EPACT - more questions

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The building that I am working on will have upgrades to lighting and HVAC.
Running the proposed with both these systems as upgrades gives me ~40% cost
savings. This is more than the 40% that is needed (for lighting and HVAC
individually 20%). My question is if this is partially qualifying (less than
50%), then should I run lighting and HVAC separately? and each should be 20%
saving? In this case the benefit of lower lighting will not be available to
HVAC.

Thanks
-Rohini

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Hi Rohini,

I haven't actually put together a final set of documentation for the modeling approaches, but having scoured the legislation & IRS clarification docs at one, here's my current understanding:

1. "Running the proposed with both these systems as upgrades gives me ~40% cost savings." ? This means the whole building approach is out (<50%). You have to model the lighting/HVAC/envelope improvements independently ("partially qualifying").

2. For each independently modeled component (lighting/HVAC/envelope) that pushes savings past the 16-2/3% improvement mark, you get to claim $0.60/SF for the deduction.

3. The improved HVAC run will not benefit from any lighting/envelope improvements for these partially qualifying runs, and so on.

Not sure I recall a 20% improvement figure as part of the requirements, but I haven't brushed up on the particulars in a good while.

NICK CATON, P.E.

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Rohini,

We specialize in EPACT studies. The IRS legislation is very complicated and vague. However, to answer your questions:

1) Nick is correct. If you cannot get to 50% with your model by combining all the improvements (HVAC, lighting, and envelope), then you must model them separately. Remember, your baseline is not the building prior to the improvements. Your baseline is an ASHRAE 90.1-2001 baseline.
2) You are looking for 20% improvement on building improvements placed into service in 2008 or later. The 16 2/3% benchmark is only for years 2006 and 2007.
3) Nick is again correct.

We would be happy to work with you on future EPACT studies. Best of luck.

Joshua D. Howes, PE

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Hi Josh!

I took this as a sign that I need to freshen up on the recent legislation/clarifications... I found the 20% reference, but I'm finding something a bit more nuanced than a blanket 20%:

Ref: IRS Notice 2008-40 (http://www.irs.gov/irb/2008-14_IRB/ar12.html), Section 7:

.01 Energy Savings Percentages. A taxpayer may apply section 2.05 of Notice 2006-52 by substituting "10" for "162/3" in section 2.05(1) of such notice. If a taxpayer makes this substitution, the taxpayer must apply sections 2.03 and 2.04 of Notice 2006-52 by substituting "20" for "162/3" in sections 2.03(1)(a) and 2.04(1) of such notice. If ? 179D is extended beyond December 31, 2008 [insert: it was, until December 31, 2013, by the same legislation introducing the TARP], the Internal Revenue Service and the Treasury Department expect, in the absence of other changes to ? 179D, that the substitute percentages set forth in this section will be the only percentages used in determining whether property placed in service after December 31, 2008, is partially qualifying property.

Having gone back and revised my copy of 2006-52 per the above, my interpretation is that improvements put into service after 2008 need to demonstrate a 20% improvement for lighting and/or HVAC, but only 10% for envelopes.

Partially qualifying installations put into service after December 31, 2008 have to submit for deductions using the 20/20/10 benchmarks. Anything prior has the option of submitting under either set.

That said, is there more recent legislation or an IRS "clarification" (haha) that mandates 20% for envelopes as well?

NICK CATON, P.E.

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I would just add that the 10% makes a lot more sense than the previous benchmark. We haven't had a project that came that close to 16-2/3% savings on the envelope, even with very high performance construction. I suppose the more extreme the climate the better chance you have of hitting that benchmark...but it seems like the threshold wasn't fully thought out when the regulations were first written.

Andrew Craig PE, LEED AP

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Nick,

You are correct! Prior to 2008, the energy savings targets are 16 2/3% across the board for envelope, HVAC, or lighting modeled individually. IRS 2008-40 mandated the target to be 20/20/10 (lighting/HVAC/envelope) for all buildings placed into service in 2008 or later. It also gave the option to use 20/20/10 or 16 2/3% for 2006 and 2007 so long as you don't mix and match. For instance, you can't use 10% for the envelope and then use 16 2/3% for the HVAC for a building placed into service is 2006 or 2007.

There are no other hidden changes other than these. Envelope is either 10% or 16 2/3% depending on the year placed in service and the standard that you choose to use.

Joshua D. Howes, PE

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Classification: UNCLASSIFIED
Caveats: NONE

Wow, I can't believe you would suggest that environmentalist would pass laws
and regulations without fully thinking out all the issues and ramifications.
Are you suggesting it was a knee jerk reaction? I'm sure there was a
consensus when they passed the regulation and you can't get more scientific
than that.

Now go put a mercury light bulb in your children's room, take a nice shower
with a low flow head, flush the low flow toilet 3 times to get it to work, go
for a ride in a fuel efficient rolling coffin and prepare for global warming.

Your big brother will take care of everything.

"Is Freedom a small price to pay to stop Global Warming?"

John Eurek

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