Utility Allowances and Resources

With the engineering-based methodology, the PHA uses engineering calculations and technical data to estimate reasonable energy and water consumption for a particular type of dwelling unit or household. The reasonableness of allowances set using the engineering-based methodology depends on assumptions made in the calculations. This section provides help in developing the allowance categories and gives recommendations on these important assumptions.

The first step in establishing allowances with the engineering-based methodology is to develop allowance categories that group dwelling units according to factors that affect consumption requirements. Then, the consumption requirements for the various end-uses to be covered by the allowance—space heating, hot water, cooking, lighting, refrigeration, appliances, and/or water—are each determined separately. In some cases, not all of these end-uses are included in an allowance. For example, when a utility is master-metered, it is not included. Depending on the end-use, the consumption requirement may be estimated based on engineering formulas, standardized consumption tables, or in-house information on equipment used or the physical condition of the developments. Below is a brief description of how the consumption requirements for various end-uses are commonly estimated under the engineering methodology. A more complete, step-by-step description of this method can be found in Chapter 5 of HUD’s Utility Allowance Guidebook. More information on this publication is available in the Resources section.

Space Heating. The energy requirement for space heating is estimated using an engineering calculation. One calculation is done for each allowance category. The following inputs are needed:

• the heat loss of a dwelling unit;
• the 30-year average heating degree days for the region;
• the efficiency of the heating system;
• the Btus per fuel unit;
• the indoor temperature; and
• the outdoor design temperature in winter.

The heat loss calculation for each unit category will be either already on file or can be performed by the local utility, a consultant, or an in-house engineer. (Data on heating degree days and outdoor design temperature are provided in Appendix C of HUD’s Utility Allowance Guidebook. More information on this publication is available in the Resources section.) The efficiency of the heating system can be estimated based on the age and type of system. Although there is no standard specified by the regulations, PHAs frequently establish an indoor temperature of 72 degrees F for family units and 75 degrees F for elderly units.

Hot Water. The energy requirement for hot water is estimated using an engineering calculation. One calculation is done for each allowance category. The following inputs are needed:

• the temperature of the cold water;
• the temperature of the hot water;
• the number of gallons per month reasonably consumed by a household;
• the efficiency of the hot water heating system; and
• the Btus per fuel unit.

The temperature of the cold water can be estimated based on the geographical region. Maintenance staff can measure the temperature of the hot water at the tap. If the temperature at the tap is lower than the temperature in the hot water heater because of storage or distribution losses, this difference will be accounted for in an accurate estimate of the system efficiency. The number of gallons per month can be based on standard consumption levels. The efficiency of the hot water heating system depends on the age and type of system. If the hot water heating system involves an extensive distribution system or a storage tank, estimating the system efficiency is a more complicated task because of storage and distribution heat losses and should be performed by a licensed professional engineer.

Cooking. The energy requirement for cooking is estimated using standard consumption levels.

Lighting. The energy requirement for lighting is estimated by multiplying the wattage of each light bulb by the number of hours the average household would have the lights on.

Refrigeration. The energy requirement for refrigeration is determined using in-house information on the annual energy consumption of the refrigerators provided in the dwelling units. Refrigerators manufactured during the last decade have labels that provide this information.

Miscellaneous Appliances. The energy requirement of miscellaneous appliances can be estimated using standard consumption tables available from the local utility.

Laundry. Some PHAs provide an allowance to cover the reasonable utility requirements of laundry. For example, the energy requirements of clothes washers are estimated based on the wattage of the washer and how often it is used.

Air Conditioning. Some PHAs provide an allowance to cover the reasonable utility requirements of air conditioning. The energy requirement for air conditioning is determined based on the wattage of the air conditioner and how often it is used. PIH does not consider energy used for air conditioning as an allowable expense.

Water. A household's water consumption requirement depends on whether water-saving devices have been installed and is determined using standard consumption levels.

Because the utility allowances derived from the engineering methodology are not linked to past patterns of resident consumption, a PHA that switched to this method from the consumption-based methodology might experience a significant increase or decrease in the percentage of resident households whose actual consumption exceeds their allowance.

If a PHA finds that a large percentage of its residents have consumption levels that exceed the allowance developed under the engineering-based methodology, the PHA will want to re-examine its assumptions about consumption levels to make sure that they are not too strict and that any excess consumption is within the residents' control to avoid. As one approach to evaluating the reasonableness of the allowances, PHAs can compare the allowances derived under the engineering method with those calculated under the consumption-based method. (This is fairly straightforward if the PHA was previously using the consumption-based method).

If the re-examination suggests that the engineering-based allowances that were initially calculated are too low, the PHA can go back and make adjustments in the assumptions used for calculating the individual utility/end-use consumption levels (such as in the number of loads of laundry per week, etc.) to provide more reasonable allowances for residents.

With the consumption-based methodology, the PHA uses actual utility data on past consumption by its residents to establish utility allowances. These data are in the form of billing records (where utilities are individually metered) or checkmeter records (where utilities are checkmetered). The first step in establishing allowances with the consumption-based methodology is to specify the allowable and non-allowable end-uses. The PHA then needs to decide on the timeframe that its historic consumption data will span.

This section will describe two different approaches that a PHA can take in defining the timeframe of its consumption data:

• Three-Year Rolling Base. Many PHAs use a three-year rolling base of data to calculate allowances. Every year, new consumption records are added to the database, and consumption records from the oldest year are removed. With this approach, the PHA must recalculate allowances every year.
• Fixed Database, Normalized for Weather. An alternative approach, which may be used when an allowance is provided for space heating, is to use a fixed database of consumption information from one or more years, adjusted for the effects of weather using local weather information. When this approach is taken, the PHA does not need to obtain consumption data every year.

Next, the PHA needs to develop allowance categories that group dwelling units according to factors that affect consumption requirements.

Allowances are then established through the following process:

• collecting the consumption data
• grouping the data into allowance categories
• cleaning the data and checking the statistical validity of the data sets
• determining the "typical" consumption for each allowance category
• adjusting the data for any non-allowable end-uses (if such consumption has not already been removed from the data)
• converting consumption allowances to dollar allowances.

Collecting the Consumption Data. The first step in establishing allowances with the consumption-based methodology is to collect the consumption data. In the case of individually metered utilities, PHAs obtain consumption records from the local utility. Generally, PHAs must present a release form signed by the resident for each billing record. Where utilities are checkmetered, the consumption data are records of checkmeter readings that the PHA makes on a routine basis. PHAs that provide allowances for more than one utility (for example, electricity, gas, and water) must collect consumption data for each of those utilities.

Grouping the Data into Allowance Categories. Consumption data are then grouped according to the allowance categories developed by the PHA. Each allowance category should have one data set.

Cleaning the Data and Checking for Statistical Validity. These are two distinct but related activities, which are both concerned with ensuring that the data set (i.e., the sample of consumption records) can provide a good approximation of the typical utility consumption experience of all units within the allowance category being studied. This is a critical step in the use of the consumption-based method. To improve the quality of the consumption data being used for its calculations, a PHA will generally want to "clean" the data by deleting dwelling unit utility records that are atypical or inaccurate because of vacancies, estimated readings that are not corrected for by subsequent actual meter readings, and/or non-allowable end-uses.

If the variation in the levels of consumption among units in an allowance category is high, however, a large sample size (i.e., data on a lot of the units in the allowance category) may be necessary in order to achieve statistical validity. If this is the case, then the PHA may not have enough extra data available to be able to drop the units with vacancies or non-allowable end-uses, etc., entirely from its sample; instead, the PHA may need to make adjustments in these data to allow their inclusion as part of the allowance calculations.

Determining the Typical Consumption for Each Allowance Category. Once statistical validity is confirmed, the PHA determines the "typical" usage for each allowance category. The typical usage is determined by finding the point of central tendency. Both the mean and the median are points of central tendency.

The reasonableness of the calculation of typical consumption using the consumption-based methodology depends on the selection of proper allowance categories, the quality of the consumption data, and on whether the data set was statistically valid.

Even after an PHA has derived an accurate estimate of a typical (whether mean or median) consumption level, however, the PHA must still decide whether the standard for the "energy-conservative household" should be set at that level. For example, if the mean (average) is used as the standard, then in all probability a sizable percentage of resident households will have consumption above this level; the PHA needs to ask itself whether the "excess consumption" of these other households was actually wasteful and within the residents' ability to control. If the answer to either part of this question is "no," then the PHA should consider establishing the allowances at some level above the mean (average) consumption figure.

Actual Savings: The difference in consumption before and after implementation of efficiency improvements.

Additional Subsidy or Add-on Subsidy: A HUD incentive for resource-efficiency improvements in housing authorities. The housing authority obtains non-HUD financing to pay for the retrofit work and HUD provides an additional operating subsidy in an amount sufficient to amortize payments for the loan. The term of the loan is limited to 12 years.

Allowable Utility Consumption Level (AUCL): The level of consumption of fuel, water and sewer usage to be used when budgeting for authority-provided utilities (using HUD Form 52722A). The AUCL is computed using the rolling base.

Allowable Utilities Expense Level (AUEL): The estimated level of cost for utilities, computed using the HUD Form 52722A, for the upcoming year's budget. The AUEL is computed by multiplying the rolling base by the rates in effect at the time of the budgeting process.

Authority-Provided Utilities: Utilities that are paid for by the housing authority rather than the resident. Authority-provided utilities may be either master-metered, master-metered with checkmeters or individual meters.

Block Rate: Refers to a block or stepped rate structure in utility rate schedules.

British Thermal Unit (Btu): The amount of energy required to heat a pound of water 1 degree Fahrenheit. The Btu is the unit commonly used in calculating energy requirements. (It can apply to any energy use, not just heating water; for example, air conditioners are often rated by their Btu capacity.)

Broker: A customer's representative. In this context, one who represents a utility customer's best interest with respect to finding the optimum energy and services package.

Burnertip: The final point of delivery of fuel in gas-fired furnaces, boilers and other equipment where the gas mixes with oxygen and the flame is produced.

CCF: One hundred cubic feet of natural gas or water. For natural gas, a CCF is approximately equivalent to one therm of energy.

Calibration: The process of checking or adjusting a measuring instrument, such as a checkmeter. Checkmeters need to be calibrated periodically to ensure accurate measurement.

Central Tendency: A measure of the "typical" value in a collection of numbers or a data set. The mean (average) and the median are two different measures of central tendency.

Checkmeters: Submetering installed to record the energy use of individual apartments where master meters (or one meter per building) record the energy use of the entire building or series of buildings.

Compliance Audits: Energy or water use audits required by HUD to be performed on housing authority buildings every 5 years. These audits are regulated by 24 CFR 965.304.

Consumption-Based Methodology: One of two suggested methods that can be used to establish utility allowances. (See also engineering-based methodology.) This method is based on actual consumption data from utility bills or checkmeter readings. These data are used to estimate the amount of energy or water a household should reasonably require.

Consumption Data: Records obtained from the utility company or from checkmeter readings that show how much energy or water was consumed within a given period of time.

Cooling Degree Days: A measure of the severity of the summer in a given locality: the more cooling degree days, the hotter the summers. Cooling degree days are the difference between 65 degrees F and the daily mean (average) temperature when the latter is more than 65 degrees F.

Curtailment: A notice issued by a utility to a customer with interruptible service to stop or reduce the use of its product (gas or electricity) during peak system usage periods.

Customer Charge: See meter charge.

Data Set: A set of consumption records for individual dwelling units used to establish an allowance for a given allowance category.

Demand-side Management (DSM): Utility programs developed to reduce demands on the utilities' generation, transportation, and distribution systems by improving the efficiency with which their customers use energy or shifting the time of energy use.

Design Temperature Differential: The design temperature differential, or design range, is the difference between the indoor temperature in winter and the outdoor design temperature in winter. The design temperature differential is used in calculating the space heating requirements of a dwelling unit under the engineering-based methodology.

End-Use: The functional application or use of a utility, such as space heating, water heating, cooking, lighting, operating appliances, or air conditioning.

Energy Performance Contracting: See Performance Contracting.

Engineering-Based Methodology: One of two suggested methods that can be used to establish utility allowances. (See also consumption-based methodology.) This method is based on engineering calculations and other technical information that is used to estimate the amount of energy or water a household should reasonably require.

Equal Payments Plan: A payment plan offered by the local utility company to the resident whereby the seasonal variation in monthly bills is eliminated. A resident on an "equal payments plan" pays 12 equal monthly bills every year, even though utility use may go up or down with the seasons.

Energy Savings Guarantee: See Savings Guarantee.

Energy Services Agreement: A written agreement, between a housing authority and an energy services company outlining the work to be done under a performance contract. For housing authorities, it must contain the following elements: savings guarantee, scope of work, savings calculation methodology and financing terms. It must be approved by the local HUD office and should incorporate the HUD regulations for performance contracting.

Energy Services Company (ESCo): A company that specializes in managing energy and water conservation retrofit projects. The ESCo may perform any or all of the following services: auditing, developing packages of recommended measures, arranging financing, installing or overseeing installation of measures, resident and staff education, equipment commissioning, maintenance, measuring, verifying, and guaranteeing savings.

Escalation Rate: The rate of change over time of a value such as energy costs. In many performance contracts, it is a stipulated rate of increase in utility rates used in energy savings calculations and guarantees.

ESCo: See Energy Services Company.

Excess Savings: The difference between the amount needed to cover the debt in a performance contract and the actual savings.

Firm Service: Utility service that is provided to the customer at all times, even during peak usage periods such as very hot or cold weather. The utility is required to have enough capacity and product to serve the customer during these peak periods. The non-interruptible nature of this type of service results in a much higher rate for firm service than for interruptible service.

Fuel Charge: A fuel charge is an adjustment to the cost of fuel based on the utility's actual cost for fuel. The utility is not allowed to make a profit on this portion of the bill and simply passes these costs through to the consumer.

General Purpose Bonds: Bonds that are financially certified by the entity issuing the bond. Bonds are seldom used for conservation projects because the high fixed costs of issuing this type of financing make it an expensive option for funding the relatively small dollar amounts needed for these projects.

Heat Loss: The rate of heat transfer, in Btus per hour, from occupied space to the outdoors. Losses occur through walls, ceilings and floors of a structure, and through cracks around windows, doors, etc. The heat loss depends on the dwelling unit size, construction and design of the housing development, the physical condition of the development, amount of insulation in the walls and ceilings, the assumed indoor temperature, and various other factors.

Heating Degree Days: A measure of the severity of the winter in a given locality: the more heating degree days, the colder the winters. Heating degree days are the difference between 65 degrees F and the daily mean (average) temperature when the latter is less than 65 degrees F.

Housing and Community Development Act of 1987: Key legislation that establishes the regulatory framework for improving the energy efficiency in public housing by providing financial incentives for HAs to use non-federal funds for conservation retrofits and by allowing housing authorities to retain a portion of the savings they negotiate for rate reductions.

HUD Form 52722-A: Used by the PHA to estimate utility costs for the upcoming year's budget.

HUD Form 52722-B: Used by the PHA to reconcile actual utility costs with the estimated costs.

HUD USER: An information source, established in 1978 by HUD's Office of Policy Development & Research (PD&R), for Federal Government reports and information on housing-related issues.

Hundred Cubic Feet (ccf): A common unit of measurement for natural gas and water. One ccf of natural gas is approximately equal to one therm of natural gas. One ccf of water is equal to 748 gallons of water.

Individual Meters: One utility meter per apartment. Can be contrasted with a master meter where a single meter serves an entire building or complex.

Interruptible Service: Utility service that is available at a reduced rate because the utility has an agreement with the customer that it can interrupt delivery of service during peak system demand periods.

Kilowatt-hour (kWh): The common unit of measurement for electricity. One kWh is 1,000 watt-hours, or the amount of electricity consumed by a 100-watt lamp in ten hours. One kWh is equal to 3,413 Btus.

Local Distribution Company (LDC): The local utility company that provides energy distribution services (i.e., wires and pipes).

Low-Income Weatherization Assistance Program (WAP): A federally-funded program that provides conservation services and weatherization assistance to households with incomes of below 150 percent of federal poverty level.

Marketer: A power marketer is an agent for power generation projects that sells wholesale power or fuel. Marketers also may arrange for transmission and distribution of the energy provided.

Master Metering: One meter that serves an entire building or a campus of buildings.

MCF: A unit of measurement for natural gas or water that is equal to 1,000 cubic feet. At sea level, one MCF of gas is equal to 1,000,000 Btus.

Mean: A measure of the central tendency of a data set, the mean is the average value in a data set. It is determined by adding all the values and dividing the sum by the number of values in the data set.

Median: A measure of the central tendency of a data set, the median is the middle value in a data set, when the values are ranked from lowest to highest.

Meter Charge: A flat rate assigned to each utility meter to cover the local distribution companies fixed costs in servicing the account, such as meter reading and billing.

Non-Allowable End-Use: An end-use whose consumption is excluded from the utility allowance because this use is considered to be a luxury rather than a necessity. It is left to the discretion of individual PHA to distinguish between luxuries and necessities based on local custom and usage patterns. For example, in some regions ceiling fans are seen as an allowable use because of the local climate, whereas in other regions such fans are viewed as luxuries.

Normalization: A mathematical process that adjusts for differences among data from varying sources in order to create a common basis for comparison. In the context of utility allowances, under the consumption based methodology, a PHA may use a fixed set of data on consumption for one or more years, with this data normalized (adjusted) using 30-year weather averages. The normalization corrects for the fluctuations in weather from year to year so that the allowances are calculated on more typical weather patterns.

Outdoor Design Temperature: The lowest outdoor winter temperature that could occur in a given location, based on a 99 percent confidence level. This temperature is used to determine the design temperature differential, which is used in calculating the space heating requirements of a dwelling unit using the engineering-based methodology.

Peak Demand: The greatest electric demand reading during a specified period. Typically, an electric utility charges for the greatest monthly demand measured in 15-minute intervals. The unit of demand is the kilowatt (kW).

Performance Contracting: A mechanism to implement resource efficiency improvements with minimal up-front costs. It uses savings resulting from the efficiency project to pay for the work over time.

Persistence of Savings: Energy or water savings that persist beyond an initial post-retrofit period. Lack of persistence may jeopardize the ability to re-pay loans in performance contracting, unless the ESCo provides a guarantee of savings.

Per Unit Monthly (PUM): Authority-provided utility costs computed per apartment unit per month.

Princeton Scorekeeping Method (PRISM): A utility billing analysis in which at least 12 months of energy consumption is adjusted for variations in weather.

Project-based Utilities: See authority-provided utilities.

Public Utility Commission: A commission at the state level that is comprised of either state-elected or appointed officials who regulate utilities such as electric and telephone utilities. The name for this regulatory may differ slightly between states. Public Service Commission is another common name.

Requested Budget Year: The period of time following the current fiscal year for which the housing authority is developing a budget.

Rolling Base: The rolling base period is the three-year period used to calculate baseline utility use when computing the Allowable Utility Consumption Level (AUCL) for a PHA facility. It is an average of the three years actual consumption prior to the current fiscal year.

Savings Guarantee: In a performance contract, an ESCo guarantee that the average energy and/or water savings resulting from the conservation retrofit will be equal to that needed to cover the debt service and other fees associated with the project. An ESCo and a housing authority may chose to guarantee an amount higher than that needed to cover project costs.

Section 8: The Section 8 program is designed to increase the housing choices available to very low-income households by making privately-owned rental housing affordable to them. It provides rent subsidies, either rental certificates or vouchers, on behalf of eligible tenants. These subsidies usually equal the difference between 30 percent of the household's adjusted income and the HUD-approved fair market rent (for certificates) or the PHA-approved payment standard (for vouchers).

Shortfall: A negative difference between the amount needed to cover the debt service and other fees involved in a project (usually the amount of the guaranteed savings) and the actual savings. The ESCos savings guarantee should cover this shortfall.

Step Rate: See block rate.

Space Heating: The warming of a dwelling unit to a reasonable temperature in the wintertime. Space heating can be provided by any type of heating system; it is not limited to heating provided by portable space heaters.

Statistically Valid Sample: A data set that contains enough data to obtain a reasonable representation of the typical consumption for a given allowance category. The number of records (or sample size) required to make a sample statistically valid depends on how widely the consumption data vary among dwelling units within an allowance category.

Surcharge: The amount a PHA charges a household, in addition to Resident Rent, for consumption of checkmetered utilities in excess of the utility allowance, or for non-allowable end-uses.

Resident Rent: The amount paid monthly by the household as rent to the PHA. Where all utilities are supplied by the PHA, Resident Rent equals Total Resident Payment. Where some or all of the utilities are paid directly by the resident to the utility company, then Resident Rent equals Total Resident Payment minus the allowance for resident-purchased utilities.

Tariff: The allowed rate to be charged a utility customer. A published, regulated rate schedule.

Tax-Exempt Revenue Bonds: Traditional sources of low-interest financing for municipal agencies. Bonds issued by a tax-exempt entity.

Tenant-paid Utilities: Where utilities are billed through individual meters and the project's residents are responsible for paying the bills.

Therm: A common unit of measurement of natural gas is equal to 100,000 Btus of energy. Depending on its quality, natural gas typically contains approximately 1,000 Btu per cubic foot. Therefore, a therm of natural gas usually is equal to about 100 cubic feet.

Total Resident Payment: Generally 30 percent of a resident's adjusted income.

Transportation Company: A company that moves and delivers gas or electricity from a generation or production facility to a local utility company.

Unbundling: A term used to describe how consumers will be charged for electricity in a restructured utility environment. It is breaking up the current energy service package into separate components such as supply, transmission, and distribution.

Utility: Electricity, gas, propane, oil, water and sewer service, and garbage collection. Telephone service is not considered a utility for the purposes of this Website.

Utility Allowance: Per-apartment-unit allowance for resident-paid or check-metered utility expenses that are set annually by the housing authority using a variety of means. The utility should be set to cover the utility costs of a reasonably conserving resident.

WAP: See Low-Income Weatherization Assistance Program

Wattage: A measure of the electric power required by a device such as a light bulb or appliance.

Weatherization: Improving the thermal integrity of buildings by the installation of energy saving measures or equipment.