The New York State legislature is evaluating proposed changes to New York City’s Commercial Property Assessed Clean Energy (“C-PACE”) program that could lead to a surge in lending in this emerging market space.

New York City is nearing a 2024 deadline when owners of buildings of more than 25,000 square feet must meet strict energy efficiency and greenhouse gas emissions limits under the City’s Local Law 97. The proposed reforms to the C-PACE program would make C-PACE financing more obtainable for landlords and would make C-PACE financing a more viable funding source for the types of building improvements needed to meet the stringent requirements of Local Law 97.

The New York City Council originally adopted the C-PACE program as part of the Climate Mobilization Act of 2019. C-PACE loans provide low-interest, long-term, non-accelerating financing to building owners for implementing energy efficiency measures and renewable energy projects. C-PACE loans appear as assessments on the building owner’s property tax bill and have many advantages for borrowers when compared to traditional financing.

Demand for energy efficiency projects in New York City is expected to skyrocket in the coming years as building owners implement measures to meet the requirements of Local Law 97. Many of the older buildings in the city have aging HVAC, boiler and chiller systems. Most building owners have a lot of deferred maintenance and a wish list of energy efficiency improvements, such as installing green roofs, upgrading wastewater management systems and electrifying their buildings. One major challenge for building owners looking to finance energy efficiency projects is that C-PACE financing is based on a cost-benefit ratio test, which means the amount that can be loaned under the C-PACE program is capped at the amount of the total operating savings achieved by the installation of the proposed equipment. The ratio must be 1:1 or better, and many of the projects that buildings owners want to complete to bring their buildings into compliance with Local Law 97 do not meet the 1:1 ratio, effectively creating a barrier to the utilization of the C-PACE program as it currently exists.

The C-PACE reforms pending in the New York State legislature could be adopted later this year or early in 2024. If this proposed legislation becomes law, some of the barriers to utilizing C-PACE financing could be eliminated, allowing building owners to finance the full cost of projects required for compliance with Local Law 97. The C-PACE reforms could also permit funding for entire categories of sustainability projects that currently cannot be funded with C-PACE financing, including financing the full cost of new windows, building electrification, storm-water management systems or batteries.

Notwithstanding the outcome of the proposed reforms to the C-PACE program, one way building owners — in particular, multifamily residential property owners — can reduce electricity consumption in their buildings and move toward satisfying Local Law 97 is by submetering electricity to their residents. When a building submeters electricity, the local utility company provides electricity to the building’s master meter, but electricity use in each residential unit is measured by building-owned submeters and billed by the owners to the residents. While electricity is billed to the building owner at the local utility’s generally less expensive general-large or multiple dwellings-redistribution rate, following approval by the New York State Public Service Commission, a building owner may bill its residents for their actual electricity use up to the local utility’s direct-meter rate, thus encouraging energy conservation and potentially increasing the building’s profitability.

Harris Beach’s Commercial Real Estate, Financial Institutions and Capital Markets and Energy lawyers are monitoring the development of the C-PACE reforms in the New York state legislature. Should you have questions about C-PACE financing, the regulatory approvals and compliance obligations required for submetering electricity, or would like to be more informed of any future developments on these topics, please feel free to reach out to attorney Michael A. Discenza at (212) 912-3605 and, or the Harris Beach attorney with whom you most frequently work.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse, and White Plains, as well as New Haven, Connecticut, Washington, D.C. and Newark, New Jersey.