The California Legislature adopted Section 25402.10 of the California Public Resources Code in 2007.  The Code requires each nonresidential building owner throughout the state to document and disclose a building’s energy use before selling, leasing, financing or refinancing the building.  In 2009, the Legislature delegated the development of regulations and a compliance schedule to the California Energy Commission.  The Commission adopted regulations in July 2012 that established compliance deadlines and required building owners to use the U.S. Environmental Protection Agency’s ENERGY STAR® Portfolio Manager system to collect and share energy use data.  The Commission’s newly adopted amendments to the regulations delay implementation of the prior disclosure schedule by six months.

The following process for compliance is outlined in the amended regulations:

• Nonresidential building owners must first determine whether the regulations apply.  Under the Commission’s newly amended regulations, nonresidential buildings are any buildings of occupancy type A, B, E, I-1, I-2, M, R1, or S, or type U parking garages, as defined in the California Building Code, Title 24, Part 2, Section 302 et seq.  The regulations are triggered for buildings within these occupancy types that have a total gross floor area of at least 5,000 square feet whenever the owner sells the building, leases the entire building, or finances or refinances the building.
  
  
• A nonresidential building owner must comply with the regulations according to the following schedule:
  
  
  • On and after July 1, 2013, for a building with a total gross floor area measuring more than 50,000 square feet.
    
    
  • On and after January 1, 2014, for a building with a total gross floor area measuring more than 10,000 square feet and up to 50,000 square feet.
    
    
  • On and after July 1, 2014, for a building with a total gross floor area measuring at least 5,000 square feet and up to 10,000 square feet.
    
    
• According to this compliance schedule, the regulations require the building owner, at least 30 days prior to the sale, lease of the entire building, financing or refinancing, to open an account in the Environmental Protection Agency’s ENERGY STAR® Portfolio Manager.  Account setup requires the owner to input building space usage information and identify the utilities that provide electricity or natural gas to the building.
  
  
• Within 30 days of an owner opening a Portfolio Manager account, the electric and gas utilities that serve the building must enter into the account the energy use data for the most recent 12-month period.  Utilities may aggregate the data or use other means to reasonably protect the confidentiality of customers.  Utilities may verify a request from a building owner or ask for clarification before releasing data to the Portfolio Manager account.
  
  
• After the utilities have uploaded data to the building owner’s Portfolio Manager account, the owner must then visit the Commission’s compliance website to access and complete a Compliance Verification Report.  The owner then uses the Commission’s website to submit the completed Compliance Verification Report to the Commission. 
  
  
• At the same time that the building owner submits the Compliance Verification Report, the owner also downloads the Disclosure Summary Sheet from the Commission’s website and uses the Portfolio Manager to generate the required disclosure forms, including the Statement of Energy Performance, Data Checklist and Facility Summary.  The required disclosure forms expire 30 days after they are generated.
  
  
• No later than 24 hours prior to the execution of the sales contract or lease, or no later than the submission of the loan application to finance or refinance the building, the building owner must disclose to the prospective buyer, lessee or lender the Commission’s Disclosure Summary Sheet, Statement of Energy Performance, Data Checklist and Facility Summary.

While the disclosures are mandatory, the regulations do not establish a penalty for failure to comply.  Per the regulations, if a building owner does not have all of the required information, it can comply with the regulations by using reasonable efforts to locate the missing information and, if the information is not available, may reasonably approximate the missing information based on the best information available to the owner.

Prospective buyers, lessees and lenders of a building may use the forms disclosed by the building owner to better understand the building’s energy use.  The regulations do not impose further duties on the parties during the financial transaction.  Perkins Coie has been tracking the development of these regulations in order to fully understand how building owners may meet their requirements.

Please contact counsel for a more detailed summary of the final regulation or how it may impact your company.

© 2013 Perkins Coie LLP