Moore administration legislation to set and enforce electricity use limits in large commercial and multifamily buildings is being prepared for passage by the Maryland House of Delegates.
HB 49 would authorize the Maryland Department of the Environment (MDE) to set Energy Use Intensity (EUI) limits and impose fines for failing to meet those limits. EUI is a measurement of how much energy per square foot a building uses.
The regulation of EUI would be in addition to existing requirements that these same buildings reduce direct greenhouse gas emissions by 2030 and reach zero direct emissions by 2040. Within this framework, the regulation of EUI serves as a mechanism to reduce emissions at the utility grid level and take pressure off Maryland’s already strained electric generation, transmission and distribution infrastructure.
What is being proposed goes beyond conventional energy efficiency and conservation. The cost for building owners and occupants to comply with the Building Energy Performance Standard was estimated by MDE to be $15.2 billion between 2025 and 2040 but only achieve $8.2 billion in energy cost savings. The cost of meeting EUI targets alone was estimated to be $8.8 billion before accounting for borrowing costs and other factors.
HB 49 breaks with the practice of evaluating energy project viability based on traditional measures of cost-effectiveness instead authorizing MDE to enforce building modifications that meet new definitions of economic infeasibility and lowest practicable cost. MDE’s definition of economic infeasibility would only apply to projects that have a payback period longer than 25 years, including the value of avoided non-compliance fees over that time period.
To accelerate EUI compliance, MDE is asking the General Assembly for authority to collect a non-compliance fee for failing to meet electricity use limits. The proposed fee acts like a surcharge that is equivalent to adding an additional $0.17 per kwh to electricity used above the use limits set by MDE. This is a deliberate increase in energy costs equivalent to doubling the cost of electricity above MDE limits.
The fiscal note for HB 49 provides no information about the amount of money regulated building owners and occupants are likely to pay in non-compliance fees. Applying MDE’s most recent published EUI limits to data submitted to Montgomery County indicates building owners and occupants in that county could face HB 49 fines of $78 million per year beginning in 2030.
Sixty-three percent of the square footage of buildings reporting data to Montgomery County would be out of compliance with MDE’s most recent published EUI limits in 2030. Looking at specific building types, 89% of the square footage of hospitals, 84% of supermarkets, 83% of senior living facilities, 75% of multifamily buildings, 72% of distribution warehouses, 65% of worship facilities and 62% of office buildings would be out of compliance and subject to non-compliance fees.
Fines on office buildings would amount to $18 million. A total of 43 office buildings would face fines of $100,000 or more per year while 20 would face fines of $200,000 or more per year.
Fines for multifamily buildings would amount to $33 million per year with 116 multifamily buildings facing annual fines of at least $100,000 and 50 would face annual fines of $200,000.
MDE argues the non-compliance fee provides flexibility for regulated buildings, yet MDE has structured the fee in a way that leverages the financial pressure on building owners and occupants. The fees are scheduled to begin in 2030, 10 years before the final compliance date of 2040. This will divert cash flow from buildings that could otherwise be directed to capital reserves.
MDE proposes the fee be calculated in 2020 dollars that are indexed to inflation. This means when the fee is collected in 2030, the rate is likely to be 30% higher than what is proposed in HB 49.
MDE’s regulatory framework reduces the amount of energy allocated to regulated buildings by 30% in 2035. This will increase the gap between baseline electricity use and MDE’s EUI targets, putting upward pressure on non-compliance fees. This will also increase the number of buildings that are out of compliance in 2035.
In 2022, the General Assembly directed MDE to develop regulations that reduce the direct greenhouse gas emissions of large commercial and multifamily buildings. The Climate Solutions Now Act set compliance deadlines in 2030 and 2040. Both the regulation of electricity through EUI and the 2035 interim compliance deadline are creations of MDE that were not authorized by the General Assembly.
Unlike eliminating direct greenhouse gas emissions by 2040, the regulation of electricity use through EUI has no date of finality; It is a perpetual regulation that will put unsustainable financial pressure on buildings as well as disrupt and limit the activities of building occupants in profound ways.
HB 49 seems poised to pass out of the Maryland House of Delegates during the next two weeks. The irony is that if this proposal were made by a public utility, there would be a 10-month rate case at the Public Service Commission accompanied by emphatic calls to protect utility customers from excessive costs.