HUD Notice Has Potential To Encourage Broad PHA Renewable Energy Rollout

by Ballard Spahr LLP

In an effort to support President Obama's July 2013 Climate Action Plan, the U.S. Department of Housing and Urban Development (HUD) has issued Notice PIH-2014-18 (HA). The notice offers guidance on federal incentives for public housing authorities that are seeking alternate energy sources and new funding streams. In particular, it appears to be aimed at facilitating a goal in the Action Plan of having 100 megawatts of installed, on-site renewable energy technology at federally subsidized housing across the country by 2020.

The notice attempts to eliminate conflicts between Energy Performance Contract (EPC) financial incentives and Rate Reduction Incentives (RRI) that make it difficult to combine energy improvements that encourage both consumption and rate savings. The definitions of eligible technologies and the flexibility in how HUD has indicated it will view projects combining on-site generation and conservation measures suggest opportunities for public-private collaboration between housing authorities and service providers in installing, financing, maintaining, and operating on-site generation technologies and conservation measures.

Notice PIH-2014-18 (HA) covers:

  • On-Site Utility Technologies at PHAs. Producing energy on-site through the use of solar photovoltaics, fuel cells, and other technologies will allow housing authorities to generate power independently and maintain a consistent, flexible energy source. On-site utility technologies can also provide a consistent source of funding—housing authorities that produce excess power may sell the surplus to supplement their Operating Fund loans, if permitted under state law. The notice announces that RRIs can now assist housing authorities that install on-site utility technologies. Housing authorities that are awarded RRIs will retain 50 percent of their annual utility cost savings. RRIs cover on-site technologies for various utility types, giving housing authorities many options as they pursue the incentive. This clears up critical uncertainties that many housing authorities have expressed regarding the financial treatment of energy improvements, and should facilitate increased private investment in those improvements.
  • RRIs for Resident-Paid Utilities. HUD will extend RRIs to PHAs that implement water and energy retrofits to reduce their residents' utility spending. To receive RRIs, PHAs must demonstrate that:
    • The reduced rates are the result of efforts by the PHA.
    • The discount is substantive in depth and duration.
    • The rate discount is active and stable.
    • The PHA has revised its resident utility allowances to better reflect the lower utility costs.

This policy expands the ability of housing authorities to combine multiple conservation measures into a single project without jeopardizing the financial incentives previously offered to a narrow sub-category of conservation measures.

  • RRIs for Green Power Purchasing. The notice provides an extensive list of applicable green power technologies, as well as information on financing options for the installation of on-site energy infrastructure. In particular, it highlights Power Purchase Agreements (PPAs) as a common financing method. Such agreements give energy service companies access to authority-owned rooftops or land for the installation of solar electric and other technologies. In exchange, authorities are given discounted electricity. PPAs typically hold energy service providers responsible for any maintenance and installation fees, making them an attractive option for cash-strapped PHAs. Moreover, RRIs are available for housing authorities that purchase green power from an off-site provider under local community purchase programs. Innovative housing authorities have partnered with trusted partners in entering into long-term PPAs that have produced significant financial benefits to the PHAs through reduced utility costs and related capital improvements. This policy should remove a significant amount of uncertainty regarding monetizing the benefits of a PPA.
  • Combining HUD energy incentives. Public housing authorities may now combine RRIs with the EPC incentive. Should housing authorities combine these efforts, they will receive 100 percent of the cost savings. HUD prefers joint projects to coinciding ones, so the notice recommends that authorities plan ahead to ensure that they can present a joint EPC Initial Project Plan Review.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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