Update: Energize Denver Part One

The Energize Denver ordinance, passed by Denver’s City Council in 2021 and signed into law by former Mayor Michael Hancock, pushes the city to reach net-zero greenhouse gas emissions by 2040 through energy benchmarking and performance standards for new and existing commercial and multifamily buildings, also known as “covered buildings.” Spearheaded by Denver’s Office of Climate Action, Sustainability and Resiliency (CASR), commercial and multifamily buildings with more than 25,000 square feet (covered buildings) are required to reduce their greenhouse gas emissions by 30% from a designated baseline by 2030. This legislation will revolutionize Denver buildings by enhancing energy efficiency, reducing greenhouse gas emissions and ultimately leading to a more sustainable urban environment.

We checked in with Zaki Robbins, Director, Business & Finance, Fennemore Denver  for an update on the regulations that took place in 2024.  This is part one of a two-part series.

Energize Denver regulations took effect in 2024.  Can you summarize what building owners and operators are required to do to comply with the initiative?

Sure. Denver’s CASR, assigned each building with over 25,000 square feet a target Energy Use Intensity (EUI) based on its usage classification. EUI is expressed as the amount of energy used per square foot of building space over the course of a year and is calculated by dividing the total energy consumed by the building in one year by the total gross floor area of the building. Beginning in January 2024, each of these buildings is required to measure and report its annual energy consumption using its Energy Star Portfolio Manager Account. Building owners must achieve interim targets set by CASR for the 2024 and 2027 reporting years, on the way to the ultimate 2030 target EUI. Once they reach the 20230 target building owners are required to maintain them indefinitely.

Will penalties be imposed if building owners and operators do not participate and/or meet the target goals?

Yes, CASR may assess a civil penalty of up to 70 cents for each one-thousand British thermal unit (kBtu) not achieved in a given measurement year, although it is expected to initially assess fines of 30 cents per kBtu based on median cost of compliance research. Buildings that successfully meet their 2030 target – but do not maintain those standards in following years – will be assessed a penalty of 5 cents for each kBtu not achieved.

How are penalties determined?

Penalties are determined by examining a 12-month performance period for the target year after benchmarking is received by June 1 the following year.

If investors are considering buying a building, what disclosures should they receive from sellers?

Energize Denver rules and regulations requires potential sellers of covered buildings to disclose the building’s compliance status, performance targets, energy audit information and previous deficiencies or penalties with potential purchasers.

Can you share some of legal challenges that Energize Denver presents?

Yes, Although the ordinance imposes obligations solely on building owners, those owners face a strong incentive to engage with managers and tenants to ensure compliance. Disputes over responsibility for retrofitting requirements, penalties for noncompliance, and costs and implementation of improvements are foreseeable.

Can you provide any advice on how to mitigate legal issues?

Yes, clear guidelines and compliance assistance programs should be established. Building owners should evaluate their own potential incentives and penalties and implement transparent penalty structures and incentives to ensure the compliance of building tenants. An increase in mediation services could resolve tenant-landlord conflicts, ensuring equitable cost-sharing and decision-making in energy upgrades. Education campaigns highlighting long-term savings and environmental benefits might also encourage cooperation and compliance, ultimately while reducing the propensity for legal disputes.

Can you share some of legal challenges that Energize Denver has faced?

Yes, both the Energize Denver regulations as well as the corresponding Energize Colorado regulation have faced multiple legal challenges from the business community, including a lawsuit brought in July 2024 by a consortium comprised of the Restaurant Law Center, the National Association of Home Builders of the United States, the Colorado Restaurant Association, the Home Builders Association of Metropolitan Denver, the American Hotel & Lodging Association, the National Apartment Association, and the National Propane Gas Association, alleging that the state and local laws are preempted by the federal Energy Policy and Conservation Act (EPCA). This lawsuit cites a decision from the Ninth Circuit striking down a law regulating gas piping in new buildings, and we expect challenges to continue until a federal court clarifies the limits of state and local regulatory authority in this area.

Zaki Robbins’ practice covers a broad range of corporate and transactional matters, focusing on mergers and acquisitions, corporate & real estate finance, as well as general corporate, transactional, and governance matters. In addition, Zaki has substantial experience in the field of advanced and renewable energy, where he handles matters involving energy generation and storage, construction, distribution, and investment and finance. In addition to his day-to-day representation of founders, executives, and boards, Zaki has served as an author, speaker, and presenter at conferences and continuing legal education programs for lawyers and other participants in the corporate and renewable energy industries.

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