Article 320 Information Guide
At long last, the NYC Department of Buildings (“DOB”) released an information guide for buildings covered under Article 320 of Local Law 97. This DOB guide attempts to clarify some of the most critical details of the law, in an effort to answer many of the industry’s open questions. The document is 98 pages, and we read all of them, so you don’t have to. Today, we will break down the most salient points.
Article 320 governs approximately two-thirds of the nearly 30,000 buildings required to comply with LL97, which are subject to hefty fines for exceeding carbon emissions allowances. As a reminder, there are three different buckets within this group.
Fully market-rate. First reporting year is 2025, using calendar year 2024 data.
At least one, but no more than 35% rent-regulated dwelling units. First reporting year is 2027, using calendar year 2026 data.
Certain types of affordable housing not subject to Article 321. First reporting year is 2036, using calendar year 2035 data.
The DOB unequivocally stated that a building’s compliance pathway will adjust if its circumstances surrounding qualifications change. The most crucial example is that an Article 321 building can become an Article 320 building if its affordability status changes. Article 321 buildings have a unique lifeline of a pathway that allows for a one-time submission next year after completing certain energy efficiency measures. Moving to any of the Article 320 buckets, which are subject to carbon fines in perpetuity, is a big deal. Buildings can also transition from one Article 320 bucket to another. It is important to confirm each building’s status on an annual basis to ensure compliance requirements have not adjusted.
Next, the DOB addresses the most important inputs for carbon allowance calculations – square footage and space types. The info guide reiterates that LL97 defines Gross Floor Area (“GFA”) as all above- and below-grade square footage from outside wall to outside wall, which is different from the Gross Square Footage (“GSF”) otherwise on file with the Department of Finance (“DOF”). For over a year, we have been preaching to have your building’s GFA measured for many reasons. Now you can hear it straight from the horse’s mouth, as the DOB states “Because of the precision required, measured drawings prepared by a surveyor or RDP are the ideal method of obtaining/verifying GFA. Simply taking DOF’s GSF number as GFA is not recommended because it may not correspond to the actual dimensions of the building.” A precise GFA measurement will also clarify a building’s space types, which each have their own carbon factors. In our experience, in almost every case, the GFA will increase your carbon allowance and reduce fine potential, making it the least expensive way to lower fines. It is not too late to get your building measured.
Another important distinction the DOB info guide discusses is building-level compliance. Every building is effectively treated as its own unit for the purposes of LL97, even if there are multiple buildings on the same tax lot. Each individual building has its own compliance pathway, submits its own compliance report, and receives its own penalties, regardless of how many buildings are on the tax lot. A combined report, which is simply an aggregation of individual building reports, is permitted for buildings that share a tax lot or energy service.
LL97 applies to individual buildings of at least 25,000 square feet or multiple buildings on the same tax lot that together exceed 50,000 square feet. If the latter, all buildings on the lot are covered by the law. However, if multiple buildings exist on the lot and are less than 50,000 square feet combined, only the building at least 25,000 square feet is covered. This means it is possible for one building on a lot to be covered, but the others are not.
In some instances, multiple buildings may share energy service. For example, an electric or gas meter may cover two buildings. When buildings share energy service, the total consumption of each energy type must be mathematically apportioned among each building served using a consistent methodology.
Next, the DOB info guide discusses extension requests for annual LL97 filings. The most noteworthy point was that though technically the filings are due by May 1st of each year, there is a grace period until June 30th to avoid the $0.50 per square foot monthly late penalty. This is effectively moving the deadline back by two months.
Last but certainly not least, the DOB clarifies rules surrounding a mediated resolution. If a building exceeds its emissions allowance but is demonstrating concrete steps towards compliance through supporting documentation, one can request a mediated resolution to avoid carbon fines. An agreement with the DOB would have to include a show of “Good Faith Efforts”. This requires submission of the annual LL97 report, annual LL84 benchmarking report, and one-time LL88 compliance report, as well as one of six electives.
The most likely of these six avenues for most buildings will be a decarbonization plan, which is effectively a roadmap to bring the building under its emissions limit. This decarbonization plan must be followed, otherwise the DOB may issue the original fines trying to be avoided. Another of the six electives is submitting an LL97 report from a prior year showing compliance in that year. This means if you were previously under your limit, then your energy consumption escalated because of extreme weather conditions or your building equipment malfunctioned for a period causing you to rise above your limit, this could be a lifeline to protect against emissions increasing due to the unknown.
The Article 320 info guide release is yet another reminder that LL97, like many NYC energy laws, is very complex. Allow us to be your go-to resource for navigating the labyrinth known as LL97. Aurora is most likely already benchmarking your property. We can also help ensure you are in LL88 compliance and have your building GFA measured so that you are on the right path to LL97 compliance and fine avoidance.
Market Analysis
Electricity
NYISO Zone J rode the weather in August. The month opened with a short heat wave, while the commodity settled around $0.05 per kWh. Then as we lucked out with the cooler temperatures, prices gradually declined to below $0.04 by month end as cooling demand dwindled. The electric commodity continues to benefit from strong natural gas fundamentals, as it is the primary input to electricity generation.
Natural Gas
Cooler August weather held the NYMEX in the $2 range for the entire month. With autumn temperatures on the horizon and storage levels very healthy, there may not be much movement in the commodity for the foreseeable future. Absent any meaningful market drivers, the NYMEX will remain at historically low levels.
Crude Oil
Crude oil futures rode a roller coaster in August, fluctuating between $70 and $80 per barrel. In early August, futures fell sharply to a six-month low on fears of an economic recession. As concerns faded, the markets turned their attention a week later to conflict in the Middle East. This sent prices up to $80, but once again concerns eventually dwindled. But then the market turned upside down when Libya announced major production cuts this week, resulting in nearly $80 per barrel again.
💡 Mitchell’s Tip: Know your compliance pathway.
