Minneapolis energy-efficiency program saves millions
With Energy-Efficiency Program

Energy-saving capital improvements in Minneapolis public housing are paying for themselves. The Minneapolis Public Housing Authority (MPHA) became involved with a little-used HUD program in 1995—the Energy Performance Contracting (EPC) program—to rehabilitate the water, sewer, heating, and cooling systems of 40 highrise developments. The housing authority financed the cost of the rehabilitation by floating a $3.2 million bond. Working with Energy Masters International (EMI), a HUD-certified energy service company, and Egan Companies, a local contractor, MPHA completed work on nearly 5,000 units of elderly and single-residence housing in 18 months. Today the housing authority is using the savings in operating costs made possible by the more efficient equipment to pay off the costs of these improvements. During the first 18 months of the program, MPHA saved more than $1 million and anticipates saving approximately $3 million over the 10-year program period.

How EPC works. To Pete Sturm, project manager for energy conservation at MPHA, the EPC program looked like an opportunity “to get something for nothing.” Housing authorities cannot borrow money to make capital improvements, but EPC provides an alternative to this kind of funding. Under EPC a housing authority can average the cost of energy consumption and receive that baseline level of subsidy from HUD for 10 years after installing energy-saving equipment. The housing authority then subtracts its current costs from the baseline and keeps the difference, using it as a source of cash flow to pay for the new equipment over time. The level at which HUD freezes its energy subsidy is based on the average consumption during a recent 3-year period, taking into account the load of equipment not operating.

HUD started the program in 1987 as an incentive to upgrade utilities and save energy in public and Indian housing. Under EPC, public housing authorities send out a request for proposal to selected contractors for energy audits and retrofitting. The selected contractor then performs a feasibility study to determine whether the potential energy savings would be sufficient for the program’s success. EPC allows for performance contracts so that the contractor must guarantee an annual level of savings at least equal to the cost of the improvements. Housing authorities can finance the upgrades through HUD modernization funds or by floating a local bond. The bond offers more flexibility because the funds are not covered by federal procurement regulations, which can be burdensome, according to Sturm.

Saving energy in Minneapolis. In 1995 MPHA signed a contract with Kansas City-based EMI to create its own Energy Savings Contracting Opportunities program. EMI conducted a feasibility study of the Minneapolis public housing stock, focusing on 40 highrise developments built between 1958 and 1974. These buildings contain 4,856 units—residences for elderly and single residents. MPHA does not house its public housing families in highrises but rather in one rowhouse-style development and scattered-site homes.

By the early 1990s, aging heating and cooling systems in the highrises had driven utility costs to an all-time high. Frequent equipment breakdowns created discomfort for residents, drained staff time, and increased repair budgets. In 1995 MPHA floated a $3.2 million bond and signed a $2.8 million lease agreement for the necessary new equipment. MPHA also struck a deal with EMI to share savings over those the company had already guaranteed, with MPHA receiving 80 percent and the contractor receiving 20 percent. In partnership with Egan Companies, a local subcontractor, EMI procured and installed all improvements. Because most of the rehab work occurred in main systems or common areas, residents did not have to vacate while work was done. “The most intrusive work was on the toilets, since we had to enter each unit,” said Sturm.

The work was completed in 18 months, from January 1997 to June 1998. Improvements included:

  • T8 lighting. These modern lighting fixtures—installed in hallways, stairways, and common areas—use half the energy of but provide more light than conventional fixtures.

  • Water-saving toilets. The new 1.6-gallon-per-flush toilets replaced nearly 3,600 high-water-use toilets in residents’ units.

  • Constant air regulators (CARs). The air regulators equalized airflow among bathroom exhaust systems.

  • Variable frequency drives (VFDs). MPHA installed VFDs on ventilation fans, pump motors, and CARs throughout the highrises. VFDs assist the building’s air handler to precisely adjust airflow.

  • Automated energy-monitoring systems. The housing authority installed 33 automated systems (some covered more than one highrise) to monitor, diagnose, and program the buildings’ energy management and performance.

New equipment reduced consumption in water, natural gas, and electricity. The water-saving toilets saved approximately 65 gallons of water per unit per day. Before installing the new toilets, MPHA used approximately 258 million gallons of water per year. Today it uses 157 million gallons—an almost 40-percent reduction. The VFDs dramatically reduced demand on gas-driven boilers and furnaces.

The high-tech heating and cooling monitoring system enables MPHA staff to monitor and control components from a distance and in several buildings at one time. Staff can quickly respond to problems and determine whether a breakdown requires immediate attention or can wait until the next business day. The system can even anticipate problems. “We have been able to respond to problems even before residents are aware anything has gone wrong,” says Sturm.

During the initial 18-month period, MPHA saved $635,000 in water costs, $214,000 in electricity, and $192,000 in gas costs—a total savings of more than $1 million, outperforming contractor guarantees. MPHA has been able to use the money saved to perform additional modernization work on the units.

Only public and Indian housing authorities can use the EPC program, but, given the savings that can be realized, Strum believes it might be possible for other types of housing organizations to work with private contractors and lenders for similar situations. MPHA won a 2000 Excellence Award from the National Association of Housing and Redevelopment Officials (NAHRO) for this program.

For more information, contact: Pete Sturm, Project Manager, Energy Conservation, Minneapolis Public Housing Authority, 1001 Washington Avenue North, Minneapolis, MN 55401, (612) 342–1226,

Or see: “The NAHRO Excellence Awards,” by J. Marilyn Henry, Journal of Housing and Community Development, Vol. 57, No. 1 (January/February 2000), 630 Eye Street, NW, Washington, DC 20001–3736.

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