An energy efficiency program for cost-burdened renters

Diamond Pointe
The Diamond Pointe apartment complex in Kenny was the first building to participate in the Multifamily Building Efficiency Program. Submitted photo

From the dead of winter to the sweltering summer months, utility bills can be a highly unpleasant reality, particularly for already cost-burdened renters.

In a move applauded by tenant rights and sustainability advocates alike, the Minneapolis City Council voted unanimously in February to expand the Commercial Building Energy Benchmarking and Transparency ordinance to include multifamily residential buildings. This allows prospective renters to make better financially informed decisions before signing a lease.

Janiece Watts is a policy associate with the statewide clean energy nonprofit Fresh Energy.

“Fresh Energy sees these disclosures as an important step in advancing equity in Minneapolis as renters will now receive clearer information on the energy usage and utility costs of their respective unit,” she wrote in a blog post published after the benchmarking expansion.

Watts went on to note that with 46 percent of city renters classified as “rent-burdened” (meaning more than 30 percent of their household income goes to rent), utility costs are an important yet overlooked component of housing affordability. Especially given the fact that older and less energy-efficient buildings tend to be more “naturally affordable.”

Alleviating these energy burdens is not about information and transparency alone; it is about actually lowering utility bills. This is where energy efficiency and sustainability programs come into play.

But while cost-burdened renters have a lot to gain through more energy-efficient homes, the programs that help facilitate these changes are primarily directed toward building owners — who may have different motivations.

In academic jargon, this is called a “split-incentive problem” and the economics behind it are described in a 2012 paper published in the journal Energy Policy. “A landlord (agent) buys and supplies all of the components of a potentially energy efficient apartment or home,” write authors Stephen Bird and Diana Hernández. “Their incentive is to supply these at the lowest possible cost (not the highest efficiency), because they do not pay the energy or utility bills. Alternately, the tenant (or principal) pays the energy bills, and has high incentives to increase efficiency, but no control over the means to do so.”

But this split is not so simple. Several local and statewide programs are helping landlords improve energy efficiency, and tenants may see lower utility expenses as a result.

One of these programs is the Multifamily Building Efficiency Program (MFBE), operated jointly by CenterPoint Energy and Xcel Energy, and overseen by the Minnesota Department of Commerce.

Grant Hartley is co-owner of Hartley Properties Inc., a property management company that owns five buildings around Minneapolis, two of which are in Southwest. Hartley is an MFBE success story. In fact, Hartley’s 63-unit Diamond Pointe property was the first to go through the program in 2016.

As part of the program, Hartley was advised on several energy-saving measures, including energy-efficient, in-unit amenities and better weatherization and insulation. The big-ticket item was a new energy-efficient boiler, which qualified him for over $25,000 in rebates to help offset the costs.

All these changes added up, and building energy usage was reduced by more than 25 percent. Through energy-saving measures that keep electricity bills lower, tenants have seen small savings as well.

Since then, Hartley has put three of his other buildings through the program. For him it has been a no-brainer: “If I manage an apartment building, it only makes sense to manage it efficiently.”

As a relatively small property owner, these energy savings can make a real difference.

“You do what you can to try and save energy,” he said. “Otherwise, you won’t survive as a business.”

While Hartley is a big proponent of the MFBE program, he acknowledges that it has limitations. Accessing rebates requires large upfront capital investments. Energy-efficient boilers, for example, ran upwards of $60,000. In order to make these rebate-qualifying purchases, building owners need access to capital. In Hartley’s case, this meant refinancing his Diamond Pointe property.

Even so, less capital-intensive changes like water-reducing shower heads and energy-efficient light bulbs can make a big impact. And it is these lower-cost changes that are more accessible to renters directly.

This is important because, as Watts explained, “there is a power dynamic involved here.”

“Since renters do not own their home,” she said, “working with the landlord or property manager may be necessary and that is not always easy or attainable.”

Kingfield Neighborhood Association Executive Director Sarah Linnes-Robinson said that, when it comes to energy efficiency between landlords and renters, it is important to put the neighborhood rental market in perspective. Most Kingfield renters live in single-family homes rather than larger multi-family properties. This means that they have a different set of tools at their disposal. Linnes-Robinson speculated that Kingfield renters are more likely to have personal relationships with landlords, which helps facilitate cooperation on energy-efficient updates.

And for renters who may not have such a cooperative relationship – or even know that utility savings are a possibility – Watts and Fresh Energy are working toward building out resources to make rental properties more sustainable and cost-efficient with tenants in mind.

“Energy efficiency programs are often targeted towards landlords and homeowners,” Watts said, “but we want everyone to know that there are options for renters, too.”