HUD Issues New Utility Allowance Analysis Guidance
HUD recently released Housing Notice 2015-04 entitled Methodology for Completing a Multifamily Housing Utility Analysis. It provides instructions to owners and management agents for completing the utility analysis required with annual rent adjustments.
HUD’s Office of Multifamily Housing has been working toward streamlining the methodology for utility analyses as part of a larger effort to make energy and water conservation a priority at all HUD multifamily properties. According to HUD, its annual outlay for utilities is more than $6 billion a year. As such, accurate utility data collection and analysis are vital to the success in the reduction of energy and water consumption. HUD’s notice streamlines the methodology for determining utility allowances and offers owners and management agents a data-centered approach to reevaluate their site’s energy usage and make efforts to conserve where possible.
HUD provides utility allowances to sites receiving subsidy assistance where all or some utilities are paid directly by the tenants. Utility allowances (UA) are a representation of the owner’s best estimate based on an analysis of the average monthly utility cost that an energy-conscious household will incur for the year. This notice pertaining to UA methodology is applicable for the following programs:
- Project-based Section 8 (New Construction, State Agency Financed, Substantial Rehabilitation, Section 202/8, Rural Housing Services (RHS) Section 515/8, Loan Management Set-Aside, Property Disposition Set-Aside);
- Section 101 Rent Supplement;
- Section 202/162 Project Assistance Contract;
- Section 202 Project Rental Assistance Contract;
- Section 202 Senior Preservation Rental Assistance Contracts;
- Section 811 PRAC (Project Rental Assistance site with a contract that specifies use of the HUD Multifamily Housing policy for developing utility allowances);
- Section 236;
- Section 236 Rental Assistance Payments; and
- Section 221(d)(3) Below Market Interest Rate (BMIR).
For sites with contract anniversary dates that fall within 180 days of June 22, 2015, the publication date of the notice, or Dec. 19, 2015, owners can choose to perform their upcoming annual utility analysis using either the existing methodology or the methodology outlined in the notice. If the existing methodology is used, a baseline analysis must be performed at the next contract anniversary date, using HUD’s newly prescribed methodology.
For sites with contract anniversary dates that fall after 180 days of publication of this notice or after Dec. 19, 2015, owners are required to perform their upcoming utility analysis using the notice’s new methodology.
Utility Analysis Methodology
Site owners must establish baseline utility allowances for each of their bedroom sizes once every third year. For the two years after the baseline is established, owners have the option to perform a factor-based utility analysis.
Baseline utility analysis. A baseline utility analysis involves using an appropriate HUD-prescribed sample size to perform a statistically accurate utility analysis. Here’s a table that shows the number of units for which you must gather utility data depending on the number of units per bedroom size at your site:
UTILITY ANALYSIS SAMPLE SIZE
Number of Units Minimum Sample
(Per Bedroom Size)
389 & above 29
To perform a baseline analysis, the owner must perform the following steps:
> Step 1. Request utility data from either the utility company or the tenant household for at least the number of units determined by the HUD-prescribed sample size. This must be done for each bedroom size at the site. If the site consists of multiple identical buildings (or buildings that are substantially similar), then the sampling may be performed encompassing all buildings on a site for each bedroom size. If the buildings are not identical, the sampling must be done for each bedroom size for each building.
A unit should be excluded from the sample if it’s receiving an increased utility allowance as a reasonable accommodation or has been vacant for two or more months. Units included in the sample should either have at least 10 months of occupancy or be receiving a flat utility rate as part of a low-income rate assistance utility program.
> Step 2. Determine the average utility cost for each bedroom size without removing any units from the analysis beyond those excluded from the sample size as indicated in Step 1. The notice also states that you shouldn’t remove the highest or lowest utility cost household when determining the average.
> Step 3. Recommend this amount to the contract administrator for approval.
Factor-based utility analysis. For the two years after a baseline utility analysis is completed, the utility allowance amounts for each bedroom size and each utility at the property can be adjusted by a state-specific increase factor, the Utility Allowance Factor (UAF), provided by HUD, in lieu of a baseline utility analysis. The UAF, which can be found on the HUDUser website, is determined by considering the state-specific average retail price of electricity, natural gas, water, and oil/propane for residential customers that’s published by the U.S. Energy Information Administration.
After completing the site’s utility analysis under the factor-based utility analysis method, owners should compare the adjusted utility analysis to their paid utilities over the previous 12 months. If the results indicate a significant disparity between the two, the owner should complete a baseline analysis to help ensure the allowances provided are accurate.
Utility Allowance Changes Outside Rent Adjustment Schedule
Owners must submit documentation and a request for an increase in utility allowances when changes in utility rates result in a cumulative increase in utility allowances of 10 percent or more from the most recently approved utility allowance. In this situation, “cumulatively” means all utilities for a unit. In other words, if the cost of water increases by more than 10 percent, that increase in combination with another utility such as electricity or gas might not result in a utility allowance increase greater than 10 percent.
When the owner requests an increase in utility allowances, the owner must submit either of the following as evidence of the rate change:
- Utility bills from the month prior to the utility rate change and the first month after the utility rate change; or
- Verification of the increase from the utility provider.
Utility Allowance Decreases
When an adjustment to the utility allowance results in a decrease, an owner must follow existing regulations regarding notice to tenants. If a utility allowance decrease is greater than 15 percent of the most recent utility allowance, and that decrease is equal to or greater than $10, the decrease must be phased in so that no one-year decrease is greater than 15 percent. If the decrease is less than $10, the owner will implement the full decrease without any phase-in. After subtracting out any phased reduction in the utility allowance, the resulting figure is multiplied by the UAF during years two and three of the three-year cycle.
For example, if a resident’s previous utility allowance was $120 and the analysis indicates a total adjustment that reduces it to $96 (a 20 percent decrease), the utility allowance has exceeded the 15 percent decrease (and the decrease is at least $10). In this case, the owner will submit an adjustment to $102 (a 15 percent decrease from $120) in the first year and then a further adjustment the following year to $96 (multiplied by the applicable UAF), such that the full adjustment is phased in over two years. The UAF will be applied in the second and third years of the triennial cycle after subtracting out any phased reduction. In other words, $96 would be multiplied by the UAF to establish the second-year utility allowance.