What Is NYC Local Law 97 & Its Ramifications?

Audio Transcription

Click to go to the LL97 Audio Series Page - Episodes 1-5 

Jennifer Kearney (00:00):
I think this information, in general, is incredibly important to get out there. Because there is so much misinformation, and then there's so much confusion. And I think when building owners are confused, their default is to do nothing. And that's like the most dangerous thing that a building owner can be doing right now.

Announcer (00:23):
Reducing greenhouse gas emissions in commercial buildings is becoming a legislative topic in many cities. In this episode of utiliVisor's In Conversation, Richard Angerame, president of utiliVisor, and special guest Jennifer Kearney, partner and energy procurement consultant at New York City's Gotham 360, discuss New York City's Local Law 97: what it is, possible mitigation factors, and how it will impact building owners' and tenants' bottom line.

Richard Angerame (00:57):
Jennifer, I think that it's important that you've become a unique person in this marketplace, and from a lot of different areas. You represent a lot of different clients. You understand the policies from the City, a lot of things that I'll never understand, but basically it's that you've gone through and you've dealt with this from various market aspects. So I think it's important to tell us a little bit about Local Law 97, and then as it applies to the office buildings, and then we can get into campus type facilities, and the problems owners are having today, and what the impacts are.

Jennifer Kearney (01:34):
So Local Law 97 is a brand new local law in New York City pertaining to all five boroughs, and it establishes a cap on carbon emissions in buildings. So all buildings 25,000 square feet or more, are going to be subject to this new law. It is going to go into effect in 2024. And what it does is it establishes a building's carbon footprint, based on their scope one and scope two emissions, which are onsite combustion. So all of the fuel oil, diesel fuel, or natural gas that's used on-site in boilers, co-gen, emergency generators. And then the scope two emissions are all of the purchased electricity. And it doesn't matter if it's purchased from a deregulated supplier, or purchased from Con Edison. And all of those energy components coming into a building are then converted into what's called carbon equivalent, or CO2e. And then every building type, depending on what type of building it is, is subject to a cap on carbon emissions over square feet.

Jennifer Kearney (02:55):
And so where we're finding some opportunities and anomalies are around the sort of granularity of the bill, in that in New York City, buildings are never used for solely one purpose. So you have a lot of breakdowns of different use within one building. You can have retail-hotel-residential, you can have retail-condo-residential, you can have different commercial types of use within one building. And then once you look at a campus environment, you can have a series of connected buildings, all with multiple uses. And this is the reason why I first contacted you, Dick, was to really talk about the intersection between establishing submetering of your most energy-intensive loads, and being able to get super granular with the way that energy is being consumed in a building from the perspective of mitigating and managing Local Law 97 obligations.

Richard Angerame (04:01):
In commercial buildings, how do you feel about the owner's ability to pass on these penalties onto the tenant?

Jennifer Kearney (04:09):
So, because these penalties are delivered in the form of a building violation, it's illegal for the building owner to pass it through to a tenant. So the only way for a building owner to address this is to establish what's called a green lease or green lease provisions. So it's about... When leases come up for renewal, or when you have a new lease, incorporating language that essentially will mirror and mimic the local law, establishing carbon limits on your tenants, or having the tenants responsible for whatever violations they're driving.

Richard Angerame (04:50):
And do you see the landlords actually trying to participate with their tenants to be more proactive? Because obviously, they control the large percentage of electric within the building. Okay, the common area's the common area, but that only represents about 30% of the building. But are owners now trying to be more proactive with their tenants?

Jennifer Kearney (05:10):
I think owners are interfacing more and more with tenants on a variety of different levels. So I think owners are really trying to convince New York City tenants to stay. A lot of tenants are leaving or scaling back operations, looking to sublease portions of their space, because they've now migrated to this new partially-remote workplace. And, time will tell if that is a trend that lasts or not, but they're definitely interfacing with tenants on that level. And then for tenants who are running very energy intensive operations within standard commercial buildings, the conversations are definitely happening as to how the resulting building violations for exceedance of carbon are going to be shared.

Richard Angerame (06:06):
And even though we've been through COVID, okay, and obviously some of the penalties have changed; they haven't reduced. They're still pretty substantial with the owners we've seen. How do you feel about that?

Jennifer Kearney (06:18):
So we throw out the data from the COVID year. And we just say, we can't use this as a baseline, it was such an anomaly. So what we're doing, is we're modeling multiple years based on different occupancy patterns. If we use your usage from 2018, from 2019, and from that perspective we can sort of correlate... You were at 90% occupancy, you were at 80% occupancy, and this is where your penalties were. Nobody really thinks that the 2020 curve is something that would persist and continue.

Richard Angerame (06:53):
Well, obviously the City of New York is one of the biggest building owners in the City. Okay. How do you see them dealing with this issue? Okay. And obviously, how does it affect that?

Jennifer Kearney (07:05):
So City buildings are exempt from Local Law 97. So they are pursuing an alternate path of compliance, looking to achieve carbon emission reductions over some established baseline. But they are not subject to Local Law 97. They do not have caps on their buildings. The legislation puts all kinds of costs on private building owners without sort of walking the walk for your own buildings.

Richard Angerame (07:33):
Do you see the opportunity from landlords, to purchase RECs of any sort, to try to minimize their penalties? And do you think that's possible in today's marketplace?

Jennifer Kearney (07:44):
I do not.

Richard Angerame (07:48):
That's interesting.

Jennifer Kearney (07:50):
So there are a couple of different products that are specifically called out in the law as mitigation strategies. So one is carbon offsets. A carbon offset is an international product. They're relatively cost-effective and they're purchased per metric ton of carbon. And you can offset up to 10% of your carbon exceedance by buying these fairly inexpensive carbon offset products. Now a REC... in the language of the law, you cannot buy a national REC. You can only buy a local REC. And by local, it's not even a New York State REC. It has to be a REC for renewable energy, that it has a direct connection into Zone J, New York.

Richard Angerame (08:38):
That's got to be kind of difficult.

Jennifer Kearney (08:40):
The project that I know of, that would have met that criteria, which is the Champlain Hudson Express, bringing hydro power directly down a brand new transmission line, and plugging directly into a substation in New York City.

Richard Angerame (08:56):
What about the wind power in Long Island? Do you see that as an opportunity too?

Jennifer Kearney (09:01):
The wind power on Long Island from Orsted Wind is plugging in directly into Zone K, Long Island. So, it is not going to meet the criteria, even though it's local, we could probably see it. It is not, what they call, sinking into J. Which is, J is five boroughs of New York City. And given the fact that we don't have a lot of renewable energy stations on New York City, is proving incredibly challenging. The TDI project, which was our one sort of, "Well, we know we've got this one," - they just recently submitted a bid to the State for all of their capacity to go to NYSERDA. So that would mean zero capacity would be available for actual customers.

Richard Angerame (09:45):
So how do you go back to your clients today? And especially, we see this in our applications here, that made major capital investments in upgrading their central plant. So they went to gas, so they went to some other means. And now they're going to be penalized for that, long-term. How do you step in front of the board again and talk to them and say, "Guys, we've got to change route here."

Jennifer Kearney (10:06):
So I don't think anybody saw this coming. There was a hearing on this law. I attended the hearing. There was a tremendous amount of protest from the Building Owners committee, but also the technical community. So the architects, the engineers, the developers. Superstorm Sandy was not that long ago. And the City and the State were providing massive incentives for customers to go out and install distributed energy projects. Projects that would consume natural gas, and make power, and have the ability to island from the grid in the event of a widespread utility outage again. And those same building owners who made those investments at the behest of the State and the City to provide a more reliable grid, are now being penalized for the consumption of natural gas from the perspective of carbon.

Richard Angerame (11:03):
And then when you add the steam rebates that were being supplied by Con Edison for people to stay on street steam, and now all of a sudden they're going to be penalized for that. I mean, that's not going to go over too well.

Jennifer Kearney (11:13):
And those steam assets, they have a life cycle of 15 years or more. And before that life cycle is up, when we were getting millions of dollars in subsidies to put in those assets. Now, before that lifecycle is over, we're now being told that there has been a change in direction from the perspective of policy, and those steam assets are no longer considered desirable.

Richard Angerame (11:38):
And do you see, I mean, obviously cogeneration because of no gas supply here in New York, okay. It's kind of like put on the back burner. It's not eliminated. You see that in other places? How's Long Island doing? How do you see that happening?

Jennifer Kearney (11:53):
Long Island continues to be a very strong market for CHP and distributed generation. Because you still have the super high cost of power. There is no natural gas moratorium on Long Island. There is no carbon cap on Long Island. And customers are looking for price relief, and they're getting price relief, and they're getting resiliency. So we're seeing distributed generation leaving the City, absolutely. And we're seeing it pop up in Westchester and Long Island.

Richard Angerame (12:25):
So is it a concern of how you advise your clients? Like obviously this law actually promotes electrification in New York. Okay. And now that we have a nuclear plant that we just undid, okay, or shut down. Okay. And we have supposedly hydro coming from Canada, but it hasn't made it all the way here yet. Okay. How do you see... Where's this electric going to come from in your mind?

Jennifer Kearney (12:52):
Well, what's really ironic is that because of environmental concerns, we shut down Indian Point. And it's now fully retired in 2021. And the full capacity of Indian Point was replaced by fossil generation. So natural gas, dual fuel generating stations, because that's what you can build fast, and that's a highly reliable source of power. So we actually, for environmental reasons, we increased the carbon emissions of our grid.

Richard Angerame (13:24):
It seems to be something fundamentally wrong with that.

Jennifer Kearney (13:29):
I don't know how much potential Downstate New York has for doing real utility scale renewable energy development, because of the cost of the land.

Richard Angerame (13:40):
Correct.

Jennifer Kearney (13:41):
Not only the cost of the land, but there is a real, "not in my backyard", theme flowing through site utility scale solar through the suburbs of Westchester. We are dealing with a client who has some Westchester property that wants to build, not a huge solar plant, but over a megawatt. And there's an ordinance on the books in this small town that says, that you can't build solar because of the way that it looks. There are also a lot of ordinances that the towns have about tree removal. And if you have to take down trees, it's a no-go. So there are a lot of challenges to building real renewable energy stations of any size where the load is, which is Downstate, where the City is.

Richard Angerame (14:40):
So really, the best solution so far is that they ever do really tap the hydro, and through conservation, okay, is the only way we're even going to get close to the situation solved. Okay. Do you see that as reasonable?

Jennifer Kearney (14:53):
Yeah. It's conservation, electrification, offsets, renewable energy where you can get it, and then really working on submetering. So you get the full granularity of your energy usage per usage type. And there are no buildings as complicated as New York City buildings. So it is going to require some effort. But for the first time, we're really seeing submetering paying back in dividends.

Announcer (15:25):
You've been listening to utiliVisor's In Conversation, where we discuss topics such as submetering, energy efficiency, and energy plant optimization. Your host is Richard Angerame, president of utiliVisor, with special guest, Jennifer Kearney, partner and energy procurement consultant at Gotham 360. This program is a production of utiliVisor, a leader in submetering and energy plant optimization. To contact us with comments or questions, email marketing@utilivisor.com. Our music is Moments Like This, from Telestream ScreenFlow library. Thanks for listening. Please note that this program should not be considered professional advice. The information, opinions, and recommendations presented here are for general information only. The opinions and views expressed in this episode are solely those of the individual speakers and do not necessarily reflect the position of any agency, organization, or company. This program was recorded in 2021, copyright utiliVisor.