I have been trekking and mountaineering in Tibet

I am writing this blog post from the Yak & Yeti hotel in Kathmandu. As some regular readers of this blog have commented, there has been a brief hiatus in my postings. For the last many weeks I have been trekking and mountaineering in Tibet.

At the beginning of this wonderful adventure, I had an opportunity to meet with green building clients and friends in Beijing and tomorrow I will meet with clients in Delhi before making my way back to Baltimore. China and India each are huge markets for sustainable building.

Although admittedly, I spent most of the past month climbing on the highest and largest plateau in the world (.. and not working), surrounded by the Himalayan mountains in all directions. 

In 1981 the climber and writer Galen Rowell made his first journey to Tibet and the northern side of Mount Everest (.. the first time Americans had been allowed into the Tibetan backcountry). In his magnificent book “Mountains of the Middle Kingdom” Galen described seeing hundreds of snow peaks in all directions, a vision off the scale of human experience, .. “I saw distant peaks that looked Everest-sized. They rose on the horizon behind an ocean of lesser whitecaps, .. more miles of more jagged peaks, with a greater feeling of height, than anything I knew existed on the planet.”

In the last many days I also have been awed by those same views and the opportunity to experience both the spiritual nature of the place and stunning views of the planet’s highest mountains making clear why Tibet is referred to as the roof of the world.

Regular blog posts will resume in the coming days, and ..

I will be in New Orleans attending the USGBC’s Greenbuild convention and expo next week. As a reader of this blog, if you email me, I will gladly buy you a cup of coffee and beignet at Café Du Monde.

Saint Paul has an Alternative to LEED

Much has changed, but much has remained the same, in the arena of green building law mandates since March 18,2002, when the city of Normal, Illinois enacted Ordinance 4825, the first ever mandatory green building law, requiring LEED certification in the Central Business District for public or private new construction of over 7,500 square feet.

Many thought green building mandates would spread across the county. But today, with more than 89,000 local governments across the U.S., there are less than 200 green building mandates that apply to ‘purely’ private building. 

Among the most progressive and unique of those green building laws is the Saint Paul sustainable building policy applicable to government building and private construction receiving public money. Saint Paul has the audacious goal of wanting “to be the most livable city in the United States.”

First effective in 2004 and modified several times, today the Saint Paul law applies to any new construction project receiving more than $200,000 in City or other governmental funding programs. The developer must choose for the project one of the following rating systems and levels with which to minimally comply:

Commercial Projects: LEED New Construction, Silver certified; or Green Globes, 2 globes awarded; or State Guidelines Building Benchmarking and Beyond (B3) compliant; or Saint Paul Port Authority Green Design Review (as applicable).

Residential Projects: LEED for Homes or LEED NC, Silver certified; or Minnesota Green Star, Silver awarded; or Green Communities, Minnesota Overlay compliant.

The last 6 commercial projects subject to the law each selected to comply with the B3 Guidelines.

The B3 Guidelines for both new buildings and major renovations: Exceed the state energy code by at least 30 percent, focus on achieving the lowest possible lifetime costs, encourage continual energy conservation improvements, include air quality and lighting standards, create and maintain a healthy environment, facilitate productivity improvements, and specify ways to reduce material costs.

To achieve these goals, the B3 Guidelines build on previous local and national efforts. The guidelines are designed to be clear and able to be used without consultants. They are designed to be compatible with LEED. Most importantly, the guidelines set up a process that will eventually lead to an accounting of the actual costs and benefits of sustainable building design. The State has further clarified the scope of the guidelines to focus on office and higher education classroom facilities, although the guidelines are suitable for most other building types.

B3 may not have LEED’s national cachet or the marketing power of a LEED seal mounted on a front door, but it is an efficacious sustainable building tool that is popular with the environmental industrial complex and worthy of your review.

Nationally consensus appears to be that a building code or the like that goes far beyond life safety is going too far and mandatory green building codes are not generally desirable. As damming as that is, the public appears willing to accept both government building and the beneficiaries of public money be required to comply with a voluntary green building rating system.

Attend Greenbuild: The Best Way To Grow Your Business

I was delivering a lunchtime speech to a group of real estate professionals yesterday and the first question I received was “how can I expand my green building business?” I retell that because it is a variation of the question I receive most often these days about green building.

My answer is simple. Attend the U.S. Green Building Council’s annual Greenbuild Conference and Expo.    

This year Greenbuild is in New Orleans from October 22 - 24. 

I am not a business marketing expert, but Greenbuild has been the number one source of new business for my green building law firm!

I have been attending Greenbuild on and off over 12 years. Last year, Greenbuild 2013 in Philadelphia was a far cry from the first USGBC “Green Building Conference” (yes, pre Greenbuild) held in conjunction with the National Institute of Standards in Gaithersburg, Maryland in 1994 which had 450 people in attendance. Last year dwarfed the first Greenbuild in 2002 when 4,189 people gathered in Austin. While I have not seen actual attendance numbers, I suspect more than 30,000 attended last year, making it the largest green building gathering each year and the best opportunity for networking among your peers.

Last year event company Hanley Wood acquired Greenbuild from USGBC (actually in advance of last year’s convention) and this will be their first expanded and bigger production. Hanley Wood is alos producing the international Greenbuild shows. 

It is all but impossible not to encounter new vendors and suppliers with more than 800 exhibitors on the Expo floor.  Educational activities abound, not only in the classrooms but some of the most cutting edge are in the Expo. For example, last year there was an asphalt pavement booth with scientific studies challenging what we think we know about urban heat island effect.

Greenbuild 2014 in New Orleans will be “the” target rich environment for green building people this year.

Today may be the last day for early bird registration discounts. So register today.

It is only 68 days until this once a year opportunity to expand your green building business.

And for those who will complain that this blog post is shameless promotion of USGBC, that might be true, but it is also correct that Greenbuild has been the number one source of new business for my green building law firm!

Having fun is also part of the Greenbuild experience. As a reader of this blog, if you email me, I will buy you a drink at a New Orleans watering hole or a coffee and beignet at Café Du Monde. 

Enterprise Green Communities Criteria Being Updated

In 2015 the use of LEED v4 will become mandatory, a new 2015 International Green Construction Code will be available, an updated ASHRAE 189.1 will be published, the new ICC 700 National Green Building Standard will be approved, and there will be a 2015 Enterprise Green Communities Criteria. 

In the arena of green building standards, green rating systems and green codes among the widely respected residential rating systems is the Enterprise Green Communities Criteria.

While the Criteria was developed by Enterprise to “provide a clear, cost-effective framework for all affordable housing development types in any location in the country, including new construction and rehabilitation in multifamily as well as single-family buildings,” the Criteria are used in more than just affordable housing.

The current Enterprise Green Communities Criteria, adopted in 2011, are grouped into the following eight categories: 1. Integrative Design, 2. Location + Neighborhood Fabric, 3. Site Improvements, 4. Water Conservation, 5. Energy Efficiency, 6. Materials Beneficial to the Environment, 7. Healthy Living Environment, and 8. Operations + Maintenance, which are not dissimilar from LEED for Homes.

All project types (single family, low rise multifamily, and mid/ high-rise multifamily) and construction types (New Construction, Moderate Rehab, and Substantial Rehab) use that set of Criteria.

There is only one level of Enterprise Green Communities Certification awarded. To achieve certification, projects must achieve compliance with the Criteria mandatory measures applicable to that construction type. Additionally, New Construction projects must achieve 35 optional points and Rehab projects must achieve 30 optional points.

Enterprise Green Communities has certified more than 30,000 homes to date (as compared to more than 132,000 registered with 50,000 certified under the LEED for Homes rating system). Also significantly, the Criteria have been adopted by more than 20 states as a mandatory requirement for allocation of Low Income Housing Tax Credits, a Federal program that finances roughly 90% of all affordable housing production in the U.S. So, the revision of the Criteria is of great import.

There are two primary opportunities where you can engage with the 2015 Criteria Development Process: First, Enterprise community partners local market offices are currently collecting feedback during the “Local Developer Comment Period” through third quarter 2014. And then, after the efforts of several working groups, Enterprise Green Communities will welcome comments on a draft version of the 2015 Criteria during their public comment period late in the fourth quarter of 2014.

For more information about the 2015 Green Communities revisions process email greencommunities@enterprisecommunity.org

2015 will be a year of great change in green building standards, rating systems and codes. Participating now in the development of the 2015 Enterprise Green Communities Criteria is an ideal way to prepare for what is to come. 

Litigation Over First Ever LEED Platinum Building Tarnishes Green Building

Last week, a federal appeals court brought back from the dead, a more than $6 Million lawsuit filed over materials supplied in 2000 for the first ever LEED certified Platinum building. Despite that the unpublished opinion is not binding precedent, it will have a chilling effect on green building and in particular on the selection of new or untried materials and products that are the keystone of many sustainable projects. 

The Chesapeake Bay Foundation v. Weyerhaeuser Company arose from the construction in 1999 of the Chesapeake Bay Foundation’s headquarters in Annapolis, Maryland. SmithGroup designed the building and Clark Construction oversaw its construction. SmithGroup’s “green” design called for exposed structural wood members outside the building envelope, including some that penetrated the facade. Under a March 3, 2000 purchase order that it entered into with Clark, Weyerhaeuser agreed to provide Parallam PSL columns and beams for use as the exposed wood members.

Parallams, which have a rough-hewn appearance, are manufactured by bonding together strips of wood. Its contract with Clark required Weyerhaeuser to treat the Parallams with the preservative PolyClear 2000, something then new and untried.

Water damage to the Parallams was observed during construction. Following final completion of construction in late December 2000, water began leaking through the Parallams into the building. In 2001 and 2002, the leakage was investigated by two outside consultants hired by Clark. A 2001 report by one of those consultants addressed to the Bay Foundation described that such water could cause deterioration or rot in the Parallams themselves if they were not properly treated with a wood preservative.

In a damning fact that may have had more to do with this court decision than the law, the Bay Foundation “… subsequently learned that the Parallams had not been treated with PolyClear 2000 as certified, that PolyClear 2000 was not in any event well suited to the job of preserving the Parallams, and that Weyerhaeuser had knowingly given false assurances to the contrary.”

The Bay Foundation initiated this case in state court on December 3, 2010 (i.e., 9 years, 11 months and some odd days after final completion) and the case was ultimately removed to the US District of Maryland. The complaint focused on the deterioration of the Parallams. According to the complaint, Weyerhaeuser breached its contract with Clark, owed common law indemnity and contribution to SmithGroup and Clark, and was liable to the Bay Foundation and SmithGroup for negligent misrepresentation and negligence.

The federal trial court, in awarding summary judgment to Weyerhaeuser, concluded that the plaintiffs’ state law claims were time-barred. Maryland’s statute of limitations provides that “[a] civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced.” Maryland follows the discovery rule, which provides that “the cause of action accrues when the claimant in fact knew or reasonably should have known of the wrong.” And the trial court reasoned the 2001 report did just that.

But, the three judge panel of the Fourth Circuit Court of Appeals vacated the more than 2 year old order (that had dismissed the case) and remanded the case for further proceedings.  

The federal appellate court said, “viewing the evidence in the light most favorable to the plaintiffs, a genuine dispute exists as to whether knowledge of the water infiltration problem would have put a reasonable person on notice that the Parallams were susceptible to premature deterioration and that their PolyClear 2000 treatment would not preserve them.” 

This blog will continue to watch the saga that are these disputes and differences arising out of the first LEED Platinum certified building. And while only time will tell if this case will have a chilling effect on green building, it certainly will cause architects to give pause before specifying new or untried materials and products that are the keystone of many sustainable projects.    

Lawsuit Over LEED Documentation

A case filed last week in a California court is a prime example of the importance of contract documents in a LEED project.

Earlier this year the City of Palo Alto gave notice firing Flintco Pacific, Inc., the general contractor responsible for construction of the Mitchell Park library, a proposed LEED Platinum project. With a performance bond in place, the City and the surety announced in early March that they has negotiated a takeover agreement that will allow a new contractor to complete construction. 

But the current dispute playing out in letters between counsel for Palo Alto and Flintco is the claim by the City that when Flintco’s contract was terminated, it did not turn over the documentation necessary to pursue LEED certification. In a letter reprinted in part in the local print media, Assistant City Attorney Cara Silver said, "very little of the LEED documentation appear to be present." And in a follow up letter from the City's outside counsel, David Ginn to Flintco, also made public, Palo Alto further claims the missing documents relate to the “source and specific type of materials incorporated into the project, methodologies employed by the contractor to reduce waste and impact, and a significant number of other requirements.” Flintco responded that it had made all of the documents in its construction trailer available to the City and that these documents are responsive to all the deliverables identified in the construction contract.

And while Flintco argues that its contract was improperly terminated after the building was more than 97% complete that dispute may have to wait for another day.

It is disputes and differences over the documentation necessary to pursue LEED certification that apparently lead Flintco to commence a Petition for Writ of Mandamus against Palo Alto (.. yes, the general contractor sued the City) in Flintco Pacific, Inc. Vs City Of Palo Alto, filed July 17, 2014 in the Superior Court of California, County of Santa Clara, asking the court to declare that the City is violating the California Public Records Act and to command the City to produce all records relating to Flintco's information request for 49 categories of documents related to the construction including writings related to LEED certification.

While the merits of the construction dispute are beyond the scope of this blog post, this matter is significant because if highlights the importance of construction contracts expressly providing for who owns the LEED documentation. A common contract provision, but not found in the contract in this instance, provides,

Any LEED certification plan and materials prepared to support the LEED certification application are intended for use by the Owner with respect to this Project. [LEED Consultant] grants the Owner a nonexclusive license to utilize, including reproduce, the plan and those materials for purposes related to the building that is the Project. [LEED Consultant] shall be deemed the author and owner of the LEED certification plan and the materials prepared to support the LEED certification application, and shall retain all common law, statutory and other retained rights, including copyrights.

Do you know who owns the LEED documentation on the project you are working on?

Photo credit. Mitchell Park Library. Palo Alto Weekly photo. 

Lawyers' Opinions in Green Building Transactions

We are increasingly called upon to give legal opinions that a green building is LEED certified, ‘certifiable’ or otherwise really a green building.

The purpose of a legal opinion given in a commercial real estate transaction is, most simply put, to provide the recipient of the lawyer’s writing with comfort regarding specified aspects of the transaction. 

One might ask why they need an opinion from a lawyer that their building is green? The best response is because in many instances their lender requires it. While legal opinions are given in a variety of commercial contexts, they are increasingly being required as part of the due diligence by lenders when making loans secured by (i.e., a mortgage) a green building.

The size and nature of a transaction may well affect the scope of the opinion requested and in larger traditional mortgage financing as well as bond financing, lenders attribute increased value in the security being provided for loans when a building is LEED certified or the like.

Opinion letters are often given by the borrower’s attorney at the request of and for the benefit of the lender. Traditionally, legal opinions in the context of loan transactions provide assurances that the loan documents are valid, binding and enforceable. Often legal opinions arising from the purchase of real estate involve assurance that the improvements exist accordance with applicable zoning, subdivision and other land use laws and regulations. Opinions are also given, from time to time, that a project complies with environmental laws. And now counsel to borrowers and sellers are being called upon to provide assurances that the real property and improvements which exist or are to be constructed have been designed and exist or will exist in accordance a stated green building standard, rating system or code.

Additionally, as increasing numbers of governments make green building mandatory or offer incentives for high performance buildings, purchasers and lenders alike want assurances that a building is in compliance with those green building laws. Tenants, who with greater frequency are required by law or policy to lease only green premises (from the federal government to multi family residential builders and colleges to retail builders) are a fast growing requester of opinions.  

We also receive requests to give opinions of counsel that a project is LEED ‘certifiable’ or ASHRAE 189.1 compliant or complies with Enterprise Green Communities criteria; commonly associated with qualifying fir governmental incentives. Committing that a project will be LEED certifiable versus certified by GBCI increases certainly and lowers risk.

And while we believe a lawyer should not be asked to be an additional warrantor of facts, the distinction between questions of law and fact may at time be difficult to separate. In giving an opinion, a lawyer is not and should not be thought to be providing a guaranty or insurance against loss.

As a function of the fact that there are more green buildings being constructed and those building are being bought and financed, we will be giving increasing numbers of legal opinions that green buildings are ‘really’ green buildings.

Photo Univ of Baltimore School of Law LEED Platinum Building

E-Cigarettes will be Prohibited in Future LEED Buildings

On July 1st the U.S. Green Building Council released a change to LEED classifying electronic cigarettes as a form of tobacco smoking for the purposes of the smoking prohibitions of the LEED Environmental Quality Prerequisite 2, Environmental Tobacco Smoke (ETS) Control, which is also applicable to LEED v4. 

Project teams must follow rating system addenda posted before their project’s registration date. Addenda are often substantive changes to LEED content including corrections, interpretations and alternative compliance paths that may substantively change the way a given requirement is achieved or meant to be achieved. Addenda are accessible in the addenda database.

Addenda are often released as LEED Interpretations which “are official answers to technical inquiries about implementing LEED on a project.” They are most easily accessed in the credit library by selecting the "Interpretations” tab within each credit.

“LEED Interpretations are not an avenue for making significant changes or new requirements to the LEED rating system. LEED Interpretations are also not the intended path for fixing errors in the LEED rating systems and reference guides.”

In this instance, the inquiry was “Are electronic cigarettes (e-cigarettes) covered under the Environmental Tobacco Smoke Control prerequisite?” The LEED Interpretation,

Yes, electronic cigarettes are considered a form of smoking for the purposes of both the interior and exterior smoking provisions of the LEED Prerequisite Environmental Tobacco Smoke Control. As recommended in the December 2013 report [1] prepared for the World Health Organization, “e-cigarettes should be prohibited anywhere where the use of conventional cigarettes is prohibited”. The indoor air quality impacts from electronic cigarettes are not fully characterized, but there is sufficient evidence that electronic cigarettes produce emissions in fine aerosol form that can expose building occupants. For example, according to the report, “several chemicals that have been found in e-cigarette aerosol and e-liquid are on California’s official list of known human carcinogens or reproductive toxicants, including nicotine, acetaldehyde, formaldehyde, nickel, lead, toluene(1)”. [1] Background Paper on E-cigarettes (Electronic Nicotine Delivery Systems); Grana, R.; Benowitz, N.; Glantz, SA; December 2013; University of California.

Much is being said about the relative wisdom of this LEED Interpretation, but the most significant ‘take away’ is, given that a project team could not have reasonably anticipated such an addendum, and that addenda, issued without advance notice or prior alert, are binding when issued; it is key that all addenda be reviewed as they are released quarterly. 

Earlier this year, I wrote in this blog, Marijuana Smoking is Allowed in LEED Buildings. The conclusion in that blog post was that the LEED prerequisite was for “tobacco smoke”. But e-cigarettes also do not involve “tobacco” or “smoke”? E-cigarettes deliver a nicotine containing vapor (an aerosol, but not smoke) to users by heating a solution typically made up of propylene glycol. E-cigarettes do not burn or smolder the way conventional cigarettes do. 

Worthy of discussion is the lack of public comment for addenda, and in this instance that USGBC identifies as the rationale for this change in LEED, a single much criticized “scientific review” funded by the WHO Tobacco Free Initiative with support from the University of California Tobacco Related Disease Research Program; neither an unbiased forum. Moreover, one of the authors, Neal Benowitz is a consultant to pharmaceutical companies that market smoking cessation medications and has been an expert witness in litigation against tobacco. The other authors apparently work for that Tobacco Related Disease Research Program; making none of them neutral or detached. Read the study yourself and draw your own conclusions about the need to make this change to LEED outside of the 3 year public update process.

The larger issue is that the LEED rating systems change quarterly. While “LEED Interpretations are not an avenue for making significant changes or new requirements ..” it is clear that LEED Interpretations can be material and all involved with LEED projects should review addenda as they are released quarterly.

Baltimore City is Adopting the IgCC

This evening an ordinance will be introduced in the Baltimore City Council for the purpose of adopting the International Green Construction Code. 

The IgCC will be adopted as an overlay in conjunction with existing building, fire and related codes and will apply when a permit is required, except the new green code will not apply to: 1 or 2 family dwellings, multiple family dwellings that contain no more than 5 units, a structure that is LEED Silver certified or higher, or a structure that is ASHRAE 189.1 compliant.  

It is necessary to appreciate that Baltimore City was an early adopter when it enacted a green building law in 2007 that, prior to this legislation, remains among the most sweeping of that in any major American city. Today the building code mandates that all newly constructed, extensively modified non-residential, and specific multi-family residential buildings, that have or will have at least 10,000 square feet of gross floor area, must be LEED Silver certified or comply with the Baltimore City Green Building Standard.

So, while it was controversial in 2007 when Baltimore mandating that privately owned building must be constructed green, Bill No. 14-0413 sponsored by Councilman James B. Kraft is being warmly received as providing more and better options for developers. That is under the bill a developer may pursue LEED Silver certification, compliance with ASHRAE 189.1 or build to the IgCC. That menu of options allays the concerns of many who will now be able to determine which green building standard is most efficacious for their project.

But make no mistake, Baltimore is not greenwashing. A change in the existing code is necessitated by the USGBC’s June 1, 2015 effective for LEED v4, when projects will no longer be able to register under LEED 2009, because the Baltimore City Green Building Standard piggybacks on LEED 2009 metrics and forms. A change had to be made. Also driving the bill is an unsettled question in the existing code of the definition of what is extensively modified and subject to the green mandate. In the already built out City of Baltimore many projects have not been required to build green that will now fall within the scope of this new IgCC mandate.

The Maryland legislature enacted enabling legislation permitting local governments to adopt the IgCC in 2011 and Baltimore will be the first to do so. Although as this bill is introduced, Montgomery County, Maryland is preparing legislation to repeal its existing LEED centric mandate replacing it with the IgCC. And the State is drafting regulations to allow use of the IgCC on State capital projects, including schools, where the law had previously required LEED Silver certification.  

The first reader version of the bill repeals the current Green Building Standard replacing it with more than 25 pages of modifications to the form 2012 IgCC, and will be available later this week. Significantly for an ordinance that does not grandfather any projects, it contains an uncodified provision where the building code official may grant waivers from the new law for 180 days from its effective date in instances of good cause. Waivers may be key for projects that have been designed, but not yet permitted.

The ordinance boldly describes its purpose to “reduce the negative impacts and increase the positive impacts of the built environment on the natural environment and building occupants.” Mandatory green building has been and remains the law in Baltimore City. This bill makes the flavor of green more palatable.  

Ohio Law Rolls Back Unwise Renewable Portfolio Standards

Last Friday, Ohio Governor John Kasich signed Senate Bill 310 freezing the state’s renewable energy portfolio and energy efficiency requirements at 2014 levels. 

Environmental activists decried the new state law by evoking apocalyptic fears of ecological collapse while characterizing renewable portfolio standards as just the type of collective sacrifice needed to avoid the end of the world. Average Ohio citizens made it clear they wanted no part of the increased monthly utility bills that Toledo Edison said would rise from $54 today to $241, if no changes were made in the 2008 mandate law. And business wanted nothing to do with the 2008 enactment’s degrowth requirement to cut power usage by 22%.

While 30 states and the District of Columbia have adopted renewable portfolio standards (and 7 other states have some voluntary goal), Ohio is the first state to roll back such a clean energy mandate.

Renewable portfolio standards are state laws designed to increase generation of electricity from renewable resources. These laws require electricity producers within a given jurisdiction to supply a certain minimum share of their electricity from designated renewable resources, generally wind, solar, geothermal, biomass, and some types of hydroelectricity, but may include other resources such as landfill gas, municipal solid waste, and tidal energy.

Renewable portfolio standards are a public policy mechanism to require private sector development of renewable energy funded by increased electric bills to rate payers. But they are a regressive fee on electricity in that they take a larger percentage from low income people than from high income people.

Curiously environmental activists lobbied hard against the provision in the new law that requires disclosure of the costs to customers of the renewable energy resource on every monthly bill.

The new law is not perfect. It is only a 2 year moratorium mandating a study and stating the General Assembly intendeds to enact legislation in the future “that will reduce the renewable energy resource.”

The just passed law should be considered in context given the federal EPA’s recent release of its carbon curbs that states will now have to meet largely through this very type of electric utility mandates. Also significant is that most of the meaningful federal tax incentives for renewable energy projects expired last year and have not been renewed by Congress.

Renewable portfolio standards are not good public policy. The hodgepodge of standards exist today for the failure of Congress to act on energy policy. Possibly EPA’s new carbon curb proposals will initiate discussions about solutions to the real world environmental issues of the day, cognizant that electricity use will increase (i.e., EPA’s new carbon curbs assume that electricity consumption will drop sharply) including considering an answer in market based solutions driven by innovation and technology.

It is likely best to not be an alarmist about Ohio’s new law or to deny that it was passed overwhelmingly by the legislature after a hue and cry from the public, who recognized an unwise (expensive and degrowth)  existing law (green or otherwise) when they saw it.

The real concern may be whether Ohio is the beginning of a trend?

Demand Response Needs a Mulligan

The D.C. Circuit Court of Appeals has nullified the retail electric market Demand Response programs governed by the Federal Energy Regulatory Commission, putting a chink in the armor of the new EPA carbon curbs. 

Demand Response is defined in FERC’s Order 745 as “a reduction in the consumption of electric energy by customers from their expected consumption in response to an increase in the price of electric energy or to incentive payments designed to induce lower consumption of electric energy.” When the electric grid is near its capacity (for example, when weather temperatures rise dramatically and air conditioning use is increased), building operators can participate in Demand Response programs that provide incentives for reducing the building’s energy demand during peak hours.

Specifically, on May 23, 2014, in Electric Power Supply Association v. FERC, the court said in a challenge to the FERC’s “Order 745’s direct regulation of the retail market, we vacate the rule in its entirety as ultra vires agency action.”

Key to EPA’s new carbon curbs assumption that electricity consumption will drop sharply are energy efficiency programs like Demand response.

Vacating the entire rule as ultra vires, holding it unlawful and “in excess of statutory jurisdiction, authority, or limitations” is dramatic and has the effect that the FERC cannot correct its mistake by simply revising its rulemaking.  

Demand Response regulation is complex and lies at the confluence of state and federal jurisdiction. The court noted, Congress in 2005 declared “the policy of the United States that time-based pricing and other forms of demand response . . . shall be encouraged.” But the FERC gamed the marketplace by encouraging aggregators of retail customers that acted like ‘buying clubs’ reselling cheaper electricity.

This case makes clear the “FERC’s jurisdiction over the sale of electricity has been specifically confined to the wholesale market.” Demand Response is the purview of state public service commissions.

An example of the complexity is that many public service commission approved Demand Response programs do not qualify for the LEED NC-2009 EApc8: Demand Response pilot credit. After several iterations as a pilot credit, including changes to automated programs based on external utility initiation, a Demand Response credit is incorporated into LEED v4. 

The effect of the court ruling will be to embolden state public service commissions and give electric customers more clout in the shaping of revised Demand Response programs.

The real economic winners should be electric rate payers across the country who have paid public benefit funds, system benefits charges and overall higher electric rates to subsidize unlawful FERC required Demand Response programs that have benefitted a relatively small number of participants in the name of a national energy policy.  

It is unclear how this court decision announced only days before the new EPA rule will reshape Demand Response. What we do know is that Demand Response programs will continue across the country. And we know they won’t be run from Washington DC.

Photo credit: © TebNad/iStockphoto 

Revocation of LEED Certification

Revocation of LEED Certification is the title of the largest section within the U.S. Green Building Council’s Guide to LEED Certification: Commercial. The more than 2,800 word section consumes over 3 pages of the 7 page guide; far more words are dedicated to revocation than any other topic.

And one of the most common questions by owners considering LEED certification is, does USGBC revoke certification? 

However, with all of that attention paid to the topic, Susan Dorn, the USGBC and GBCI General Counsel makes clear,

While GBCI reserves the right to revoke and there have been a few occasions to review project certification, GBCI has never found a reason to proceed against certification after a review.

That said, the Certification Challenge Policy may be initiated by GBCI or any third party within 18 months of a project’s certification (an owner is advised to maintain all associated records through that period).

The Certification Challenge Policy is in place to protect the integrity of the LEED certification program. In an incident of intentional misrepresentation which results in an inappropriate award of LEED certification, it is clear that GBCI will reduce the level of certification (e.g., from Gold to Silver) or revoke certification. But such would only happen after the multi level challenge process where an owner is afforded the right to actively participate in the process, including if an owner desires two hearings where witnesses may be called and cross examined, the first before a panel appointed by the GBCI President and the latter before the GBCI Board.   

Despite that the policy expressly says it “is not meant to serve as a vehicle for the adjudication of disputes between outside parties” to make certain sub contractors, materialmen and the like do not file challenges, contract documents now commonly have confidentiality provisions, including expressly precluding any such communication.

Certification is a one time grant based upon a one time review, not dissimilar from issuance of a building permit. Only LEED for Existing Buildings: Operations & Maintenance has an expiration date requiring recertification every 5 years. USGBC just recently announced specifics for how projects are to do that.

However, GBCI does also retain the right to revoke certification from any project where it is “not provided with energy and water use data on an ongoing basis after LEED certification is conferred, as required.” To date, GBCI has not been pursuing that data.

Interesting, beyond the guide, the new GBCI Certification Agreement has new provisions expanding termination, including “this Agreement will automatically terminate in full .. upon the complete  or substantial demolition of a Project.” And in an effort to protect the LEED trademarks, “You agree if you use the Marks in any manner that could or does disparage, tarnish, or dilute the distinctive quality of the Marks, .. GBCI will have the right, at its sole option, to terminate this Agreement.”

We know with certainty that GBCI has never revoked a certification, but GBCI does not make public complaints that initiate the Challenge Policy. It is apparent challenges are infrequent. So, among the many issues associated with green building, to quote the Bob Marley lyric, “don’t worry” about revocation of LEED certification. 

Green Building Bonds as a Game Changing New Source of Capital

Regency Centers Corporation, a publicly traded REIT, completed the sale of $250 million of “green building bonds” on May 14, 2014.

Proceeds from these corporate bonds will be used to fund “eligible green building projects” including the acquisition, construction, development or redevelopment of projects that will pursue LEED certification. 

Regency is an owner, operator, and developer of grocery anchored neighborhood and community shopping centers. With 332 retail properties, the REIT's portfolio encompasses over 43.9 million square feet located throughout the United States. The REIT has 17 LEED registered projects since 2009 (7 of which are under construction) and 7 of which have been certified.

Regency described this source of capital as an opportunity to support an important market as investors seek more socially responsible investment options. This bond issuance also confirms Regency's commitment and long term view on sustainability, as evidenced by its greengenuity© program, which is the REIT's “commitment to do all that is practical to reduce its environmental impact in developing and operating shopping centers.”

Only days before the green building bond sale, on May 12, 2014, Regency was honored by the U.S. Department of Energy's Better Buildings Alliance as an inaugural Green Lease Leader, leading the market by incorporating lease clauses that help overcome market barriers and align tenant and property owner interests to save energy in commercial buildings.

These green building bonds are more specifically 3.75% ten year senior unsecured notes due on June 15, 2024. The interest rate for these green building bonds was lower than other similar, but non-green building bonds offerings by REITs. While bond financing can have higher transaction costs than oft used mortgage backed loans, even in large dollar amounts as in this instance, it is significant that there was strong market demand for these unsecured bonds that drove the lower interest rates.

Green building bonds are a new investment vehicle in the U.S.  Until recently green bonds had been issued by the World Bank raising funds from investors to support World Bank lending for projects “that seek to mitigate climate change or help affected people adapt to it,” but while ‘green’ the bonds were not limited to ‘green building’. Since 2008, the World Bank has issued over $6 Billion in green bonds through 65 transactions and 17 currencies. And while several European business entities have issued similar green bonds, this transaction is the first in the U.S. exclusively for green building.

In November 2013, Bank of America issued the first ever U.S. bank green bond, but again its purpose was not limited to green building. The funds of the debenture are being used to finance renewable energy projects such as wind, solar and geothermal. Funds are also being used to finance energy efficiency projects such as lighting retrofits, district heating, co-generation, and building insulation in residential, commercial and public properties. The bank acted as underwriter on Regency’s deal.

As investors seek socially responsible investment options, green building bonds present a game changing opportunity for financing green building. Green building, which arguably offers higher value collateral and reduced risk, will be advantaged by bonds as a cheaper cost of capital all while saving the planet.      

Chinese Military Hackers Charged with Disrupting U.S. Solar Market

A grand jury in the Western District of Pennsylvania has indicted Chinese military hackers for computer hacking, economic espionage and other offenses directed at a solar products manufacturer in America.

The indictments, the first time criminal charges have been filed against known state actors for hacking received wide spread attention earlier this week. And while the mainstream media described the U.S. corporate victims as in the nuclear power and metals industries and a labor organization, scant attention has been paid to the fact that one of the businesses is a solar panel manufacturer. 

The indictment made public this past Monday, alleges that Wen Xinyu, one of five named defendants, who is officer in Unit 61398 of the Third Department of the Chinese People’s Liberation Army, hacked the computers of U.S. subsidiaries of SolarWorld AG several times to glean its strategy in a trade dispute with China.

In 2012, at about the same time the Commerce Department found that Chinese solar product manufacturers had “dumped” products into U.S. markets at prices below fair value, Wen and at least one other, unidentified co-conspirator, stole thousands of files including information about SolarWorld’s cash flow, manufacturing metrics, production line information, costs, and privileged attorney-client communications relating to ongoing trade litigation, among other things. The information enabled Chinese competitors to target SolarWorld’s business operations aggressively from a variety of angles.

On February 5, 2014, Frank H. Asbeck, founder and CEO of SolarWorld, issued an open letter to President Barack Obama requesting his “support for both the U.S. manufacturing and installation wings of the domestic solar industry as they confront trade aggression from China.”

I had written in a blog post last October, Bankruptcy Trustee Sues Chinese Over Solar Panel Dumping, about a case filed in the U.S. District Court Eastern District of Michigan, claiming the object of the Chinese state owned companies’ illegal dumping actions was to drive established solar industry leader, Energy Conversion Devices, out of business.

“For too long, the Chinese government has blatantly sought to use cyber espionage to obtain economic advantage for its state-owned industries,” said FBI Director James B. Comey.  “There are many more victims, and there is much more to be done.  With our unique criminal and national security authorities, we will continue to use all legal tools at our disposal to counter cyber espionage from all sources.” 

This criminal case charging five Chinese military officers should be a wakeup call to all; not only have Alcoa, Westinghouse, and U.S Steel been damaged, but every U.S. business and homeowner with solar panels on a roof has been a victim of Chinese economic espionage.

LEED v4 has a New and Improved Registration Contract

USGBC proudly boasts that LEED v4 has 80% fewer forms when compared to LEED 2009. Not only are there fewer fields to document with the removal of low value content, but the user experience is further improved including by removing multiple required signatures.

The earlier “LEED Project Registration Agreement” and “LEED Project Certification Agreement” have both been replaced in v4 with a new single Certification Agreement, accessed at the time of project registration through LEED Online after inputting the project details.   

Simply stated, the Certification Agreement is “the” contract that governs certification of a project under the LEED program. The contract is with the Green Building Certification Institute, which “administers the Program and confers precertifcation and LEED Certification under license from the U.S. Green Building Council.” There is now one Agreement applicable across all rating systems, including new construction, the Volume Program, Campus Projects and soon to be v4 Homes.  

This is not an attempt to summarize that 14 page almost 8,000 word Agreement (readers of this blog can read the contract at the link above); all participating with LEED should read the online contract carefully and have it reviewed by counsel. This article simply highlights some of the important improvements from the earlier forms (which forms will continue to be used in LEED 2009 and earlier version projects as they are registered and certified).

The new Agreement expends much verbiage on who is the “Owner” beginning in the first paragraph and introduces the new Confirmation of Primary Owner’s Authority form. It also highlights the need for projects, where the owner is not completing the LEED registration process itself to continue to utilize the existing Confirmation of Agent’s Authority form.

The most significant change is that under prior agreements disputes were resolved through litigation in federal court where this Agreement contains a provision requiring the parties seek to resolve all disputes “through open and good faith discussions in the first instance” and if not resolved, “by mediation, administered by the American Arbitration Association (“AAA”) under its Mediation Rules” and if settlement is not then reached, by binding arbitration administered by the AAA.

Another material change, also within the context of dispute resolution, is that for the first time, the prevailing party is entitled to “all costs and expenses of any Arbitration, including reasonable attorneys’ fees and expenses.” These changes in dispute resolution serve to level the playing field in favor of project owners.

While not likely of great import to most, some may be troubled that, “GBCI reserves the right to increase the Fees by no more than twenty seven percent (27%) per calendar year.” An owner may elect to pay all fees in advance and not risk a future increase.    

An owner may at its sole election opt out of pursuing LEED certification and “may terminate this Agreement in whole or in part at anytime.”

The final contract provision eliminates the need to upload hard copy signatures when it provides that selecting the button marked “I AGREE” is your signature.

There is no doubt this Agreement is new and improved from the perspective of a project owner, but be aware, it continues to reflect the unequal bargaining power of the parties and is heavily weighted to protect USGBC and GBCI (including requiring owners to broadly indemnify USGBC).

That observed, as a sustainability and green building attorney my personal favorite new provision is the very first sentence that includes the warning, “YOU REPRESENT THAT YOU HAVE CONSULTED WITH AN ATTORNEY ABOUT YOUR RIGHTS AND OBLIGATIONS HEREUNDER”. You may give me a call at any time.