AHEEA eNewsletter Issue 3

The AHEEA program is offering free energy efficiency design assistance for affordable new construction and rehabilitation projects. Project specific technical assistance is available to help the design team in identifying cost effective energy efficiency measures.

The program also offers facilitation of energy efficiency design charrettes or workshops. Through a design charrette focused specifically on energy efficiency, all parties involved in the design and building process, from the beginning stages through completion, are invited to contribute to and understand energy saving strategies for a particular project. In an energy efficiency design charrette, the team works together to:

If you are interested in receiving design assistance or would like to plan an energy efficiency design charrette for your affordable housing project, please contact Julieann Summerford at (760) 436-7002 or summerford@h-m-g.com.

New construction affordable housing projects competing for Low Income Housing Tax Credits can earn four points, from a maximum of eight points available under the sustainable building methods category, by designing a building that is at least 10% better than the minimum Title 24 standard. Rehabilitation projects can also earn four points if there is at least a 25% improvement in energy efficiency.

A four percent increase in the Threshold Basis Limit is permitted when a new construction project includes additional three energy efficiency/resource conservation/indoor air quality measures. A project that exceeds Title 24 by 15% qualifies for one such point. In addition, a further 5% increase in basis limits is permitted at the discretion of the TCAC executive director, when renewable energy systems, such as solar water heating and photovoltaics, are cost effectively incorporated.

Since most utility incentive programs require new construction projects to be at least 15% better than Title 24, there are several advantages for affordable housing projects to also enroll in these programs. By increasing energy efficiency from 10%, which is already earning four competitive TCAC points, to 15%, the project is also eligible for utility incentives starting at $150/unit. At 15% better than title 24 a project earns one of the three points necessary to qualify for a 4% increase in basis limit. Additionally, high rise rental units that are 15% better than Title 24 will be close to meeting the requirements for the federal energy efficiency tax deduction incentive of $1.80/sf on a whole building basis. If currently introduced legislation is passed, low rise rental units that are 15% better than Title 24 will also come close to meeting the requirements for the federal energy efficiency tax credit of up to $2,000/unit.

The Energy Policy Act of 2005 (EPAct 2005) currently offers limited incentives to affordable housing owners who build energy efficient buildings for rent through December 31, 2008. But, if new bi-partisan legislation introduced in the House and Senate in March is passed, it will extend and improve EPAct 2005 to include all affordable housing owners.

Due to an interpretation by the IRS that contradicts the intent of the original EPAct 2005 legislation, currently only rental units in high-rise residential buildings are eligible for the new federal energy efficiency incentives. These would come in the form of a tax deduction of $1.80/sf on a whole building basis, or $0.60/sf each for envelope, HVAC or lighting sub-systems. The energy efficiency threshold is 50% better than ASHRAE 90.1 (2001) and high-rise residential is defined as four habitable stories or more (e.g. first floor retail would count as one floor, whereas first floor parking would not).

The national ASHRAE 90.1 standard is different from California's Title 24 standard but it is expected that projects that are 15% better than Title 24 will be close to meeting the energy efficiency threshold required to receive the incentive. Therefore, multifamily new construction projects in SCE service territory, enrolled in the California New Homes Programs (CANHP), are eligible to receive design assistance in meeting the requirements of both incentive programs.

Both of California's Title 24 compliance software programs now have certified tax credit/deduction modules and every qualifying home shall be independently field tested by a trained and accredited HERS Rater to verify the energy performance of the home.

NEWS FLASH!
New legislation has just been introduced into both the House and the Senate, with an impressive bi-partisan list of co-sponsors and a diverse group of supportive organizations, to further extend and improve on the energy efficiency and solar energy tax incentives first introduced in the Energy Policy Act of 2005 (EPAct 2005). Passage of the EXTEND the Energy Efficiency Incentives Act of 2007 (EXTEND) will have important implications for affordable housing developer. The new legislation

This last point corrects the unintended exclusion of low-rise rental units from the tax incentive benefits of the original EPAct 2005. Passage of the legislation is expected before July 4th, 2007.

Projects that qualify for California's utility incentive programs will already be close to meeting the energy efficiency requirements. Heschong Mahone Group will provide design assistance to help projects that are enrolled in Southern California Edison's California New Homes Program (CANHP) (multifamily) and Pacific Gas & Electric's California Multifamily New Homes (CMFNH) energy efficiency incentive programs also meet the federal requirements, making them eligible for up to the $2,000/unit tax credit.

We hear repeatedly that energy efficiency measures increase comfort for tenants, but how? How does the owner benefit? Energy efficiency can provide comfort aesthetically and financially, and to both tenant and owner.

The aesthetic result, including visual, auditory and tactile perceptions, of an energy efficient building design is superior to that of conventional buildings, partly because it involves an initial level of care. Thermal comfort is a combination of physics and human perception, and is unique to each person. Though it is impossible to please everyone, there are measures we can take to increase the comfort of the majority.

The body cools itself naturally through perspiration. Breezes also help as they blow across our skin and increase the rate of evaporation. This natural cooling that brings relief outside on a hot day can cause discomfort inside a poorly conditioned space. Drafts are the most common example of this discomfort. Even in a well heated space, a tiny crack or opening in the building envelope can allow a small but powerful airflow into the house, causing a chill. It is typically not the temperature of the air, but its movement across the skin that causes discomfort.

The first step in designing for energy efficiency requires sealing the building envelope to reduce infiltration. In addition to the energy savings associated with a well-sealed building, there will be no drafts and less variation in temperature throughout the day. Therefore, the better sealed and insulated a room is, the smaller the heating and cooling systems, the less fan power required, and the more comfortable the space will be in sound and temperature.

Low E and insulated windows help decrease the discomfort of hot surface temperatures and heat gain to the space. Instead of covering these windows to block out heat and harmful UV rays, we can take advantage of daylighting and decrease the need for artificial lighting, which can be less visually pleasing.

The financial benefits of energy efficiency are most obvious. When a building is designed to passively create comfortable conditions, the mechanical systems needed to condition the spaces can be reduced in size, and therefore cost less to the owner to install and maintain. The tenant also reaps financial benefits with lower utility bills. The ease of financial burdens is especially important in low-income housing, making affordable housing the ultimate candidate for energy efficiency upgrades. To increase financial relief further, there are numerous incentive and rebate programs available specifically to affordable housing projects.

Energy efficiency creates comfort for all parties involved. The tenant benefits from thermal and auditory comfort and lower utility bills; fewer complaints and less required maintenance satisfy building operations and management staff; and higher rental incomes, and/or lower utility bills, combined with low tenant turnover rates create profit and stability for owners.

To stem rising energy costs, Region 9's Office of Multifamily Housing is undertaking an important partnership to facilitate energy efficiency improvements and reduce energy consumption in HUD-subsidized properties. The objective of the Multifamily Energy Efficiency Initiative is to provide energy audit and technical assistance to subsidized multifamily properties through partnerships with energy efficiency program providers to effect investment in cost effective energy efficiency measures in conjunction with ongoing FHA transactions.

Investments in energy efficiency improvements as part of planned refinancing transactions can significantly lower operating costs and, in the case of supportive housing, enable housing sponsors to enhance services to residents. Such improvements can also improve indoor environmental quality and increase resident comfort and affordability and, potentially, the viability and marketability of the project, which are important aspects that are examined in refinancing deals.

Long-Term Section 8 Contract Renewals. The long-term renewal of housing assistance contracts and utility assistance payments represents a 20-year resource commitment by HUD. To encourage energy efficiency and reduce energy consumption in HUD subsidized buildings over this investment period, project sponsors requesting long-term renewal of Section 8 housing assisting contracts are requested to undertake a project energy audit and incorporate cost-effective energy efficiency measures in the project refinancing and project reserve for replacement plans.

Section 202 Refinancing. Many projects developed under HUD's 2020 program were constructed between 20 and 30 years ago with up to 40 year fixed rate mortgages carrying steep interest rates. These projects are now experiencing maturing building systems and physical dilapidation at the same time that their resident population is aging and in need of services not originally provided as part of an independent living facility. These properties are also increasing in value due to steep increases in the value of land. FHA preservation efforts permit properties to refinance 202 mortgages using FHA mortgage insurance. Energy audits will be made available to project sponsors to assist in identifying cost effective energy efficiency improvements that can be reasonably included in refinancing plans with improvements called for in Physical Condition and Needs Assessments.

HUD believes that these transactions have the necessary financing capacity and contract administration processes in place to accomplish energy retrofits capable of reducing energy consumption by 20 percent or more.

Step 1: Project Selection. In conjunction with the Office of Multifamily Housing's Pre-application Review Process HUD will make an initial desk assessment of targeted multifamily projects to determine whether they are appropriate candidates for the pilot program. The assessment should consider:

Step 2: Audit Referral. Once a project is determined to be an appropriate candidate for the energy efficiency pilot, the project sponsor will receive contact information for energy audit providers participating in this initiative. Project sponsors may request and schedule an energy audit with a participating energy audit providers or alternatively may elect to contract for their own energy auditing services.

Step 3: Audit Scheduling. Project sponsors are responsible for making arrangements with the energy audit providers to schedule the audit.

Step 4: Energy Efficiency Recommendations. Energy audit providers will provide the project sponsor and HUD with a copy of the energy audit.

Additional technical support may be available to project sponsors from energy efficiency program providers to assist in developing project energy efficiency investment strategies and plans, providing specifications for energy efficiency products and equipment, and identifying energy rebates and incentives.

Step 5: Linking Energy to Project Plans. AEC reviews on all projects now recommend the use of energy saving devices and measures including Energy Star standards and appliances. Owners are asked to explore energy saving devices and methods in their final plans and specifications. The prioritized list of energy efficiency measures provided by the energy audit will be a useful tool for AEC reviewers to conduct effective and systematic reviews of energy improvements.

Project sponsors are asked to include cost effective energy efficiency measures in the project's refinancing plan along with improvements identified in the Physical Condition and Needs Assessment. Energy efficiency measures not funded through refinancing should be addressed in project operations and Reserve for Replacement Schedules.

What Energy Investments to Include In Capital Plans. The goal of the Multifamily Energy Efficiency Pilot program is to produce economic savings for the project sponsor and assisted households through cost-effective energy efficiency investments.

Typically an energy investment plan is created after an energy audit identifies areas for potential improvement. A project's investment strategy should reflect the financial criteria that the sponsor's organization usually applies to capital expenditures. Typically, this entails targeting investments that produce energy savings or cash flows large enough to pay back investments within a specified time frame.

Depending on the improvements recommended by the energy audit, energy investments can be made through operations, replacement reserves, of financing transactions. For this initiative, HUD requests project sponsors seeking long-term renewal of Section 8 housing assisting contracts to include cost-effective energy investments with pay-back periods of 5 year or less as part of project's refinancing transactions or alternatively in conjunction with project operating or reserve for replacement plans. Energy Audits will list cost effective energy efficiency measures by payback period, which takes account of estimated reductions to energy consumption, the added cost of energy efficiency improvements, and energy rates.

For more information about these programs, articles or questions, please contact:

Heschong Mahone Group, Inc.	Julieann Summerford
144 West D Street, Suite 24	619-917-5690
Encinitas, CA 92024	summerford@h-m-g.com