Pennsylvania Executes one of the First Residential Energy Efficiency Loan Bundling Transactions

After long and diligent work, my own Commonwealth of Pennsylvania announced last week that it had successfully bundled 4,700 residential energy efficiency loans, and obtained $23 million in cash and $8.3 million in deferred payments, for a projected total of $31.3 million.  The press release is available here.

This is a holy grail of sorts.  People have been saying for years that energy efficiency loans should be able to be bundled and sold, a la mortgages and credit card loans. In theory, bundling the loans would allow private capital to invest in pools of energy efficiency loans, as opposed to individual projects, injecting more capital into the market for energy efficiency upgrades and lowering the interest rates.

Although it seemed like a workable idea, few before the Pennsylvania Treasury had accomplished it.  Energy efficiency loans were considered too weird, too complicated, too risky, etc. to be bundled.  Most critically, financial institutions mostly considered energy efficiency loans to be too risky because there was an insufficient amount of data on energy efficiency loan defaults.

In light of these issues, the Pennsylvania transaction still does not really recognize energy efficiency loans as a unique asset class.  By this I mean that the stream of income from the saved energy is not being recognized as part of the transaction.  As far as the investors are concerned, the loans could be for HVAC equipment or Manolo Blahniks, they are all just unsecured consumer loans.  In addition, Treasury still had to put up significant credit enhancements to make the loan pool desirable. 

In addition, the transaction took a long time and had high transaction costs.  A private entity probably would not have had the resources or perservernce needed to cross the finish line.  Future transactions will need to be more standardized, both with in terms of assets and documentation.

Nonetheless, the Pennsylvania transaction and the many lessons its staff learned along the way may be a very important step in accessing greater pools of capital for energy efficiency.   

 

PA Code Council Votes to Reject 2012 ICC Changes, Delay Code Updates until at least 2018

 It has been stated that building energy codes are the “quickest, cheapest and cleanest way to improve energy efficiency in the building sector.” 

Unfortunately, if the January 18, 2012 recommendations of the Uniform Construction Code Review and Advisory Council (the “Advisory Council”) go into effect, Pennsylvania will not adopt the 2012 updates to Pennsylvania’s building and energy codes. The Advisory Council voted to reject the 2012 model codes issued by the International Code Council (“ICC”) in their entirely, except for a few provisions regarding accessibility for the disabled. 

The Advisory Council also voted to recommend that the revision cycle for the Pennsylvania Construction Code be extended from three years, consistent with the international model code update schedule, to six years. If both the rejection of the 2012 codes and the extension of the code revision cycle go into effect, the 2009 codes will be in place until at least 2018, and Pennsylvania may miss out on the environmental and financial benefits of the 2012 code updates, and perhaps even the 2015 updates, as well.   

This means that much of Pennsylvania’s new construction for the foreseeable future will be less energy efficient than “state-of-the-art” construction, placing owners and tenants at a competitive disadvantage compared to forward-thinking neighboring jurisdictions like New York City, Washington DC, and Maryland. 

There is much more to this story.  The full article is available here

Inside Baseball No More--Why The Building Code Adoption Process Is Critical To Sustainability

A lot of attention has been paid to creating a greener building stock by incorporating green building practices into building codes.  The development of the International Green Construction Code is just one example.

However, there are two primary components to every regulation--policy and process.  Both components are critical to acheiving regulatory goals. Good laws that are not implemented and enforced might as well not exist, and bad laws which are well implemented create a different, but equally bad, outcome. 

The process for approving building codes is arcane at best and impenetrable at worst. To those interested in sustainability, code process may seem like the ultimate "inside baseball" information, like knowing what the Lou Brock's 1967 out statistic was--simply not vital to understanding baseball as a whole.  HB 377, a law signed by Pennsylvania Governor Tom Corbett this week demonstrates how how process changes can impact green building and energy efficiency policy. 

 Generally, the process for adopting building codes is as follows:

1.  The local or state government enacts enabling legislation requiring a building code, often incorporating the International Code Council's model code.  

2.  The International Code Council updates their model building codes on a regular basis, once every three years.

3.  The state or local government has some mechanism, either automatic or through an approval process, for updating its building code to the new version. 

Depending on what level of authority is provided to local governments with respect to their building codes, local governments may adopt additional or different changes to the building code requirements.

Pennsylvania has a state wide building code which, until this week, was an "opt-out" model.  Updates to the International Construction Code were automatically incorporated into the Pennsylvania code unless provisions were specifically rejected by a Governnor-appointed council comprised of builders, architects, code officials and so on. 

The bill enacted this week switches the code adoption to an "opt-in" model.  Any changes to the construction code must be approved by a super-majority vote by the council, otherwise the prior code remains in effect.  In addition, the law adds an additional seat to the 19 member council for:

A GENERAL CONTRACTOR FROM AN ASSOCIATION REPRESENTING THE NONRESIDENTIAL CONSTRUCTION INDUSTRY WHO HAS RECOGNIZED ABILITY AND EXPERIENCE IN THE CONSTRUCTION OF NONRESIDENTIAL BUILDINGS

Policy watchers, like Penn Future , the Delaware Valley Green Building Council, and the Northeast Energy Efficiency Partnerships , anticipate that the super-majority vote of the council will make enacting updates of the ICC very difficult, and that the extra seat for the general contractor will bias the council against upgrading the stringency of the building code. This, of course, includes code changes for greater energy efficiency requirements and incorporating green building practices.

HB 377 said nothing about energy efficiency or green building.  Nonetheless, the changes to the building code adoption process creates a potentially significant barrier to a greener building stock in Pennsylvania.  On a 20 person board, It would require 13 votes to put a code change into effect, and each change must be lobbied for separately.  

Do you know what the code adoption process is in your state or municipality?  Are there any proposed changes?  Let GBLB know what you find out.  It might surprise you.    

A "Perfect Storm" For Renewable Energy? Obama Makes Green Energy And Green Buildings A 2010 Priority

In last week's State of the Union address, Obama challenged America to embrace a "Sputnik Moment":

So tonight, I challenge you to join me in setting a new goal: by 2035, 80% of America's electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal, and natural gas. To meet this goal, we will need them all – and I urge Democrats and Republicans to work together to make it happen.  

Today, speaking in State College, PA, Barack Obama is scheduled to make a speech on committing to new programs for energy efficient buildings.

According to Reuters:

As part of that program, Obama will announce a plan to improve energy efficiency in U.S. commercial buildings by offering businesses incentives to help pay for clean energy upgrades of offices, stores and other buildings.

According to the White House, the "Better Buildings Initiative" will: 

achieve a 20 percent improvement in energy efficiency by 2020, reduce companies' and business owners' energy bills by about $40 billion per year and save energy.

Most significantly, the Obama administration announced that the cost of the program would be "paid for by ending tax subsidies for oil, natural gas and other fossil fuels."

Obama faces many challenges in the process.  At a recent American Council On Renewable Energy event on the new political climate in Washington, all of the speakers expressed skepticism that real energy policy moves could be made in 2010. The Republican party does not want to be perceived to approve of any discretionary spending.  The fossil fuel lobby is very strong and the breaks and incentives for fossil fuels very well entrenched.  Finally, states with nonrenewable resources like coal, natural gas and petroleum are loathe to threaten these high value industries, particularly in lean economic times. 

Obama and the Democrats have a few unique elements which could turn into a "perfect storm" for renewable energy policy:  

  • Public interest studies have demonstrated that Americans currently have a positive image of solar and other renewables. 
  • The Gulf Oil Spill is still relatively fresh in the public's mind.
  • The turmoil in the Middle East is increasing by the day.
  • There were record weather patterns again this winter.
  • The ARRA demonstrated the capacity of public investment to grow green jobs.

If these components can be honed into a clear, coherent connection to the value of investment in renewable energy, then it may be possible to achieve a major step forward in energy policy. 

One small step for Obama, one giant step for mankind.

 

"I"-nterview With Maureen Guttman, Executive Director of the Pennsylvania Governor's Green Government Council

Yesterday, I discussed why I thought the ICC Green Building Code project was important enough to put off my knitting lessons for.  But you don't have to take my word for it. 

Maureen Guttman, AIA,  Executive Director of the Pennsylvania Governor’s Green Government Council and Member of the ICC Sustainable Building Technology Committee, agreed to talk to Green Building Law Blog about why she felt the ICC Green Building Code Project was significant to sustainability and the Commonwealth of Pennsylvania.   

Guttman is an active leader in the architecture profession, recently serving as the Pennsylvania representative to the American Institute of Architects Board of Directors. She is a recognized expert on building codes and green building policy, and has been instrumental in the development and passage of several pieces of related legislation in Pennsylvania. 

GBLB: Why are you involved in the ICC Green Building Code Project? 

MG: I have been involved in building code stuff for years. I view it as a major obligation of the professional responsibilities as a licensed architect. Building codes are a playbook for the designers of buildings, so compliance with the codes is one of the very fundamental principles that our license is predicated on.

I believe that all architects should be involved in aggressive code awareness. This was one of the things I pushed for on Board of AIA. I think that architects who are not involved in code development and awareness are missing out on what adds value to our profession.

GBLB:  What makes the Green Building Code Project so important? 

MG: This is an unbelievable opportunity to bring together the rules of the game with respect to health safety and welfare and layer on top the environmental health which we are charged with safeguarding. The idea of tying together the tenets of building health and safety and commitment to sustainability and tie it with regulatory procedure is a very exciting opportunity for me personally and for the Commonwealth of Pennsylvania. It is a good sign in terms of our commitment to codes that there are so many of us on the committee involved in developing the green building code—Pennsylvania is obviously a player.

GBLB:  What is the future of the Green Building Code? 

MG: It’s going to be very controversial. It is such a new way of thinking that there is going to be resistence. But hopefully it will provide some uniformity in what municipalities are enforcing as a ”green building". I hope it will also help the existing rating organizations promote ever more advanced sustainable initiatives—keeping the codes on its toes.

GBLB:  What is the future of the Green Building Code for Pennsylvania? 

MG: I’d like to think the green building i-code can be adopted in Pennsylvania as part of the process for adopting new codes. I envision a lively debate on it. I hope that Pennsylvania will be one of the first states to adopt it. It may be on a roll-in or an incentive basis. I hope that Pennsylvania will be at the forefront of pushing the adoption of this code. This will be a slam dunk measure to make some climate change goals achievable, as sole reliance on market incentives may not get us as far as fast.
 

Pennsylvania Launches Energy Fund Programs

Today the Pennsylvania DEP released the guidelines and application for the Small Business Energy Efficiency Grant Program. The program provides Pennsylvania small businesses with the opportunity to receive a 25 percent reimbursement matching grant of up to $25,000 to implement qualified energy efficiency projects.  The Small Business Ombudsman’s Office will be accepting applications for Small Business Energy Efficiency grants from today until May 1, 2009, or until the funds are exhausted, whichever comes first.

 

State Preemption--When state law kills local green regulation

I have written a lot about federal/local conflicts in green building regulation, particularly in regard to AHRI v. City of Albuquerque.  Today I want to address state law preemption--when state laws prohibit localities from regulating green.

A great example of this is in the Commonwealth of Pennsylvania where I practice law. 

In 2004, Pennsylvania adopted the Uniform Construction Code (UCC), a common building code for all municipalities in Pennsylvania. 

 

The UCC in itself does not prevent local governments from passing green building regulations related to the building code as long as:

  • the requirements are equal to or more stringent than the UCC,
  • the local government secures approval from Pennsylvania’s Department of Labor and Industry,
  • the local government provides appropriate public notice

L&I provides a web overview of the requirements for making changes to the UCC here.

 

The legal requirements are Section 503(b-k) of Act 45, 403.102 of the UCC Regulation, both available at PA L&I website.

 

PA L&I will evaluate the proposed change based on the following criteria:
 
     (i) that certain clear and convincing local climatic, geologic,
     topographic or public health and safety circumstances or conditions
     justify the exception;
 
     (ii) the exception shall be adequate for the purpose intended and
     shall meet a standard of performance equal to or greater than that
     prescribed by the Uniform Construction Code;
 
     (iii) the exception would not diminish or threaten the health, safety
     and welfare of the public; and
 
     (iv) the exception would not be inconsistent with the legislative
     findings and purpose described in section 102

 

However, certain court decisions have made it questionable whether green building goals would satisfy the “clear and convincing” standard to justify the exception.  In Schuylkill Twp. v. Pa. Builders Ass'n, 935 A.2d 575 (Pa. Commw. Ct. 2007), the Commonwealth Court held that townships must prove that “the conditions there were so different from the statewide norm that the uniform standards were not appropriate to use in the Township,” in order to satisfy the “clear and convincing” standard for an exception to the UCC.  


This case is currently up on appeal before the Pennsylvania Supreme Court to determine whether the Pennsylvania law implementing the UCC requires a municipality to prove that there are unusual local circumstances or conditions atypical of other municipalities to justify an exception to the UCC.

 

If the Supreme Court determines that atypicality is required, local governments would have a very difficult time passing green building standards which required building practices different from those in the UCC--it would be very hard to argue that the benefits of green building any different in one township than any other in Pennsylvania.   

 

 

 

 

 

 

 

 

 

 

PA Proves Green Not Safe From Economic Downturn

I have been reading here, there and everywhere that green is a safe haven in this time of economic turmoil.  Today's information about Pennsylvania's Energy Fund proves otherwise. 

In the summer, Pennsylvania passed a $650 million progressive Energy Bill, with financial incentives for solar, high performance buildings, energy efficiency and so forth.  See article here by the folks over at Red, Green and Blue.

Everything seemed to be progressing nicely, setting the stage for an increase in renewable energy in the Keystone State.  Unfortunately, much of the $650 million Energy Fund was supposed to come from a bond offering.  Today, Pennsylvania state officials announced they were putting off floating the bond because the bond market has dried up.  Pennsylvania is not alone.  Apparently, New York/New Jersey Port Authority tried to borrow $300 million, and they got no takers.

This is very bad news for the sustainability community.  First, lack of access to financing makes governmental incentives almost impossible to fund, taking away one of government's best tools to use market drivers to encourage sustainable practices.  Second, lack of government incentives reduces the market of renewable providers.  Third, in a moment of low gas prices, lack of government incentives makes renewables less cost competitive.  In short, it is a lose, lose, lose situation.