HUD Incentives to Reduce Utility Costs

Energy Conservation Measures (ECMs) can increase property values and improve the condition of the public housing stock. HUD incentives allow capital funds and any extra energy savings from ECMs to be allocated by the housing authority toward needed repairs and other eligible expenses. The incentives also reduce HUD's payments to public housing authorities for utility bills.

These incentives do not override the standard Performance Funding System treatment of savings from conservation measures but offer additional options for allocating savings.

If you are considering using these incentives read 24 CFR 990 and 24 CFR 905. Contact the HUD office in your region for approval and implementation.

Three-Year Rolling Base

Frozen Base

Additional Subsidy

Rate Reduction

Private Financing

Other Funding Sources

Learn More about How to Finance Energy Improvements

Three-Year Rolling Base

Under the three-year rolling base, utility cost savings from energy conservation are phased out over a four-year period. A PHA/IHA retains half of the utility cost savings in the first and second years after the conservation improvements are completed, one-third of the savings in the third year, and one-sixth of the savings in the fourth year. Therefore, the PHA/IHA retains 150% of the value of the first year's cost savings over a four-year period.

Frozen Base Incentive

This incentive involves freezing the three-year rolling base utility consumption at the level of consumption before installation of the energy improvement. This incentive applies when payments by the PHA/IHA to an ESCO or third party financier are dependent on the amount of energy cost savings realized. The PHA/IHA retains 100% of the cost savings during the contract period, and at least 75 percent of these yearly profits are used to pay off the loan until it is fully amortized. This incentive gives the PHA/IHA additional funds to use for energy-conservation improvements compared with the three-year rolling base incentive.

HUD approval of this incentive is based upon a determination that: (1) payments under the contract can be funded from the reasonably anticipated energy cost savings; and (2) the contract period does not exceed 12 years.

A PHA/IHA can implement this incentive with an Energy Performance Contract, either by itself or through an ESCO. The PHA/IHA could use conventional financing or other financing agreements with utilities or local government sources for repayment of the capital costs associated with this incentive.

Additional Subsidy Incentive

Under this incentive, a PHA/IHA can request an additional subsidy as an "add-on" to its total operating subsidy eligibility. This additional subsidy would be applied to amortizing payments for a loan contracted to finance energy-conservation improvements with a repayment period not to exceed 12 years.

This incentive applies if the contract sets forth a fixed payment (e.g., a bank loan) supported through additional subsidy, i.e., the payment is not directly dependent on the amount of cost savings resulting from the energy-conservation improvements. Under this incentive, the three-year rolling base remains in place, and the normal savings occur over a four-year period.

Savings must be greater in each year than the amount of the "add-on”. The amount saved is the difference between the actual energy cost and the energy cost expected if the conservation improvement had not been made.

A PHA/IHA can implement this incentive with an Energy Performance Contract, either by itself or through an ESCO. The PHA/IHA could use conventional financing or other financing agreements with utilities or local government sources for repayment of the capital costs associated with this incentive.

Rate Reduction Incentive

This incentive permits a PHA/IHA to share equally with HUD cost savings resulting from action (e.g., well-head purchase of natural gas, administrative appeals or legal action) taken by the PHA/IHA to reduce the rate it pays for utilities. Upon HUD approval, the PHA/IHA may retain half the first year's savings.

Private Financing

Utility Programs

Some utilities operate demand-side management (DSM) or system benefit charge (SBC) programs. DSM programs aim to reduce demands on the utility's generation, transmission, and distribution systems by improving the efficiency with which their customers use energy. Some utilities have been willing to provide a free energy audit and/or zero-interest loans to pay for the installation of conservation measures. SBC programs offer funding to improve energy efficiency. These funds are allocated in a variety of ways.

Check with your utility to learn about the programs they offer. Some of these programs can be found online.

Bonds

Housing authorities can issue bonds through an affiliate partner. General-purpose bonds, which are backed financially by the entity issuing the bond, are seldom used because of the uncertainty of achieving the predicted energy savings over the life of the bond. Tax-exempt revenue bonds offer attractive interest rates, but a good credit rating is necessary to obtain them. The high cost of issuing any type of bond usually dictates that they be issued for large amounts of money - larger than the amounts typically needed for conservation projects. For this and other reasons, bonds have rarely been used for funding projects.

Other Funding Sources

Energy Performance Contracting
Explains the procedure for using energy performance contracts for public housing and provides a link to Energy Service Companies (ESCOs).

HUD Grants
HUD offers grants to a wide variety of agencies, organizations, and companies to create housing opportunities and build communities in America.

HUD SuperNOFA Funding
Information about the grants available under the SuperNOFA.

HUD’s Capital Fund Financing Program (CFFP)
Under the Capital Fund Financing Program (CFFP), a PHA may borrow private capital to make improvements and pledge, subject to the availability of appropriations, a portion of its future year annual Capital Funds to make debt service payments for either a bond or conventional bank loan transaction.

HUD CPD Affordable Housing Funding
HUD’s Office of Community Planning and Development (CPD) administers funding for several programs for affordable housing, including the HOME program.

HUD CPD Community Development Block Grants (CDBG)
HUD’s Office of Community Planning and Development (CPD) administers funding for communities to address affordable housing and community development needs.

State Energy Efficiency Index
Sorted by state, the site lists state tax credits, energy efficiency codes, funds, and energy saving tips. The site is administered by the Alliance to Save Energy.

Weatherization Assistance Program
The country's longest running energy efficiency program. The program is administered by the U.S. Department of Energy.

Energy-Efficiency Funds and Demand Response Programs
The U.S. Department of Energy lists incentives offered by utilities, such as energy-efficiency and load management programs.

DOE Financial Opportunities
The U.S. Department of Energy has financial opportunities for businesses, consumers, and tribes.

Low Income Home Energy Assistance Program (LIHEAP)
A Federally-funded program to help eligible low income homeowners and renters meet their home heating and/or cooling needs.

LISC Grants, Loans, and Equity
The Local Initiatives Support Corporation (LISC) provides loans, lines of credit, grants and recoverable grants, and equity investments to help CDCs and other partners revitalize their neighborhoods.

Green Communities™
Green Communities™ is a five-year, $555 million initiative to build more than 8,500 environmentally healthy homes for low-income families. The initiative offers grants to help cover the costs of green components in affordable housing developments — improvements that increase the profitability, productivity or usefulness of a property while preserving the quality of the environment. Public housing authorities and tribally designated housing entities are eligible for assistance through this program.

Financing can include below-market-rate acquisition and predevelopment loans and competitively priced tax credit equity.

Enterprise Foundation
The Enterprise Foundation has invested nearly $6 billion in affordable housing. They have a number of financing options, including Green Communities™.

Special Offers and Rebates from ENERGY STAR® Partners
A searchable list of special offers and rebates available on ENERGY STAR qualified products in your area.

Database of State Incentives for Renewable Energy (DSIRE)
DSIRE is a searchable database of selected federal incentives that promote renewable energy.

MacArthur Foundation
The John D. and Catherine T. MacArthur Foundation announced in late 2003 a new initiative aimed at preserving affordable rental housing. The initiative will provide $50 million in grants and program-related investments over the next five years to help preserve and improve the nation's stock of affordable rental housing. Among those eligible for grants are nonprofit rental housing owners seeking assistance with strengthening and expanding their operations.

Freddie Mac Multifamily Products & Services
Supports the acquisition, refinance, rehabilitation ,and construction of apartment buildings.

CEE Multifamily Housing
Identifies a number of programs that assist multifamily housing projects through rebates and other assistance.

California Utility Rebate Programs
The California Public Utilities Commission (CPUC) issued $2 billion in funding for energy efficiency programs, including installation of qualifying energy-efficient products in multifamily buildings. This energy efficiency and conservation campaign is the most ambitious in the history of the U.S. utility industry. Look to these utilities for a sample of home improvement rebate programs in the state: Pacific Gas and Electric, Southern California Edison, Southern California Gas Company, and San Diego Gas and Electric.

Learn More about How to Finance Energy Improvements

Grants Management Center
An internal HUD service organization that supports individual PIH program offices. GMC processes, reviews and awards categorical and formula grants, determines formula grant allocations, and supports the public housing operating subsidy.

Financing
Overview of funding sources for energy efficiency projects. This site is administered by the U.S. Department of Energy (DOE).

How to Finance Your Energy Program
A publication from Rebuild America that explains how to perform cost/benefit analyses and options for financing.

Select Cost Analysis Method
Information from the U.S. Department of Energy to help select appropriate cost/benefit analyses and help select the actions that have the best savings potential. Provides instruction on simple payback analysis, standardized payback equations, life-cycle cost analysis, and selecting the "best" alternatives. The site also includes a life-cyle cost calculator.