Ninth Circuit overturned the District Court’s decision that Berkeley’s law was preempted by the EPCA for the reasons cited above.

The EPCA contains several exceptions to preemption (42 U.S.C. § 6297). For example, if a regulation of a covered product does not exceed a state or national standard, or if there has been a waiver granted [to the government], then they are not preempted. There is also an important exemption for state and local building codes, allowing energy efficiency regulations if the code meets seven conditions (listed below).  Berkeley used its general police power to regulate natural gas, putting the regulations in their Health Code.  The city did not use its building code authority to regulate natural gas.

San Francisco used their building code authority to regulate natural gas appliances (Ordinance 237-20, BOS File No. 2007-01). Instead of directly banning natural gas appliances, it requires “all-electric” buildings. There are exceptions for technical or physical infeasibility and for areas of a building that are specifically designed and occupied for commercial food service use. An “all-electric building” is defined as one that uses a permanent supply of electricity as the source of energy and does not “install natural gas or propane piping systems, fixtures or infrastructure for those purposes in or in connection with the building, structure, or within property lines of the premises, extending from the point of delivery at the gas meter.”

It appears that San Francisco’s law runs afoul of the Ninth Circuit’s decision. Using the broad interpretation of the court, it could be held to be preempted. The court held that a regulation on energy use, defined as “the quantity of energy directly consumed by a consumer product at point of use”, encompasses an ordinance that eliminates the “use” of an energy source.

San Francisco’s regulations require electric-ready (i.e. electric only) buildings. The electric-ready building definition explicitly states there can be no natural gas hookups or pipes. Meaning, no natural gas use – that’s zero – which the Ninth Circuit has held is a quantity. San Francisco’s definition of an electric-ready building does the same thing as Berkeley’s ordinance – it effectively prevents the use of a natural gas appliance through its mandate of all electric buildings. In other words, it regulates the energy use of natural gas, which the Ninth Circuit held runs afoul of the EPCA’s preemption clause.

San Francisco could regulate natural gas products if they amended their building code to align with the EPCA’s express preemption exception. Building codes can contain regulations that relate to energy efficiency or energy use of EPCA-covered products if it meets seven conditions:

  1. If they allow a builder to select items whose combined energy efficiency meet the [city’s] energy objective(s);
  2. Does not specifically require any EPCA-covered appliance to exceed federal standards;
  3. Allows appliances that exceeds the federal or state standards if they offer a one-for-one equivalent energy use or equivalent cost basis;
  4. If a code uses a baseline building design standard which all projects are evaluated against and contains standards on covered products that do not exceed state or federal standards;
  5. Offers at least one or more “optional combination of items” that does not exceed federal standards for any covered appliance;
  6. Frames an energy consumption or conservation objective in terms of total consumption of energy, allowing projects to meet that number in a variety of methods; and
  7. Uses the EPCA-specified test procedures for determining the energy consumption of covered products.

San Francisco’s regulations do not meet the parameters of the EPCA’s exception clause. It would not be difficult to establish a system that meets these requirements – the city currently regulates greenhouse gas emissions through its Transportation Demand Management Program, which is a point system where projects can meet their goals through a variety of methods. A similar program can be established for natural gas products.

Regardless of whether San Francisco amends their regulations, this is not the last word on the topic. Berkeley has not decided whether to appeal the Ninth Circuit court’s decision, and a higher court could come to a different, more narrow interpretation of the EPCA preemption issue. As noted by others, the Ninth Circuit’s decision only affects those states within its jurisdiction, and only directly applies to Berkeley’s ordinance and those structured in the same way.

Jurisdictions all over the country have enacted regulations against natural gas appliances and infrastructure. Not all follow Berkeley’s approach. There are ways to model ordinances so they do not run afoul of the EPCA’s preemption clause or the Ninth Circuit’s ruling. Building code regulations are permitted if they meet the EPCA’s guidelines. Some regulatory bodies enact air emissions standards for new buildings that do not discuss the energy performance of a building or EPCA-covered appliance. The Ninth Circuit also stated that local governments retain authority over their natural gas distribution to individual parcels, providing another method of regulating natural gas products.

The Ninth Circuit’s decision in California Restaurant Association v. City of Berkeley is not a death nell on natural gas product regulations. There will most definitely be more litigation regarding these regulations, with the final decision likely coming from the Supreme Court. Until then, there will continue to be regulations on nitrogen oxide emission-producing products, with the hope that they help reduce emissions that contribute to climate change.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tara Sullivan.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Berkeley Adopts New Zoning Ordinance

Code

On December 1, 2021, the City of Berkeley adopted a new Zoning Ordinance (Title 23 of the Berkeley Municipal Code), the first major revision of the City’s Zoning Ordinance since 1999. The revision process originated from a 2016 City Council referral which asked the Planning Department to undertake structural revisions to the Zoning Ordinance. As with many zoning codes, Berkeley’s Zoning Ordinance was needlessly long and repetitive, had inconsistent formatting and definitions, and outdated policies and practices. Each of the 25 zoning districts in the city had its own land use table that listed permitted uses and permit requirements, resulting in different lists of uses and disparate treatment of similar uses across zoning districts. There were no area/geographic maps and there were few figures to illustrate concepts and regulations. This led to inaccurate interpretations, inconsistent applications, and anger towards city planners. It was not a “user-friendly” zoning code.

Berkeley undertook a two-phase approach to its Zoning Ordinance: this first update – Phase 1 – improves the formatting, language, and organization of the current code. It is easier to read, understand and administer.  Phase 2 will undertake substantive changes to zoning regulations and processes.

The new Zoning Ordinance provides the following improvements:

  • New format and Writing Style. The entire ordinance was re-formatted, with new numbering and titles. A new style guide was created, laying out specific word choices (ex: “addition” should be called “expansion”; a “lot” is now called a “parcel”), grammatical and spelling rules, and establishes Plain English Guidelines as the new writing style.
  • Consolidated Land Use Tables. Former chapters and sections were combined. There are now three Land Use Tables – Residential, Commercial, and Industrial, consolidating all 25 districts. For example, all 10 commercial districts are under a single chapter. This will help remove inconsistencies in application and allow easy comparison among districts.
  • New Maps and Figures. The old ordinance relied on narrative descriptions of geographic areas and subzones. There were few illustrations. The new Zoning Ordinance has maps of each area, eliminating long narrative descriptions, and includes updated figures and diagrams to illustrate items such as Floor Area Ratio and measurement methods.
  • Eliminates Repetitive Language. In addition to eliminating repetitive land use controls, administrative procedures have been consolidated. This removed discrepancies and technical errors due to punctuation or word choice.
  • Introduces a List of “Consent Changes”. Minor but non-substantive changes were included in this update. Clarification of ambiguous terms, updated legal requirements, and codification of existing interpretations and practice were made, resulting in a clearer more comprehensive document.

The new Zoning Ordinance took effect on December 1, 2021. Pending projects that have been deemed complete or received Zoning approval on or before November 30th will be reviewed using the “legacy” Zoning Ordinance. Pending projects or those that were deemed incomplete as of December 1st will be reviewed under the new Zoning Ordinance.

Berkeley is currently working on updates to their Housing Element and developing Objective Design Standards, both of which were identified as needing updating during the Phase 1 analysis. These efforts are ongoing.  RJR will continue to track these efforts and provide updates.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tara Sullivan.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Berkeley SB 35 Project Wins Appeal

SB 35

Court of Appeal Rejects City’s Bases for Denying the Project

After more than two years of legal wrangling in the courts, a 260-unit mixed-use project at 1900 Fourth Street in Berkeley (the Spenger’s parking lot) will soon be able to move forward under the streamlined approval process set forth in Senate Bill 35 (“SB 35”).  This week, the Court of Appeal determined—in a published decision that will have precedential value in other cases throughout the state—that the City’s rationale for denying the project had no merit.  The Court’s opinion reversed the decision of the trial court, which had upheld the City’s denial of the project.

Background

The project was originally proposed to include 135 apartments over 33,000 square feet of retail.  The project site is within a three-block area that the Berkeley Landmarks Preservation Commission (“Commission”) designated as a City landmark based on its proximity to the West Berkeley Shellmound.  The Shellmound is considered to have been a significant cultural resource and is listed on the California Register of Historical Resources.  However, as the Court noted in its opinion, nothing remains of the Shellmound above ground and decades of development had “systematically demolished” most of the Shellmound.

The draft Environmental Impact Report (“EIR”) for the original project exhaustively reviewed the potential impacts of the project on the Shellmound and concluded that there was very little chance, if any, that part of the Shellmound had been located on the project site.  The draft EIR nonetheless recommended mitigation measures to ensure that, if any of the Shellmound was discovered during construction, the project would not disturb it.  However, despite the robust analysis and mitigation measures in the draft EIR, the Commission took the position that the draft EIR was “seriously deficient” in its analysis of cultural resources.

In response to the Commission’s position, the project sponsor reformulated the project to take advantage of SB 35, which would allow the project to move forward without CEQA review.  The SB 35 project would include 260 apartments (nearly double the original number) over 27,500 square feet of retail space and parking.  To take advantage of SB 35, the project would make 50% of the units affordable to low-income households (we note that in some cases, only 10% of the units need to be affordable to low-income households).

The City Denies the Project

The City denied the revised application on several bases: (1) SB 35 does not apply to projects that require demolition of an “historic structure”; (2) SB 35 does not apply to the City because it is a Charter City; and (3) the project conflicts with the City’s affordable housing fee and traffic impact requirements.  After denying the revised application, the City offered that the project sponsor could restart the processing of the earlier application or revise it to conform to the SB 35 project.  The project sponsor sued.

Trial Court Upholds the City’s Denial of the Project

As described in a prior update, the trial court upheld the City’s denial of the revised application on two bases.  First, the trial court concluded that it was bound to uphold the City’s determination that the project might require demolition of an “historic structure” (i.e., the Shellmound) if there was any evidence to support it, however thin the evidence might be.  Second, the trial court concluded, after parsing the language of SB 35, that SB 35 did not apply to mixed use projects except in the very limited circumstance when the zoning specifically required at least 2/3 of the square footage to be residential.

Court of Appeal Rejects City’s Arguments and Reverses the Trial Court Decision

The Court of Appeal took a less deferential approach to its review of the City’s decision, concluding that the Legislature had intended to restrict cities’ discretion when it enacted SB 35.  The Court saw no evidence that the Legislature intended the term “historic structure” to include an historic site (like the Shellmound) and no evidence of a structure that could be demolished by the project.  The Court also rejected the City’s arguments that the revised project would conflict with its affordable housing fee and traffic impact requirements.

Significantly, the Court confirmed that the housing crisis is a matter of statewide concern and that the Legislature can therefore impinge upon a Charter City’s normally broad authority over its municipal affairs so long as the restriction of local authority is not overly broad.  In this case, the Court found that the extent to which SB 35 limited the City’s authority over historic preservation was not overly broad, and thus allowable.  This aspect of the Court’s opinion augurs well for the raft of recent state housing legislation, much of which restricts local discretion.

Finally, the Court rejected the notion that SB 35 does not apply to mixed-use projects except where the zoning requires at least 2/3 of the square footage to be residential.  The Court saw this interpretation of SB 35 as “strained and unreasonable” and concluded it “makes no sense in light of the statute’s purpose” to facilitate housing.  The Court affirmed that SB 35 is available so long as the project itself designates at least 2/3 of its square footage for residential use.

We expect the project sponsor will recover its attorney fees associated with the litigation given that the lawsuit ensured that the City would follow state housing law.  The Court’s opinion already provides for the sponsor to recover its costs (exclusive of attorney fees) related to the appeal.

 

Authored by Reuben, Junius & Rose, LLP Attorney Matthew Visick.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.