How to Handle Solar Credits on Household Utility Bills
The Biden administration recently announced HUD efforts to connect families served by HUD programs to solar power and help lower their electricity bills. "As extreme heat continues to affect tens of millions of Americans, hitting low-income families harder than others, President Biden is implementing new programs to help maintain a consistent and affordable energy supply to cool their homes," the White House said in a statement. According to the White House, for the first time, HUD-assisted households will be able to connect to local community solar power, where available. HUD estimates that 4.5 million families could benefit, saving 10 percent per year on their electric bills as a result.
Alongside the announcement, HUD has issued new guidance on the treatment of community solar credits on tenant utility bills. This guidance builds on recent state-specific guidance that HUD has provided to Illinois, Washington, D.C., and New York, which determined community-net-metering (CNM) credits would be excluded from household income and utility allowance calculations and therefore not increase housing costs for residents in properties participating in HUD Multifamily, Public Housing, and Housing Choice Voucher rental assistance programs.
In addition to HUD guidance, the Department of Energy (DOE) and the Department of Health and Human Services (HHS) expanded the ability of low-income families in five states to get access to solar power. Colorado, Illinois, New Jersey, New Mexico, New York, and Washington, D.C. have signed up to pilot the Community Solar Subscription Platform, which is designed to connect community solar electric bill savings projects to households participating in the Low-Income Home Energy Assistance Program (LIHEAP). The DOE estimates that families in these pilot states and Washington, D.C. will see over $1 billion annually in combined electric bill savings.
We’ll discuss HUD’s memo on how to determine whether community solar credits should be included or excluded from your utility allowance baseline analysis, or included or excluded from a household’s annual income for purposes of rent calculation and eligibility determination.
What Is Community Solar Power?
Community solar refers to local solar facilities shared by multiple community subscribers who receive credit on their electricity bills for their share of the power produced. Those enrolling in a community solar program get the benefit of receiving a pro-rata share of the energy produced from the community solar farms.
Community solar facilities are usually less than five megawatts (MW) of electrical capacity and vary in the number of acres affected. Unlike residential housing and commercial development on a sold-off farm parcel, community solar installations are generally on leased land, and these systems can be returned to their original state. This model for solar is being rapidly adopted nationwide.
Many households and businesses don’t have access to solar because they rent, live in multi-tenant buildings, or have roofs that are unable to host a solar system. Community solar gives renters and businesses equal access to the economic and environmental benefits of solar energy generation regardless of the physical attributes or ownership of their unit or business. In other words, in the multifamily context, community solar power credits allow residents in an apartment building to choose to use power from community solar panels rather than having their own panels installed on their individual units. This model makes solar power more accessible and can lower tenants’ utility bills.
Does Memo Apply to Your Site?
HUD’s Office of Multifamily Housing has received several requests from state and local governments about how they interpret community solar credits and when these credits can be excluded from income and utility allowance calculations. The recently issued community solar credits memo reflects how they have approached these requests to date and may be helpful to owners as they consider these issues.
The notice applies to the following Office of Multifamily Housing Programs:
- Project-based Section 8 (New Construction, State Agency Financed, Substantial Rehabilitation, Section 202/8, Rural Housing Services Section 515/8, Loan Management Set-Aside, Property Disposition Set-Aside, Rental Assistance Demonstration Project Based Rental Assistance);
- Section 202/162 Project Assistance Contracts (PAC);
- Section 202 Project Rental Assistance Contracts (PRAC);
- Section 202 Senior Preservation Rental Assistance Contracts (SPRAC);
- Section 811 PRACs;
- Section 811 Project Rental Assistance (PRA); and
- Section 236 Subsidized Mortgages.
The purpose of the notice is to provide guidance to HUD Multifamily Housing field staff, owners, and management agents on the treatment of on-bill virtual net energy metering credits that commonly result from a resident’s participation in a community solar program. This applies only in the case of tenant-paid electricity and where the solar credit appears as a negative amount on the electricity bill. This guidance doesn’t apply to residents of master-metered multifamily buildings. In addition, this guidance doesn’t change existing rules for utility allowance baseline analyses or income calculations; rather, it provides guidance for how to treat community solar credits within existing rules.
Utility Allowance Calculations
To understand the effect of a community solar credit on a unit’s utility allowance calculation, you’ll need a copy of the tenant’s electricity bill (this can be accessed by the utility company if it isn’t already available). According to HUD’s guidance, you won’t need any additional information as the solar credit will appear as a negative amount on the tenant’s electricity bill.
If the credit reduces the cost of energy consumption by lowering actual utility rates, then the owner is required to submit a new baseline analysis in accordance with Housing Notice 2015-04, regardless of when the last analysis was submitted to HUD/Contract Administrator for approval.
Here are questions for determining whether the credit is tied to the cost of consumption and, therefore, you would be required to submit a new utility allowance baseline analysis:
1. Is the credit a third-party payment (not from the electricity provider) on behalf of the tenant rather than a reduction in the cost of utilities?
a) Yes. The solar credit is not considered to reduce the cost of energy consumption as the cost for the utility provider to provide the consumed energy does not change. The owner is not required to submit a new utility allowance baseline analysis.
b) No. Solar credit may be tied to the cost of consumption. Proceed to question #2 below.
2. Does the credit amount fluctuate every month and/or does the electric bill show a lowered utility rate per kilowatt-hour?
a) Yes. Solar credit is tied to the cost of utility consumption. The owner is required to submit a new utility allowance baseline analysis.
b) No. Solar credit is not tied to the cost of utility consumption. The owner is not required to submit a new utility allowance baseline analysis.
Annual Income Calculations
The next step is to determine if the solar credits fall within HUD’s definition of annual income. According to the memo, if the solar credit is tied to the cost of consumption (utility allowance is affected), then the credit won’t count towards income.
If a community solar benefit appears on a household’s electricity bill as an amount credited from the total cost of the bill, HUD has determined that the credit should be treated as a discount or coupon to achieve a lower energy bill rather than a cash payment or cash-equivalent payment being made available to a resident. In this case, the credit won’t be counted towards income as discounts on items purchased by a tenant are not viewed as “annual income” to the family. Generally, income isn’t generated when a family purchases something at a cheaper rate than it otherwise would.
However, if the credits are found to be third-party payments based on the utility calculations analysis, there may be instances when the credits are not mere discounts and must be treated as income. For instance, a recurring monthly utility payment made on behalf of the family by an individual outside of the household isn’t considered a discount but is considered annual income to the family.
HUD Notice H-2015-04: Utility Allowance Guidance
Project-Based Rental Assistance (PBRA) is a rental assistance program in which tenants generally pay 30 percent of their income for housing and utilities and HUD provides the owner with monthly payments sufficient to pay for either the remainder of the operating budget or the agreed-upon market-based rent depending on the type of contract. In 2015, HUD issued Notice H-2015-04 that established a consistent methodology for conducting an analysis to set utility allowances for almost all properties with Section 8 PBRA.
The guidance requires collecting a required sample size of actual consumption billings and setting utility allowances at the average consumption for each unit size. Owners must request utility data from either the utility company or tenants for at least the number of units required by the sample size methodology. These data are used to determine the average utility cost for each bedroom size unit. Under the guidance, project-based Section 8 owners must establish a new utility allowance baseline under the guidance at their first contract anniversary date following the notice. Then, once every three years, owners must use again the sampling methodology detailed in the notice to establish baseline utility allowances for each bedroom size.
Master-Metered vs. Tenant-Metered Building Types
Master-Metered Buildings: Owners pay the utility cost, and the cost to tenants is included in their net rent; there is no utility allowance to subtract. HUD’s community solar credit memo doesn’t apply to these buildings.
Tenant-Metered Buildings: Each household has a separate account with the utility company and pays the utility company directly. These tenants must receive a utility allowance that is based on an estimate of typical energy used (that is, kilowatt-hours or therms) by building and unit type, or an estimate of the cost of that energy. HUD’s community solar credit memo may apply to these buildings.