By Adam Pagnucco.
In public policy, there are always trade-offs. Priorities that may be worthy in theory may not work out in practice and may not be worth the costs they create. Responsible policy-makers have to balance benefits, costs and implementation. And if that balance does not result in a net gain, the best thing to do is walk away.
That is the case with Bill 13-22, a county bill that would require all-electric building standards for additions, major renovations and new construction in most types of buildings. The bill contains exemptions for utilities, buildings with emergency backup systems, combined heat and power facilities, and structures used for manufacturing, crematories, life sciences and commercial kitchens. More exemptions may be added through amendments. Regulations to enforce the law are due on January 1, 2024 but are delayed two years for schools and buildings with at least 50% moderately priced dwelling units.
County Executive Marc Elrich justified the need for the bill in a June memo to the county council:
This legislation aims to accelerate an evolution already underway across the country and right here in Montgomery County of the building sector moving towards 100% electric-powered systems. Instead of systems that rely on the combustion of fossil fuels (e.g., natural gas furnaces and boilers), fully electric buildings take advantage of market-available technologies (e.g., heat pumps, electric water heating, electric cooking) that are cleaner, more energy-efficient, and cost-effective.
The bill’s costs are potentially enormous. Major renovations are defined as “any renovation where the work area exceeds 50% or more of major structural components, including exterior walls, interior walls, floor area, roof structure, or foundation, or has an increase of 50% or more of floor area.” Such renovations are occasionally needed to prolong the life of older buildings. Now in addition to the normal cost of such procedures, “any equipment or appliance used for space heating, service water heating, cooking, clothes drying and/or lighting that uses fuel gas or fuel oil” must presumably be replaced with equipment drawing from the electrical grid. That could make renovations uneconomical without significant costs passed on to tenants.
Then there is the whole question of whether the bill would result in additional expansion and maintenance costs associated with the electric grid. Pepco would never eat these costs. Instead, they would be passed on to ratepayers – meaning all of us.
The bill’s economic impact statement recognizes these costs but does not place an exact price tag on them. The statement begins:
The Office of Legislative Oversight (OLO) anticipates that enacting Bill 13-22 likely would have a net negative impact on economic conditions in the County in terms of the Council’s priority indicators. By expediting the establishment of an all-electric building code for new construction and major renovations in the commercial and residential building sectors, the Bill would have short- and long-term impacts on many County-based private organizations and residents across numerous economic indicators. In general, the commercial building sector likely would be negatively impacted due to higher upfront costs and various risks (e.g., uncertain relative energy prices and lower than anticipated energy savings), which would increase the likelihood of certain market actors receiving a net negative return on their investment in building electrification. In contrast, the residential building sector likely would experience lower up-front costs, thereby increasing the likelihood of net positive returns to certain market actors. Ultimately, however, OLO believes the Bill’s overall impact on economic conditions in the County would be negative. The primary reasons being that the change in building code has the potential to reduce, both, private sector capital investment and the County’s competitiveness in the commercial building sector.
The bill’s fiscal impact statement totally dodges the direct cost to taxpayers associated with county-owned buildings.
Bill XX-22 is not expected to have an impact on County revenues or expenditures because it only requires the adoption of all-electric buildings standards as part of the regular code adoption process and does not set the standards itself. It is possible that once the standards are adopted, the cost of County construction projects could increase to meet the all-electric standard, although that could also result in operational savings.
So in other words, the bill has no costs but its implementing regulations might – we just don’t know what they are. This is fiscal legerdemain of the worst kind!
Now what of the benefits? The bill has been justified on the theory that electricity is inherently cleaner than fossil fuels like natural gas. Maryland is serviced by the PJM Interconnection, an electric grid including all of Maryland, D.C., Virginia, New Jersey, Delaware, Pennsylvania, Ohio, West Virginia and parts of other adjacent states. Electricity generated within the grid can be sent anywhere inside it.
The chart below from the U.S. Energy Information Administration shows the fuel sources of the PJM Interconnection over the last year. The three dominant fuel sources are natural gas (in beige), nuclear (in red) and coal (in brown).
On November 1, 2022, this was the distribution of fuel sources for the PJM Interconnection.
Natural gas: 44.4%
Nuclear: 34.6%
Coal: 15.1%
Wind: 1.7%
Hydro: 1.6%
Solar: 0.8%
Other: 2.0%
So gas, nuclear and coal account for 94% of electricity generation while hydro, wind and solar account for a combined 4%. How exactly does this bill lead to cleaner energy?
Bill 13-22 is a classic example of legislation with good intentions that accomplishes little of value at enormous (but unspecified) cost. It’s ironic that it comes from the same county council that prohibited the placement of solar panels on the overwhelming acreage of the agricultural reserve. The council should focus on actually increasing the availability of renewable energy so that electricity becomes cleaner before mandating its use. That’s a far better option than imposing big pain for little gain.