Welcome to HUD's Vignette on the Small Rural Frozen Rolling Base program. My name is Dick Santangelo, president of Apollo Engineering Solutions. The S-R-F-R-B vignettes was developed under a contract with HUD's Energy Branch, public Housing Financial Management Division. Today's vignette, we will introduce and learn about the Small Rural Frozen Rolling Base program. We'll also talk about how small PHAs can maximize the frozen rolling base or FRB incentive in combination with benefits from the In
flation Reduction Act of 2022 to address their deferred energy capital needs. Our purpose today is to inform and promote the opportunities of the Small Rural Frozen Rolling Base program to small rural public housing authorities. We will give you some history of HUD's efforts to promote energy conservation and public housing, and to better understand the focus of the S-R-F-R-B program, we will talk about funding your projects with capital operating funds, rebates, non-federal funds, and the oppor
tunities of the Inflation Reduction Act. We will discuss some simple steps to get started in the S-R-F-R-B program and demo some case studies to show the potential benefits. We'll also address some of your concerns that came up in our interviews with PHAs, considering the Rental Assistance Demonstration or RAD. We will talk briefly about the next steps for participating in the S-R-F-R-B program and provide you with resources to help you succeed. For those of you that have already signed up and a
re participating in the S-R-F-R-B, this vignette will also serve to address questions you may have. Uh, since you have signed up, I did wanna recognize your colleagues that participated in the interviews along with PHADA, NAHRO, Ameresco, and Johnson Controls. We knew from the start that to make this vignette and upcoming webinar successful, we needed to speak with the PHAs and industry groups that have lived with the S-R-F-R-B program. What are the lessons learned? How can HUD better promote th
e program? What can be done in the way of technical assistance to ensure success? There will be a live webinar later this year to get more into the details of how you can successfully implement the program. Thank you again to all the housing authorities, their executive directors, and the industry groups for their time and feedback on their experiences with the S-R-F-R-B program. We heard you, as I discussed, the feedback from the housing authorities and industry groups was critical to identifyi
ng the topics that needed to be addressed in HUD's promotional efforts. What is the S-R-F-R-B? Is it worth my time and effort to participate? How does the S-R-F-R-B intersect with RAD? What resources are available to my PHA? By the end of the vignette, we hope to promote the savings Benefits of the S-R-F-R-B program, demonstrate how PHAs can begin to address their deferred capital energy needs and the available resources to assist PHAs to succeed in the implementation of the S-R-F-R-B program. A
s a student of history, we can learn much from the past. Let's take a minute and look at HUD's efforts to promote energy and water conservation in public housing Over the years. In 2010, HUD conducted a capital needs assessment of PHAs, adjusting the capital needs for small PHAs that was identified in 2010 and adjusting for inflation at 3%. It is estimated that the capital needs for small housing authorities is approximately 22,396,000 per unit. It has also been estimated that 30% of the capital
needs are attributed to energy and utility related systems, throw in the cost of maintaining obsolete equipment and higher utility costs. And you could see how a PHA's operating expenses continues to rise. Shortfalls in capital funding in the late eighties and nineties created a need for alternative approach for addressing building improvements to reduce energy and water use, and increase operational efficiency in public housing authorities. The Energy Performance Contract program, or EPC, was
born as a financing technique that uses energy and or water cost savings to repay the cost of installing energy conservation measures or ECMs. EPCs can pay for today's facility upgrades with tomorrow's energy or water savings. Small PHAs have been underserved by traditional energy service companies and in the investor market due to several factors that included higher risks, higher administrative costs, and low profit margins. Particularly when you're talking about a project that's less than 3 m
illion. Unfortunately, to date, only 28 small, very small PHAs, 42 small PHAs, and 17 medium PHAs, For a total of 87 public housing authorities have actually participated in the program. Let's talk about some basic characteristics of the S-R-F-R-B program. The S-R-F-R-B program was designed to meet the needs of small rural housing authorities. Small Rural Frozen Rolling Base only employs the frozen rolling base incentive. We will talk more about this. Uh, just the frozen rolling base in a minute
. PHAs must meet the definition of both small and rural housing authorities. That is PHA administers 550 or fewer combined public housing units and vouchers. To see if you're eligible, Check on the link referenced below. A critical principle to keep in mind to realize frozen rolling based savings: A PHA must sign up to participate and invest in improved energy and water measures. Just signing up to participate and not reducing your consumption could actually cost your subsidy if your utility con
sumption goes above your baseline. We will talk more about this as the presentation goes Goes on. A PHA is not eligible to receive both an energy performance contract incentive and an S-R-F-R-B incentive at the same time in the same year A PHA can participate in in the S-R-F-R-B For PHA-paid utilities only. Units under resident paid utilities are not eligible. A PHA may request S-R-F-R-B participation only during the annual window established by financial management division. The S-R-F-R-B repor
ting period is July 1 of the beginning year to June 30th of the ending year. So for example, 7/1/23 to 6/30/24. So why should I consider participating in the S-R-F-R-B? I have deferred maintenance issues that I do not have funds to address. I don't have all the capital or operating funds for equipment replacement needed to reduce my consumption and operating costs. The S-R-F-R-B is most beneficial when implementing energy or water conservation measures. Financing is not required. My PHA can use
my operating or capital funds to pay for energy conservation improvements and still get the incentives. Frozen rolling base savings are available for any eligible capital or operating expenses. You can stack the Inflation Reduction Act benefits, other federal grants, non-federal grants, and rebates to further offset capital expenses. 100% of savings can be accrued and retained for by the PHA for up to 20 years. Let's talk about some opportunities. I'd like to call this slide. Show me the money.
Let's take a deeper dive into how the savings are generated in the S-R-F-R-B program. In particular, the frozen rolling base incentive. Recall in previous slides, we said that you needed to sign up for the S-R-F-R-B and establish a baseline as an S-R-F-R-B participant when your consumption goes down. Because of the improvements you made, for example, water efficient toilets, low flow shower heads, and bathroom fixtures, your PHA gets to keep a hundred percent of the savings as part of their oper
ating subsidy eligibility. Let's look at this three step process as an example to determine the achieved savings your PHA wants to retain in FY 2024. On the left side of the slide, we have step one. In step one, we wanna establish a baseline. So going forward, we could determine the savings for up to 20 years. We are looking to retain water savings in FY 2024. HUD requires that we look at three years of consumption data prior to the 18 months before FY 2024 to calculate the baseline. So in step
one, we see the consumption from 7/1/19 to 6/30/20 was 132,000 gallons. From 7/1/20 to 6/30/21, The consumption was 125,000 gallons. From 7/1/21 to 6/30/22, the consumption was a hundred thousand gallons. If we average the three consumption values, we have a consumption or baseline of 119,000 gallons. In step two, we wanna know how much water are we saving compared to the baseline. We use the baseline from step one: 119,000 gallons, and subtract the consumption from 7/1/22 to 6/30/23, which was
75,000 gallons. In step three, we calculate the dollars by multiplying the consumption savings in step two, which was $44,000 by the utility rate of 8 cents per gallon. The first year savings are 3,546 bucks. We can see from the example that the 44,000 gallon savings will continue to increase in value over time due to inflation. Let's diverge from the S-R-F-R-B topic to talk about the inflation reduction. Some of you may recall the American Recovery and Reinvestment Act of 2009 nicknamed ARRA. I
t was a stimulus package that included 995 million capital funds for PHAs. ARRA was a huge success for PHAs for addressing capital needs. An IRA of 2022 is the largest financial assistance package for building energy efficiency and emission reduction ever appropriated. It provides the largest amount of funding available to affordable housing for the breadth and depth of eligible capital measures, including efficiency, electrification, and resilience. The IRA allows us to rethink our buildings an
d use energy and enable climate adaptation funds are provided via four federal agencies, HUD, D-O-E, E-P-A, and Treasury. So why is he bringing up the IRA in a vignette on S-R-F-R-B? Well, because small PHAs can stack the IRA benefits on top of the annual savings generated by the frozen rolling base to offset the cost of new energy equipment. So what kind of money is available? We won't spend a lot of time on this slide. However, I wanted to give you the scope and funding levels available throug
h the IRA legislation. Much, much larger than ARRA. Also important to know is that the funds come by way of grants, incentives, and tax credits. Funds are provided via four federal agencies: HUD, D-O-E, E-P-A, and treasury. The DOE and EPA funding generally are available to PHAs through their state offices. Income tax credits are also available to PHAs and come directly from the IRS. HUD funds are earmarked for housing's multifamily, green, and resilient retrofit program. In this slide, I wanna
talk a little bit about the HUD IRA navigator tool. This navigator tool is available at the HUD website. The navigator is an interactive tool that allows the user to browse and sort funding opportunities for billions of dollars in funding available under the IRA or the Inflation Reduction Act and the bipartisan infrastructure law or bill for public housing and multifamily owners. They will be able to sort funding resources based on the audience activity, funding type, location, and other items.
The funding navigator helps HUD programs participants, in particular, to maximize the utilization of the IRA and bill resources for carbon reduction and climate resistance. In this slide, I extracted sections of the IRA legislation using the HUD navigator tool. These are benefits that are most applicable to small housing authorities, especially stacked on top of the frozen rolling basin incentive. As you can see, there are many opportunities for public housing authority buildings participating i
n HUD's public housing program that include high efficiency energy, electric improvements like appliances, lighting, HVAC, solar energy, geothermal fuel cells, wind turbines, combined heat and power systems, waste energy recovery systems, electric vehicles, charging stations, insulation windows, et cetera. It is important that your PHA begin by signing up with your appropriate DOE at EPA state offices to apply as a recipient as soon as possible. If your PHA also owns buildings that are receiving
HUD rental assistance under the multifamily Section 8 project-based rental assistance, or PBRA, Section 2 0 2, supportive housing for low income eligibility or uh, low income elderly and Section 811 supportive housing for low income persons with disabilities. You may also be available for funding under housings Green and Resilient Retrofit Programs, GRRP. I've thrown a lot of information at you today. Let's talk about what do I do and where do I start. Energy audits are critical for uncovering
operational and equipment improvement opportunities that will save energy, reduce energy costs, and help measure project performance. Energy audits determine where, when, why, and how energy is used in your PHA and to identify opportunities to improve efficiency. Energy audits can assess electric capacity requirements and distribution infrastructure needs to support additional electrification and load requirements. This is very important if your PHA is committed to moving from carbon fuels to to
tal electricity. The energy audit begins with review of historical and current utility data and benchmarks your building's energy performance against similar buildings. There are three levels of ASHRAE audits. ASHRAE stands for the American Society of Heating, refrigeration and Air Conditioning Engineers. The ASHRAE level one audit is a simple audit that involves a basic walkthrough assessment review or utility bills and other applicable operational data and interviews with operation staff. This
basic evaluation is designed to identify glaring energy problems and the cost generally are 8 to 10 cents per square foot. The ASHRAE level two, a little bit more detailed, uh, audit. It's an energy audit that identifies and provides savings and cost analysis of all practical measures, approximately 15 cents a square foot. And the level two audit is probably the recommended level of energy audit that should be done in preparation for, uh, putting a project together. ASHRAE level three is an ene
rgy audit often used with more detailed energy performance contracts using a whole building computer simulation where some type of computer program is used to very accurately model how brick and mortar buildings would react to change with various energy systems. HUD requires that all PHAs complete an energy audit for each PHA old project under management, not less than once every five years. Conducting an energy audit every five years is intended to adjust for inflation, adjust for changes in th
e PHA inventory, and most significantly capture new technologies. Energy audits are eligible operating expenses that can be paid through Inflation reduction Act. Some utility companies or nonprofits provide free or reduced cost energy audits. Before we jump into the case studies, I would be remiss if we did not talk about DOE Energy Star and water EPAs Water Sense pro uh, products. The list of measures has significantly increased over the years because of the federal government's focus on raisin
g the standards to drive greater energy and water efficiency. Aside from the IRA grants and incentive benefits, energy Star and EPA Water Sense measures can reduce energy and water consumption from 15 to 35%, significantly reducing your operating expenses under the S-R-F-R-B. Recall that for the next 20 years, these consumption savings can be retained and translated to dollars as cost of utilities continue to rise, new equipment can be paid from the retained savings. Show me the money. This slid
e gets down to dollars and cents on utility bills. There are assumptions made for the purpose of this example. Labor utility rates can vary based on locations, but let's look at a 10 unit PHA. The PHA is all one bedroom units and PHA paid utilities. Your potential utility savings will always depend on the specific characteristics of your portfolio. Our example is also typical of what a consultant might deliver as part of an energy audit. In this example, the left side of the chart displays the c
urrent inventory in column one and the age of the systems in column two. The third column of the chart displays the replacement systems. As you can see, the PHA is getting rid of gas and going all electric. Major appliances are being replaced. Lighting is going from CFL to LED. Water improvements include low flow toilets, shower heads, and faucet replacements. The PHA is committed to solar for its electricity and is looking to replace 75% of its current electricity supplied by the utility compan
y with a solar rooftop system over the apartments and covered parking spaces. The fourth column displays the current utility cost for gas, electric, and water. For the 10 one-bedroom units, total cost is $15,791 annually. The fifth column in green displays the approximate revised utilities post improvements with the addition of solar replacing 75% of the current electricity supplied by the utility company. The notes to the right are provided to explain the assumptions for the reduced utility cos
t. This example demonstrated the potential opportunity to reduce the utility expenses of the small PHA by approximately 31% before the installation of solar and 72% after solar installation. Again, I wanna emphasize using the projected savings from Energy Star and Water Sense can save PHAs as much as 31% without the solar. The PHAs investment in solar generates 75% of its electrical needs and can reduce its total utility expenses by 72%. I call your attention to the notes at the bottom of the sl
ide. Values are estimated and can vary based on utility rates, material and labor costs in your areas, and rebate eligibility within your state. Let's look at again another example using the same PHA with 10 units and one bedroom portfolio. What may be available from the IRA through the way of incentives grants to offset my capital cost to replace obsolete energy equipment. The left two columns reflect the same inventory of equipment displayed in the last slide. The third column displays the new
high energy efficiency equipment plan for the retrofit with the projected cost and including the installation cost. Again, all values are estimates; prices, labor in your area will vary. Some PHAs may actually install the equipment with in-house staff along with the brick and mortar energy capital needs. We included a replacement of the PHAs gas vehicle with an EV truck and charging station. We can see in column four that the total estimated cost of capital needs solar conversion and electric v
ehicle is $314,000. Column five displays the estimated and conservative resources derived from the IRA as referenced in the section of the IRA to the right. The notes highlights specific benefits used to derive potential subsidies. The bottom line of this example displays the potential benefit of $270,430 derived from the IRA leaving $44,070 to be paid from capital operating reserves or finance. Important to note S-R-F-R-B, which was identified in the previous slide, a savings of $11,380 annual
savings was not included in the calculation of the remaining balance of $44,070. The annual utility savings could further offset the capital needs. My PHA is considering RAD. So a quick review of RAD is an order. Since the question of intersection came in from our interviews, RAD has been proven successful at preserving and improving public housing properties while HUD has made RAD more accessible. RAD, for a variety of reasons, may not be for everyone. Bottom line is that the financial value of
a RAD transaction can be enhanced by a PHAs participation in the small rural frozen rolling base program. Now, calculation of RAD contract rents for an S-R-F-R-B participant allows for the frozen rolling base incentives for utilities to be locked in permanently for life of the Section 8 contract and subsequent renewals. So as you can see from the diagram, the RAD rents combine the existing operating and capital funds with tenant payments of $474. The S-R-F-R-B benefits are locked into the opera
ting fund after several years so that the RAD rents have the S-R-F-R-B incentives baked into the calculation of RAD rents. So yes, when a PHA is considering RAD, S-R-F-R-B participation may enhance the transition to RAD by potentially enhancing the RAD rents. Let's try to summarize what we've heard today. As we have shown in the example, you have an opportunity with the S-R-F-R-B and IRA to replace deteriorating energy and water systems, improving resident health and comfort, thereby reducing yo
ur PHAs annual operating and maintenance costs associated with aging energy and water infrastructure. The S-R-F-R-B program is a straightforward, easy approach to generating savings. If you make the investment in energy and water improvements, there is no annual requirements for measurement and verification reporting requirements. Your PHA retains 100% for up to 20 years. Financing is not required. Capital and or operating expen, uh, funds can be used to purchase or install equipment. Using our
example discussed earlier, the 10 unit PHA stacked the S-R-F-R-B incentives with the Inflation reduction Act benefits to buy down replacement costs of new equipment technology to the tune of approximately $25,000 A unit. PHAs contemplating RAD can lock in the S-R-F-R-B into their RAD rents. Let's talk about next steps. So your PHA has been looking at ways to replace obsolete energy systems. My current level of capital and operating funds do not address my long-term capital needs. So what am I to
do? What's my next steps? First, get familiar with the S-R-F-R-B notices and available IRA incentives. Consider registering your PHA with state energy or EPA offices, alerting them to your PHAs desire to participate in available IRA incentives. Devise a strategy with your board members that harvests all of the available HUD and IRA incentives. Consider and conduct an energy audit. If you don't measure it, you can't improve. Consider hiring an energy consultant to guide you through your your PHA
through the S-R-F-R-B program and the IRA processes. Costs are eligible operating expenses. In general, you run from 6 to 10% of the project costs. Determine how energy is used in your PHA. Identify opportunities to improve energy. Information from energy audits can be used to create energy projects, support capital planning, and improve facility management. Again, energy audits are eligible for operating expenses that can be paid through the IRA of 2022. Join other PHAs participating by submit
ting an S-R-F-R-B participation form to HUD for freezing the PHA paid utility baseline. Limited technical assistance is available. Contact SRFRB@hud.gov SRFRB@hud.gov for assistance. Consider hiring an energy consultant to guide your PHA through the S-R-F-R-B program and the IRA processes. Again, costs are eligible operating expenses and generally six to 10% of the, uh, project costs. Help is available. The energy branch staff stands ready to assist you. Resources are available on site and are n
oted on the slide. This slide lists where to find program notices, training videos, HUDs IRA navigator that we spoke about earlier, S-R-F-R-B application website if you are ready to sign on, And HUDs site for S-R-F-R-B questions. We wanna give you a heads up also to let you know about an upcoming webinar on the S-R-F-R-B program. In the webinar, we will go into more detail about the program and have time for attendees to ask questions. HUB will let you know when the webinar becomes available. In
the meantime, you may wanna get more familiar with the program notices, uh, listed in the resource slide and other resources on the, again, on the previous slide. Thank you for your attention. We hope that this vignette was successful in informing you about the opportunities to participate in the S-R-F-R-B program. Again, my name is Dick Santangelo, president of Apollo Engineering Solutions, and I wanna thank you for your time today.
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