[Federal Register Volume 76, Number 110 (Wednesday, June 8, 2011)]
[Notices]
[Pages 33329-33332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-14049]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5524-N-01]


Energy Performance Contracting--Request for Comments on Proposed 
Guidance and Policy Clarifications

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Notice.

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SUMMARY: This notice solicits public comment on certain key issues that 
will be addressed in HUD's forthcoming guidance on the Energy 
Performance Contracting (EPC) program. HUD will consider all comments 
as it updates its guidebook entitled ``Energy Performance Contracting 
for Public and Indian Housing'' (Greenbook). This notice also clarifies 
existing guidance related to EPCs.

DATES: Comments Due Date: July 8, 2011.

ADDRESSES: Interested persons are invited to submit comments regarding 
HUD's updated Greenbook, as announced in this notice, to the 
Regulations Division, Office of General Counsel, Department of Housing 
and Urban Development, 451 7th Street, SW., Room 10276, Washington, DC 
20410-0001. There are two methods for submitting public comments. All 
submissions must refer to the above docket number and title.
    Submission of Hard Copy Comments. To ensure that the information is 
fully considered by all of the reviewers, each commenter submitting 
hard copy comments, by mail or hand delivery, should submit comments or 
requests to the address above, addressed to the attention of the Rules 
Docket Clerk. Due to security measures at all federal agencies, 
submission of comments or requests by mail often result in delayed 
delivery. To ensure timely receipt of comments, HUD recommends that any 
comments submitted by mail be submitted at least 2 weeks in advance of 
the public comment deadline.
    Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit

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comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the http://www.regulations.gov Web site can be viewed by interested members of the 
public. Commenters should follow instructions provided on that site to 
submit comments electronically.
    No Facsimile Comments. Facsimile (Fax) comments are not acceptable.
    Public Inspection of Comments. All comments submitted to HUD 
regarding this notice will be available, without charge, for public 
inspection and copying between 8 a.m. and 5 p.m. weekdays at the above 
address. Due to security measures at the HUD Headquarters building, an 
advance appointment to review the documents must be scheduled by 
calling the Regulations Division at 202-708-3055 (this is not a toll-
free number). Copies of all documents submitted are available for 
inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Shauna Sorrells, Director, Public 
Housing Programs, Office of Public and Indian Housing, Department of 
Housing and Urban Development, 451 7th Street, SW., Room 4232, 
Washington, DC 20410-4000, telephone number 202-402-2769 (this is not a 
toll-free number). Persons with hearing- or speech-impairments may 
access this number through TTY by calling the toll-free Federal Relay 
Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 9(e) of the United States Housing Act of 1937 (1937 Act) 
(42 U.S.C. 1437 et seq.), as amended, establishes an Operating Fund for 
the purpose of making assistance available to public housing agencies 
(PHAs) for the operation and management of public housing, including 
the management of energy costs associated with public housing units, 
with an emphasis on energy conservation. HUD's regulations implementing 
the Operating Fund are located at 24 CFR part 990. Section 990.185 
provides that PHAs may qualify for financial incentives when 
undertaking conservation measures that are financed by an entity other 
than HUD. PHAs that take advantage of HUD's third-party financed energy 
reduction incentives typically do so through EPCs. An EPC is a 
financing technique that uses the cost savings from reduced energy 
consumption to pay the cost of installing energy conservation measures 
(ECMs).

II. Updating the Greenbook and Request for Public Comment

    HUD issued the Greenbook in February, 1992, and it is available at 
http://www.huduser.org/publications/pdf/energy.pdf. The Greenbook 
serves as the principal policy guidance for PHAs interested in pursuing 
EPCs. The Greenbook defines and clarifies how PHAs may undertake EPCs 
in accordance with HUD regulations, and provides PHAs, HUD field staff, 
potential performance contractors, and other stakeholders with 
information about HUD incentives, required documentation, and other 
necessary approvals in the EPC process.
    Since the publication of the Greenbook, HUD has updated guidance 
related to EPCs through a series of notices, checklists, and by 
providing technical assistance to PHAs contemplating energy projects. 
HUD is currently drafting a comprehensive update of the Greenbook to 
consolidate all current EPC procedures into a single source. A major 
benefit for updating the Greenbook is to standardize the submission, 
review, and approval processes in an effort to streamline EPC 
processing time, while preserving HUD's responsibility to approve 
qualified projects within regulatory requirements.
    In advance of issuing a revised Greenbook, HUD is seeking public 
comment to inform its development of comprehensive guidance regarding 
the use of EPCs. HUD's goal is to provide a meaningful opportunity for 
PHAs, energy engineers, energy service companies, financial analysts 
reviewing EPCs, and the general public to participate in the 
development of useful and effective guidance that promotes and 
streamlines the use of EPCs. HUD will consider all comments submitted 
in response to this notice in developing its updated and revised 
Greenbook.
    The following is a list of topics on which HUD specifically seeks 
comments.

1. Streamlining the Process

    Currently, the approval process for EPCs takes approximately 14-18 
months, from the time the PHA develops their Request for Proposal/
Qualifications until there is a Notice to Proceed from the Department. 
HUD plans to reduce this time, and seeks comments on the following 
specific questions:
    a. What is a reasonable approval timeline for an EPC?
    b. What obstacles or roadblocks, if any, exist in the current 
approval process?
    c. What can HUD do to streamline the approval process?
    d. What alternatives to current procurement procedures would 
expedite the approval process?
    e. How would a formal appeal process for disapproved EPCs benefit 
PHAs, Energy Services Companies (ESCOs), or other stakeholders?

2. Net Present Value

    Currently, HUD is considering requiring that the Investment Grade 
Energy Audit incorporate Net Present Value calculations. Does the 
industry use a standard rate of return for these calculations?

3. Measurement and Verification (M&V) Requirements

    Under PIH Notice 2009-16, HUD currently recommends that PHAs obtain 
independent 3rd party M&V reports annually for projects over $10 
million, and every three years for projects costing less than $10 
million.
    a. What benefits are there to implementing mandatory independent 
3rd party M&V for all projects? What considerations should be made in 
implementing such a requirement?
    b. What qualifications should be required of parties performing 3rd 
party M&V? Should such requirements for 3rd party M&V companies include 
a requirement that they hold ``current'' certifications? And how should 
a ``current'' certification be defined (e.g., certification received in 
the past two years)?
    c. How could significant differences between a 3rd party report and 
the ESCO's M&V report be reconciled?
    d. How can the measurement and verification of energy cost savings 
be improved?
    e. What additional controls, if any, are needed to ensure that 
utility cost savings are properly calculated and reported in M&V 
reports? Should such controls include a requirement that the calculated 
cost savings be certified by a Professional Engineer (PE)?
    f. What additional controls, if any, are needed to ensure that the 
costs of EPCs are properly repaid from energy savings?

4. Removing Barriers to EPCs

    Over the lifetime of HUD's EPC program, there have been 
approximately 240 EPCs executed by PHAs. The vast majority of these 
EPCs have been completed by medium and large PHAs. HUD would like to 
involve more PHAs in the EPC program, especially small PHAs.

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    a. How can HUD improve PHAs' capacity to perform self-developed 
EPCs?
    b. What can HUD do to improve access to EPCs for small PHAs? For 
instance, should HUD allow for EPCs for several small PHAs to be 
bundled together and performed by one (1) ESCO? By bundling EPCs 
together, would the overall scope be more attractive and provide a 
large enough investment/incentive for the ESCOs?

5. Section 3 Compliance

    The Section 3 program requires that recipients of EPC incentives, 
to the greatest extent possible, provide job training, employment, and 
contract opportunities for low- or very-low income residents and 
qualified businesses in connection with the EPC project (see 24 CFR 
part 135). How can HUD improve Section 3 compliance and employment 
associated with EPCs?

6. Energy and Water Auditing and Investment Standards

    Energy and water conservation investment opportunities are 
typically determined by an investment grade audit of a portfolio's 
energy and water usage and costs and the various factors affecting 
consumption. In some cases, EPCs have been found to be impractical 
because sufficient savings from low-cost conservation measures could 
not be leveraged. HUD is interested in knowing whether the current 
approach for identifying cost-effective energy and water conservation 
measures enables or impedes the development of comprehensive retrofit 
strategies for materially reducing utility costs.
    a. Are some high-cost measures not reachable through EPCs because 
the ratio of savings is too low relative to the investment and 
transaction costs?
    b. How can renewable energy investments be encouraged under EPC?
    c. Should EPCs permit the investments of green building measures if 
sufficient savings or other resources can be leveraged to cover 
investment costs?
    d. Should HUD adopt an alternative assessment and auditing protocol 
for PHA's undertaking self-direct EPCs? Could a Green Physical Needs 
Assessment provide a useful mechanism for developing an investment plan 
for reducing utility costs? Could a Home Energy Rating System program 
(HERS) audit be used by very-small and small- PHA's undertaking EPC's 
and if so how should the projected energy savings be estimated?
    e. What steps can be taken to lower and control non-investment 
transaction costs?

7. Leveraging

    PHAs are encouraged to leverage external resources to offset the 
costs of energy and water conservation investments. In some cases, 
accessing available rebates and incentives can be difficult and not 
well aligned with the EPC process and implementation period. HUD is 
interested in knowing how leveraging can be increased in conjunction 
with EPCs.
    a. What challenges exist in aligning EPCs with the processes and 
requirements established for available external energy efficiency and 
water conservation programs? Are different auditing protocols used or 
required? Do requirements for using business process improvement (BPI) 
certified contractors pose implementation barriers? Are inspection and 
quality assurance requirements duplicative? Are there load-ordering 
investment requirements that conflict with EPC investment priorities?
    b. How can or should the EPC process be modified to enable greater 
leveraging of incentives and rebates available from external sources 
such as utility and local governmental programs?
    c. What approaches or mechanisms are needed to enable PHAs to 
access and leverage energy efficiency and renewable energy tax credits?

III. Policy Clarifications

    HUD is also using this Federal Register notice to clarify existing 
policy regarding EPCs.

1. Allowable M&V options for EPCs

    Several stakeholders have questioned whether HUD intended to limit 
the use of certain M&V options currently available in HUD's EPC 
program. In response to this concern, the Department wishes to clarify 
that it will continue to allow all M&V options detailed in the 
International Performance Measurement & Verification Protocol (IPMVP). 
These M&V options are accepted methods for measuring and verifying the 
amount of utilities consumed by a building or the change in the amount 
of utilities consumed by a building due to a retrofit. The Department 
finds that these M&V methods can be conducted accurately and represent 
the utility consumption or change of utility consumption in EPCs.

2. Resident Paid Incentive

    HUD has been asked whether the add-on subsidy incentive, found at 
24 CFR 990.185(a)(3), is available to finance ECMs where the utilities 
are resident-paid. HUD re-affirms that PHAs may not use the add-on 
incentive for that purpose. PHAs undertaking energy conservation 
measures that are financed by an entity other than HUD may include 
resident-paid utilities under the consumption reduction incentive 
consistent with 24 CFR 990.185(a)(2)(iii). This approach allows a PHA 
to exclude from its Operating Fund rental income calculations any rents 
received that are as a result of decreased utility allowances resulting 
from decreased consumption. The PHA must exclude from its calculation 
of rental income the increased rental income due to the difference 
between the baseline allowance and the revised allowances of the 
projects for the duration of the contract period.

3. Prohibition Against Liens

    HUD re-affirms that, when using an ESCO as part of an EPC, no lien 
or encumbrance is to be placed on public housing rental property (real 
or personal property, such as fixtures). Similarly, if the PHA is 
considering financing of an EPC with another third party, such as a 
bank, no liens may be placed on public housing rental property 
including any bank account, reserve or other personal property 
(including the energy improvement fixtures) of the PHA. All public 
housing property is subject to the Declaration of Trust and use 
requirements of the Annual Contributions Contract and section 9 of the 
United States Housing Act of 1937. All public housing property is 
required to have a currently effective and recorded Declaration of 
Trust. Any secondary lien must be reviewed and approved by HUD 
Headquarters. Any Capital Fund financing or Operating Fund financing 
under section 9 or section 30 of the 1937 Act must also be approved by 
HUD Headquarters.

4. Funds resulting from the Operating Fund Benefit

    Funds resulting from the Operating Fund Benefit may not be included 
in an approved EPC cash flow. There are two types of incentives offered 
for reduced utility consumption. The first is the Rolling Base 
Consumption Level (RBCL) (24 CFR 990.170). The purpose of the RBCL is 
to encourage PHAs to make management and maintenance decisions that 
result in energy-efficiency improvements, whether large or small, 
through the normal course of operation. This incentive is part of a 
PHA's normal operating subsidy eligibility and results in excess 
subsidy that decreases over a four year period and is an Operating Fund 
Benefit. The Operating Fund Benefit is not an EPC incentive. The second 
type of utility cost reduction incentive are those incentives offered

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under the EPC program (24 CFR part 185). To qualify for these 
incentives, the PHA must obtain third-party financing and ensure that 
the projected savings are sufficient to cover the costs of the 
improvements. These are large-scale projects that require effort beyond 
the normal course of operation. The Operating Fund regulations do not 
allow the combining of these two incentive types to increase savings 
and to include more energy conservation measures within an EPC.

    Dated: May 27, 2011.
Sandra B. Henriquez,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 2011-14049 Filed 6-7-11; 8:45 am]
BILLING CODE 4210-67-P