Performance-Based Energy Code Does Not Eliminate Threat of Preemption

Yesterday, I posted that the District of New Mexico had issued a decision on the remaining open issues in the AHRI v. City of Albuquerque case. The memorandum and order is available for download here.

In the 1970's, the Federal government enacted minimum efficiency standards for certain HVAC equipment, which have been updated periodically since.  In 2007, the City of Albuquerque adopted a new energy conservation code designed to achieve greater energy efficiency in buildings.  The new Code had both a prescriptive path and a performance path for complying with the new energy efficiency requirements.  

The plaintiffs in the AHRI case are HVAC trade associations and contractors.   They alleged that the City of Albuquerque's energy code required HVAC equipment that was more efficient than the efficiency standards set by the Federal government.  As a result, the AHRI plaintiffs argued, the Albuquerque code was "preempted" by the Federal law setting efficiency standards for HVAC equipment. "Preemption" is when a higher level of government (like the Federal government) prohibits a lower level of government (like the states or municipalities) from regulating the same issue.

In 2008, Judge Martha Vazquez granted the AHRI plaintiffs a preliminary injunction, preventing the new energy code from taking effect.  In granting the injunction, Judge Vazquez stated that the Albuquerque Code was, most likely, preempted.

In 2010, Judge Vazquez granted partial summary judgment for the AHRI plaintiffs.  She held that the prescriptive paths for compliance with the energy conservation code mandated HVAC equipment with higher levels of efficiency than the Federal standards.  At the time, she specifically declined to rule on whether the performance path was also preempted. 

The January 25, 2012 decision takes up the issue of whether the performance path was also preempted.  Judge Vazquez did not rule on whether the performance path standing alone was preempted.  Rather, Judge Vazquez decided that it was not possible to sever the prescriptive and performance paths, and therefore "all provisions of the Code concerning HVAC and service water heating equipment are invalid and unenforceable."  She rests her decision on a stipulation by the City that:

Neither Volume I nor II of the Code would have been enacted by the City Council in the absence of the inclusion of the prescriptive compliance paths, and that, accordingly, the prescriptive compliance paths are not severable from the remaining performance-based compliance paths. 

Thus, the Court left unresolved whether a performance-based code that requires overall energy efficiency, but does not specifically require more efficient HVAC equipment, would also be preempted. 

The District Court for the Western District of Washington addressed this issue in BIA v. Washington State Building Council, and ultimately held that the Washington State Energy Code was not preempted.  The Washington State Energy Code did not mandate enhanced energy efficiency of the HVAC equipment.  Rather, it allowed for a point system whereby energy efficient HVAC components were one path for compliance with an overall energy efficiency target.  The BIA complaint alleged that it was essentially impossible to comply with the energy efficiency targets without  installing enhanced HVAC equipment.  This is an interesting twist on the AHRI  case, because in the Washington code it was possible to comply with the Code without running afoul of federal HVAC energy requirements. 

The ultimate lesson from these two cases may be that, with respect to energy efficiency,  performance-based energy codes are preferable.  However, the fact that there is litigation and controversy around energy codes may make local governments wary of adopting more stringent efficiency codes.


AHRI defeats the City of Albequerque, Complicating Matters for Local Governments

AHRI vs. City of Albuquerque, a case that I first posted on in 2008, finally reached its conclusion last week.  In line with the preliminary injunction she ordered on October 3, 2008, Judge Martha Vazquez of the District of New Mexico decided that Albuquerque's energy code was preempted by Federal law mandating the energy efficiency of HVAC equipment. 

Appliance Magazine reported:

In the latest opinion, Judge Vazquez confirmed her Sept. 10, 2010, rulings:
(1) The prescriptive energy efficiency standards in the 2007 Albuquerque code that are more stringent than federal minimum efficiency standards are preempted and cannot be saved from federal preemption by the availability of alternative code compliance paths.
(2) A particular performance-based code compliance option is preempted because it is based on a standard reference design that uses efficiency levels that exceed federal efficiency standards. Responding to a summary judgment motion filed by the city that essentially asked Judge Vazquez to reconsider her earlier rulings, she declined to do so and denied the city’s motion.

A similar suit was filed by the Building Industry Association in 2010 to enjoin (or, in regular english, stop) the Washington State Energy Code from taking effect. 

The foundation of both AHRI and BIA is in essence one of preemption--that the federal government has enacted laws that prevent lesser governmental authorities from passing laws on the same subject, here the Federal regulations governing the efficiency of HVAC equipment preempted state and local energy efficiency laws.

Interestingly, in the Washington case, the court found that the Washington State energy code was not preempted.   This creates a split between the District of New Mexico and the Western District of Washington.  In my next post, I will give more detail on the difference between the two cases.  It will make it more difficult for local governments to know the extent to which they can regulate HVAC energy efficiency, which may make local governments shy away from doing so.

A New Lease on Life or a Nail in the Coffin? Notice and Comment Period on PACE Opens

Property Assessed Clean Energy (PACE) programs allow local governments to loan money to homeowners to do energy efficiency projects.  The PACE loans are generally repaid as a property tax line item.  PACE programs were initially very popular, and more than 25 states passed PACE-enabling legislation.

As discussed in earlier posts, in the summer of 2010 the Federal Housing Finance Agency put the brakes on PACE programs.  The FHFA issued an advisory that Fannie Mae and Freddie Mac should put more stringent evaluation standards in place for mortgages on properties with PACE assessments.  On February 28, 2011, FHFA issued a directive stating that Fannie Mae and Freddie Mac should continue to refuse to purchase mortgages on properties with PACE loans.

In the wake of the FHFA actions, several law suits were filed, including one in the Northern District of California.  The plaintiffs in the California PACE case alleged that the FHFA acted without following the appropriate administrative procedures, and without doing and Environmental Impact Assessment. 

The District Court issued a preliminary injunction requiring FHFA to proceed with the the necessary administrative steps that FHFA had failed to do prior to issuing its greenlining mandates.  

On January 26, 2012, the FHFA began the  "notice and comment" period for advanced notice of proposed rulemaking on PACE.  Specifically, the FHFA's proposed action is to prevent Fannie Mae and Freddie Mac from buying certain mortgages whether or not the particular mortgage has a PACE assessment associated with it:

FHFA's Proposed Action would direct [Fannie Mae and Freddie Mac] not to purchase any mortgage that is subject to a first-lien PACE obligation or that could become subject to first-lien PACE obligations without the consent of the mortgage holder.

The wording of the proposed rule is interesting.  Not only would it prevent Fannie and Freddie from buying mortgages on properties with PACE loans, but also potentially from buying any mortgages in a community that has a PACE program, whether or not the particular mortgage has a PACE loan associated with it. 

The Advanced Notice of Proposed Rulemaking triggers a 60-day comment period, which opened January 26 and closes March 26.  The ANPR seeks comments about both the environmental and fiscal aspects of PACE.  The ANPR is here.