Handbook No. 7460.8 REV 2
CHAPTER 17. UTILITY PURCHASING, ENERGY CONSERVATION LOANS,
AND ENERGY PERFORMANCE CONTRACTING
This chapter discusses the contracting methods associated with energy conservation
loans (subsidy add-on), energy performance contracting and utility purchasing. For
additional information related to energy conservation opportunities, project
planning, monitoring, performance contracting models, financing and other related
energy subjects, refer to the resources section cited in 17.6.
17.2 Energy Conservation Loans (Operating Subsidy Add-On)
Under this financing incentive, a PHA obtains a loan to finance energy improvements.
The PHA receives a subsidy add-on under 24 CFR 990.185 to cover the cost of
amortizing the improvement loan during the term of the contract. The amount of the
add-on must not exceed the cost savings generated each year by the energy
conservation measures (ECMs) installed under the contract.
Before initiating an energy conservation loan, a PHA must procure a Comprehensive
Energy Analysis (CEA) from a qualified vendor and must have the CEA, along with the
list of identified improvements, reviewed and approved by HUD. HUD must also review
and approve the loan document. The improvements are procured in the same manner as
any other purchases addressed in this handbook.
17.3 Energy Performance Contracting (Frozen Rolling Base Incentive)
A. General. Energy performance contracting allows the PHA to qualify
for the incentive to freeze the utility rolling base (see 24 CFR
990.185). A PHA’s utility expense level (UEL) will be calculated at
the pre-retrofit consumption level. The PHA keeps 100 percent of the
savings that result from the decreased consumption due to the energy
efficiency measures installed, of which 75 percent must be used to
pay off the debt and related project costs.
B. Third-Party Energy Performance Contracts (EPCs). With a
third-party EPC, the energy performance contractor must be
procured in a manner that provides full and open competition
consistent with the instructions in this handbook and 24 CFR
85.36. Typically, this means procurement by competitive
For Third-Party EPCs, HUD approval is required of:
A. The CEA, which the PHA must procure from a qualified vendor
B. The RFP for the energy contractor, prior to advertisement.
Approval will be based upon a determination by HUD that
payments under the contract can be funded from the
reasonably anticipated energy cost savings.
C. The final performance contract negotiated between the PHA
and the energy performance contractor.
C. Self-Managed Energy Performance Contracts. PHAs may, at their
discretion, seek to self-manage an energy performance contract. The
energy improvements are procured in the same manner as any other
purchases addressed in this handbook.
Handbook No. 7460.8 REV 2
PHAs must be designated Standard Performers or High Performers
under the Public Housing Assessment System (PHAS) to complete
energy projects without an energy services company. HUD will
consider requests on a case-by-case basis from PHAs designated as
Troubled under PHAS when an authority is able to show it has the
appropriate capabilities to successfully complete the project.
For self-managed EPCs, HUD approval must be secured for the following:
1. In lieu of the RFP commonly used with third-party EPCs,
the PHA must provide a detailed energy project plan.
The project plan will include an assessment of its
facility needs; PHA statement of capabilities and
internal project processes; an assessment of the
agency’s energy opportunities, including capital costs
and estimated savings; financial cash flow projections;
a project commissioning and preventative maintenance
plan; and a measurement & verification plan. PHAs must
have on their team a licensed (bonded) professional
engineer familiar with performance contracting,
commissioning, measurement & verification, state and
2. An initial plan must be submitted to the HUD field office
for review and approval to proceed. After a detailed
engineering study is completed, the PHA will submit its
detailed project plan for field office review and approval.
The detailed study will be based on actual quotes for
construction, finance, maintenance, and other costs. The
PHA must also identify how it will complete design and
construction and integrate the energy project with its
ongoing modernization program. Included in its energy
project plan the PHA will include a detailed description of
its construction management practices and associated
financial controls. The description should include
protocols for design, construction inspections,
construction draws, and requisition approvals.
17.4 Utility Purchasing
Deregulation and restructuring in the utility industry allows utility providers to
operate like other open markets, with greater competition and choices. These
changes offer utility consumers such as PHAs an opportunity to achieve lower
utility costs by purchasing energy directly from the utility providers at lower
rates, based on a direct rate reduction or from new consumer rate strategies. Where
deregulation has occurred and there are multiple providers, PHAs must competitively
procure utilities in accordance with 24 CFR § 85.36.
Alternately, where deregulation has not occurred (a publicly regulated rate
environment where there is one utility provider for gas, electric, fuel, oil and/or
water), the PHA is not required to competitively procure utilities. Further, unlike
other sole source procurements, the PHA does not need to justify the reasonableness
of the price charged or require HUD approval.
17.5 Procurement Regulations Pertaining to Energy Conservation Loans and Energy Performance
Conceptually, both strategies are nothing more than financing methods that result in
energy savings over a period of time. Both operate within the guidelines of all
Federal procurement regulations specified elsewhere in this handbook.
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A. PHAs must adhere to applicable State and local procurement
requirements, as well as the PHA’s Procurement Policy. For
example, the PHA must include the form HUD-5370, General
Conditions of Contracts for Construction, with all construction
contracts for more than $100,000; or form HUD-5370-EZ for
construction contracts between $2,000 and $100,000;
B. PHAs must treat the energy improvement measures as any capital
program and follow requirements for Federally funded construction
C. In capturing the savings, PHAs must conform to the requirements
defined in the Operating Fund rule (24 CFR Part 990);
E. With respect to third-party EPCs, negotiating terms and conditions
can be a crucial component of the procurement process.
Additional information and expertise on energy conservation loans, energy performance
contracting, and other energy conservation measures can be found at:
A. Relevant Public Housing Notices and Guidebooks
1. Energy Performance Contracting for Public and Indian
Housing – A Guide for Participants, prepared by HUD/DOE
(2/92). This guidebook, which outlines the details of
preparing, implementing, and managing an energy
performance contract is available at HUD User
(1-800-245-2691), www.huduser.org or the HUD PIH Energy
Conservation Clearinghouse webpage at:
2. Energy Conservation for Housing – A Workbook prepared by
HUD 9/98. This guidebook outlines the details of preparing,
implementing, and managing an energy performance contract.
The workbook is available from the Public and Indian
Housing Information and Resource Center (PIH IRC) at
1-800-955-2232 or the PIH Energy Conservation Clearinghouse
3. Training Materials for Streamlining Energy Performance
Contracting can be obtained at:
4. These documents are available from HUD User (1-800-245-2691
or www.huduser.org or Public and Indian Housing energy site
a. Any successor or related notices, handbooks, or
B. Local HUD. From the beginning of the planning process, view the
local HUD Field Office as a partner in the process. Involving the
HUD field office early and throughout the project should help to
obtain a timely review and approval by HUD. HUD is required to
approve key documents in the process and will be able to provide
guidance proactively in order to expedite the approval process.
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HUD field office will be able to provide information on other PHAs
using performance contracting and sources of technical assistance
in the area.
C. If no relevant technical expertise exists within the PHA, the PHA
should consider engaging the services of a qualified consultant.
These fees can be paid from the savings generated or the capital
budget. (Note: Such an individual or firm may not later be
included, or compete, in a solicitation for the energy performance
D. Other Federal and private energy-conservation programs or local
E. Other PHAs who have successfully implemented these utility
conservation measures. HUD’s energy website related to
“Success Stories” can be helpful