Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Calliope Communications, LLC

The Court of Appeals of the State of New Mexico handed down a limited win for energy code advocates, holding that adopting changes to building codes that removed energy conservation provisions without any justification violated administrative procedure. The decision is available here.

Between 2006 and 2012, the construction and energy codes adopted in many jurisdictions have incorporated provisions increasing the energy efficiency of buildings built to code by 30% (15% from the 2006 to the 2009 codes, and an additional 15% from 2009 to 2012). 

As I have posted about previously, there is a trend nationwide to resist adoption of the 2012 codes, in part based on the increased energy conservation requirements. In the case of New Mexico, the state had adopted codes which had energy conservation requirements beyond those in the 2009 energy codes. 

The New Mexico Construction Industries Commission (the "Commission") sought to adopt changes that would have removed any energy conservation provisions from the New Mexico codes that exceeded the 2009 International Energy Conservation Code (IECC).

The Commission held several public meetings and solicited public comments on the code changes.  Then, at a June 2, 2011 meeting, after a brief and (frankly) confusing statement by the Chair of the Commission, the Commission voted to adopt the code changes without further discussion.

Several groups including the Southwest Energy Efficiency Project, Environment New Mexico, several green builders, the Sierra Club and other sued to overturn the Commission's decision for (among other arguments) being "arbitrary and capricious" due to the Commission's lack of discussion and justification for the decision. 

The Court of Appeals held that the Court could not even determine whether the Commission's decision was valid because the Commission failed to provide "what facts and circumstances were considered and the weight given to those facts and circumstances."  Southwest Energy Efficiency Project v. New Mexico Construction Industries Comm'n, No. 313838, April 4, 2013 (N.M. Ct. Appeals) at 10.  The Court remanded the Codes to the Commission for reconsideration, with a justification of its reasons for its decision. 

The reason why I characterize the decision as a "limited win" is that, assuming that the Commissioners are the same, there is no reason why the decision on the code adoption will change. If the code revisions are again adopted, with justification, the Plaintiffs will have to institute another legal action, and demonstrate that the justification provided by the Commission is arbitrary and capricious. 

However there may be value to the plaintiffs simply by filing the suit and making the Commissioners justify to the citizens of New Mexico in writing why the homes they live in should not be energy efficient. 

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Utilities are often dismissed or ignored in most discussions of energy efficiency and green building  I find this quite remarkable.  First, many state laws mandate that utilities engage in energy efficiency efforts.  Second, as utilities are directly connected to the energy consumer, utilities are often n the best place to advocate for energy efficiency and deliver energy efficiency programs.

The problem is that utilities are not usually incentivized, and are often disincentivized, from promoting energy effiiciency.  Historically, utilities have made money by selling electricity or natural gas, and recovering a return on their sales and investment in infrastructure from ratepayers.  The trouble with this scenario is that it does little to incentivize utilities to promote energy efficiency.  If the utility promotes conservation, thus selling less energy and reducing investment in infrastructure, they will make less money.   

Some energy efficiency advocates are beginning to promote different utility rate structures which pay the utilities for the lost revenue attributable to energy efficiency, so that the utilities are made whole for thheir investment. An article on energy efficient rate making is available here.

These new rate structures are not without their challenges.  For example, the Public Regulation Commission of New Mexico put in place a rate scheme which allowed utilities to collect one cent for each kilowatt hour of electricity that was saved through energy efficiency programs.  The average increase on a residential customer was 17 cents a month. 

On August 3, the New Mexico Supreme Court struck down the surcharge, holding:

The PRC did not inquire into any of the utilities’ revenue requirements, nor any of
the traditional elements of the ratemaking process. At the evidentiary hearing, the utilities merely presented evidence on what the impact of [the surcharge] would be. Without inquiring into a utility’s revenue requirements, we fail to see how the PRC could adequately balance the investors’ interests against the ratepayers’ interests when adopting [the surcharge]. The PRC’s adoption of the adder rates was arbitrary and unlawful in that they were not evidence based, cost-based, nor utility specific.

The full opinion is available here.

Energy efficiency advocates seeking to use utility ratemaking as a mechanism for promoting energy efficiency must pay careful attention to ratemaking regulations, and realize that attempts to change the historical rate structures will face opposition from many sides, including consumer advocates.   

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