Benchmarking, Transparency & Green Will

On January 24th San Francisco city supervisors will hear a second reading of a proposed ordinance being presented by the Land Use Committee. The supervisors will then need to decide whether to join other progressive cities and require commercial property owners to benchmark  their energy usage.

The ordinance will also include a public disclosure requirement in a move intended to motivate owners to improve energy efficiency through market pressure. It is likely that the ordinance will be forwarded to the whole board for a full vote around Feb 1.

Benchmarking (measuring) has become a favored method of identifying the energy usage of buildings as the primary step in reducing energy consumption.  A building’s previous year’s energy usage is compared to that of the average of other similar buildings, which are the ‘benchmark’. The comparison can provide owners with the information needed to make energy-efficiency improvements or in a newer building, help monitor that building systems are being properly serviced and maintained.

Energy-efficiency has become a critical financial concern of commercial and residential tenants, investors and property lenders, but the lack of reliable data has made obtaining information nearly impossible. The proposed benchmarking ordinance will create the databank and public disclosure for San Francisco buildings’ energy usage and assure that the greater marketplace has access to the data.

The proposed SF ordinance, formally known as the “Existing Commercial Buildings Energy Performance Ordinance“ clearly omits residential commercial properties from the benchmarking requirement. (There is already a successful program in place.) The ordinance further outlines that the residential sector’s energy management by the Department of Environment will be on-going. Here is an excerpt from the ordinance on its multifamily and small business program:

“The Department of Environment operates energy efficiency programs that provide free energy audits for small businesses and multifamily buildings. These programs upgrade lighting, heating, cooling and refrigeration systems at a discount averaging in excess of 50 percent of total cost of the upgrade.”

As the old saying goes, knowledge is power. Once a property owner has identified the level of a property’s energy efficiency, taking the next step and hiring a certified building advisor can (1) provide specific recommendations on recommissioning, (2) identify deficiencies in the building’s envelope and operations and (3) outline the cost, benefits and payback specifics for energy efficiency improvements. These types of inspections can also identify whether current systems are being adequately serviced and properly maintained, a critical element in extending the life of existing HVAC systems. While incentives and assistance are still available to property owners, investing at half the cost of what these building upgrades normally cost creates an astonishingly quick payback.  Add in the future utility cost savings and tenant appeal – regardless of whether the benefits inure to one party or the other – and it makes even greater economic sense.

Not only are future rent spreads higher in energy efficient buildings – reflecting lower residential energy costs and greater tenant comfort and retention – but asset values rise accordingly. Of course, the enhanced ‘green will’  generated by an owner’s voluntary commitment to sustainability – particularly in a city like San Francisco – is completely priceless.

Energy benchmarking and disclosure policy news rarely successfully compete for media attention against the more sensational, but on the “good news” circuit they should. The City of San Francisco estimates that ”building energy use accounts for almost half of San Francisco’s overall carbon dioxide emissions”.  Based on the market pressure the data will generate, the proposed ordinance is expected to double the pace of energy retrofits over the first five years of the ordinance. The city also anticipates the reduction in citywide carbon dioxide emissions after five years will exceed 70,800 tons with a “net present value to the private sector of $600 million dollars.”

Making commercial building performance data publicly available remains unpopular with some, but this proposed ordinance is expected to push owners to increase their properties’ energy efficiency. In fact, market competition can be an effective motivating factor without stressing owners through additional formal or complex regulation.

The businesses and property owners who act quickly can also benefit from any incentives offered in their region or by the Feds. A quick search on the DSIREuse.org website – a searchable database by state for energy efficiency rebates, grants and incentives – can quickly identify tax rebates and other options to further lower the costs of an energy efficiency improvement or retrofit.

Of course, reducing energy use has another powerful impact as it also lowers the stress on the current electrical grid and international star registery. According to the City, additional community-wide benefits from the proposed benchmarking ordinance will include:

  • The requirement for evaluations and ensuing [voluntary] retrofits will create jobs for those in the construction trades, engineers, maintenance and operations.
  • As a strong economy requires a secure supply of energy, any reduction in demand will help stabilize and improve local economics while encouraging growth and future resource management.

Although the knee-jerk reaction of a few commercial property managers may be to resist benchmarking, managing energy resources is crucial to maintaining a healthy real estate sector. As energy and water are the issues of  the day and the future, improving energy efficiency and promoting water conservation are matters of local and national homeland security.

Courtesy Photo: Orrick Building

One San Francisco retrofit success story was recently recounted by Wade Lange, Vice President of Property management for Ashforth Pacific:

“Ashforth Pacific is a property management firm based in Portland, Oregon, that oversees more than three million feet of office space in the West and owns the Orrick Building at 405 Howard Street in San Francisco. This building recently underwent energy-saving upgrades that are saving tenants $36,000 per year on energy.”

Certainly the financial benefits to both owners and tenants of a meaningful and effective energy policy have become too obvious to ignore.

For more information please contact the City of San Francisco at 415-554-5184 or via email at Board.of.Supervisors@sfgov.org. For those interested in the economic benefits of benchmarking and energy conservation, the Institute for Market Transformation has a comprehensive educational website. For those who cannot wait to start benchmarking on their own, here’s a link to Energy Star’s free Portfolio Manager site. The Energy Star site is a joint project of the Department of Energy and the Environmental Protection Agency.

Update as of January 25th:  On Monday the Land Use Committee recommended the ordinance to the full board which will hold its first reading of the bill on Feb. 1. According to SF Environment, it will likely go to a full vote on the 8th.

[Correction: A previous edition of this post stated that the city supervisors would be voting on the proposed ordinance, rather than listening to a second reading.]

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