REPORT TO COUNCIL
SUBJECT
Title
Action on a Resolution Suspending Existing All-Electric Construction Requirements of the Reach Code and Request for Direction on Needed Amendments to the Reach Code and Climate Action Plan in Light of Recent Changes in Applicable Law
Report
COUNCIL PILLAR
Promote Sustainability and Environmental Protection
BACKGROUND
A “Reach Code” is a local ordinance that goes beyond the minimum requirements of the California Building Standards Code (CBSC) in order to promote sustainability goals. The City adopted its “Reach Code” in November 2021, following a long public process. The Reach Code made local amendments to two parts of the 2019 CBSC: the California Energy Code and the California Green Building Standards Code (CALGreen). The Reach Code mandates the use of electricity as a power source in new construction, limits installation of natural gas plumbing and meters, and increases requirements on new construction to install electric vehicle infrastructure. On November 1, 2022, the City updated the Reach Code to coincide with the 2023 triennial update of the CBSC.
The City of Berkeley enacted a similar “Reach Code” ordinance in August 2019, which effectively required all-electric construction in new developments. Shortly after its adoption in 2019, the California Restaurant Association (the “CRA”) filed a legal challenge to Berkeley’s ordinance. The CRA alleged that Berkeley’s ordinance was preempted by a federal statute, the “Energy Policy and Conservation Act” (“EPCA”), which established energy efficiency requirements for certain appliances. The challenge ultimately made its way to the Ninth Circuit court of appeals. Earlier this year, the Ninth Circuit reached a final decision in the case, ruling that the EPCA preempts not just State and local regulations of gas appliances, but also local regulations that prohibit natural gas delivery systems in new development. As a result, the Court struck down the Berkeley Reach Code.
DISCUSSION
Given similarities between the Berkeley and Santa Clara Reach Codes, staff is recommending that the Council suspend the all-electric requirements of the Reach Code at this time. Several developers have asked the City to repeal or waive its all-electric requirements in light of the Berkeley decision, and on July 29, 2024, attorneys representing the California Restaurant Association sent a letter to Santa Clara asking the City to suspend or repeal the Reach Code.
As a result, staff has drafted a resolution that would indefinitely suspend sections 15.36.040 through 15.36.080 of the City’s Energy Code, which had imposed the all-electric construction requirements. The suspension would be limited to the natural gas requirements of the Reach Code and would have no effect on the other requirements of the Code, such as the requirements to provide electric vehicle (EV) parking spaces. Several other cities with Reach Codes have already taken or are contemplating this action.
Suspending the all-electric construction requirement would alleviate the risk of a legal challenge to the City’s Reach Code from the CRA and development groups. However, taking this action will also impact the City’s ability to achieve carbon-neutrality by 2045, as set forth in the Climate Action Plan (CAP). The CAP identifies natural gas as comprising 35% of projected 2045 emissions and identifies phasing out natural gas infrastructure as a necessary strategy to reducing emissions. Consequently, staff is also asking the Council to provide some initial direction on potential revisions to the Reach Code, which staff will bring back at a future meeting.
Although an outright prohibition on natural gas infrastructure is now preempted by the EPCA, the City has a number of other options available.
Alternate Prescriptive Measures
The all-electric construction requirement of the City’s Reach Code is a prescriptive ordinance, mandating implementation of a specific feature, like installation of EV parking spaces. Although all-electric construction can no longer be mandated, there are a number of other prescriptive requirements the Council could consider, such as requiring pre-wiring of electrical lines and outlets to all natural gas appliances, allowing for easy transition to electric appliances in the future. Similarly, new buildings could also be required to install battery storage or solar panels, or be designed so that such features could easily be installed in the future. These measures would likely be insufficient by themselves to achieve the City’s greenhouse gas (GHG) reduction goals, but could be a part of the City’s overall GHG reduction strategy.
Energy Performance Approaches
A more robust option would be for the City to adopt a performance-based ordinance. “Energy performance” ordinances require developers to increase the overall energy efficiency in a development, but leave flexibility for the builder on how to achieve this goal. The California Energy Code already establishes a minimum level of energy efficiency in new construction. Developers utilize California Energy Commission (CEC) modeling software to demonstrate that their proposed designs do not exceed the energy budget allowed by the Energy Code.
In the wake of the Berkeley decision, several jurisdictions have now moved from a prescriptive (all-electric) ordinance to a performance model, by strengthening the efficiency requirements established by the Energy Code. The jurisdictions selected their efficiency levels based on modeling emissions impacts, and also studying the cost effectiveness of those requirements. For single-family residences, a points-based system called the “Energy Design Rating” (EDR) is used. For other types of construction, buildings must exceed the source energy requirements of the Energy Code by fixed percentages.
The following is a list the efficiency levels now mandated by four other jurisdictions. The table shows the degree to which various building types must exceed the base Energy Code efficiency requirements, either by improving on the EDR score by a number of points, or by exceeding the source energy requirements by percentages.
|
City |
Santa Cruz |
San Luis Obispo |
San Jose |
Palo Alto |
|
SFR |
9 points |
6 points |
8 points |
8 points |
|
MFR, < 3 floors |
10% |
9% |
6% |
9% |
|
MFR, ≥ 3 floors |
4% |
3% |
6% |
1% |
|
Non-residential |
7% |
7% |
0 - 10%* |
0 - 12%* |
*In San Jose (SJ) and Palo Alto (PA), the non-residential requirements are broken down further. Office uses must exceed the standard source energy requirement by 10% (in both); hotels & motels by 6%(SJ)/7%(PA); industrial/manufacturing by 0% (both); restaurants by 6%(SJ)/12%(PA); and all other nonresidential by 6%(SJ)/9%(PA).
For example, in San Luis Obispo, single-family residences must improve upon the CEC EDR score by six points. Under their performance-based code, there are multiple pathways to achieve this rating. A single-family home could utilize a heat pump HVAC system instead of a gas-powered furnace and would improve their EDR score by six points. Alternatively, a single-family home could still utilize a gas-powered furnace if it was combined with a battery energy storage system and improve the EDR score even more.
Staff is recommending that the Council follow the examples set by the four cities above, and that the Santa Clara adopt is own thresholds above CEC standards. There are two varieties of the Energy Performance Approaches, “Electric Preferred” and “Single Margin”.
“Electric Preferred”
The “Electric Preferred” approach would adopt thresholds like those listed above, but would incentivize all-electric construction by exempting all-electric buildings from the new requirements. Instead, all-electric buildings could continue to construct at the minimum efficiency levels required by the California Energy Code. Mixed-fuel buildings, however, would require a greater degree of energy performance than what the Energy Code requires, which could be accomplished through measures like solar panels and battery storage, and would also likely lead developers to utilize fewer natural gas appliances.
“Single Margin”
The second approach would apply one standard to all new construction, regardless of whether the building was all-electric or mixed-fuel. This is often referred to as a “single margin” or a “one margin” approach. As with “Electric Preferred,” this approach would mandate that new construction provide a high degree of energy efficiency (above the California Energy Code baseline), with the efficiency percentages specified for individual building types. But by not distinguishing between gas and electric appliances, this would minimize the risk of an EPCA legal challenge.
Even without an electric preference, given the significantly higher efficiency of electric heat pump equipment compared to gas equipment, it would be easier for a developer to comply with a Single Margin code with an all-electric design. Mixed-fuel homes are still possible, but they would require a very high level of efficiency, potentially including on-site solar panels and battery storage to meet the standards.
Air Quality Approach
A third option would regulate the potential emissions from equipment and appliances. Los Altos Hills has recently adopted this approach. The Town previously imposed an all-electric construction requirement for heating systems, with an electric-readiness requirement for clothes drying and cooking appliances. After the Berkeley decision, the town replaced its Reach Code language by requiring all-electric construction with language requiring zero emissions construction. Specifically, the Los Altos Hills Code requires that new construction and substantial renovations result in buildings that produce no nitrogen oxides (NOx), although it provides exceptions for kitchen appliances as long as the kitchens meet electric-readiness requirements. The Los Altos Hills Code also requires that when water heaters, clothes dryers or HVAC systems are replaced, they be replaced with zero-NOx appliances.
Combined Approaches
Finally, the Council could combine any of the above approaches. This would likely result in a greater degree of emissions reductions overall. For example, the City could adopt a Single-Margin Performance Code, but also require that mixed-fuel buildings have sufficient wiring, conduit space, and circuit breakers to be able to easily convert to fully-electric in the future, for certain building types.
Process
As stated previously, staff recommends that the Council immediately adopt the resolution suspending the enforcement all-electric requirements of the Reach Code. Depending on the options selected by Council, City staff will bring back an ordinance at a future meeting revising the Reach Code to incorporate one or more of the approaches listed above.
Depending on the approach, a revised Santa Clara Reach Code will likely need to be submitted to the California Energy Commission before it can become effective. The CEC will verify that the new Reach Code is at least as stringent as the base requirements of the California Energy Code. More significantly, the CEC will review the Code to determine whether it demonstrates cost effectiveness, avoiding imposing an unreasonable burden on permit applicants. The CEC will not approve a reach code without evidence that the code is cost-effective on a time-dependent valuation basis, which is a composite measure of the cost of energy to utility customers, and society at large, over thirty years. In order to make this required showing, the City will need to prepare a cost-effectiveness study that it submits to the CEC. The CEC will then solicit public comments for 60 days, and make its final decision one to two months after the comment period. (Notably, the Air Quality alternative adopted by Los Altos Hills did not require CEC approval, because it modified CALGreen rather than the Energy Code.)
The All-Electric requirements of the Reach Code are prominently featured in the City’s Climate Action Plan, and were a part of the modeling used to calculate anticipated greenhouse gas emissions in the CAP. Consequently, it will be necessary to conduct modeling to determine the effects of any revised Reach Code on the City’s climate targets and draft amendments to the CAP.
Staff Recommendation
Staff recommends revising the Reach Code with a Single Margin Energy Performance approach which would establish aggressive requirements for increased levels of energy efficient building design beyond the CBSC. Should the City Council support this approach, staff will bring forward a recommendation on specific increased number of points for the EDR score for single family homes and the specific increased percentage of source energy requirements for all other development after outreach and additional research is conducted.
Staff recommends the Single Margin Energy Performance approach for the revised Reach Code because it would guarantee that a quantified increased energy efficient design is achieved regardless of specific building features utilized. In July of this year, a new California Building Standards Code (2025 CBSC) will be released and will be in effect on January 1, 2026. The Single Margin Energy Performance approach will also be simple to implement in the context of this changing regulatory environment as the increased energy efficiency percentage or points established in the revised Reach Code will apply to the baseline standards of the current and then the new CBSC. As the Single Margin Energy Performance approach is used by neighboring communities, this will also facilitate implementation by the local building industry. In addition, the Single Margin Energy Performance approach, which has been previously accepted by the CEC may receive quicker approval by the CEC than other options and thus the revised Reach Code could achieve an earlier effectiveness date.
Staff also recommends including in the Reach Code a prescriptive requirement that all new buildings be pre-wired for future electric use. If electric appliances are not provided in the initial design, pre-wiring will lower the barriers for conversion.
ENVIRONMENTAL REVIEW
The suspension of the all-electric provisions of the Reach Code is mandatory under California Restaurant Association v. City of Berkeley, 65 F.4th 1045 (2023), and is therefore a ministerial act. Ministerial acts are not subject to the California Environmental Quality Act (“CEQA”) under Public Resources Code § 21080(b)(1) and CEQA Guidelines § 15268.
The direction provided to staff on potential revisions to the City’s Reach Code and Climate Action Plan does constitute a “project” pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment. The revisions to these documents, once drafted, will undergo environmental review prior to their presentation to Council.
FISCAL IMPACT
The recommended actions will require preparation of a revised Reach Code, cost effectiveness study, revisions to the Climate Action Plan, and associated GHG modeling. Staff will require the use of outside consultants for some or all of these tasks. Staff will follow the City’s standard procurement policies, and any contracts above the applicable thresholds will be brought to Council for approval.
COORDINATION
This report has been coordinated with the Community Development Department.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
ALTERNATIVES
Direct Staff to prepare amendments to the Reach Code Utilizing:
1. An Electric Preferred Energy Performance Approach
2. A Single Margin Energy Performance Approach
3. Additional Prescriptive Measures, such as Requiring Developments to Pre-Wire for Future All-Electric Use
4. An Air Quality Approach
5. A Combination of the Above Approaches
RECOMMENDATION
Recommendation
1. Adopt a Resolution Suspending Enforcement of the Existing “All-Electric” Requirements of the City’s Reach Code
2. Direct Staff to Prepare Amendments to the Reach Code Consistent with a Single Margin Energy Performance Approach, Combined with a Prescriptive Requirement to Pre-Wire Developments for Future All-Electric Use
3. Direct Staff to Obtain a Cost Effectiveness Study for the Proposed Amendments to the Reach Code
4. Direct Staff to Prepare Corresponding Amendments to the Climate Action Plan, Combined with Necessary GHG Reduction Modeling
Staff
Reviewed by: Glen R. Googins, City Attorney
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Resolution Suspending the All-Electric Provisions of the City’s Reach Code