[Federal Register Volume 74, Number 15 (Monday, January 26, 2009)]
[Rules and Regulations]
[Pages 4638-4639]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-1252]



[[Page 4637]]

-----------------------------------------------------------------------

Part VI





Department of Housing and Urban Development





-----------------------------------------------------------------------



24 CFR Part 990



Public Housing Operating Fund Program; Increased Terms of Energy 
Performance Contracts; Final Rule

Federal Register / Vol. 74, No. 15 / Monday, January 26, 2009 / Rules 
and Regulations

[[Page 4638]]


-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 990

[Docket Number FR-5057-F-02]
RIN 2577-AC66


Public Housing Operating Fund Program; Increased Terms of Energy 
Performance Contracts

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This rule makes final the conforming amendments to the 
regulations of the Public Housing Operating Fund Program to reflect 
recent statutory amendments allowing for: (1) The maximum term of an 
energy performance contract (EPC) between a public housing authority 
(PHA) and an entity other than HUD to be up to 20 years, and (2) the 
extension of an existing EPC, without reprocurement, to a period of no 
more than 20 years, to allow additional energy conservation 
improvements. The increase in the maximum EPC term, which was limited 
to 12 years, is provided by statutory amendments and will enable longer 
payback periods for energy conservation measures. This final rule 
adopts an October 16, 2008 interim rule without change.

DATES: Effective Date: February 25, 2009.

FOR FURTHER INFORMATION CONTACT: David J. Reeves, Deputy Assistant 
Secretary, Departmental Real Estate Assessment Center, Office of Public 
and Indian Housing, Department of Housing and Urban Development, 451 
7th Street, SW., Room 2000, Washington, DC 20410-5000; telephone number 
202-475-8906 (this is not a toll-free number). Individuals with speech 
or hearing impairments may access this number through TTY by calling 
the toll-free Federal Information Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 9(e) of the United States Housing Act of 1937 (42 U.S.C. 
1437 et seq.) (1937 Act) establishes an Operating Fund for the purpose 
of making assistance available to PHAs to operate and manage public 
housing. HUD's regulations implementing section 9(e) of the 1937 Act 
are located at 24 CFR part 990 (entitled ``The Public Housing Operating 
Fund Program''). The part 990 regulations contain the policies and 
procedures governing the Operating Fund allocation formula used by HUD 
to distribute operating subsidies to PHAs.
    On September 19, 2005, at 70 FR 54984, HUD published a final rule 
amending the regulations at 24 CFR part 990 to provide a new formula 
for distributing operating subsidies to PHAs and to establish 
requirements that PHAs convert to asset management. The September 19, 
2005, final rule provides PHAs with incentives for energy conservation 
and utility rate reduction. The energy conservation methods may 
include, but are not limited to, physical improvements financed by a 
loan from a bank, utility, or governmental entity; management of costs 
under a performance contract; or a shared savings agreement with a 
private energy company. The final rule also provided, in Sec.  
990.185(a), that the term of the contract under which these energy 
conservation measures are taken cannot exceed 12 years.
    On August 8, 2005, President Bush signed into law the Energy Policy 
Act of 2005 (Pub. L. 109-58, 119 Stat. 594) (Energy Policy Act). 
Subtitle D of the Energy Policy Act amended section 9 of the 1937 Act 
to promote the use in public housing of innovative approaches to 
achieve programmatic efficiency and reduce utility costs. Specifically, 
section 151 of the Energy Policy Act amended section 9(e)(2)(C) of the 
1937 Act, which governs the treatment of waste and utility savings 
under the Operating Fund allocation formula. The amendment made by 
section 151 of the Energy Policy Act provides that qualifying contracts 
for energy conservation improvements may have terms of not more than 20 
years. (See 119 Stat. 647-648.) The Energy Policy Act also amended the 
Operating Fund treatment of savings resulting from such contracts. It 
allows for longer payback periods for retrofits, including windows, 
heating system replacements, wall insulation, site-based generation, 
advanced energy saving technologies, including renewable energy 
generation, and other such retrofits.
    The Consolidated Appropriations Act, 2008 (Pub. L. 110-161, 121 
Stat. 1844, approved December 26, 2007), amended section 9(e)(2)(C) of 
the 1937 Act (42 U.S.C. 1437g(e)(2)(C)), by adding the following 
clause:

    (iv) EXISTING CONTRACTS.--The term of a contract described in 
clause (i) that, as of the date of enactment of this clause, is in 
repayment and has a term of not more than 12 years, may be extended 
to a term of not more than 20 years to permit additional energy 
conservation improvements without requiring the reprocurement of 
energy performance, contractors.

(See administrative provision, section 229, of title II of Division K, 
at 121 Stat. 2438.)

II. The October 16, 2008, Interim Rule

    On October 16, 2008 (73 FR 6135), HUD published an interim rule 
that amended the regulations at 24 CFR 990.185. The interim rule 
provided that, consistent with the amendment to the 1937 Act by section 
151 of the Energy Policy Act, the term of an EPC between a PHA and an 
entity other than HUD may be up to 20 years. Consistent with the 
amendment made to section 9(e)(C)(2) by the Consolidated Appropriations 
Act, 2008, the interim rule also permitted the extension of executed 
EPCs to a term of not more than 20 years without requiring a new 
competitive procurement process. The provision for entering into EPCs 
with terms greater than 12 years and for extending the terms of 
executed EPCs commenced to apply on the effective date of the interim 
rule, which was November 17, 2008. The interim rule clarified that, 
consistent with the statute, to qualify for the incentives under Sec.  
990.185, the financing of energy conservation measures by a party other 
than HUD must be undertaken pursuant to a contract. The interim rule 
also clarified that the term ``energy performance contract'' 
encompasses all contracts that qualify under Sec.  990.185, regardless 
of the energy conservation measure involved or the entity that is the 
other party to the contract with the PHA.

III. This Final Rule

    The October 16, 2008 interim rule provided a 60-day public comment 
period. HUD received one public comment by the close of the public 
comment period on December 15, 2008.
    The commenter supported the interim rule but expressed concern that 
its effectiveness could be limited due to two considerations. According 
to the commenter, HUD underestimates total utility costs, resulting in 
insufficient funding for PHAs to use to pay back EPCs, even with 
extended payback periods. The commenter argued that HUD should change 
its method for allocating utility subsidies to PHAs in order to avoid 
underestimating actual utility costs. In addition, the commenter 
expressed concern that EPC companies may overestimate the prospective 
savings from energy conservation measures. The commenter advocated 
oversight of EPC companies to prevent PHAs from paying too much in

[[Page 4639]]

exchange for measures that result in insufficient savings.
    HUD appreciates the commenter's concerns and will take them under 
consideration as it develops additional guidance on the use and 
analysis of EPCs. HUD notes, however, that practices required under its 
asset management initiative result in increased accuracy in estimating 
utility costs, and HUD already reviews PHAs' proposed EPCs, including 
assumptions made about prospective utility cost savings. HUD encourages 
PHAs to negotiate savings guarantee provisions in their EPCs to reduce 
the risk to the PHA that savings from energy conservation measures will 
be insufficient to cover the PHA's obligations under the EPC. HUD 
refers PHAs to its publication, ``Energy Performance Contracting for 
Public and Indian Housing: A Guide for Participants'' (the ``Green 
Book''), which provides extensive guidance and technical assistance on 
planning and negotiating successful and cost-effective EPCs. HUD 
anticipates that it will be issuing a revision to the Green Book to 
incorporate leading industry trends and best practices. If HUD 
determines that further regulatory action is warranted to address the 
issues raised by the commenter, it will undertake separate rulemaking.
    This rule therefore makes final the October 16, 2008, interim rule 
without change.

IV. Findings and Certifications

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments and the private sector. This final rule does not 
impose any federal mandates on any state, local, or tribal government 
or the private sector within the meaning of UMRA.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Order. This rule does not have federalism 
implications and would not impose substantial direct compliance costs 
on state and local governments nor preempt state law within the meaning 
of the Order.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
This rule, consistent with recent statutory amendments, provides PHAs 
with the flexibility to enter into energy performance contracts with 
terms of not more than 20 years. These revisions impose no significant 
economic impact on a substantial number of small entities. Therefore, 
the undersigned certifies that this rule will not have a significant 
impact on a substantial number of small entities.

Environmental Impact

    This final rule does not direct, provide for assistance or loan and 
mortgage insurance for, or otherwise govern or regulate real property 
acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction; or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this rule 
is categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321).

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program number is 
14.850.

List of Subjects in 24 CFR Part 990

    Accounting, Grant programs--housing and community development, 
Public housing, Reporting and recordkeeping requirements.

0
Accordingly, for the reasons described in the preamble, HUD makes final 
the October 16, 2008, interim rule (73 FR 6135) without change.

    Dated: January 14, 2009.
Paula O. Blunt,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. E9-1252 Filed 1-23-09; 8:45 am]
BILLING CODE 4210-67-P