Colorado and Denver sued for allegedly violating federal laws on large-building energy standards

Colorado and the City of Denver are being sued in federal district court over rules requiring large buildings to meet new energy standards.

A lawsuit filed Tuesday by apartment and hotel trade organizations against the state and the city alleges both violated federal laws prohibiting states and cities from setting more stringent energy use standards for appliances and building equipment than those set by the federal government.

The plaintiffs assert Congress intended that the 1975 Federal Energy Policy and Conservation Act preempt state or local laws that are “unworkable, that undercut a coordinated national energy policy, that overlook the public’s need for reliable and resilient energy, and that deny consumer choice.”

The Colorado Air Quality Control Commission, a four-member body operating under the Colorado Department of Public Health and Environment and appointed by Gov. Jared Polis, passed Regulation 28 in August. It forces owners of existing buildings larger than 50,000 square feet to reduce energy usage by 7% by 2026 and 20% by 2030.

The state General Assembly passed House Bill 21-1286, which required the regulation, and it was signed into law by Polis on June 24, 2021.

Denver took a slightly different approach by not requiring buildings to change systems out on a hard deadline, but they have to demonstrate the changeover had been analyzed if it is part of a renovation meeting certain criteria.

At the same time, the regulation imposes an increasingly stringent emissions reduction requirement on some 3,000 buildings in the city larger than 25,000 square feet in 2025 and 2027 — whether electrification takes place or not.

Denver’s regulation made changes to city building codes that were adopted in January by the Denver City Council. The plan calls for eliminating GHG emissions and making Denver’s electrical grid 80-100% renewable by 2030.

According to the complaint, the standards set by Denver and the state are both impossible to achieve at any reasonable cost and are not, as the state suggests, mere energy usage requirements.

Instead, according to the complaint, the intent and practical effect of the regulations are to set energy use standards so low that only full building electrification and the elimination of natural gas use can meet the standards.

The cost of compliance for some 8,000 buildings that fall under the state regulation was estimated by the state in its economic impact statement for Regulation 28 at $3.1 billion.

The Air Pollution Control Division, which drafted the state regulation, admitted that consumers could face rent increases, saying: “Landlords might pass on some or all of the cost of implementing this rule to their tenants, which will lead to higher rents.”

The APCD argued that lower energy bills and fewer CO2 emissions in the future justify imposing the costs of energy savings today.

Critics say these mandates interfere with existing contracts for usable equipment that are being paid for sometimes over 30 years that would force abandonment of that investment.

“The energy efficiency measures implemented will lead to lower power bills for the tenants,” said APCD in the economic analysis. “The net cost to the public, which is the difference between the higher rent and the lower power bill, will depend on such considerations as how much of the cost the landlords pass on to the tenants.”

The economic analysis does not say when those lower bills might become a reality.

A spokesperson for Polis told The Denver Gazette in a previous statement that electrification is not required.

“There is no mandatory electrification requirement,” said Conor Cahill, spokesperson for Gov. Polis in a previous statement. “The proposed Building Performance Standards (BPS) rules provide flexibility, offering multiple pathways for building owners to select from, including energy efficiency, electrification, renewables, or a combination.”

But, says the complaint, the “low hanging fruit” of improvements like more energy efficient windows and added insulation are neither affordable nor possible because most of those improvements have already been maxed out in terms of energy saving.

The energy savings requirements were set to force electrification by casting the energy savings in terms of tons of CO2 equivalent emissions, according to the complaint.

This, it asserts, shows it’s an illegal attempt to set higher efficiency standards for building equipment like building heating and cooling and hot water, and consumer appliances like stoves and hot water heaters, than the federal government has set.

The City of Denver’s regulation is stricter than the state’s regulation because it applies to any building larger than 25,000 square feet in size.

“The electrification, to be really clear, is not required to reach the energized Denver targets. It may be a strategy some buildings want to pursue because it works well for them, but for other buildings it may be challenging and they would take a different path to compliance,” said Katrina Mangan, director of buildings and homes in Denver’s Climate Office, in a previous interview.

Mangan said 21% of buildings in Denver have already met their 2030 targets, and virtually all of them are heated with natural gas or steam.

“So, we're asking the other 80%, or 79%, of buildings to do better and perform more like that top 21%,” Mangan added. “But these targets are very achievable as demonstrated by that 21% in buildings that are already operating with gas today in Denver.”

Despite the differences between Regulation 28 and Denver’s ordinances, the lawsuit alleges both are still setting efficiency standards for equipment and appliances in violation of federal law.

Both the governor’s office and the Colorado Energy Office declined to comment on the pending lawsuit.