Advocacy Recap on BEPS Guidebook

Guidebook topic and Proposed v1.2 Approach

AOBA Comments

DOEE Response

Summation

DC BEPS Score (Chapter 3.1, Chapter 3.2). In v1.2, DOEE proposed changing from using the current ENERGY STAR model (and Adjusted Site EUI) to the ENERGY STAR model as of January 1, 2021.

While this proposed change helps a member issue around evaluation metrics potentially shifting due to changes in the ENERGY STAR model (or, in the case of the Performance Pathway, Adjusted Site EUI), this change is happening in 2026--the evaluation year. Thus, communication and data access is critical to ensuring buildings know what they're being evaluated on.

DOEE has indicated they're standing up supplemental guidance and communication accessing the DC BEPS Score, likely using the Building Owner Portal.

AOBA looks forward to seeing the supplemental communication and access provided to ensure buildings can see their as-up-to-date-as-possible DC BEPS Score.

Accelerated Savings Recognition (ASR) Level 0 (Chapter 4.2). New to v1.2, ASR Level 0 eligibility occurs if a property saved over 20% Site EUI in Cycle 1. If it did, and it needs to take action in BEPS Cycle 2, it could take the ASR Level 0, after which point they'd need to save a total of 36% Site EUI across two cycles.

While AOBA appreciated adding ASR Level 0, practically speaking this pathway appears to have limited utility. In order for this pathway to make sense for buildings, a building would likely need to be on the Performance Pathway for two consecutive cycles--in other words, be further to 36% from the BEPS today. There aren't many of these buildings.

An alternative formulation would allow for ASR Level 0 access to properties that exceeded Performance Pathway requirements in Cycle 1 but lowering the requirements of the ASR in Cycle 2 would increase uptake of this ASR.

DOEE did not change the Guidebook between draft and final versions.

AOBA remains unsure of how many buildings might use ASR Level 0 and is disappointed that ASR Level 0 remains relatively narrowly tailored, as research of 2024 benchmarking data shows that only a small portion of buildings have a good reason to this pathway.

Financial distress: delay vs. exemption (Chapter 6). Financial distress was eligible for a delay of up to three years if it occurred before January 1, 2024; if financial distress occurred after that date, they would be eligible for an exemption.

AOBA believes that financial distress should be eligible for exemptions regardless of when the distress occurred during the cycle. Not only does this better reflect the intent of the BEPS Amendment Act, it also better reflects how financial distress functions for buildings in practice. AOBA suggested substantial edits to Chapter 5 (delays of compliance), Chapter 6 (exemptions), and Appendix D (demonstration of financial distress) to align with this belief.

DOEE changed the Guidebook to allow for buildings undergoing financial distress to apply for either delays or exemptions. This results in similar demonstration language existing in Chapter 5, Chapter 6, and Appendix D.

AOBA is happy that members' concerns about financial distress being eligible for whole-cycle exemptions was heard by DOEE. AOBA notes that most of its structural edits in Chapter 5 and Appendix D to this effect were not taken by DOEE.

Financial distress: Debt Service Coverage Ratio (DCSR) (Appendix D). As part of an attempt to make financial distress easier to manage (and as part of a proactive lift from AOBA following the passage of the BEPS Amendment Act), DOEE added quantitative distress tests. This test was around Debt Service Coverage Ratio (DSCR). DSCR was drafted originally as 1.0; if the property has a DSCR below 1.0, the property is financially distressed.

While AOBA was happy to see DOEE introduce quantitative distress tests, a DSCR of 1.0 doesn't really reflect market reality. Adjusting the DSCR upward would better reflect how DSCR functions; jurisdictions with BEPS such as Denver allow for a DSCR of 1.5 under certain conditions.

After discussing with other jurisdictions (primarily New York City), DOEE adjusted the DSCR for quantitative tests to 1.15.

While this adjustment to DSCR will help somewhat, it still falls short of AOBA's aims with our comments.

Financial distress: cash flow (Appendix D). As part of an attempt to make financial distress easier to manage (and as part of a proactive lift from AOBA and its members following the passage of the BEPS Amendment Act), DOEE added quantitative distress tests. This test focuses on cash flow; specifically, if cash flow is negative, the property is financially distressed.

AOBA was happy to see cash flow as a quantitative distress test.

DOEE left the cash flow quantitative distress test largely unchanged between the draft and final versions, although DOEE modified the definition of capital expenses.

AOBA is cautiously positive about seeing the cash flow test be maintained, although AOBA does highlight the definition of capital expenses in the final version of the Guidebook might accidentally exclude basic upgrades necessary to keep a building operating--e.g., replacing failed equipment that may not necessarily be required by law or regulation.

Financial distress: information security (Chapter 5, Chapter 6). While the Guidebook contained some language on information security, it did not appear to be rigorous, presenting a possible risk of valuation records being subject to FOIA requests.

The Guidebook was also silent on how financial valuation records would be communicated with DOEE.

AOBA expressed extensive concerns about this problem, focused on two main areas.

First, protections against public disclosure are critical for privately-owned buildings. This applies to both the legal mechanics around how information is protected from FOIA as well as who from DOEE can access this information (thus limiting potential for accidental leaks).

Second, financial valuation records require a higher level of information security than other records around BEPS (e.g., Pathway Selection) managed through the Building Owner Portal, particularly if the property might be undergoing financial distress. Managing financial valuation records would, ideally, happen on a separate platform, with an established chain of custody, with DOEE strictly limiting access of financial records to as small a party as possible.

DOEE agreed with AOBA's comments through both written Guidebook updates and through separate updates.

Other aspects of information security are not directly addressed in the Guidebook. However, through separate discussions with DOEE AOBA has learned that DOEE will be setting up separate IT mechanics to handle financial valuation record submission/retention and will be strictly limiting who can access valuation records data.

AOBA is happy to have its members' concerns heard by DOEE, both through written updates to the Guidebook and through mechanics not easily reflected in Guidebook language.

Financial distress: supporting energy documentation (Appendix D). The draft version of the Guidebook updates included multiple documentation requirements that are not really related to financial distress, such as fully demonstrating prior compliance actions taken (like an energy audit).

AOBA members understand that, in some cases, this documentation is necessary to substantiate a claim of financial distress. However, in other cases financial distress occurs independent of BEPS, and creating a large paperwork burden for these properties undergoing financial distress (which adds time and money to the process of applying for financial distress) adds unnecessary complication for properties who need relief.

DOEE made some clarification edits to Appendix D. More notably, DOEE moved energy documentation out of Appendix D into Chapter 6 with specifics in Chapter 6.2.2, indicating its interest in seeing an energy narrative accompany exemption requests.

AOBA continues to be concerned about this level of effort and strongly encourages DOEE to ease (or eliminate) this burden as much as possible, through a combination of making information available where possible on the Building Owner Portal, communications around level of effort required for the narrative (particularly related to demonstration that no other Compliance Pathway would work, including the numerous Alternative Compliance Pathways), and what is needed around consideration of additional energy efficiency efforts around projects. As written, this narrative presents substantial risk of a time and effort sink for minimal additional knowledge.

Anticipatory financial distress (Appendix D). The draft version of the Guidebook included anticipatory financial distress. This concept allows for a building to petition DOEE for a  financial distress exemption if a property is undergoing financial distress but the distress is not formally reflected in building financials yet. The documentation for this pathway appeared to be more rigorous than "normal", backwards-looking financial distress.

AOBA was pleased to see DOEE incorporate anticipatory financial distress as a concept since it speaks to member concerns that buildings would have to suffer through financial distress before being able to apply for an exemption. AOBA members also generally understood that the process of demonstrating anticipatory financial distress will likely be more rigorous since by nature this is a forward-looking mechanic.

DOEE rewrote this section of Appendix D to add some additional clarity, keeping the concept of anticipatory financial distress.

AOBA is generally pleased that anticipatory financial distress is in the Guidebook as an acceptable financial distress mechanic and notes this section is also generally easier to parse. As of publication, AOBA has a few technical clarification questions to investigate further with DOEE.

Building Improvement Agreements (Chapter 7.4). Although DOEE spoke to the concept of working with owners over the last few years, what this meant was unclear. DOEE added a brief section on these agreements in the v1.2 Guidebook updates to speak to the concept.

AOBA had follow-up questions asking DOEE to provide more detail. To that end, AOBA proposed a nearly-complete reformulation of this section.

DOEE made substantial changes to this section, adding in details about what these agreements entail. Equally as notably, DOEE added information on the amount of money buildings might need to commit to avoid paying DOEE (which could result in up to a 20% increase in total expenditures across projects and payments) as well as future compliance mechanics (placing buildings on the Trajectory Pathway for future cycles).

While AOBA appreciates the additional detail provided in Building Improvement Agreements, two items give AOBA pause:

First, some Building Improvement Agreements result in buildings appearing to need to budget another 20% of their possible Alternative Compliance Payment across projects and/or payments. This is a substantial additional expense for buildings, which could easily be over $100,000 for a single building given BEPS constructed. This creates an unintended consequence: it’s actually cheaper to pay the payments. This does not align with DOEE’s stated intent (or what AOBA wants for members), thus AOBA encourages DOEE to re-evaluate this mechanic.

Second, the Trajectory Pathway is undefined as of today. This makes opting into the Trajectory Pathway a risky endeavor for buildings, which in effect makes the less risky scenario to eschew these agreements if making decisions today. To solve this risk management problem, AOBA notes that there are existing Delay of Compliance Mechanics that get to the same point (avoiding double-counting savings across multiple cycles) while avoiding pathway uncertainty. There may be scenarios when placement on the Trajectory Pathway is warranted, but AOBA encourages DOEE to look at adding Trajectory Pathway components only once pathway details are more defined, including what the final targets of the Trajectory approach are.