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Item 11 - Clean Energy Choice Policy for New Buildings & Introduce Ordinances for implementing an Energy Reach Code Department Name: Community Development Cost Center: 4006 For Agenda of: June 16, 2020 Placement: Public Hearing Estimated Time: 60 Minutes FROM: Michael Codron, Director, Community Development Department Prepared By: Chris Read, Sustainability Manager Teresa McClish, Special Projects Manager SUBJECT: CONSIDERATION OF A RESOLUTION ESTABLISHING A POLICY FOR CLEAN ENERGY CHOICE FOR NEW BUILDINGS AND IMPLEMENTATION MEASURES INCLUDING AN ORDINANCE APPROVING LOCAL AMENDMENTS TO THE ENERGY CODE AND AN ORDINANCE ESTABLISHING REGULATORY FLEXIBILITY FOR A LIMITED TERM TO SUPPORT ALL-ELECTRIC NEW BUILDINGS RECOMMENDATION 1. Adopt a Resolution entitled “Clean Energy Choice Policy for New Buildings,” rescinding R- 11044 (2019 Series) and re-establishing a policy framework in support of local amendments to the California Energy Code (Attachment A); and 2. Introduce an Ordinance implementing an Energy Reach Code entitled “Local Amendments to Part 6 (Energy) of the 2019 California Building Code” adding Chapter 15.04.110, entitled “Amendments – California Energy Code”, to the City’s Municipal Code (Attachment B); and 3. Introduce an Ordinance to provide regulatory flexibility through December 31, 2022 in support of the Clean Energy Choice Incentive Program (Attachment C); and 4. Direct staff to return to Council in June 2021 with a summary of program performance and the Carbon Offset Program for deliberation and action. REPORT-IN-BRIEF In September of 2018 and February of 2019, Council directed staff to develop a proposal to avoid generating new greenhouse gas emissions as the result of energy use in new buildings. Due to rapid improvements in electric appliances, improved methods to quantify the impact of natural gas to the climate crises, changes to the California Energy Code, and residents and businesses purchasing electricity supply from carbon neutral resources via Monterey Bay Community Power, on September 3, 2019, Council formalized the policy preference for new buildings to be all-electric through adoption of Resolution R-11044 (2019 Series).1 This report identifies programs to implement Council’s policy preference for all -electric new buildings. To achieve Council direction, staff’s recommendation includes three of four total components, collectively referred to as the Clean Energy Choice Program for New Buildings: 1 The September 3, 2019 Council Agenda Report is provided as Attachment D and the full public record is available at http://opengov.slocity.org/WebLink/DocView.aspx?id=96415&dbid=0&repo=CityClerk Item 11 Packet Page 153 1) A Resolution re-establishing a “Clean Energy Choice” policy that new buildings should be all-electric (Attachment A). 2) Local amendments to the California Energy Code requiring solar panels on new nonresidential buildings, requiring new buildings with natural gas to be built to a substantially higher performance standard, and requiring new residential buildings with natural gas to include “retrofit ready” requirements (Attachment B). 3) An incentive program outlining technical support, financial support, communication support, and including an ordinance to allow for regulatory flexibility (Attachment C). Using the 2019 Statewide Cost Effectiveness Studies completed by the California Statewide Codes and Standards Program, which was vetted through a public process including PG&E and SoCal Gas, the City may make findings that the proposed building code amendments related to building energy performance are cost effective and use less energy than the standard State Co de. The California Energy Commission (CEC) must agree with the City’s analysis before the local amendments to the California Energy Code can go into effect. The cost effectiveness studies are provided as Attachment E (low-rise residential) and Attachment F (nonresidential, high-rise residential, and hotels). Staff has also developed a four-part incentive program to assist with the transition to designing and building all-electric new buildings. The incentive program includes technical support, access to direct financial incentives for multi-family housing and affordable housing projects through Monterey Bay Community Power, regulatory flexibility, and communications and marketing support for all-electric new buildings. Overall, the Clean Energy Choice Program for New Buildings is an incremental approach to avoid the generation of new greenhouse gas emissions as the result of new development. At build-out of the City’s General Plan (2035), the Clean Energy Choice Program is anticipated to avoid 6,250 Metric Tons of CO2 equivalence (MTCO2e) per year. The annual amount of avoided emissions would be equivalent to taking 1,320 passenger vehicles off the road or planting nearly 160,000 trees to sequester carbon.2,3 The Clean Energy Choice Program for New Buildings was developed with input from local developers, electricians, architects, builders, designers, technical consultants, the California Energy Commission, peer cities, utility partners, and community members. Should Council move forward with staff’s recommendation, the second reading of the Ordinances would occur on July 7, 2020. Pending California Energy Commission approval of the local amendments to the California Energy Code, the program would go into effect by September 1, 2020. 2 Equivalencies are provided by the Environmental Protection Agency at: https://19january2017snapshot.epa.gov/sites/production/files/widgets/ghg_calc/calculator.html#results 3 Note that the September 3, 2019 Council Agenda Report estimated that the Clean Energy Choice Program for New Buildings would reduce emissions by 7,800 MTCO2e per year in 2035. Through additional work completed for the climate action plan and updated assumptions regarding program participation, this number has been revised down to the 6,250 MTCO2e reduction referenced in this report. Item 11 Packet Page 154 DISCUSSION Background This report provides a description of the September 3, 2019 Council action taken in support of the Clean Energy Choice Program for New Buildings, an overview of the Clean Energy Choice Program for New Buildings (including minor proposed changes to the program and removing the Carbon Offset Program for consideration at a future date), new components including the Clean Energy Choice Incentive Program, potential legal concerns, and statewide momentum toward all-electric new development. Previous Council Action On September 3, 2019, Council approved the Clean Energy Choice Program for New Buildings, which included Resolution R-11044 (2019 Series) stating the Council’s preference for all- electric new buildings, the introduction of an ordinance outlining local amendments to the California Energy Code, and introducing an ordinance establishing the Carbon Offset Program.4,5 Prior to final adoption of the ordinances, the City received notification of potential administrative action under review by the Fair Political Practices Commission (FPPC) with respect to an alleged conflict of interest involving Councilmember Pease. The City Attorney had sought the advice of the FPPC in this matter, however, once the FPPC began an investigation associated with the complaint, the request moved from the advice unit to the enforcement unit, to which the normal timeframes for FPPC advice do not apply. As of the writing of this report, there has been no resolution of the pending complaint by the FPPC. As a result, moving forward at this time will require Councilmember Pease’s recusal in the matter. In addition, it is staff’s recommendation that the City Council rescind and readopt its resolution in support of the Clean Energy Choice Program for New Buildings and the implementing ordinances and reintroduce those measures without Councilmember Pease’s participation. Clean Energy Choice Program for New Buildings Overview The proposed Clean Energy Choice Program for New Buildings encourages all -electric new buildings through incentives and local amendments to the Building Code and Zoning Regulations. Figures 1 and 2 illustrate the proposed pathways for obtaining a City building permit through compliance with the adopted components of the Clean Energy Choice Program for New Buildings and program components are described in detail below. Two key definitions of terms used throughout this report and in the attached resolution and ordinances are: 1. “ALL-ELECTRIC BUILDING” is a new building that has no natural gas plumbing installed within the building and that uses electricity as the source of energy for all space heating, water heating, cooking appliances, and clothes drying appliances. An All- Electric Building may be plumbed for the use of natural gas as fuel for appliances in a commercial kitchen.6 4 The Council Agenda Report is provided as Attachment D and the full public record is available at http://opengov.slocity.org/WebLink/DocView.aspx?id=96415&dbid=0&repo=CityClerk 5 The Carbon Offset Program, which was proposed as part of the September 3, 2019 meeting, has been separated from this item for consideration at a future date. 6 Note that the September 3, 2019 Council Agenda Report recommended exemptions for commercial cooking Item 11 Packet Page 155 2. “MIXED-FUEL BUILDING” is a new building that is plumbed for the use of natural gas as fuel for space heating, water heating, cooking or clothes drying appliances. Figure 1 – Low-Rise Residential and Single-Family Residential Policy Approach Figure 2 – Nonresidential Policy Approach 1. Building Code – Energy Requirements The California Energy Code contains energy efficiency standards for residential and nonresidential buildings. Public Resources Code Section 25402.1(h)(2) and Section 10 -106 of the Building Energy Efficiency Standards establish a process that allows local adoption of energy standards that are more stringent than the statewide standards.7,8 Under this process, the CEC requires any local amendments to the California Energy Code that affect energy use in regulated buildings to be cost effective and use less energy than the standard requirements. In the proposed Clean Energy Choice Program for New Buildings, the City may make findings that all proposed amendments (increasing building performance requirements for mixed-fuel buildings and requiring solar on nonresidential, high rise hotel, and mid to high rise residential buildings) are “cost effective” and use less energy than the standard state requirements. Cost effectiveness and energy use considerations and findings are provided equipment only. This has been updated to exempt all appliances in commercial kitchens. 7 Public Resources Code Section 25402.1: http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PRC&sectionNum=25402.1. 8 Building Energy Efficiency Standards: https://ww2.energy.ca.gov/2018publications/CEC-400-2018-020/CEC-400- 2018-020-CMF.pdf Item 11 Packet Page 156 later in this report and in the local amendments to California Energy Code Ordinance. Under the local amendments to the California Energy Code, new buildings with natural gas (e.g. mixed-fuel buildings) would be required to have enhanced building performance. As noted in Table 1, single-family and low-rise multifamily residential new buildings would be required to exceed the standard design Total Energy Design Rating (EDR)9 score by at least 9.5 and 9 points, respectively. Table 1 also identifies performance requirement for new non- residential buildings (15% better than code for office/retail, 9% better for hotel/motel, and 5% better for other nonresidential uses). The enhanced EDR requirements and nonresidential compliance margins reflect the maximum cost-effective compliance margins that can be achieved using federal appliance efficiency standards as reported in the statewide cost effectiveness studies. In other words, the standards are achievable through the performance pathway without using appliances that exceed federal efficiency standards. Table 1. Proposed Improved Energy Performance Standards Building Type Performance Requirement Requirement Justification Single-family Exceed the standard Energy Design Rating by at least 9.5 points Maximum cost-effective Total Energy Design Rating Low-rise multifamily Exceed the standard Energy Design Rating by at least 9 points Maximum cost-effective Total Energy Design Rating Office/retail 15% compliance margin Maximum cost-effective compliance margin Hotel/motel and high-rise residential 9% compliance margin Maximum cost-effective compliance margin Other nonresidential with indoor lighting & mechanical 5% compliance margin Maximum cost-effective compliance margin Other nonresidential with indoor lighting or mechanical, but not both 5% compliance margin Maximum cost-effective compliance margin 2. Nonresidential, High-Rise Residential, and Hotel Solar Requirements The 2019 California Energy Code requires all new low-rise residential buildings to include solar photovoltaic panels and requires non-residential, high-rise residential, and hotel buildings to be “solar ready”.10 Given that the design and supporting components will already be completed as a requirement of State Law, the proposed amendment to the Energy Code would require the additional step of installing solar panels on the entire Solar Zone of a 9 Total Energy Design Rating (EDR): The 2019 Energy Code includes EDR as a new metric fo r measuring the relative energy performance of a building. 10 Section 110.10 of the California Energy Code provides standards for single family, low-rise residential, high-rise residential, hotels, and nonresidential buildings to be ready to easily incorporate solar, including requirements for minimum solar zones (area for installed or future solar panels), interconnection pathways, and electrical service panels: https://ww2.energy.ca.gov/2018publications/CEC-400-2018-020/CEC-400-2018-020-CMF.pdf Item 11 Packet Page 157 nonresidential, high-rise residential, or hotel building.11 The 2019 California Energy Code already requires the design and designation of a building’s Solar Zone, this provision would add the additional requirement to install solar panels in the designated space. 3. Building Code – “Electric Ready” Requirements To minimize future retrofit or energy transition costs, residential buildings that choose to include natural gas will be required to pre-wire to be “retrofit ready.”12 Proposed requirements for each natural gas or plumbed propane appliance include: 1. Minimum space requirements for a future electric requirement 2. A dedicated electrical circuit that can be connected to the electrical panel 3. A double pole breaker in the electrical panel labeled with the name of the appliance 4. Applicability and Exemptions The Clean Energy Choice Program for New Buildings would apply to all new residential and nonresidential buildings that are subject to the California Energy Code. The use of natural gas for certain uses (e.g., industrial, medical, and outdoor decorative uses) are not governed by the Energy Code for buildings and would not be subject to the local amendments to the California Energy Code. There are also specific exemptions to the program requirements. For example, the definition of an all-electric building includes an allowance for the use of natural gas for appliances in a commercial kitchen. The list of exemptions below was developed based on feedback from members of the public and through consideration of other City goals and objectives: 1. The extension of natural gas infrastructure into an industrial building for the purpose of supporting manufacturing processes (i.e. not including space conditioning). 2. Accessory Dwelling Units that are attached to an existing single-family home. 3. Essential Service Buildings including, but not limited to, public facilities, hospitals, medical centers, and emergency operations centers). 4. Temporary buildings. 5. Gas line connections used exclusively for emergency generators. 6. Any buildings or building components exempt from the California Energy Code. 7. Residential subdivisions in process of permitting or constructing initial public improvements for any phase of a final map recorded prior to July 1, 2020, unless compliance is required by an existing Development Agreement. 8. Any new building that is considered a “stationary source” of pollution already covered by California’s “Cap and Trade” program. 5. Cost Effectiveness 11 Section 110.10(b) of the California Energy Code describes the solar zone as follow: The solar zone shall be located on the roof or overhang of the building or on the roof or overhang of another structure located within 250 feet of the building or on covered parking installed with the building project, and shall have a total area no less than 15 percent of the total roof area of the building excluding any skylight area. The solar zone requirement is applicable to the entire building, including mixed occupancy. 12 Staff originally considered including retrofit ready requirements for nonresidential buildings, but due to project variability and the high potential for inacc urately system sizing, they have been removed. Staff recommends that these additional considerations are reconsidered as part of the 2022 California Building Code update. Item 11 Packet Page 158 As described above, Section 10-106 of the Building Energy Efficiency Standards establishes a process that allows local adoption of energy standards that are more stringent th an the statewide standards. Under this process, the CEC requires any local amendments to the California Energy Code that affect energy use in regulated buildings to be cost effective and use less energy than the standard requirements. The CEC requires the local agency to adopt a determination that the energy standards are cost effective at a public meeting. The determination must subsequently be filed with the Energy Commission. In support of code development, the California Statewide Codes & Standards Pr ogram, which includes the State’s Investor Owned Utilities (PG&E, SoCal Gas, SDG&E, and SCE, under the auspices of the California Public Utilities Commission) developed the 2019 Statewide Cost Effectiveness Study for Nonresidential Development (including nonresidential, high-rise residential, and hotel buildings) and the 2019 Statewide Cost Effectiveness Study for Low-Rise Residential New Construction (including single family homes and multi-family buildings under four stories), which are provided as Attachments E and F. These studies are highly detailed and are included in the record to support the Council’s findings and policy decisions. These studies are the basis for staff’s cost effectiveness findings and staff finds the studies sufficient to illustrate compliance with the requirements set forth under California Administrative Code Chapter 10-106. Based on these studies, staff finds the proposed local amendments to the 2019 California Energy Code that affect building energy use are cost-effective and consume less energy than permitted by Title 24, Part 6.13 The Clean Energy Choice Program for New Buildings has multiple implementing actions, including the code amendments as provided in Attachment B. The actions presented in staff’s recommendation and in Attachment B that are required to pass the cost effectiveness and energy reduction tests are limited to the following:14 1. Per Figures 17, 24, and 31 of the 2019 Nonresidential New Construction Reach Code Cost Effectiveness Study (Attachment F), the City’s amendments to require additional efficiency compliance margins for energy performance in nonresidential (nonresidential, high-rise residential, and hotels) mixed-fuel buildings reduce energy and are cost effective. 2. Per Figures 38, 39, and 40 of the 2019 Nonresidential New Construction Reach Code Cost Effectiveness Study (Attachment F), the City’s amendments to require solar on nonresidential (nonresidential, high rise residential, and hotels) buildings reduce energy and are cost effective. 3. Per Table 57 and Table 58 of the 2019 Cost-effectiveness Study: Low-Rise Residential New Construction (Attachment E), the City’s amendments to require a lower Energy Design Rating score in low-rise residential mixed-fuel buildings (single family residential and multifamily buildings three stories and shorter) reduce energy and are cost effective. Clean Energy Choice Incentive Program 13 In August 2019, SoCal Gas provided additional information about offsite infrastruct ure costs. This information was not relevant to the City’s cost effectiveness findings related to the proposed local amendments to the California Energy Code as described in this report. 1414 Based on discussion with CEC Energy Division staff, pre -wiring requirements do not affect the building’s energy use and therefore are not subject to the requirements of Section 10-106. Item 11 Packet Page 159 The Clean Energy Choice Program for New Buildings will include incentives and support to facilitate a successful transition to cost-effective, all-electric new buildings. This incentive program was proposed by stakeholders and supported by City Council. The proposed incentive package has been vetted by developers and stakeholders and includes the following: • Technical Support: The City has established on-call professional design and consulting services with 4LEAF, Inc. to answer technical questions about the Clean Energy Choice Program for New Buildings. Together, the City and 4LEAF, Inc. will document procedures for evaluating all-electric buildings and publish educational materials including a compliance guide, webpage, and video. With these materials as a foundation, 4LEAF, Inc. will also provide a telephone hotline and Community Development Department counter “office hours” to support project applicants in interpreting the California Energy Code and designing all-electric new buildings. • Financial Incentives: Monterey Bay Community Power (MBCP) is currently developing a multi-year direct incentive program with an initial funding amount of $1.2 million through the end of September 2020. MBCP staff has communicated that the program will be available for new all-electric multi-family and affordable housing units in its service territory and is expected to begin taking applications in May of 2020. More information is available at https://www.mbcommunitypower.org/building-programs/. • Regulatory Flexibility: The City is proposing regulatory flexibility to address design challenges that may arise during the initial transition period to all-electric buildings. The regulatory flexibility would be enabled via the ordinance provided as Attachment C which would apply to building permits with an application date between July 1, 2020 and December 31, 2022. The ordinance would permit the Director of Community Development to grant minor allowances to site development standards when all the following circumstances apply: 1. The request directly relates to construction of an all-electric structure and may include, but is not limited to, issues such as the installation of mechanical equipment; 2. The request provides the minor flexibility needed to design a project with all- electric buildings and results in better implementation of other Zoning Regulations or General Plan policies while allowing reasonable use of sites; 3. The request is minor in nature and does not have the potential to cause a significant effect on the environment; and 4. The Findings in Section 17.108.040 are met. On February 26, 2020 the Planning Commission considered the proposed ordinance at a public hearing. The Planning Commission voted 5-0-2 (Kahn and Stevenson absent) to recommend that the City Council introduce and adopt the ordinance with minor modifications for clarity. • Telling the Story: For many in the community who have not been following California Public Utilities proceedings, California Energy Commission rulemaking processes, or the Item 11 Packet Page 160 rapid advance of electric appliances and renewable energy technologies, the statewide movement to support all-electric new buildings may be unexpected. To address this issue, the City will develop and share educational materials about the environmental and operational benefits of all-electric new buildings. The materials are intended to be made so that builders and other partners can place their branding on the communications to “co-own” the story. The City intends to develop and provide initial materials to partners in late Summer of 2020. The City will continue to learn how it can best support the community as all-electric buildings become a more common building type and will re-evaluate the need to expand, remove, or add incentives to support successful projects as part of the 2022 California Energy Code Update Cycle. Carbon Offset Program Concurrent with the local amendments to the California Energy Code and the incentive program outlined above, staff developed the Carbon Offset Program, which would require a new mixed - fuel building to offset its new natural gas use through direct energy ef ficiency or electrification retrofit of an existing building. The program would also provide an option to pay an in -lieu fee to accomplish the same outcome. Staff will monitor development over the next year to determine the efficacy of building code and incentive portions of the Clean Energy Choice Program and potential need for the Carbon Offset Program. Ongoing Public Engagement The initial conversation regarding building decarbonization occurred through City Council study sessions publicly held on September 18, 2018 and February 19, 2019. Since then, the City has led, supported, or attended public engagement events as outlined in Table 3. Table 3. Public Engagement Events Prior to September 3, 2019 Event & Date Description Energy code workshop #1 May 1, 2019 Staff held a kickoff workshop for developers, builders, and design professionals to review the City’s approach to the code amendments, early feasibility and cost effectiveness funding findings, and to discuss potential concerns and issues. Following the meeting, staff met directly with the developers and builders of San Luis Ranch, Avila Ranch, and Righetti Ranch. Builders Roundtable May 13, 2019 Staff presented the initial building code concept to the Developer’s Roundtable for feedback. Planning Commission May 22, 2019 and July 24, 2019 Staff met with the Planning Commission on two occasions to explain the reasoning behind the development of local amendments to the energy section of the building code and to present proposed code language. The items were informational at both meetings. Chamber of Commerce Legislative Action Committee July 11, 2019 Staff presented the reasoning behind the development of local amendments to the energy section of the building code and proposed approaches to the Chamber of Commerce Legislative Action Committee. City staff has been working closely with Chamber Staff to respond to comments. Item 11 Packet Page 161 Event & Date Description Energy code workshop #2 – Code and Offset Program Review July 24, 2019 Staff held an open workshop for developers, builders and design professionals to review the proposed local amendments to the California Energy Code and Carbon Offset Program. The event was attended by 35 individuals representing and led to additional revisions to the proposed code language and approach. Public Comment Period August 9, 2019 On July 22, 2019, the City posted draft building code amendment language for a public comment period, which closed on August 9, 2019. The City received 93 comments from over 15 individual commenters including residents, architects, electricians, statewide experts, and the California Energy Commission. Electrification Expo August 22, 2019 The City partnered with the Tri-County Regional Energy Network and the Climate Coalition to host a half day training for design professionals on the 2019 California Building Code, a panel discussion for residents and businesses to better understand the potential benefits and challenges of all electric/carbon free buildings, and an electrification expo hosted at the Downtown Association Farmer’s Market. City Council Public Hearing September 3, 2019 Staff presented two ordinances and a resolution to implement the Clean Energy Choice Program for new buildings. Council approved the first reading of the ordinances and adopted the resolution. Following the September 3, 2019 City Council meeting, staff worked with builder, designers, realtors, and MBCP to provide education and to identify useful components of an incentive program. The City led, supported, or attended the public engagement events identified in Table 4. Table 4. Public Engagement Events Since September 3, 2019 Event & Date Description Small-group stakeholder meetings September- November, 2019 Staff met with numerous builders, designers, developers, and trade professionals to discuss potential implementation challenges and resolutions to those challenges. HBA Builder’s Breakfast October 5, 2019 Staff presented the Clean Energy Choice Program for New Buildings to the Home Builder’s Association (HBA) Builder’s Breakfast and facilitated a discussion about incentives that would lead to successful implementation. SLO Association of Realtors’ Meeting October 9, 2019 Staff presented the Clean Energy Choice Program for New Buildings to the SLO Association of Realtors’ monthly meeting and facilitated a discussion about incentives that would lead to successful implementation. Women’s Council of Realtors January 16, 2020 Staff presented the Clean Energy Choice Program for New Buildings to the Women’s Council of Realtors member luncheon. Social Media February-April, 2020 Beginning in February 2020, Staff shared weekly information about the Clean Energy Choice Program for New Buildings on the City’s Instagram, Facebook and Twitter accounts. All posts included direction to summary fact sheets at www.slocity.org/cleanenergychoice. SoCal Gas February 26, 2020 Staff met in-person with SoCal Gas staff to discuss the Clean Energy Choice Program for New Buildings, inclusion of SoCal Gas partnership in the City’s Climate Action Plan, potential advanced technology pilot projects, and other opportunities for collaboration. Item 11 Packet Page 162 Event & Date Description Developers Roundtable March 10, 2020 Staff presented the updated Clean Energy Choice Program for New Buildings, including the incentive program to the Developers Roundtable. Legal Considerations In October of 2019, staff received a letter from a community member outlining potential legal concerns with the Clean Energy Choice Program for New Buildings. The City contracted with the law firm Shute Mihaly & Weinberger (SMW) to review the concerns. SMW possesses extensive experience in the energy and local government sectors. SMW has carefully reviewed the potential legal concerns and based on that assessment, staff concludes the Clean Energy Choice Policy for New Buildings represents a valid exercise of the City’s powers and is not in conflict with or pre-empted by any state or federal law, including CEQA. Statewide Updates Since August of 2019, 29 other local governments have approved policies to support all-electric new buildings (with more than 20 additional local governments taking action expected by the end of 2020). The State of California has also taken sustained action towards supporting all - electric new buildings, including the Public Utilities Commission’s decision to make the statewide energy efficiency funding pool open for electrification, a proposed decision for over $44 million in technical research and direct support for building electrification, and a new proceeding to discuss the future of the natural gas grid in California. As the state continues to work towards its legislative targets of reducing emissions 40 percent below 1990 levels by 2030 and carbon neutrality by 2045, the statewide movement toward all-electric new buildings is expected to rapidly accelerate. Greenhouse Gas Emissions and All-Electric New Buildings Energy use in buildings is the second largest source of greenhouse gas emissions in California and in San Luis Obispo.15 Most emissions from buildings come from two sources: purchased electricity and direct combustion of natural gas for space and water heating and cooking. California’s electrical grid is rapidly changing. In 2018, about 38 percent of electricity consumed on the California grid came from fossil fueled generation sources, which is a decrease of almost 50 percent from 2010.16,17 This decrease will continue to occur over the next 25 years. By 2045 the entire California grid is required to have 100 percent carbon free resources (SB100), and as of 2020 all new residential buildings will be required to have onsite solar generation systems.18 These regulations will continue to significantly reduce greenhouse gas emissions from electricity used in buildings. The previously referenced cost-effectiveness studies found that in San Luis Obispo’s climate zone, all-electric residential and nonresidential buildings built using the 2019 California Energy Code have a substantially lower greenhouse gas emissions impact than a similar building that includes natural gas.19 These findings have been confirmed through numerous studies and 15 https://ww2.arb.ca.gov/research/research-green-buildings 16 https://ww2.energy.ca.gov/almanac/electricity_data/total_system_power.html 17 https://ww2.energy.ca.gov/almanac/electricity_data/system_power/2010_total_system_power.html 18 https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB100 19 Using 2018 California electrical grid-wide emissions factors, and factoring in San Luis Obispo’s Climate Zone, Item 11 Packet Page 163 reports. For example, an article titled, “Quantifying Greenhouse Gas Emissions and the Marginal Cost of Carbon Abatement for Residential Buildings under California’s 2019 Title 24 Energy Code” published in the September 2019 volume of the Journal of Environmental Science and Technology notes that, “all-electric homes represent the first-best policy option for residential sector [greenhouse gas] abatement in California.”20 Additional reports support these findings, including research focused on residential buildings, space and water heating, and how heat-pump electrical appliances can accommodate large amounts of renewable energy on the grid.21,22 The 2019 California Energy Code is one of the most stringent and effective energy codes in the nation. Although there is always room to improve efficiency, and alternative building methods can lead to further improvements, an all-electric new building using California’s electrical grid and built to the minimum standards of the 2019 code is one of the lowest operational greenhouse gas emitting buildings in the nation. In January 2020, the City began service with Monterey Bay Community Power (MBCP) - a Community Choice Aggregation (CCA) public agency that procures carbon-free energy sources on an annual basis for the communities it serves. The agency has already supported new renewable energy projects by contracting for a large solar and storage facility in California, large wind farms in New Mexico (with transmission lines to the California grid), a geothermal plant in California, and ongoing support for eventual development of offshore wind and battery storage along the Central Coast. MBCP continues to solicit proposals to build new renewable energy resources and is currently exploring numerous new renewable energy projects. Leveraging MBCP’s carbon-free resources, combined with high-efficiency electric appliances and the 2019 California Energy Code, all-electric new buildings constructed in San Luis Obispo are considered operationally carbon neutral. Previous Council Action and Policy Context Previous Council Action and Policy Context are described in detail in the September 3, 2019 Council Agenda Report, provided as Attachment D. Schedule and Next Steps Should Council approve staff’s recommendations, work would proceed on the timeline provided in Table 5. Table 5. Schedule and Next Steps Task Timeframe Second reading of the Clean Energy Choice Program for New Buildings ordinances and submittal of local amendments to the July 7, 2020 the 2019 Energy Code compliant all-electric buildings are projected to emit approximately 40 percent fewer greenhouse gas emissions than a 2019 Energy Code compliant mixed-fuel building. For multi-family buildings, the study reports a savings of approximately 30 percent. These savings will increase as the grid continues to become cleaner and in San Luis Obispo these buildings are functionally carbon neutral through participation in Monterey Bay Community Power, as described in the body of this report. 20 https://pubs.acs.org/doi/abs/10.1021/acs.est.9b02869 21 https://www.ethree.com/wp- content/uploads/2019/04/E3_Residential_Building_Electrification_in_Cali fornia_April_2019.pdf 22 https://www.sciencedirect.com/science/article/pii/S1040619018302331?via%3Dihub Item 11 Packet Page 164 Task Timeframe California Energy Code to the California Energy Commission. Receive approval from the California Energy Commission July-August 2020 Clean Energy Choice Program goes into effect September 1, 2020 CONCURRENCE The Office of Sustainability, Community Development, Fire Department and Utilities Department concurs with the recommendations in this report. ENVIRONMENTAL REVIEW The Clean Energy Choice Program for New Buildings ordinances are categorically exempt from CEQA because they constitute actions taken by a regulatory agency for the purpose of protecting the environment (CEQA Guidelines Section 15308). In addition, these ordinances are exempt from CEQA under the General Rule, 15061(b)(3), on the grounds that these standards are more stringent than the State energy standards, there are no reasonably foreseeable adverse impacts, and there is no possibility that the activity in question may have a significant effect on the environment. As supported by the 2019 Statewide Cost Effectiveness Studies, the Clean Energy Choice Program ordinances affect building energy performance to be cost-effective and consume less energy than permitted by Title 24, Part 6 and results in lower energy use. Further, the studies demonstrate that the ordinances would not result in an increase in the cost to develop housing. Additionally, the ordinances are expected to have a net benefit to the environment through the reduction in GHG emissions. The ordinances are limited in application to the construction of new buildings. The proposed Clean Energy Choice Program for New Buildings is supported by PG&E and there is no evidence that the electrical grid would be negatively impacted or that any effects on the electrical grid would impact public safety. Given that the State has a directive to go carbon neutral by 2045, the ordinances also fit within the statewide framework toward decarbonization that is already underway. The ordinance to provide regulatory flexibility is additionally categorically exempt from environmental review under the Class 3 exemptions for (1) construction and location of limited numbers of new small facilities or structures (2) installation of small new equipment and facilities in small structures (15303 CEQA Guidelines). Item 11 Packet Page 165 FISCAL IMPACT Budgeted: Yes Budget Year: 2019-20 Funding Identified: Yes/No Fiscal Analysis: Funding Sources Total Budget Available Current Funding Request Remaining Balance Annual Ongoing Cost General Fund $50,000 0$ $0 TBD Total $50,000 $0 TBD The Clean Energy Choice Program for New Buildings is a 2019-21 Climate Action Major City Goal work task and staff time is included in the 2019-20 budget to develop this proposal, submit to the CEC, and have it in place to begin implementation in 2020. The $50,000 figure presented in the Fiscal Analysis Table, above, represents encumbered funds for the technical support component for the Clean Energy Choice Incentive Program. ALTERNATIVES 1. Include Carbon Offset Requirement. The City Council could direct staff to include a Carbon Offset Program to implement the full Clean Energy Choice Program for New Buildings. This action will require staff to return to the Council for consideration of an implementing ordinance, administrative guidelines and an in-lieu fee program. 2. No Action. The City Council could decide to take no action on the proposed Clean Energy Choice Program for New Buildings. If the Council chooses this option, direction should be provided to staff if any additional follow-up is desired. Attachments: a - Draft Resolution - Clean Energy Choice Program b - Draft Ordinance - Local Amendments to the California Energy Code c - Draft Ordinance - Regulatory Flexibility d - Council Agenda Report dated September 3, 2019 e - COUNCIL READING FILE - 2019 Residential Cost Effectiveness Study f - COUNCIL READING FILE - 2019 Nonresidential Cost Effectiveness Study Item 11 Packet Page 166 R ______ RESOLUTION NO. _____ (2020 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, ESTABLISHING A “CLEAN ENERGY CHOICE POLICY FOR NEW BUILDINGS” TO GUIDE THE REDUCTION OF GREENHOUSE GAS EMISSIONS AND USE OF FOSSIL FUELS FOR BUILDINGS AND TRANSPORTATION WHEREAS, greenhouse gas accumulation in the atmosphere as the result of human activity is the primary cause of the global climate crisis; and WHEREAS, in California alone, the initial impacts of climate change have resulted in unprecedented disasters with tremendous human, economic, and environmental costs; and WHEREAS, the Intergovernmental Panel on Climate Change estimates that global emissions need to be reduced by 45 percent from 2010 levels by 2030, and 100 percent by 2050 to prevent global catastrophe; and WHEREAS, the State of California enacted Senate Bill (SB) 32 to require greenhouse gas emissions to be reduced to 40 percent below 1990 levels by 2030; and WHEREAS, Governor Brown issued Executive Order B-55-18 establishing a statewide target of carbon neutrality by 2045; and WHEREAS, City of San Luis Obispo residents and businesses have repeatedly identified climate action as a top community priority; and WHEREAS, the City of San Luis Obispo City Council has directed staff to evaluate strategies and options to achieve community-wide carbon neutrality by 2035; and WHEREAS, the inventoried greenhouse gas emissions in the City of San Luis Obispo come from a variety of sources, primarily transportation and energy use in buildings and facilities; and WHEREAS, as of January 2020, the community will have access to carbon neutral electricity procured by Monterey Bay Community Power; and WHEREAS, the remaining source of greenhouse gas emissions from energy use in buildings will come from the onsite combustion of fossil fuels, primarily natural gas; and WHEREAS, the direct global warming impact of natural gas is considerably higher than previously thought; and WHEREAS, in order to achieve carbon neutrality, new sources of greenhouse gas emissions need to be substantially reduced or eliminated. Item 11 Packet Page 167 Resolution No. _____ (2020 Series) Page 2 R ______ NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. The recitals set forth above are hereby adopted as the findings of the City in adopting the policies herein. SECTION 2. It is the policy of the City that new buildings should be all-electric. SECTION 3: This resolution rescinds and replaces Resolution R-11044 (2019 Series). Upon motion of _______________________, seconded by _______________________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of _____________________ 2020. ____________________________________ Mayor Heidi Harmon ATTEST: ____________________________________ Teresa Purrington City Clerk APPROVED AS TO FORM: _____________________________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on _____________________. ____________________________________ Teresa Purrington City Clerk Item 11 Packet Page 168 O ____ ORDINANCE NO. ____ (2020 SERIES) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, ESTABLISHING THE CLEAN ENERGY CHOICE PROGRAM BY AMENDING THE CITY OF SAN LUIS OBISPO BUILDING CODE TO REQUIRE HIGHER ENERGY PERFORMANCE FOR NEWLY CONSTRUCTED STRUCTURES WHEREAS, greenhouse gas accumulation in the atmosphere as the result of human activity is the primary cause of the global climate crisis; and WHEREAS, in California alone, the initial impacts of climate change have resulted in unprecedented disasters with tremendous human, economic, and environmental costs and; WHEREAS, the Intergovernmental Panel on Climate Change estimates that global emissions need to be reduced by 45 percent from 2010 levels by 2030, and 100 percent by 2050 to prevent global catastrophe; and WHEREAS, the State of California enacted Senate Bill (SB) 32 to require greenhouse gas emissions to be reduced to 40 percent below 1990 levels by 2030 and Governor Brown issued Executive Order B-55-18 establishing a statewide target of carbon neutrality by 2045; and WHEREAS, City of San Luis Obispo residents and businesses have repeatedly identified climate action as a top community priority; and; WHEREAS, the City of San Luis Obispo City Council has directed staff to evaluate strategies and options to achieve community-wide carbon neutrality by 2035; and WHEREAS, the inventoried greenhouse gas emissions in the City of San Luis Obispo come from a variety of sources, primarily transportation and energy use in buildings and facilities; and WHEREAS, as of January 2020, the community will have access to carbon neutral electricity procured by Monterey Bay Community Power; and WHEREAS, the remaining source of greenhouse gas emissions from energy use in buildings will come from the onsite combustion of fossil fuels, primarily natural gas; and WHEREAS, the direct global warming impact of natural gas is considerably higher than previously thought; and WHEREAS, in order to achieve carbon neutrality, new sources of greenhouse gas emissions need to be substantially reduced or eliminated; and WHEREAS, Public Resources Code Section 25402.1(h)(2) allows more stringent local amendments to the energy conservation provisions in the California Energy Code; and Item 11 Packet Page 169 Ordinance No. ____ (2020 Series) Page 2 O ____ WHEREAS, the California Statewide Codes and Standards Program, has determined specific modifications to the 2019 State Energy Code for each climate zone that are cost-effective; and that such modifications will result in designs that consume less energy than they would under the 2019 State Energy Code; and WHEREAS, staff has reviewed the “2019 Nonresidential New Construction Reach Code Cost Effectiveness Study” and “2019 Cost-effectiveness Study: Low-Rise Residential New Construction” developed for the California Energy Codes and Standards Program and find them sufficient to illustrate compliance with the requirements set forth under California Administrative Code Chapter 10-106 ; and WHEREAS, based on these studies, the City finds the proposed local amendments to the 2019 California Energy Code that affect building energy performance to be cost-effective and consume less energy than permitted by Title 24, Part 6; and WHEREAS, the 2019 California Energy Code offers compliance options that were established through the public rulemaking process of the code update; and WHEREAS, the Council expressly declares that the proposed amendments to the Energy Code are reasonably necessary because of local climatic, topological, and geological conditions; and WHEREAS, the requirements specified in this Ordinance were reviewed via public comment, through a robust outreach process, and through a publicly noticed public hearing process; and WHEREAS, Resolution No. _____ (2020 Series) establishes a policy preference for all- electric buildings and resolves that new buildings in the city shall not cause a net increase in community greenhouse gas emissions as the result of on-site energy use; and WHEREAS, a first reading of Ordinance 1668 (2019 Series) to establish local amendments to the California Building Code was approved by Council, but the ordinance was not adopted. NOW, THEREFORE, BE IT ORDAINED by the Council of the City of San Luis Obispo as follows: SECTION 1. Purpose. It is the purpose and intent of this Ordinance to establish the Clean Energy Choice Program, including standards for new buildings to exceed minimum 2019 Title 24 Part 6 requirements. SECTION 2. Adoption. The 2019 California Building Code, Title 24, Part 6, is hereby adopted by the City of San Luis Obispo with local amendments to be codified under Chapter 15.04 as specified in Exhibit A. The Council hereby adopts the recitals herein as separate and additional findings of fact in support of adoption of the ordinance. Item 11 Packet Page 170 Ordinance No. ____ (2020 Series) Page 3 O ____ SECTION 3. Severability. If any word, phrase sentence part, section, subsection or other portion of this amendment or any application thereof to any person or circumstance is declared void, unconstitutional, or invalid for any reason, then such word, phrase, sentence, part, sectio n, subsection, or other portion, or the prescribed application thereof, shall be severable, and the remaining provisions of this amendment, and all applications thereof, not having been declared void, unconstitutional or invalid, shall remain in full force and effect.  The City of San Luis Obispo hereby declares that it would have passed this amendment and each section, subsection sentence, clause and phrase of this amendment, irrespective of the fact that any one or more sections, subsection, sentences, clauses or phrases is declared invalid or unconstitutional. SECTION 4 - Findings. The City Council finds that each of the changes or modifications to measures referred to therein are reasonably necessary because of local climatic, geological, or topographical conditions in the area encompassed by the boundaries of the City of San Luis Obispo, and the City Council adopts the following findings in support of local necessity for the changes or modifications: 1. As a city located on the California Central Coast, San Luis Obispo is vulnerable to the effects of sea level rise and resultant flooding within the San Luis Creek watershed, and human activities releasing greenhouse gases into the atmosphere cause increases in worldwide average temperature, which contribute to melting of glaciers and thermal expansion of ocean water –resulting in rising sea levels. 2. San Luis Obispo is already experiencing the repercussions of excessive greenhouse gas emissions as rising sea levels and severe weather events threaten the City’s nearby shoreline and infrastructure and cause significant erosion leading to infrastructure failures including the Mud Creek slide resulting in closure of Highway 1 for repairs, and economic impacts to surrounding communities. 3. San Luis Obispo is situated along a wildland-urban interface and has been identified as a Community at Risk from wildfire and is extremely vulnerable to wildfires and firestorms, and human activities releasing greenhouse gases into the atmosphere cause increases in worldwide average temperature, drought conditions, vegetative fuel, and length of fire seasons- contributing to the likelihood and consequences of fire. 4. The City of San Luis Obispo is situated at the base of a watershed of the Santa Lucia Mountains and flooding of San Luis, Chorro, Stenner, Old Garden, and Brizzolara Creeks results in conditions rendering fire department vehicular traffic unduly burdensome or impossible, as witnessed in major floods that occurred in 1952, 1961, 1969, 1973, 1978, 1982, and 1995. Furthermore, flood conditions described above create the potential for overcoming the ability of the fire department to aid or assist in fire control, evacuations, rescues and other emergency task demands inherent in such situations. The resulting overburdening of fire department personnel may cause a substantial or total lack of protection against fire for the buildings and structures located in the City of San Luis Obispo. The afore-described conditions support the imposition of fire protection requirements greater than those set forth in the California State Building Standards Code and, in particular, support the imposition of more restrictive requirements than set forth in the California Energy Code for the purpose of reducing the City’s contributions to Greenhouse Gas Emissions resulting in a warming climate and related severe weather events. Item 11 Packet Page 171 Ordinance No. ____ (2020 Series) Page 4 O ____ 5. The aforementioned flood and rain events result in conditions wherein stormwater can inundate the wastewater treatment system as witnessed in major floods that occurred in 1952, 1961, 1969, 1973, 1978, 1982, and 1995. Furthermore, rain events and flood conditions described above create a condition referred to as Inflow and Infiltration (I/I) that allow rain and flood waters to flow and/or seep into the wastewater system and overcome the ability of the wastewater collection system and Water Reclamation Facility (WRF) to convey and treat sewage. The resulting overburdening of the wastewater system can result in threats to public health, public and private property and water quality and violations and fines from the State of California, the Environmental Protection Agency (EPA) or others. To the extent that climate change has the potential to make these conditions worse, more restrictive Energy Code requirements to achieve reduced greenhouse gas emissions are necessary. 6. The City of San Luis Obispo is situated near three major faults each capable of generating earthquakes with a magnitude of 7.5. These are the San Andreas to the east of the City, the Nacimiento-Rinconada that crosses Hwy 101 north of the City then parallels the City to the east, and the Hosgri to the West. Other faults of importance are the Huasna and West Huasna to the Southeast of the City, the San Simeon to the Northwest, and the Edna and Edna Extended faults which enter the southern areas of the City. In as much as these faults are included as major California earthquake faults, which are subject to becoming active at any time, the City of San Luis Obispo is particularly vulnerable to devastation should such an earthquake occur. The potential effects include isolating the City of San Luis Obispo from the North and South due to the potential for collapsing of freeway overpasses or a slide on both the Cuesta and Ontario Grades and the potential for horizontal or vertical movement of the Edna fault rendering surface travel across the southern extremities of the city unduly burdensome or impossible. Additional potential situations inherent in such an occurrence include loss of the City's two main water sources (the Salinas and Whale Rock reservoirs), broken natural-gas mains causing structure and other fires, leakage of hazardous materials, the need for rescues from collapsed structures, and the demand for first aid and other medical attention to large numbers of people. As a result, the City is pursuing a policy to discourage additional natural gas extensions and the related, expanded risk of gas leaks and explosions during seismic events for the protection of human life and the preservation of property in the event of such an occurrence. 7. That seasonal climatic conditions during the late summer and fall create numerous serious difficulties in the control and protection against fire situations in the City of San Luis Obispo. The hot, dry weather in combination with Santa Lucia (offshore) winds frequently results in wildland fires in the brush-covered slopes on the Santa Lucia Mountains, San Luis Mountain, and the Irish Hills areas of the City of San Luis Obispo. The aforementioned areas surround the City. When a fire occurs in said areas, such as occurred in 1985 when the Los Pilitas fire burned six days and entered the City and damaged many structures, the entirety of local fire department personnel is required to control, monitor, fight and protect against such fire situations in an effort to protect life and preserve property and watershed land. The same climatic conditions may result in the concurrent occurrence of one or more fires in the more populated areas of the City without adequate fire department personnel to protect against and control such a situation. Therefore, the above-described findings support the imposition of measures Item 11 Packet Page 172 Ordinance No. ____ (2020 Series) Page 5 O ____ to increase the efficiency of new buildings in the City and reduce Green House Gas emissions from carbon, and support reducing the amount of natural gas distributed and used throughout the City. SECTION 5 CEQA. This ordinance is categorically exempt from CEQA because it is an action taken by a regulatory agency for the purpose of protecting the environment (CEQA Guidelines Section 15308). In addition, this ordinance is exempt from CEQA under the general rule, 15061(b)(3), on the grounds that these standards are more stringent than the State energy standards, there are no reasonably foreseeable adverse impacts, and there is no possibility that the activity in question may have a significant effect on the environment. The following findings are made in support of these determi nations: 1. The purpose of the City’s Clean Energy Choice Policy and the implementation of a Reach Code is to reduce the amount of greenhouse gas emissions in the City of San Luis Obispo that are produced from buildings. 2. All electric buildings constructed in the City of San Luis Obispo consistent with the Clean Energy Choice Policy and implementation of a Reach Code will reduce greenhouse gas emissions, improve indoor air quality, and reduce the risk of catastrophic infrastructure failure, including explosions and fires caused by breaks and leaks in the natural gas distribution system as a result of upset conditions due to deferred maintenance or following an earthquake. 3. The Reach Code approval process requires that City determine it is cost effective and that the local standards will require buildings to use no more energy than current statewide. Furthermore, the CEC approval process requires that the City make the findings as part of its approval process. Therefore, the Reach Code standards can only go into effect if they protect the environment by making buildings more efficient and in a cost-effective manner. 4. The City’s Clean Choice Energy Program enables property owners and developers to take advantage of a statewide effort to build a clean, efficient, and reliable grid to serve expanding energy needs across the State of California. 5. The Intergovernmental Panel on Climate Change estimates that global emissions need to be reduced by 45 percent from 2010 levels by 2030, and 100 percent by 2050 to prevent global catastrophe. However, due to the lack of coordinated action or a comprehensive plan to address this threat at a national level, cities and states across the United States must lead the way. SECTION 6. Violations. Violation of the requirements of this Ordinance shall be considered an infraction of the City of San Luis Obispo Municipal Code, punishable by all the sanctions prescribed in Chapter 1.12. SECTION 7. Effective Date. This Ordinance shall be effective as of September 1, 2020. Item 11 Packet Page 173 Ordinance No. ____ (2020 Series) Page 6 O ____ SECTION 8. A summary of this ordinance, together with the names of Council members voting for and against, shall be published at least five (5) days prior to its final passage, in The New Times, a newspaper published and circulated in this City. This ordinance shall go into effect at the expiration of thirty (30) days after its final passage. INTRODUCED on the ____ day of _____ 2020, AND FINALLY ADOPTED by the Council of the City of San Luis Obispo on the _____ day of _____ 2020, on the following vote: AYES: NOES: ABSENT: ____________________________________ Mayor Heidi Harmon ATTEST: ____________________________________ Teresa Purrington City Clerk APPROVED AS TO FORM: _____________________________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on _____________________. ______________________________ Teresa Purrington City Clerk Item 11 Packet Page 174 Ordinance No. ____ (2020 Series) – EXHIBIT A Page A-1 O ____ Ordinance No. 1668 Exhibit A Section 15.04.110 AMENDMENTS - CALIFORNIA ENERGY CODE A. Adoption of Codes and Applicability. 1. The City of San Luis Obispo hereby adopts the 2019 California Code of Regulations, Title 24, Part 6 (California Energy Code) with local amendments as set forth herein. The provisions of such are hereby referred to, adopted, and made a part hereof as if fully set out in this Chapter except as modified hereinafter. These regulations will be known as the City of San Luis Obispo Energy Reach Code and all prior provisions are hereby superseded . 2. The effective date of this ordinance shall be September 1, 2020 and is applicable to new construction buildings including those that are built after a demolition. The amendments contained in 15.04.110 do not apply to Additions, Alterations, or Attached Accessory Dwelling Units. Residential subdivisions in process of permitting or constructing initial public improvements for any phase of a final map recorded prior to January 1, 2020 are exempt, unless compliance is required by an existing Development Agreement. Additional exemptions and exceptions are identified below. 3. Notwithstanding the requirements of this Chapter and the Council's Clean Energy Choice Policy, and other public health and safety hazards associated with natural gas infrastructure, natural gas may be allowed in a building otherwise subject to the requirements of this ordinance if the authority responsible for entitling or permitting the project makes any of the following findings: a. That current limitations of electric power infrastructure in the vicinity of the project site make it impossible to serve the project without significant upgrades, such as to transformers or other distribution equipment, that are outside the scope of the proposed project and would render it economically infeasible. b. The proposed project would result in a de minimis use of natural gas that could be offset, such as through a sequestration project or other proposal directly tied to the development project. c. Consistent with the purpose and intent of these regulations, the authority granting approval to a project may permit the use of natural gas without requiring the additional efficiency requirements or appliance pre-wiring if it is determined to be necessary to serve public health, safety and welfare. Item 11 Packet Page 175 Ordinance No. ____ (2020 Series) Page 2 O ____ B. Amend Section 100.1(b) by adding the following definitions: ALL-ELECTRIC BUILDING is a building that has no natural gas plumbing installed within the building and that uses electricity as the source of energy for all space heating, water heating, cooking appliances, and clothes drying appliances. An All-Electric Building may be plumbed for the use of natural gas as fuel for appliances in a commercial kitchen. MIXED-FUEL BUILDING is a building that is plumbed for the use of natural gas as fuel for space heating, water heating, cooking or clothes drying appliances. ACCESSORY DWELLING UNIT, DETACHED is an Accessory Dwelling Unit (see City of San Luis Obispo Municipal Code 17.156.004) that provides new residential square footage not attached or sharing any walls with the primary existing single-unit dwelling. ACCESSORY DWELLING UNIT, ATTACHED is an Accessory Dwelling Unit (see City of San Luis Obispo Municipal Code 17.156.004) that is either attached to (by a minimum of one shared wall), or completely contained within, the primary existing space of the single-unit dwelling unit or existing accessory structure.. C. Amend Section 140.0(b) to read as follows: (b) The requirements of Sections 120.0 through 130.5 (mandatory measures for nonresidential, high-rise residential and hotel/motel buildings): 1. The entire solar zone of newly constructed buildings, as specified in Section 110.10, shall have a solar PV system installed that meets the minimum qualification requirements as specified in Joint Appendix JA11, subject to the exceptions in Section 110.10. D. Amend Section 140.0(c) to read as follows: (c) Either the performance compliance approach (energy budgets) specified in Section 140.1 or the prescriptive compliance approach specified in Section 140.2 for the Climate Zone in which the building will be located. Climate zones are shown in FIGURE 100.1-A. Exception to 140.0(c): Mixed-Fuel buildings shall use the performance compliance approach (energy budgets) specified in Section 140.1 E. Section 140.1 is modified as follows: SECTION 140.1 – PERFORMANCE APPROACH: ENERGY BUDGETS A newly constructed All-Electric Building complies with the performance approach if the energy budget calculated for the Proposed Design Building under Subsection (b) is no greater than the energy budget calculated for the Standard Design Building under Subsection (a). Item 11 Packet Page 176 Ordinance No. ____ (2020 Series) Page 3 O ____ A newly constructed Mixed-Fuel Building complies with the performance approach if the energy budget calculated for the Proposed Design Building under Subsection (b) has a compliance margin, relative to the energy budget calculated for the Standard Design Building under Subsection (a), of at least the value specified for the corresponding occupancy type in Table 140.1-A below. Table 140.1-A MIXED FUEL BUILDING COMPLIANCE MARGINS Occupancy Type Compliance Margins Office / Retail 15% Hotel/motel and High-rise residential 9% All other occupancies in buildings with both indoor lighting and mechanical systems 5% All other occupancies in buildings with indoor lighting or mechanical systems but not both 5% a) Energy Budget for the Standard Design Building. The energy budget for the Standard Design Building is determined by applying the mandatory and prescriptive requirements to the Proposed Design Building. The energy budget is the sum of the TDV energy for space-conditioning, indoor lighting, mechanical ventilation, service water heating, and covered process loads. b) Energy Budget for the Proposed Design Building. The energy budget for a Proposed Design Building is determined by calculating the TDV energy for the Proposed Design Building. The energy budget is the sum of the TDV energy for space-conditioning, indoor lighting, mechanical ventilation and service water heating and covered process loads. c) Calculation of Energy Budget. The TDV energy for both the Standard Design Building and the Proposed Design Building shall be computed by Compliance Software certified for this use by the Commission. The processes for Compliance Software approval by the Commission are documented in the ACM Approval Manual. Note: Authority: Sections 25213, 25218, 25218.5, 25402 and 25402.1, Public Resources Code. Reference: Sections 25007, 25008, 25218.5, 25310, 25402, 25402.1, 25402.4, 25402.5, 25402.8, and 25943, Public Resources Code. Exception 1 to 140.1: The following buildings and uses shall comply with the performance approach if the energy budget calculated for the Proposed Design Building under Subsection (b) is no greater than the energy budget calculated for the Standard Design Building under Subsection (a): A. Essential Service buildings and public facilities where natural gas is necessary to meet the requirements of other permitting agencies or is demonstrated to be necessary for the purpose of protecting public health, safety and welfare. Item 11 Packet Page 177 Ordinance No. ____ (2020 Series) Page 4 O ____ F. Amend Section 140.2 to read as follows: To comply using the prescriptive approach, a building shall be designed with and shall have constructed and installed systems and components meeting the applicable requirements of Sections 140.3 through 140.9. Note: Authority: Sections 25213, 25218, 25218.5, 25402 and 25402.1, Public Resources Code. Reference: Sections 25007, 25008, 25218.5, 25310, 25402, 25402.1, 25402.4, 25402.5, 25402.8, and 25943, Public Resources Code. Exception to 140.2: Mixed-Fuel Buildings, except those buildings and uses identified in Exception 1 to 140.1, shall only use the performance compliance approach (energy budgets) specified in Section 140.1. G. Amend the first two paragraphs of Section 150.0 to read as follows: SECTION 150.0 – MANDATORY FEATURES AND DEVICES Low-rise residential buildings shall comply with the applicable requirements of Sections 150(a) through 150.0(s). Note: The requirements of Sections 150.0(a) through 150.0(s) apply to newly constructed buildings. Sections 150.2(a) and 150.2(b) specify which requirements of Sections 150.0(a) through 150.0(s) also apply to additions or alterations. H. Add Subsection (5) to Section 150.0(h) to read as follows: 5. Systems using gas space heating equipment shall include the following components: A. A designated exterior location for a future heat pump compressor unit with either a drain or natural drainage for condensate from possible future operation as cooling equipment. B. For equipment serving individual units, a dedicated 208/240 volt, 30-amp or greater electrical circuit that is able to be connected to the electric panel with conductors of adequate capacity, terminating within 3 feet from the designated future location of the compressor unit with no obstructions. In addition, all of the following: i. Both ends of the conductor shall be labeled with the word “For Future Heat Pump Space Heater” and be electrically isolated; and ii. A double pole circuit breaker in the electrical panel labeled with the words "For Future Heat Pump Space Heater"; and iii. Other electrical components, including co nductors, receptacles or blank covers, related to this section shall be installed in accordance with the California Electrical Code. Exception to Section 150.0(h)5.B: If a 240 volt 30 amp or greater electrical circuit and compressor unit location exists for space cooling equipment. Item 11 Packet Page 178 Ordinance No. ____ (2020 Series) Page 5 O ____ C. For equipment serving more than one dwelling unit, electric capacity, determined at 240 volts, in the form of raceway and service and subpanel capacity installed with a termination point of no more than 3 feet from each gas outlet. Capacities shall be determined to be sufficient for heat pump space heating equipment to provide the same heat output as the gas equipment. Exception 1 to Section 150.0(h)5: If centralized space cooling equipment is installed for all the affected dwelling units. Exception 2 to Section 150.(h)5: Systems serving Accessory Dwelling Units, Attached to an existing single-family home. I. Amend Section 150.0(n) to read as follows: n) Water Heating System. 1. Systems using gas or propane water heaters to serve individual dwelling units shall include the following components: A. A dedicated 125 volt, 20 amp receptacle that is connected to the electric panel with a 120/240 volt 3 conductor, 10 AWG copper branch circuit, within 3 feet from the water heater and accessible to the water heater with no obstructions. In addition, all of the following: i. Both ends of the unused conductor shall be labeled with the words “For Future Heat Pump Water Heater” and be electrically isolated; and ii. A reserved single pole circuit breaker space in the electrical panel adjacent to the circuit breaker for the branch circuit in A above and labeled with the words "For Future Heat Pump Water Heater"; and iii. Other electrical components, including conductors, receptacles or blank covers, related to this section shall be installed in accordance with the California Electrical Code. NOTE: Appliances shall not be considered “obstructions”. Exception to 150(n)1.A: Systems serving Accessory Dwelling Unit, Attached to an existing single-family home. B. A Category III or IV vent, or a Type B vent with straight pipe between the outside termination and the space where the water heater is installed; and C. A condensate drain that is no more than 2 inches higher than the base of the installed water heater, and allows natural draining without pump assistance, and D. A gas supply line with a capacity of at least 200,000 Btu/hr. Item 11 Packet Page 179 Ordinance No. ____ (2020 Series) Page 6 O ____ E. Located in an area that is both: i. At least 3 feet by 3 feet by 7 feet high; and ii. Has a minimum volume of 760 cubic feet or a ventilation plan that includes the equivalent of one 16 inch by 24 inch grill for warm supply air and one 8 inch duct of no more than 10 feet in length for cool exhaust air. Exception to 150.0(n)1.E: Located in Accessory Dwelling Units, Detached 2. Water heating recirculation loops serving multiple dwelling units shall meet the requirements of Section 110.3(c)5. 3. Solar water-heating systems and collectors shall be certified and rated by the Solar Rating and Certification Corporation (SRCC), th e International Association of Plumbing and Mechanical Officials, Research and Testing (IAPMO R&T), or by a listing agency that is approved by the Executive Director. 4. Instantaneous water heaters with an input rating greater than 6.8 kBTU/hr (2kW) shall meet the requirements of Section 110.3(c)7. 5. Systems using gas water heaters to serve multiple dwelling units and/or common areas shall: A. Be located in a space that can accommodate a heat pump water heating system of equivalent capacity and performance; and B. Have electrical capacity installed for a heat pump water heater(s) in the form of raceway and service and subpanel capacity, with a termination point of no more than 3 feet from each gas outlet. The electrical capacity shall be determined at 208/240 volts and shall be sufficient to power a heat pump hot water heater of equivalent capacity and performance. Plans shall include calculations and installations for equivalent capacity and performance, electrical power, conductors, raceway sizes and panel capacities in accordance with the California Electrical Code. J. Add Subsection (s) to Section 150.0 to read as follows: s) Clothes Drying and Cooking. Buildings plumbed for natural gas clothes drying or cooking equipment shall include the following components for each gas terminal or stub out: 1. Clothes Drying. A. A dedicated 208/240-volt, 30 amp or greater electrical receptacle that is able to be connected to the electric panel with conductors of adequate capacity, within 3 feet of the appliance and ac cessible with no obstructions. In addition, all of the following: Item 11 Packet Page 180 Ordinance No. ____ (2020 Series) Page 7 O ____ i. Both ends of the conductor shall be labeled with the word “For Future Electric Clothes Dryer” and be electrically isolated; ii. A double pole circuit breaker in the electrical panel labeled w ith the words "For Future Electric Clothes Dryer"; and iii. All electrical components including conductors, receptacles or blank covers, related to this section shall be installed in accordance with the California Electrical Code. 2. Cooktop or Range A. A dedicated 208/240-volt, 40 amp or greater circuit and 50 amp or greater electrical receptacle that is able to be connected to the electric panel with conductors of adequate capacity, within 3 feet of the appliance and accessible with no obstructions. In addition, all of the following: i. Both ends of the conductor shall be labeled with the word “For Future Electric Range” and be electrically isolated; and ii. A double pole circuit breaker in the electrical panel labeled with the words “For Future Electric Range”; and iii. All electrical components, including conductors, receptacles, or blank covers, related to this section shall be installed in accordance with the California Electrical Code. 3. Stand Alone Cooking Oven A. A dedicated 208/240-volt, 20 amp or greater receptacle that is able to be connected to the electric panel with conductors of adequate capacity, within 3 feet of the appliance and accessible with no obstructions. In addition, all of the following: i. Both ends of the conductor shall be labeled with the word “For F uture Electric Oven” and be electrically isolated; and ii. A double pole circuit breaker in the electrical panel labeled with the words "For Future Electric Oven"; and iii. All electrical components, including conductors, receptacles or blank covers, related to this section shall be installed in accordance with the California Electrical Code. NOTE: Appliances shall not be considered “obstructions” Item 11 Packet Page 181 Ordinance No. ____ (2020 Series) Page 8 O ____ K. Amend Section 150.1(b) to read as follows: b) Performance Standards. A building complies with the performance standards if the energy consumption for the Proposed Design Building is no greater than the energy budget calculated for the Standard Design Building using Commission-certified compliance software as specified by the Alternative Calculation Methods Approval Manual. Mixed-Fuel Buildings must additionally reach an EDR threshold beyond the Standard Design in order to comply with performance standards. L. Amend Section 150.1(b)1 and 2 to read as follows: 1. Newly Constructed Buildings. The Energy Budget for newly constructed buildings or newly constructed Detached Accessory Dwelling Units is expressed in terms of the Energy Design Rating, which is based on TDV energy. The Energy Design Rating (EDR) has two components, the Energy Efficiency Design Rating, and the Solar Electric Generation and Demand Flexibility Design Rating. The Solar Electric Generation and Demand Flexibility Design Rating shall be subtracted from the Energy Efficiency Design Rating to determine the Total Energy Design Rating. The Proposed Building shall separately comply with the Energy Efficiency Design Rating and the Total Energy Design Rating. A. An All-Electric Building complies with the performance standards if both the Total Energy Design Rating and the Energy Efficiency Design Ratin g for the Proposed Building are no greater than the corresponding Energy Design Ratings for the Standard Design Building. B. A Mixed-Fuel Building complies with the performance standards if: i. The Energy Efficiency Design Rating of the Proposed Building is no greater than the Energy Efficiency Design Rating for the Standard Design Building; ii. The Total Energy Design Rating of the Proposed Building is less than the Total Energy Design Rating of the Standard Design Building by at least 9 for a single-family dwelling unit and 9.5 for a multi-family dwelling unit. Exception to Section 150.1(b)1.B.ii. Buildings with limited solar access are excepted if all of the following are true: 1. The Total Energy Design Rating for the Proposed Building is no greater than the Total Energy Design Rating for Standard Design Building; and 2. A photovoltaic (PV) system(s) meeting the minimum qualification requirements as specified in Joint Appendix JA11 is installed on all available areas of 80 contiguous square feet or more with effective annual solar access. Effective annual solar access shall be 70 percent or greater of the output of an unshaded PV array on an annual basis, wherein shade is due to existing permanent natural or manmade barriers external to the dwelling, inc luding but not limited to trees, hills, and adjacent structures; and Item 11 Packet Page 182 Ordinance No. ____ (2020 Series) Page 9 O ____ 3. The Energy Efficiency Energy Design Rating for the Proposed Building is no greater than the respective value for the Standard Design Building by the EDR margin in Table 150.1(b)1 below. Table 150.1(b)1 Energy Efficiency EDR Margins Building Type Energy Efficiency EDR Margin Single Family 2.5 Multifamily 0.5 Exception to Section 150.1(b)1.: A community shared solar electric generation system, or other renewable electric generation system, and/or community shared battery storage system, which provides dedicated power, utility energy reduction credits, or payments for energy bill reductions, t o the permitted building and is approved by the Energy Commission as specified in Title 24, Part 1, Section 10 -115, may offset part or all of the solar electric generation system Energy Design Rating required to comply with the Standards, as calculated acc ording to methods established by the Commission in the Residential ACM Reference Manual. M. Amend Section 150.1(c) to read as follows: Prescriptive Standards/Component Package . All-Electric Buildings that comply with the prescriptive standards shall be designed, constructed, and equipped to meet all of the requirements for the appropriate Climate Zone shown in TABLE 150.1 -A or B. In TABLE 150.1-A and TABLE 150.1-B, a NA (not allowed) means that feature is not permitted in a particular Climate Zone and a NR (no requirement) means that there is no prescriptive requirement for that feature in a particular Climate Zone. Mixed -fuel buildings shall comply with requirements of section 150.1(b). Installed components for All-Electric Buildings shall meet the following requirements: NOTE: The rest of the Section 150.1(c) applies without modifications but is not reproduced here for brevity. Item 11 Packet Page 183 R _____ ORDINANCE NO. ______ (2020 SERIES) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA AMENDING TITLE 17 (ZONING REGULATIONS) OF THE MUNICIPAL CODE SUPPORTING THE CLEAN ENERGY CHOICE PROGRAM (PL-CODE-0062-2020) WHEREAS, the State of California enacted Senate Bill (SB) 32 to require greenhouse gas emissions to be reduced to 40 percent below 1990 levels by 2030; and WHEREAS, former Governor Brown issued Executive Order B-55-18 establishing a statewide target of carbon neutrality by 2045; and WHEREAS, City of San Luis Obispo residents and businesses have repeatedly identified climate action as a top community priority; and WHEREAS, the City of San Luis Obispo City Council has directed staff to evaluate strategies and options to achieve community-wide carbon neutrality by 2035; and WHEREAS, the inventoried greenhouse gas emissions in the City of San Luis Obispo come from a variety of sources, primarily transportation and energy use in buildings and facilities; and WHEREAS, as of January 2020, the community has access to carbon neutral electricity procured by Monterey Bay Community Power; and WHEREAS, the remaining source of greenhouse gas emissions from energy use in buildings will come from the onsite combustion of fossil fuels, primarily natural gas; and WHEREAS, the direct global warming impact of natural gas is considerably higher than previously thought; and WHEREAS, in order to achieve carbon neutrality, new sources of greenhouse gas emissions need to be substantially reduced or eliminated; and WHEREAS, all-electric buildings are operationally carbon neutral; and WHEREAS, Resolution No. 11044 (2019 Series) establishes a “Clean Energy Choice Policy” preference for all-electric buildings and resolves that new buildings in the city shall not cause a net increase in community greenhouse gas emissions as the result of on-site energy use; and WHEREAS, although all-electric buildings are common in the U.S., local and regional developers may be designing their first electric building; and Item 11 Packet Page 184 Ordinance No. ______ (2020 Series) Page 2 O _____ WHEREAS, highly efficient electric appliances may require mechanical equipment that projects in the building pipeline may not have planned for; and WHEREAS, local and regional builders have expressed certain design standards as potential obstacles to designing and constructing all-electric buildings; and WHEREAS, minor allowances within Zoning Code Chapter 17.070 (Site Development and General Development Standards) for a specified time period would assist local and regional builders construct all-electric buildings that are in the building pipeline; and WHEREAS, the proposed ordinance is supported by policies in Chapter 9 of the City’s General Plan Land Use Element, specifically Policies 9.4 relating to implementation of the City’s Climate Action Plan and 9.7 relating to the promotion of sustainable design, and Program 9.13 to provide incentives for projects that incorporate sustainable design features; and WHEREAS, the proposed requirements specified in this Ordinance provide temporary incentives to support the initial implementation of the City’s Clean Energy Program and will end on December 31, 2022 to coincide with the next adoption of the City’s Building Code Update; and WHEREAS, on February 26, 2020 the Planning Commission conducted a public hearing and recommended that the City Council introduce and adopt the proposed ordinance; and WHEREAS, on April 7, 2020 the City Council conducted a duly noticed Public Hearing to consider testimony and input on the proposed ordinance; and NOW, THEREFORE, BE IT RESOLVED by the City Council of San Luis Obispo as follows: SECTION 1. Findings. Based upon all the evidence, the City Council makes the following findings: 1. The proposed amendments to Title 17 will not significantly alter the character of the City or cause significant health, safety, or welfare concerns, since the amendment is consistent with the General Plan and directly implement City goals and policies to facilitate All-Electric buildings and the Clean Energy Choice Program. 2. The proposed amendments to Title 17 are consistent with existing zoning practices by establishing reasonable regulations to authorize the Director of Community Development to act on certain applications on an administrative basis due to the minor nature of a proposed improvement, use of land or allowed deviation from development standards. Item 11 Packet Page 185 Ordinance No. ______ (2020 Series) Page 3 O _____ 3. The proposed amendment to the text of the Zoning Ordinance is consistent with the purpose of the Zoning Ordinance to promote the growth of the City in an orderly manner and to promote and protect the public health, safety, and general welfare in that the proposed allowances to development standards are minor in nature and will and otherwise maintain the existing policies, standards and regulations of the Zoning Ordinance. 4. Periodic amendments, updates, and corrections of the Municipal Code are consistent with General Plan Policy to maintain regulations which are effective in implementing policies consistent with the General Plan. 5. The amendment is temporary and includes a sunset date of December 31, 2022. SECTION 2. Environmental Review. The City Council finds that the adoption of this ordinance is exempt from the California Environmental Quality Act (“CEQA”), in that the Zoning Amendment contained herein do not have the potential for causing a significant effect on t he environment, pursuant to Sections 15061(b)(3). The amendment to zoning regulations; 1) does not lead to physical improvements beyond those typically exempt; and 2) is not specifically listed as categorical or statutory exemptions but exhibit characteristics similar to one or more specific exemptions; and 3) provides allowances to specific development standards that are minor in nature, for a limited time in the area immediately surrounding and attached to approved structures and existing improvements and is not anticipated to have a significant effect on the environment. The ordinance additionally is categorically exempt from environmental review under the Class 3 exemptions for (1) construction and location of limited numbers of new, small facilities or structures and (2) installation of small new equipment and facilities in small structures (§15303, CEQA Guidelines.) SECTION 3. Action. Title 17 of the Municipal Code (Zoning Regulations) is hereby amended to support the Clean Energy Choice Program by providing temporary authority to the Community Development Director to grant incentives related to the standards set forth in various sections of Municipal Code Chapter 17.70 (Site Development and General Development Standards) as set forth in Exhibit A attached hereto. The Ordinance shall be effective for a limited term beginning September 1, 2020 and concluding December 31, 2022. Item 11 Packet Page 186 Ordinance No. ______ (2020 Series) Page 4 O _____ SECTION 4. A summary of this ordinance, together with the names of Council members voting for and against, shall be published at least five (5) days prior to its final passage, in The New Times, a newspaper published and circulated in this City. This ordinance shall go into effect at the expiration of thirty (30) days after its final passage. INTRODUCED on the ______ day of _________, 2020, AND FINALLY ADOPTED by the Council of the City of San Luis Obispo on the ______ day of ______, 2020, on the following roll call vote: AYES: NOES: ABSENT: ____________________________________ Mayor Heidi Harmon ATTEST: ____________________________________ Teresa Purrington City Clerk APPROVED AS TO FORM: _____________________________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on _____________________. ______________________________ Teresa Purrington City Clerk Item 11 Packet Page 187 Ordinance No. ______ (2020 Series) Page 5 O _____ EXHIBIT A CHAPTER 17.70 SITE DEVELOPMENT AND GENERAL DEVELOPMENT STANDARDS Add Section 17.70.095 – Incentives related to new all-electric buildings A. Purpose. The purpose of these regulations is to support the City’s Clean Energy Choice program by providing temporary incentives in the application of site development standards, for the provision of all-electric buildings. B. Application. This Section shall apply to new all-electric buildings. C. Standards. Site Development Standards included in this Chapter 17.70 for Accessory Structures; Edge conditions; FAR; Fences, Walls and Hedges; Height Measurement and Exceptions, Hillside Development Standards; Lot Coverage; Mixed Use Development and Setbacks, may be exceeded to the minimum extent deemed necessary to allow for equipment installations or similar improvements to accommodate all-electric buildings. D. The Director may grant incentives to site development standards of this Chapter that are minor in nature without application for Director Action when all of the following circumstances apply: 1. The request directly relates to construction of an all-electric building and may include, but is not limited to, issues such as the installation of mechanical equipment; 2. The request provides the minor flexibility needed to design a project with all- electric buildings and results in better implementation of other Zoning Regulations or General Plan policies while allowing reasonable use of sites; 3. The request is minor in nature and does not have the potential to cause a significant effect on the environment; and 4. The Findings in Section 17.108.040 are met. E. Term. The provisions in this section shall apply to building permits with an application date after September 1, 2020 and prior to December 31, 2022. Amend Section 17.158.006 - A by adding the following: “ALL-ELECTRIC BUILDING” is a building that has no natural gas plumbing installed within the building and that uses electricity as the source of energy for all space heating, water heating, cooking appliances, and clothes drying appliances. An All-Electric Building may be plumbed for the use of natural gas as fuel for appliances in a commercial kitchen. Item 11 Packet Page 188 Page A-1 THIS DOCUMENT, ATTACHMENT A, PROVIDES THE SEPTEMBER 3, 2019 COUNCIL AGENDA REPORT IN ITS ENTIRETY. THE FULL PUBLIC RECORD OF THE ITEM IS AVAILABLE HERE. REPORT-IN-BRIEF In September of 2018 and February of 2019, Council directed staff to develop a proposal to avoid generating new greenhouse gas emissions as the result of energy use in new buildings. Due to rapid improvements in electric appliances, a better understanding of how natural gas contributes to the climate crises, changes to the California Energy Code, and the City obtaining its electricity supply from carbon neutral resources via Monterey Bay Community Power , staff is seeking to formalize Council direction through a resolution establishing a Clean Energy Choice Policy. This report further identifies programs to implement the proposed Council policy. The staff recommendations to achieve Council direction include three components, collectively referred to as the Clean Energy Choice Program: 1) A Resolution establishing a “Clean Energy Choice” policy that new buildings should be all- electric and that energy use in new buildings should not cause net additional greenhouse gas emissions (Attachment A). 2) A “Reach Code” ordinance establishing local amendments to the California Energy Code requiring solar panels on new nonresidential buildings, requiring new buildings with natural gas to be built to a substantially higher performance standard, and requiring new residential buildings with natural gas to include “retrofit ready” requirements (Attachment B). Item 11 Packet Page 189 Attachment A September 3, 2019 Council Agenda Report 3) An ordinance establishing a “Carbon Offset” requirement wherein new buildings with natural gas would be required to offset the proposed natural gas use by directly retrofitting existing buildings, or in-lieu of that, by paying a fee to support a retrofit program implemented by a City partner, such as Community Action Partnership of San Luis Obispo’s Energy Services Program (Attachment C). Using the 2019 Statewide Cost Effectiveness Studies completed by the California Statewide Codes and Standards Program, which was vetted through a public process including PG&E and SoCal Gas, the City of San Luis Obispo must find that the proposed building code amendments related to building energy performance are cost effective and use less energy than the standard State Code and the CEC must agree with the City’s analysis before the Reach Code can go into effect. The cost effectiveness studies are provided as Attachment G (low-rise residential) and Attachment H (nonresidential, high-rise residential, and hotels). In addition to the Reach Code, the Clean Energy Choice Program includes a carbon offset requirement that would apply to all new buildings that choose to use natural gas and requires that the new fossil fuel use is offset either by retrofitting an older building or by paying an in-lieu fee. The carbon offset requirement is the mechanism that allows the City to offer choice to property owners, while also not increasing greenhouse gas emissions from natural gas used to power new buildings. The offset requirement would apply to residential and nonresidential construction that is subject to the California Energy Code, but would exempt additions, alterations, certain uses including natural gas used for cooking appliances in commercial kitchens, attached accessory dwelling units, essential services for public health and safety, and residential subdivisions in process of permitting or constructing initial public improvements (for any phase of a final map recorded prior to January 1, 2020), unless compliance is required by an existing Development Agreement. Staff has worked with Economics and Planning Systems (EPS) on a study (Attachment E) to confirm the cost basis for the in-lieu fee. To determine the in-lieu fee, EPS uses Energy Savings Assistance (ESA) program data for natural gas energy efficiency programs administered by SoCal Gas. Overall, the Clean Energy Choice Program is an incremental approach to avoid the generation of new greenhouse gas emissions as the result of new development. At build-out of the City’s General Plan (2035), the Clean Energy Choice Program would be expected to avoid 7,800 Metric Tons of CO2 equivalence (MTCO2e) per year. For scale, this would prevent community emissions from natural gas from growing by approximately 15 percent and total community emissions by approximately 2 percent relative to 2016 levels. The annual amount of avoided emissions would be equivalent to taking 1,600 passenger vehicles off the road or planting nearly 130,000 trees to sequester carbon.1 The Clean Energy Choice Program was developed with input from local developers, electricians, architects, builders, designers, technical consultants, the California Energy Commission, peer 1 Equivalencies are provided by the Environmental Protection Agency at: https://www.epa.gov/energy/greenhouse- gas-equivalencies-calculator Item 11 Packet Page 190 Attachment A September 3, 2019 Council Agenda Report cities, utility partners, and community members. Should Council move forward with staff’s recommendation, the second reading of the Ordinances would occur on September 17, 2019. An implementation plan, to include appropriate in-lieu fee amounts for various building types, administrative guidelines for the program, and incentives is planned to return to the City Council for review and approval on November 5, 2019. The program in its entirety would go into effect on January 1, 2020, concurrent with the rest of the 2019 California Building Code. DISCUSSION Background Due to decades of rapidly increasing global greenhouse ga s (GHG) emissions and insufficient climate action at all levels of government, atmospheric GHG concentrations have reached a level that guarantees substantial and unavoidable impacts for the foreseeable future. California’s recent historic wildfires, droughts, floods, and mudslides are representative of the “new normal” with respect to extreme weather conditions. These impacts threaten to make all the substantial challenges currently faced by the city (e.g., the housing crisis, homelessness, affordability, sustainable water supply) critical, challenging, and expensive. Depending on global emissions rates over the next 30 years, global temperatures could exceed a 1.5° Celsius increase over pre-industrial levels, which would result in catastrophic impacts. In order to limit global warming to 1.5° Celsius, annual global emissions need to decrease 45 percent by 2030, and be “net zero” by 2050.2 San Luis Obispo residents and businesses routinely rank climate change as an important issue.3 In 2019, thousands of people in San Luis Obispo contributed to the City’s budget process that resulted in City Council adopting Climate Action as a Major City Goal for the second straight budget cycle. The Climate Action Major City Goal Work Program seeks to actively create economic opportunity and ensure the community remains a dynamic, high quality place to live and work, while protecting and stewarding the natural environment within and surrounding the City. The Work Program provides tasks to vet and establish the 2035 carbon neutrality target and to continue implementation work that establishes the foundations for a low carbon future with a focus on civility, sustainability, diversity and inclusivity, regionalism and partnership, and resiliency. In addition to the reach code and carbon offset program presented in this Council Agenda Report (Climate Action Major City Goal Task 14), some of the other key components of the Major City 2 Intergovernmental Panel on Climate Change. 2019. “Special Report: Global Warming of 1.5° C https://www.ipcc.ch/sr15/ 3 For example, in 2018, a statistically significant survey conducted by the SLO Chamber of Commerce found that 82 percent of registered voters identified climate change as an important issue: https://slochamber.org/were-not-as- divided-as-it-seems-survey-shows/. San Luis Obispo residents rank climate change as an important issue for the City to address and the City Council has responded by making Climate Action a Major City Goal. Item 11 Packet Page 191 Attachment A September 3, 2019 Council Agenda Report Goal work program include:4 • Monterey Bay Community Power Board Participation and Program Launch • 2019 Climate Action Plan • Transportation Electrification Strategic Plan • Municipal Operations projects including electric vehicle charges, lighting retrofits, onsite solar photovoltaic systems, and energy efficiency and generation projects at the Water Treatment Plant, and waste reduction efforts. • Building Electrification Program Development • Comprehensive Community Climate Vulnerability Assessment and Safety Element of the General Plan Update Policy Approach – Clean Energy Choice Program The proposed policy approach is to allow all-electric buildings to comply with minimum state law standards while requiring buildings that use natural gas (defined as “Mixed-Fuel Buildings) to offset their natural gas use and be substantially more efficient than the 2019 baseline code currently requires.5,6 Residential development would be required to include “electric ready” measures to facilitate fuel switching through a future retrofit project. In addition, nonresidential buildings would be required to include solar panels for onsite energy generation. Figures 1 and 2 illustrate the proposed pathways for obtaining a City building permit through compliance with the adopted components of the Clean Energy Choice Program. The components of the Clean Energy Choice Program include 1) nonresidential solar requirement, 2) additional building performance standards for mixed-fuel buildings, 3) pre- wiring “retrofit ready” requirements for residential buildings, and 4) the carbon offset requirements. Two key definitions of terms used throughout this report and in the attached resolution and ordinances, follow. 4 The Climate Action Major City Goal Workplan appears in its entirety in the 2019-21 Financial Plan: https://www.slocity.org/Home/ShowDocument?id=23630 5 As identified in Attachment B, an “All-Electric Building” is defined as a building that has no natural gas plumbing installed within the building and that use s electricity as the source of energy for all space heating, water heating, cooking appliances, and clothes drying appliances. An All -Electric Building may be plumbed for the use of natural gas as fuel for cooking appliances in a commercial kitchen. A “Mixed-Fuel Building” is a building that is plumbed for the use of natural gas as fuel for space heating, water heating, cooking or clothes drying appliances. 6 The 2019 California Energy Code is substantially different the its 2016 predecessor for several reasons including the inclusion of 1) an all-electric compliance pathway for single family residential and multi -family residential buildings shorter than four stories (collectively referred to as “low-rise residential); 2) a new metric for evaluating low-rise residential building performance called the “Energy Design Rating” (described in detail in footnotes 9 and 10); 3) requirements to include solar panels on all low-rise residential buildings, and 4) “electric ready” requirements for future electric water heaters. The “Clean Energy Choice Program” would allow the City to support housing growth and offer energy choice to its residents and businesses while aggressively lowering greenhouse gas emissions attributable to new buildings in the City. Item 11 Packet Page 192 Attachment A September 3, 2019 Council Agenda Report 1. “ALL-ELECTRIC BUILDING” is a building that has no natural gas plumbing installed within the building and that uses electricity as the source of energy for all space heating, water heating, cooking appliances, and clothes drying appliances. An All-Electric Building may be plumbed for the use of natural gas as fuel for cooking appliances in a commercial kitchen. 2. “MIXED-FUEL BUILDING” is a building that is plumbed for the use of natural gas as fuel for space heating, water heating, cooking or clothes drying appliances. Figure 1 – Low-Rise Residential and Single-Family Residential Policy Approach Item 11 Packet Page 193 Attachment A September 3, 2019 Council Agenda Report Figure 2 – Nonresidential Policy Approach 1. Building Code – Energy Requirements Residential and commercial development in California is regulated under the California Building Standards Code, Title 24, California Code of Regulations. It is made up of thirteen parts, which exist as a guide for local municipalities to update building codes. Energy use and conservation is addressed in Part 6 (California Energy Code), and additional green building measures, including measures designed to reduce greenhouse gas emissions, are covered in Part 11 (California Green Building Standards Code, also known as CalGreen). The California Energy Code contains energy efficiency standards for residential and nonresidential buildings, new construction, remodels and additions. The simplest way to comply with the City’s “Clean Energy Choice Policy” would be to build all electric and benefit from the City’s membership in Monterey Bay Community Power, which began delivering carbon free energy to the City on January 1, 2020. Item 11 Packet Page 194 Attachment A September 3, 2019 Council Agenda Report Public Resources Code Section 25402.1(h)(2) and Section 10-106 of the Building Energy Efficiency Standards establish a process that allows local adoption of energy standards that are more stringent than the statewide standards.7,8 Under this process, the CEC requires any local amendments to the California Energy Code that affect energy use in regulated buildings to be cost effective and use less energy than the standard requirements. In the proposed Clean Energy Choice Program, the City finds that all proposed amendments (increasing building performance requirements for mixed-fuel buildings and requiring solar on nonresidential, high rise hotel, and residential buildings) are “cost effective” and use less energy than the standard state requirements. Cost effectiveness and energy use considerations and findings are provided later in this report and in the Reach Code Ordinance (Attachment B). Under the Reach Code, new buildings with natural gas (e.g. mixed-fuel building) would be required to have substantially enhanced building performance. As noted in Table 1, single- family and low-rise multifamily residential buildings would be required to exceed the standard design Total Energy Design Rating (EDR)9 score by at least 9.5 and 9 points, respectively. Table 1 also identifies performance requirement for non-residential buildings (15% better than code for office/retail, 9% better for hotel/motel, and 5% better for other nonresidential uses). The enhanced EDR requirements and nonresidential compliance margins reflect the maximum cost-effective compliance margins as reported in the statewide cost effectiveness studies.10,11 Attachment D includes a legislative draft version of the proposed local amendments for reference. 7 Public Resources Code Section 25402.1: http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PRC&sectionNum=25402.1. 8 Building Energy Efficiency Standards: https://ww2.energy.ca.gov/2018publications/CEC-400-2018-020/CEC-400- 2018-020-CMF.pdf 9 Total Energy Design Rating (EDR): The 2019 Energy Code includes EDR as a new metric for measuring the relative efficiency of a building. 10 In the 2019 California Energy Code, low-rise residential buildings (single family housing units and multi-family buildings under three stories), solar use and battery storage receive credit towards compliance with energy use standards. To include these credits, the CEC developed a new metric for residential energy performance called the Energy Design Rating. As described in the 2019 Statewide Cost Effectiveness Study, the EDR score is on a scale or 0 to 100, with a 2006 International Energy Conservation Code (IECC) compliant building having a score of 100 and a zero-net energy (ZNE) home having an EDR score of zero. The EDR score is calculated by summing the efficiency score of a building with the generation/storage score of the building. In Climate Zone 5 (San Luis Obispo’s Climate Zone), the Total EDR for mixed-fuel single family residential buildings is 22.2, for mixed-fuel low-rise residential buildings it is 24.2. To reduce the scores by 9 and 9.5 respectively, additional efficiency, solar, and storage measures would be added to the building design. Nonresidential, high rise residential, and hotel buildings do not receive performance credit for solar or storage. The method for establishing additional standards in these buildings, is much more straightforward and is a simple percent reduction in building energy use using the CEC’s Time Dependent Valuation Assessment (TDV) metric. The perc ent reduction is referred to as a “compliance margin” 11 Staff originally proposed higher compliance margins for residential and nonresidential buildings to comply with CalGreen standards. The proposal in this Council Agenda Report have been reduced to the maximum cost-effective EDR and compliance margins for Climate Zone 5, as identified in the 2019 Cost Effectiveness Studies to avoid issues related to potential violation of federal appliance efficiency regulations. Item 11 Packet Page 195 Attachment A September 3, 2019 Council Agenda Report Table 1. Proposed Improved Energy Performance Standards Building Type Performance Requirement Requirement Justification Single-family Exceed the standard Energy Design Rating by at least 9.5 points Maximum cost-effective Total Energy Design Rating Low-rise multifamily Exceed the standard Energy Design Rating by at least 9 points Maximum cost-effective Total Energy Design Rating Office/retail 15% compliance margin Maximum cost-effective compliance margin Hotel/motel and high-rise residential 9% compliance margin Maximum cost-effective compliance margin Other nonresidential with indoor lighting & mechanical 5% compliance margin Maximum cost-effective compliance margin Other nonresidential with indoor lighting or mechanical, but not both 5% compliance margin Maximum cost-effective compliance margin It should be noted that the definition of an all-electric building includes an allowance for a natural gas line to be installed to serve a commercial kitchen. In other words, a commerc ial kitchen that is plumbed for natural gas cooking appliances does not trigger the Reach Code or Carbon Offset requirements. This provision is provided based on public feedback, the relatively small number of new commercial kitchens that would otherwise be subject to the Clean Energy Choice Policy, and input from restauranteurs that commercial scale appliances for some cooking techniques in San Luis Obispo require natural gas. In addition, while residential buildings can use free-standing outdoor grills, this is not an option for most new restaurants. 2. Nonresidential, High-Rise Residential, and Hotel Solar Requirements The 2019 California Energy Code requires all new low-rise residential buildings to include solar photovoltaic panels and requires non-residential, high-rise residential, and hotel buildings to be “solar ready”.12 Given that the design and supporting components will already be completed as a requirement of State Law, the proposed amendment to the Energy Code would require the additional step of installing solar panels on the entire solar zone of a nonresidential, high-rise residential, or hotel building.13 12 Section 110.10 of the California Energy Code provides standards for single family, low-rise residential, high-rise residential, hotels, and nonresidential buildings to be ready to easily incorporate solar, including requirements for minimum solar zones (area for installed or future solar panels), interconnection pathways, and electrical service panels : https://ww2.energy.ca.gov/2018publications/CEC-400-2018-020/CEC-400-2018-020-CMF.pdf 13 Section 110.10(b) of the California Energy Code describes the solar zone as follow: The solar zone shall be located on the roof or overhang of the building or on the roof or overhang of another structure located within 250 feet of the building or on covered parking installed with the building project, and shall have a total area no less than 15 percent of the total roof area of the building excluding any skylight area. The solar zone requirement is applicable to the entire building, including mixed occupancy. Item 11 Packet Page 196 Attachment A September 3, 2019 Council Agenda Report 3. Building Code – “Electric Ready” Requirements To minimize future retrofit or energy transition costs, residential buildings that choose to include natural gas will be required to pre-wire to be “retrofit ready.” Proposed requirements for each natural gas or plumbed propane appliance include: 14 1. Minimum space requirements for a future electric requirement 2. A dedicated electrical circuit that is able to be connected to the electrical panel 3. A double pole breaker in the electrical panel labeled with the name of the appliance Based on analysis provided by the City’s consultant (TRC Companies, Inc.), using RSMeans data from 2018 (a standard construction cost database), the pre-wiring costs (in 2018 dollars) for all appliances (not including those already required by the 2019 California Building Code) is approximately $740 for single family units, and $435 for multi-family units. An occupant wishing to retrofit at a later date would require additional estimated construction costs of $960 for single family units and $560 for multi-family units. According to this analysis, it is expected to cost approximately $740 to pre-wire a single- family home; it would cost approximately $1,700 to retrofit that same home at a future date. 4. Carbon Offset Requirement The carbon offset requirement is the policy mechanism that for a property owner to choose their preference for energy, while also not increasing greenhouse gas emissions from natural gas used to power new buildings. When a property owner or developer decides to introduce natural gas during construction of a new building and follows the mixed-fuel pathway for code compliance, they would be required to offset the carbon introduced into the environment. The offset may be accomplished through a project to retrofit an existing building, or payment of an in-lieu fee. This program is intended to further the City’s intent to be carbon neutral by 2035. Fees collected through the program would be used to help fund retrofits of existing buildings within the City. Establishing the In-Lieu Fee and Administrative Guidelines Staff has worked with Economics and Planning Systems (EPS) on a study (Attachment E) to confirm the cost basis for the in-lieu fee. The study describes the relationship between the baseline reach-code requirements, how the fee revenue could be used to mitigate the 14 Staff originally considered including retrofit ready requirements for nonresidential buildings, but due to project variability and the high potential for inacc urately system sizing, they have been removed. Staff recommends that these additional considerations are reconsidered as part of the 2022 California Building Code update. When a property owner or developer decides to introduce natural gas into a new building, they would be required to offset this use by retrofitting older buildings or paying an in- lieu fee to support energy efficiency programs that will help make housing more affordable in the City by reducing energy costs. Item 11 Packet Page 197 Attachment A September 3, 2019 Council Agenda Report greenhouse gas emissions that occur in instances where the applicant does not pursue full electrification and calculates the amount of the in-lieu fee. As described in the EPS report, the in-lieu fee is calculated to be $27.33 per therm generated.15 The therms generated will vary by application, depending on the type and size of the development. To determine the in-lieu fee, the City worked with EPS to identify average retrofit costs using Energy Savings Assistance (ESA) program data for natural gas energy efficiency programs administered by SoCal Gas. The Energy Savings Assistance (ESA) program is an efficiency program administered by all of California’s Investor Owned Utilities under the auspices of the California Public Utilities Commission (CPUC). Like other CPUC programs, ESA is funded through a small surcharge placed on ever y ratepayer’s energy bill. As a steward of ratepayer dollars, participating program administrators must closely track the labor and materials costs and energy savings from each measure in the program. Because extensive data is available from ESA on retrofit measures, the cost of those retrofits, and the number of therms reduced or eliminated, the data source provides a strong metric for estimating the average investment per therm.16,17 The calculated fee has also been tested for feasibility using the same analysis applied by EPS to the City’s AB 1600, Mitigation Fee Act program for transportation, water and wastewater, parks and recreation, and public safety impact fees. If the City Council moves forward with the offset requirement as recommended, staff will return on November 5, 2019, with a resolution to establish the fee, administrative guidelines, and a package of incentives to further encourage development of all electric buildings. Some examples of the associated in - lieu fee are highlighted in the table below. Building Type Average Therm Usage Calculated In-Lieu Fee Single Family Residential 220 therms per year $6,013 Multifamily Residential 120 therms per year $3,280 Medium Retail (25,000 s.f.) 1,746 therms per year $47,718 Large Office (54,000 s.f.) 3,240 therms per year $88,549 Similar to the City’s development impact fee pr ogram, if the Council would like to levy a lesser fee for certain priority building types (e.g. multi -family units under 600 square feet in size), then they have the authority to do so and a variety of options will be considered prior to returning to the City Council on November 5th with a recommendation. 15 A therm is a unit of heat energy equal to 100,000 British thermal units (Btu). It is approximately the energy equivalent of burning 100 cubic feet (2.83 cubic meters) – often referred to as 1 CCF – of natural gas. 16 California Public Utilities Commission. (2019). Income Qualified Assistance Program. State of California. Retrieved from: https://www.cpuc.ca.gov/iqap/ 17 The ESA dataset includes expenditures for furnace repair, outreach and assessment, and in -home education. These measures reflect substantial expenditures but do not have therms savings associated with them. To be conservative, these measures were not included in the per therm cost calculation. If they had been included, the cost would increase to $39.23 per therm. Item 11 Packet Page 198 Attachment A September 3, 2019 Council Agenda Report 5. Applicability and Exemptions The components of the Clean Energy Choice Program, including the local amendments to the California Energy Code and the offset requirement, would apply to all new residential and nonresidential construction that is subject to the State Energy Code. The use of natural gas for certain industrial and medical uses are not governed by the Energy Code for buildings and would not be subject to the Reach Code or carbon offset requirement. There are also specific exemptions to the program requirements. For example, the definition of an all-electric building includes an allowance for the use of natural gas in a commercial kitchen. All-Electric Building. A building that has no natural gas plumbing installed within the building and that uses electricity as the source of energy for all space heating, water heating, cooking appliances, and clothes drying appliances. An All-Electric Building may be plumbed for the use of natural gas as fuel for cooking appliances in a commercial kitchen. In addition, the following building project types are specifically exempted: 1. The extension of natural gas infrastructure into an industrial building for the purpose of supporting manufacturing processes (i.e. not including space conditioning). 2. Accessory Dwelling Units that are attached to an existing single-family home. 3. Essential Service Buildings including, but not limited to, public facilities, hospitals, medical centers and emergency operations centers). 4. Temporary buildings. 5. Gas line connections used exclusively for emergency generators. 6. Any buildings or building components exempt from the California Energy Code. 7. Residential subdivisions in process of permitting or constructing initial public improvements for any phase of a final map recorded prior to January 1, 2020, unless compliance is required by an existing Development Agreement. This list of exemptions was developed based on feedback from members of the public and through consideration of other City goals and objectives. In addition to these exemptions, the proposed offset program Ordinance includes a Public Interest Exemption that is intended to allow for exemptions in relation to unforeseen circumstances where the extension of natural gas infrastructure would benefit the public interest and serve orderly development. The exemption includes specific examples of circumstances where the cost to deliver suffici ent electric power to the project would be prohibitive due to major infrastructure limitations, or where a project on its own would use a de minimis amount of natural gas that could be offset in other ways, such as through a sequestration project. In these cases, the entity that is approving the entitlement for the project can approve such an exception. Cost Effectiveness In the context of the Clean Energy Choice Program, “cost effectiveness” has a technical Item 11 Packet Page 199 Attachment A September 3, 2019 Council Agenda Report definition per the California Energy Commission, and a more common use definition. 1. Cost Effectiveness for California Energy Commission Review As described above, Section 10-106 of the Building Energy Efficiency Standards establishes a process that allows local adoption of energy standards that are more stringent than the statewide standards. Under this process, the CEC requires any local amendments to the California Energy Code that affect energy use in regulated buildings to be cost effective and use less energy than the standard requirements. The cost effectiveness test can be passed in two ways: 1) the “On-Bill Customer Lifecycle Cost” metric and 2) the “Time Dependent Valuation” or “TDV” method. The on-bill metric evaluates the total first costs, replacement costs, estimated site energy usage and customer on-bill costs using electricity and natural gas utility rate schedules over a 30-year duration accounting for discount rate and energy cost inflation. The TDV method captures the “societal value or cost” of energy use including long-term projected costs such as the cost of providing energy during peak periods of demand and other societal costs such as projected costs for carbon emissions and grid transmission and distribution impacts. The CEC requires that cost effectiveness be proven to the satisfaction of the local adopting government through the adoption of the determination that the standards are cost effective by the local agency at a public meeting. The determination must subsequently be filed with the Energy Commission. In support of code development, the California Statewide Codes & Standards Program, which includes the State’s Investor Owned Utilities (PG&E, SoCal Gas, SDG&E, and SCE, under the auspices of the California Public Utilities Commission) developed the 2019 Statewide Cost Effectiveness Study for Nonresidential Development (including nonresidential, high-rise residential, and hotel buildings) and the 2019 Statewide Cost Effectiveness Study for Low-Rise Residential New Construction (including single family homes and multi-family buildings under four stories), which are provided as Attachments G and H. Both of these attachments are highly detailed and are included in the record to support the Council’s findings and policy decisions. Attachments G and H document cost-effective combinations of measures that exceed the minimum state requirements. The analysis includes evaluation of both mixed fuel and all- electric buildings, documenting that the performance requirements can be met by either type of building design. The studies provide a cost-effectiveness analysis in all sixteen California climate zones and for each Investor owned Utility. These studies are the basis for the City’s cost effectiveness findings; the City finds the studies sufficient to illustrate compliance with the requirements set forth under California Administrative Code Chapter 10-106. Based on these studies, the City finds the proposed local amendments to the 2019 California Energy Code that affect building energy use to be cost-effective and consume less energy than permitted by Title 24, Part 6. SoCal Gas has provided additional information about offsite infrastructure costs, which does not affect the City’s cost effectiveness findings related to the proposed local amendments to the California Energy Code as described below. Item 11 Packet Page 200 Attachment A September 3, 2019 Council Agenda Report It is important to note that the 2019 California Energy Code includes an all-electric compliance pathway for low-rise residential buildings, meaning that the compliance option exists via the California Energy Commission rule making process. Additionally, all-electric, non-residential buildings are attainable using the standard building energy baseline. The Clean Energy Choice Program has multiple implementing actions, including the code amendments as provided in Attachment B. The actions presented in staff’s recommendation and in Attachment B that are required to pass the cost effectiveness and energy reduction tests are limited to the following:18: 1. Per Figures 17, 24, and 31 of the 2019 Nonresidential New Construction Reach Code Cost Effectiveness Study (Attachment H), the City’s amendments to require additional efficiency compliance margins for energy performance in nonresidential (nonresidential, high-rise residential, and hotels) mixed-fuel buildings reduce energy and are cost effective. 2. Per Figures 38, 39, and 40 of the 2019 Nonresidential New Construction Reach Code Cost Effectiveness Study (Attachment H), the City’s amendments to require solar on nonresidential (nonresidential, high rise residential, and hotels) buildings reduce energy and are cost effective. 3. Per Table 57 and Table 58 of the 2019 Cost-effectiveness Study: Low-Rise Residential New Construction (Attachment G), the City’s amendments to require a lower Energy Design Rating score in low-rise residential mixed-fuel buildings (single family residential and multifamily buildings three stories and shorter) reduce energy and are cost effective. 2. Common Usage of Cost Effectiveness The more common understanding of cost effectiveness is how builders and building occupants will face lower or higher costs as the result of the proposed requirements. First costs, financing, replacement costs, and utility costs all affect housing affordability and cost of living. Building costs are highly variable dependent on-site conditions, selected materials, building design, and appliance selection. On-Site First Costs The 2019 Cost-effectiveness Study: Low-Rise Residential New Construction (Attachment G) statewide cost effectiveness study provides high, low, and typical costs to build all-electric and mixed-fuel residential units. According to the study, onsite construction costs including increased rough electrical work, avoidance of costs associated with natural gas plumbing and venting, and comparable appliances, for a typical 2,400 square foot single-family home would be $421 cheaper to build than a standard natural gas building and a 780 square foot multi-family unit would be approximately $221 cheaper to build. When using comparable appliance comparisons, the range of costs included in the statewide study are consistent with anecdotal evidence from local builders. 1818 Based on discussion with CEC Energy Division staff, pre -wiring requirements do not affect the building’s energy use and therefore are not subject to the requirements of Section 10-106. Item 11 Packet Page 201 Attachment A September 3, 2019 Council Agenda Report Offsite Infrastructure Costs Offsite infrastructure, including extension of gas mains, lateral tie-ins, and new meter costs are also highly variable. The 2019 Cost-effectiveness Study: Low-Rise Residential New Construction (Attachment G) statewide cost effectiveness study provides high, low, and typical offsite costs associated with new construction including the costs experienced by developers and costs experienced by developers and the ratepayers more broadly. According to the statewide cost effectiveness study, California natural gas utilities provide allowances to developers to cover part of their infrastructure costs. The allowances are then paid for by rate payers over time. For single family units, the study provides a typical cost of estimate of $5,750 direct cost to the developer and $11,836 in total costs to the developer and the rate payers. On August 9, 2019, SoCal Gas provided a letter contesting this amount, noting they expected an average of $4,400 average per “Work Order”. City staff has requested additional information from SoCal Gas. A response was received late in the day on August 26, 2019, and additional analysis based on this cost information will be provided to the City Council via memo. Although this is an important point to resolve, and it would be beneficial to understand how much more savings occur as the result of all-electric buildings, it is not relevant for CEC review (as mentioned above) and it does not substantively change the findings in this report. Operational Costs Operational costs are also highly variable based on building design, appliance selection, and occupant behavior. Projected utility costs are highly uncertain and in addition to the variables described above, also depend on predictions of 30 years of utility rate escalation for electricity and natural gas utilities, as well as economy-wide inflation rates. The 2019 Cost- effectiveness Study: Low-Rise Residential New Construction (Attachment G) estimates a net lifetime (30 year) utility cost increase from a mixed-fuel standard construction building to an all-electric standard construction building to be $11,034 for a 2,400 square foot single family home and $3,573 for a 870 square foot multi-family home. Based on this analysis, and assuming the same escalation rates used in the statewide cost effectiveness study, a 2,400 square foot single family home could experience a first year monthly incremental cost increase of $16.85 and an 870 square foot multi-family unit could experience a first year monthly incremental cost increase of $5.45 if no additional solar panels are installed. According to the 2019 Cost-effectiveness Study: Low-Rise Residential New Construction, modest additions of solar in the 1 to 2 kW range could turn lifetime utility costs into lifetime utility savings, even when including the upfront costs of the additional panels. It is important to note that the above mentioned utility cost assessment s are conservative in that they do not factor in lower generation rates provided by Monterey Bay Community Power, potential bill savings that could be experienced through future time of use rates and using heat pump appliances in off-peak periods, nor the value of solar panels in insulating households from potential future rapid grid energy (natural gas and electricity) cost escalations. Item 11 Packet Page 202 Attachment A September 3, 2019 Council Agenda Report Natural Gas Prohibition Due to complicated federal law and local regulatory considerations, the City may not simply require that all buildings be electric through the building code without also providing a separate pathway for mixed fuel development (i.e., electricity and natural gas). In June of 2019, the City of Berkeley adopted an ordinance restricting natural gas infrastructure in buildings throug h the entitlement process. Staff has not conducted an assessment on the appropriateness or feasibility of a similar approach for San Luis Obispo. What Other Jurisdictions Are Doing The City of San Luis Obispo is joined by over 50 California cities curren tly pursuing emissions reductions in new buildings concurrent with the 2019 California Building Code Update. In June of 2019, the City of Berkeley banned natural gas in new buildings. By October of 2019, it is expected that nine (9) other cities (San Mateo, San Francisco, Burlingame, Santa Monica, Portola Valley, San Jose, Mountain View, Los Altos, and Morgan Hill) will have completed first readings of Ordinances that encourage all electric buildings in a manner similar to the Staff recommended proposal contained in this report. Tools for Existing Buildings The City has a wide variety of policy and program options for addressing greenhouse gas emissions from energy use in existing buildings. During the public outreach and engagement process, staff heard from many community members and organizations that incentives were key to help people transition to building electrification. The following is a short list of options that staff is asking the City Council to direct staff to further evaluate. 1. Free or discounted retrofit work generated by the offset program: If a developer wants to build a new building with natural gas they will first have to offset the proposed fossil fuel use. This will mean that there could be a “market” in town for retrofit projects created by developers that are looking for offsets. 2. City retrofit program participation: Funds collected by the City in-lieu of direct offsets will be used to support retrofit projects within the City. The City will work with other agencies in this arena, such as the Community Action Partnership of San Luis Obispo and the Tri-County Regional Energy Network to fund this work with a focus on making housing more affordable for eligible households. 3. Education and Outreach: City staff will pursue a program of education and outreach to help property owners in the City understand both the cost-savings potential and environmental benefits of building electrification. The Clean Energy Choice Policy does not apply to existing buildings. For property owners that want to make the switch, incentives and other resources will be available. Item 11 Packet Page 203 Attachment A September 3, 2019 Council Agenda Report 4. Professional Consulting and Design Services: For smaller projects, energy code compliance can be a daunting and expensive task. The City could support this effort by making professional consulting and design services available to assist property owners with their projects. This service could also be supported by a guidebook created by the City in close partnership with local builders and building industry professionals that would assist with the identification of, design for, and installation of heat pumps for water heaters and space conditioning. 5. Incentives: Staff is recommending that the City Council provide direction to develop an incentive program to assist property owners in the City that want to electrify their buildings. This could mean a small height increase, a density bonus, a parking reduction, or a variety of other concessions that might make the difference between a fuel-switching project being a boom versus a burden. As part of this recommendation, staff is asking the City Council for direction to develop a specific package of proposals with implementation guidelines for adoption along with the in-lieu fee on November 5, 2019. Previous Council Action and Policy Context On October 3, 2017, the City Council adopted Ordinance 1639 approving a Development Agreement for the Avila Ranch project. On August 21, 2018, the City Council adopted Ordinance 1649 approving a Development Agreement for San Luis Ranch. Because the City Council was already contemplating aggressive climate action strategies, both of these Development Agreements include prospective requirements to ensure compliance with any city-wide policy adopted for the purpose of reducing greenhouse gas emissions. On September 18, 2018, City Council unanimously gave staff direction to update the City’s climate action plan and pursue a greenhouse gas emissions reduction target of carbon neutrality by 2035. The City is currently assessing specific strategies on how best to achieve this goal, but it is generally understood that this will require virtually zeroing out existing emissions sources such as gas emissions generated from the consumption of energy (e.g., electricity from carbon-based sources and natural gas). At the same meeting, City Council provided unanimous direction to research the possibility of requiring carbon neutral buildings as part of the City’s building codes. This direction ensures that carbon neutral development can be accomplished in the Avila Ranch and San Luis Ranch subdivisions (1,300 homes total), which are required by the Development Agreements for each of those projects only if a City-wide program is adopted first. In a Study Session on February 19, 2019, Council unanimously reaffirmed the direction to develop an approach to carbon neutral development. On September 18, 2018, City Council unanimously gave staff direction to update the City’s climate action plan and pursue a greenhouse gas emissions reduction target of carbon neutrality by 2035. Joining Monterey Bay Community Power was a recent step. The next step is to ensure that greenhouse gas emissions do not increase from energy use in new development. Item 11 Packet Page 204 Attachment A September 3, 2019 Council Agenda Report On November 13, 2018, Council unanimously approved a resolution requesting membership in Monterey Bay Community Power (MBCP). On December 5, 2018, MBCP approved the membership request and will begin procuring more affordable and carbon neutral electricity for all electric accounts in the City of San Luis Obispo starting January 2020. On June of 4, 2019, Council unanimously adopted the 2019-21 Financial Plan. The adoption of the Financial Plan was the culmination of over six months of public outreach. As an outcome of that outreach, Climate Action was included in the Financial Plan as a Major City Goal and developing local amendments to the 2019 California Energy Code was identified in the Major City Goal Work Program as a task to be completed by Fall of 2019. Greenhouse Gas Emissions and the Built Environment 1. Methane and Greenhouse Gas Emissions Natural gas is between 92 and 98 percent methane. It is commonly known that combusting natural gas causes methane to yield carbon dioxide, a greenhouse gas, and water (the greenhouse gas emissions inventory above presents this basic accounting). New scientific studies suggest that in addition to combustion, there are significant additional greenhouse gas emissions occurring as the result of the direct leakage of methane into the atmosphere along the natural gas drilling, transmission, and distribution system. In the atmosphere, methane is one of the most potent greenhouse gases despite its short lifespan. According to the EPA, “[p]ound for pound, the comparative impact of CH4 [methane] is more than 25 times greater than CO2 [carbon dioxide] over a 100-year period.” Methane is even more potent in the first two decades of its lifespan—20 years after it is release, methane has a global warming potential of 84 times that of carbon dioxide. Methane’s enhanced potency, particularly in the short term, results in more immediat e warming and thus warrants greater urgency. The Environmental Defense Fund estimates that “[a]bout 25% of the manmade global warming we're experiencing is caused by methane emissions.” Substantial methane gas is released into the atmosphere through hydraulic fracking and other drilling methods. A 2018 Environmental Defense Fund study estimated that the equivalent of 2.3% of total annual domestic gas production leaks into the atmosphere each year from across the gas supply chain. This leakage rate does not include additional leaks at and behind the residential or commercial meter located on building premises. 2. Existing Emissions On September 18, 2018, staff presented the findings of the communitywide greenhouse gas emissions (GHG) inventory report update. The inventory, which is measured in metric tons of carbon dioxide equivalence (MTCO2e), includes emissions from transportation, energy used in buildings and for lighting for residential and nonresidential uses, methane from solid waste decomposing in Cold Canyon Landfill, direct emissions from certain wastewater processes, and off-road sources (e.g., lawn and garden and construction equipment). Since Item 11 Packet Page 205 Attachment A September 3, 2019 Council Agenda Report that presentation, staff has updated the inventory to reflect more accurate transportation modelling. As illustrated in Table 2, emissions overall decreased by approximately 9 percent, with large decreases in nonresidential and residential energy (-8 percent and -21 percent respectively). In 2016, energy use accounted for approximately 29 percent of all emissions in the City. As previously mentioned, to achieve carbon neutrality, the emissions from each sector in Table 2 will need to be as close to zero as possible, which means a combination of decreasing energy use and waste, as well as transferring all existing technologies (e.g., vehicles, home heating and cooling, water heating, etc.) to carbon free sources of energy. Table 2. Community Greenhouse Gas Emissions, 2005-2016 (MTCO2e) Sector 2005 2005 % of Total 2016 2016 % of Total % Change Transportation 234,660 63% 221,750 65% -6% Nonresidential Energy 57,800 15% 53,410 16% -8% Residential Energy 55,190 15% 43,580 13% -21% Solid Waste 15,540 4% 13,880 4% -11% Off-Road 10,810 3% 8,230 2% -24% TOTAL 374,000 340,850 -9% Table 3 provides additional detail of communitywide GHG emissions in 2016. Of energy related emissions, electricity accounted for approximately 47 percent of emissions; natural gas accounted for approximately 53 percent emissions. Table 3. 2016 Community Greenhous Gas Emissions, Energy Detail (MTCO2e) Sector Energy Type Emissions (MTCO2e) % of Total Residential Electricity 14,650 15% Natural Gas 28,930 30% Nonresidential Electricity 31,310 32% Natural Gas 22,100 23% Total 96,990 3. Future Emissions and Applicability to Current Development Agreements Table 2 and 3 report the emissions from the built environment as it existed in 2005 and 2016, respectively, and for 2016, includes approximately 21,155 units of housing and approximately 19,000,000 square feet of nonresidential space.19 The City’s Land Use Element of the General Plan anticipates a total of 4,607 additional units and a total of 5,170,000 square feet of additional nonresidential space by 2035.20 Although this development will be increasingly efficient due to regular improvements in California 19 Source: 2016 General Plan Annual Report 20 Source: Land Use and Circulation Element Environmental Impact Report Item 11 Packet Page 206 Attachment A September 3, 2019 Council Agenda Report Building Code, they still represent one of the most significant potential sources of GHG emissions growth in the community. Based on a recent conservative analysis, natural gas use in new buildings built in 2020 or later is expected to generate approximately 7,800 MTCO2e per year at build out. Of immediate interest, in 2017 and 2018, two major developments were approved by City Council: San Luis Ranch and Avila Ranch. Combined, the developments will add up to 1,300 new housing units and approximately 265,000 square feet of commercial and office space. This additional development represents approximately 28 percent of all available residential buildout and 6 percent of all available commercial buildout in accordance with existi ng Land Use and Circulation Elements of the General Plan. As part of both approvals, individual “Development Agreements” were negotiated to provide public benefit beyond what is required as part of the standard approval process. In both cases, the Development Agreements include specific provisions to be consistent with any net-zero carbon policies in place at time of building permit application (See Ordinance #1639 (2017) and Ordinance #1649 (2018)). Specifically, Section 7.07 of the Avila Ranch Development Agreements requires: (a) Avila Ranch shall provide for accelerated compliance with the City' s Energy Conservation Goals and its Climate Action Plan by implementing energy conservation measures significantly above City standards and norms by providing for solar PV energy generation for 100 percent of onsite electrical demand as described in Section 13 of the Design Framework of the Development Plan. The Project shall also include energy efficiency standards in excess of the current Building Code. (b) Developer shall provide sustainability features as described in Section 13 of the Design Framework of the Development Plan, including: (i) housing that meets the 2019 net zero building and energy codes or, if the 2019 building and energy codes are not yet adopted upon building permit application, the equivalent to the satisfaction of the Community Development Director, (ii) implementing any future city-wide policy regarding carbon emissions reduction, (iii) solar electric panels, (iv) integrated power outlets for electric vehicles and electric bicycles, (v) building design that maximizes grey water usage, and (vi) work -at-home options with high- speed internet connectivity. Section 7.06 of the San Luis Ranch Development Agreement requires: (a) Developer shall provide for accelerated compliance with the City’s Energy Conservation Goals and its Climate Action Plan by implementing energy conservation measures significantly above City standards and norms by providing for solar PV energy generation for 100 percent of onsite electrical demand at build-out. The Project shall also include San Luis Ranch and Avila Ranch have provisions in their Development Agreements that requires them to implement any future city-wide policy regarding carbon emissions reduction. As a result, the proposed Clean Energy Choice Policy will apply to over 1,400 homes to be constructed over the next 10 years in these new neighborhoods. Item 11 Packet Page 207 Attachment A September 3, 2019 Council Agenda Report energy efficiency standards in excess of the Building Code in effect in the City on the Vesting Date and implement the feasible strategies set forth in Section 5.4.2 of the SLR SP . (b) Developer shall provide sustainability features including: (i) housing that meets the 2019 net zero building and energy codes or, if the 2019 building and energy codes are not yet adopted upon building permit application, equivalent energy features shall be provided to the approval of the Community Development Director, (ii) implementing any future City- wide policy regarding zero carbon emissions, (iii) solar electric panels, (iv) integrated power outlets for electric vehicles and electric bicycles, (v) building design that maximizes grey water usage, and (vi) work-at-home options with high-speed fiber-optic connectivity. 4. Decarbonized Electricity and Built Environment Implications The emissions presented in this report were arrived at using fact ors to estimate the greenhouse gas emissions generated per unit of energy consumed. The electricity factor uses 2016 PG&E grid average carbon intensity. Starting in 2020, the community will begin receiving electricity service from Monterey Bay Community Power, which through its carbon free electricity supply, has an effective emissions output of zero.21 This means that starting in 2020, the primary source of greenhouse gas emissions coming from existing and new buildings will be from the combustion of onsite fossil fuels, primarily natural gas. The most direct path to carbon neutrality in the built environment is to transition from natural gas to carbon free electricity. A carbon neutral electricity supply, coupled with an-all electric building, would provide a cost- effective way to ensure that the energy use of a building is carbon neutral while also providing healthier indoor environments, energy bill savings potential, and the capacity to better manage grid energy demands. As the City continues towards buildout, based on standard accounting protocol, all electric new buildings would save approximately 7,800 metric tons of carbon dioxide (MTCO2e) per year in 2035, and a total of over 55,000 cumulative MTCO2e by 2035. Based on an updated understanding of methane’s contributions to climate change and of leakage rates along the natural gas extraction, transmission, and distribution process, the total avoided emissions are expected to be significantly higher. 21MBCP procures energy from eligible renewable (wind, solar, geothermal, biogas) and non-eligible renewable (large hydroelectric generators) resources mostly within California but also within states associated with the Western Energy Coordinating Council (WECC). MBCP does not directly procure any resources from fossil fuel power plants but there are months where MBCP may need to procure additional resources to meet demand from the greater unspecified California energy mix. On an annual basis, MBCP contracts with enough carbon neutral resources to meet the annual demand of its customer base. The California Independent Systems Operator balances the majority of the California electrical grid which does have imported electricity as well as in -state natural gas plants for reliability and grid stability. MBCP recently contracted for two solar plus battery storage projects to be built by 2021 with goal of providing additional carbon free resources on the grid during peak hours of the day to assist in reducing the grid-wide need for natural gas plants. MBCP will continue to increase its sourcing from renewable resources on an annual basis in order to continue to meet the state’s goals as well as ensure a diversified power mix. More information is available at https://www.mbcommunitypower.org/understanding-clean-energy/. The opportunity to transition away from natural gas in new development comes at a time of significant advances in electrical appliances. Item 11 Packet Page 208 Attachment A September 3, 2019 Council Agenda Report The opportunity to transition away from fossil fuels comes at a time of significant advances in electrical appliances including electric ceramic and induction cooktops and air source heat pumps for space conditioning and water heating. Switching from natural gas for space conditioning and water heating to electric air source heat pumps are a critical tool for achieving California’s deep decarbonization goals due to their efficiency and ability to ensure that electricity consumption is occurring during times of peak onsite solar production or at times when the grid has the most amount of renewables on it. The primary new electrical load from an all-electric building comes from space heating and water heating. In a building built under the 2019 code, using a highly efficient heat pump (up to 300+ percent) efficient, the load is less significant than from a traditional electric water heater. As the utilities push Time-of-Use rates, these electric heat pump appliances can be programmed to operate at times where there is excess (and cheaper) power. This translate s the electrical energy into thermal energy, which is stored in the water tank and in the conditioned space. In that way, an all-electric building can work as a battery and can help manage grid health. The issue of grid outages as the result of wildfire or other reasons is very serious, and resilience to that issue is something that the City and PG&E are actively working on. A common misconception is that gas appliances can run when electric appliances cannot. For safety and performance reasons, new appliances all require electricity to operate. A modern furnace and water heater require electricity and are disabled without it; bypassing these safety features would be dangerous. All primary lighting sources are electric. The one appliance that can be operated is the stove top, and that’s if the pilot is manually lit. A propane grill or cooktop for emergency use could serve a similar function. Given the critical importance of public health and safety, critical facilities and buildings require back -up generation are exempt from the program. It is also important to note that the proposed amendment is for the 2019-22 code cycle (which confusingly applies to years 2020 -22) and in that time, much of the new residences being built will be in subdivisions that will have new electric infrastructure built to support it. Public Engagement The initial conversation regarding building decarbonization occurred at the publicly held September 18, 2018 and February 19, 2019 City Council meetings. Since then, staff has worked closely with expert technical consultants (TRC Companies and EPS) the local building community, Monterey Bay Community Power, the SLO Climate Coalition, and peer cities throughout California to identify and pursue resources and develop the potential approach discussed in this report. The City has led or supported the following public engagement events: Item 11 Packet Page 209 Attachment A September 3, 2019 Council Agenda Report Event Date Description Energy code workshop #1 May 1, 2019 Staff held a kickoff workshop for developers, builders, and design professional to review the City’s approach to the code amendments, early feasibility and cost effectiveness funding findings, and to discuss potential concerns and issues. Following the meeting, staff met directly with the developers and builders of San Luis Ranch, Avila Ranch, and Righetti Ranch Builders Roundtable May 13, 2019 Staff presented the initial building code concept to the Developer’s Roundtable for feedback. Planning Commission May 22, 2019 and July 24, 2019 Staff met with the Planning Commission on two occasions to explain the reasoning behind the development of local amendments to the energy section of the building code and to present proposed code language. The items were informational at both meetings. Chamber of Commerce Legislative Action Committee July 11, 2019 Staff presented the reasoning behind the development of local amendments to the energy section of the building code and proposed approaches to the Chamber of Commerce Legislative Action Committee. City staff has been working closely with Chamber staff to respond to comments. Energy code workshop #2 – Code and Offset Program Review July 24, 2019 Staff held an open workshop for developers, builders, and design professional to review the code and offset program. The event was attended by 35 individuals representing and led to additional revisions to the proposed code language and approach. Public Comment Period August 9, 2019 On July 22, 2019, the City posted draft building code amendment language for a public comment period, which closed on August 9, 2019. The City received 93 comments from over 15 individual commenters including residents, architects, electricians, statewide experts, and the California Energy Commission. Attachment F provides the received comments and how they were incorporated into the final policy proposal. Electrification Expo August 22, 2019 The City partnered with the Tri-County Regional Energy Network and the Climate Coalition to host a half day training for design professionals on the 2019 California Building Code, a panel discussion for residents and businesses to better understand the potential benefits and challenges of all electric/carbon free buildings, and an electrification expo hosted at the Downtown Association Farmer’s Market. Item 11 Packet Page 210 Attachment A September 3, 2019 Council Agenda Report Utility Interaction The City of San Luis Obispo has a successful history working closely with energy utility partners. The City has partnered with PG&E and SoCal Gas on large scale efficiency projects at numerous facilities. To ensure orderly development, to maintain infrastructure as it ages a nd the City becomes denser, and to continue to thrive as a community, it will be critical to maintain and enhance close working relationships between all partners. Over the course of this project, staff has worked with PG&E, SoCal Gas, and MBCP staff. Pacific Gas & Electric In August, staff contacted PG&E to discuss grid interconnection questions raised during the outreach process. PG&E staff confirmed that there is sufficient grid capacity for electrification as generally described in the City’s Clean Energy Choice Program. On August 21, PG&E provided a letter supporting the City’s electrification initiatives when cost effective. SoCal Gas In July, staff-initiated contact with SoCal Gas and requested a meeting to discuss coordination and collaboration on the City’s climate targets, including pilot biogas (also referred to as “renewable natural gas”) projects, energy efficiency programs, and proposed local amendments to the California Energy Code. The City spoke with SoCal Gas staff about these topics on July 9 via phone. As a follow up to the conversation, in early August, City staff spoke with SoCal Gas staff responsible for biogas development. The existing sources of biogas in the City and biogas generated by activity in the City were discussed (Cold Canyon Landfill, the Hitachi-Zosen Anerobic Digester, and the Water Resource Recovery Facility). Based on the discussion, it was agreed that the existing sources of local biogas are already allocated to existing projects that generate electricity. On August 9, 2019, SoCal Gas submitted a letter to the City opposing the proposed local amendments to the California Energy Code. The letter claims that the data and methods used in the 2019 Cost Effectiveness Studies are flawed, primarily that incremental cost s in the study are higher than those commonly experienced in SoCal Gas service territory. The letter also claims the rate forecasting method and how TDV is operationalized are insufficient. As mentioned above, the 2019 Cost Effectiveness studies were completed in a transparent public process including public review and involving all Investor Owned Utilities (i.e, San Diego Gas and Electric, PG&E, SoCal Gas, and Southern California Edison). Staff understands that the final reports were routed within each Investor Owned Utility for review and SoCal Gas did not provide any comments on the issues contained in the letter they provided to the City. Monterey Bay Community Power Staff has been advocating on the City’s behalf to support programs that incentivize all-electric buildings. In May, staff travelled to Monterey to attend the Monterey Bay Community Power Electrification Plan Workshop. At the workshop, staff advocated for incentives for all electric developments with a special focus on multifamily and affordable units. Staff’s recommendation in this Council Agenda report is to continue to advocate for incentives for all-electric multi-family and affordable housing units and directs staff to submit a letter communicating this preference. Item 11 Packet Page 211 Attachment A September 3, 2019 Council Agenda Report Schedule and Next Steps Should Council approve staff’s recommendations, work would proceed on the following timeline: Task Timeframe Adoption of “Reach Code” and submittal to the California Energy Commission; Council approval of the Carbon Offset In- Lieu Program September 2019 Receive approval from the California Energy Commission November 2019 Return to the City Council with a fee resolution and approving an implementation plan to include education and outreach, development of a program making professional consultation and design services available to property owners, and identification of a series of incentives that would allow the City to relax property development standards (such as, but not limited to, parking requirements, setback reductions, or building height allowances) in exchange for all-electric development November 2019 Building Code goes into effect January 1, 2020 Clean Energy Choice Program goes into effect January 1, 2020 CONCURRENCE The Office of Sustainability, Community Development, Fire Department and Utilities Department concurs with the recommendations in this report. ENVIRONMENTAL REVIEW These ordinances are categorically exempt from CEQA because they constitute actions taken by a regulatory agency for the purpose of protecting the environment (CEQA Guidelines Section 15308). In addition, these ordinances are exempt from CEQA under the general rule, 15061(b)(3), on the grounds that these standards are more stringent than the State energy standards, there are no reasonably foreseeable adverse impacts, and there is no possibility that the activity in question may have a significant effect on the environment. Item 11 Packet Page 212 Attachment A September 3, 2019 Council Agenda Report FISCAL IMPACT Budgeted: Yes Budget Year: 2019-20 Funding Identified: Yes Fiscal Analysis: Funding Sources Total Budget Available Current Funding Request Remaining Balance Annual Ongoing Cost General Fund $50,000 0$ $0 TBD Total $50,000 $0 TBD Presenting the Clean Energy Choice Program is a 2019-21 Climate Action Major City Goal work task and staff time is included in the 2019-20 budget to develop this proposal, submit to the CEC, and have it in place to begin implementation on January 1, 2020. $50,000 is the estimated amount the program implementation will come from the budgeted resources. The Climate Action Major City Goal also includes $50,000 for developing a building retrofit program. It is anticipated that this program will be developed by 2021. Should Council direct staff to return with additional information on incentives, including staff support, further fiscal analysis would be provided. The proposed incentive program would also have ongoing costs that currently are not budgeted. Fiscal impacts of proposed incentives will be evaluated and presented as part of the implementation plan recommendations, scheduled to return to the City Council on November 5, 2019. Item 11 Packet Page 213 Attachment A September 3, 2019 Council Agenda Report ALTERNATIVES 1. No Action. The City Council could decide to take no action on the proposed Clean Energy Choice policy and implementing ordinances. If the Council chooses this option, direction should be provided to staff for follow up and resolution. The staff recommendation ensures that the reach code and carbon offset program would go into effect together with a larger set of building code updates on January 1, 2020. Depending on the scope of changes directed, a delay in implementation would likely delay adoption of the reach code past January 1, 2020. 2. Adopt One or Other Adopting Ordinance. If the City Council chooses to move forward with approval of the Clean Energy Choice Policy, it can choose to further im plement the policy by adopting one or the other recommended implementing ordinances. The Reach Code and Carbon Offset Program may be implemented completely independent of one another. 3. Adopt with Modifications. The City Council could choose to modify various aspects of the staff recommendation to accommodate more precise application of the Clean Energy Choice Policy. Staff is working to be prepared for a wide variety of potential changes that the City Council may wish to pursue in response to public testimony or new information brought to light prior to the hearing. Some of the areas where staff will be prepared to discuss alternative methods of implementation include: a. Applicability of the reach code and offset requirement b. Exemptions from the requirements of either code c. Possible update to the reach code recommendations based on ongoing conversations with stakeholders d. Adoption of the Reach Code only e. Adoption of the offset requirement only Attachments: a - Clean Energy Choice Resolution b - Reach Code Ordinance c - Carbon Offset Program Ordinance d - Reach Code Legistlative Draft e - EPS In-Lieu Fee Report f - Public Review Comments g - Council Reading File - 2019 Residential Cost Effectiveness Study h - Council Reading File - 2019 Nonresidential Cost Effectiveness Study Item 11 Packet Page 214