On June 22, 2015, HUD issued Notice H-2015-04, Methodology for Completing a Multifamily Housing Utility Analysis. The Notice provides instructions to owners and management agents for completing the utility allowance required at the time of the annual or special adjustment of contract rents and when a utility rate change results in a cumulative increase of 10 percent or more from the most recently approved utility allowance.
The Notice applies to the following programs:
- Project-based Section 8 (including Rural Housing Section 515 projects with Section 8);
- Section 101 Rent Supplement;
- Section 202/162 PAC;
- Section 202 PRAC;
- Section 202 SPRAC;
- Section 811 PRAC; Project Rental Assistance (PRA);
- Section 236;
- Section 236 RAP; and
- Section 221(d)(3) BMIR
Owners of multifamily housing properties that receive subsidy assistance, and for which HUD provides a utility allowance, are required to adjust their properties’ utility allowances every year at the time of the annual and special adjustments of contract rents. Utility adjustments must be supported by a utility analysis. Other requirements of the process include:
- Adjustments to the utility allowance must be made regardless of whether the allowance shows an increase or a decrease;
- Rent adjustments must be held until the owner submits the allowance and all other required submissions. Once submitted, the rent adjustment will be retroactively implemented;
- Owner certifications in lieu of a utility allowance are not permitted;
- A minimum of 30-days notice must be provided to tenants for any utility allowance decrease;
- Tenants have the right to participate in and comment on a proposed utility allowance decrease;
- A decrease in a tenant’s utility allowance does not constitute a change in total tenant payment;
- Multiple utility allowance adjustments are permitted during the contract year; and
- A utility allowance must be increased mid-year when changes in utility rates result in an increase of 10 percent or more to the allowance from the most recently approved utility allowance.
The Notice includes a sample tenant consent form, a directive requiring tenants to provide utility data upon request, and an Excel spreadsheet to aid in the allowance calculation.
The methodology dictated by the Notice is premised on calculating average utility consumption based on actual tenant consumption by unit size. It is designed to provide an estimate of reasonable consumption by an energy-conservative household of modest circumstances.
Methodology
Property 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 and agents (O/As) have the option to perform a “factor-based” utility allowance.
The Baseline Analysis
To perform a baseline analysis, the following steps must be taken:
- Request utility data from either the utility company or the tenant household for at least the number of units determined by the sample size methodology (discussed later).
- This must be done for each bedroom size at the property. If the buildings are not identical, the sampling must be done for each bedroom size for each building.
- Units are excluded from the sample if it:
- Is receiving an increased utility allowance due to a reasonable accommodation;
- Has been vacant for two or more months (at least ten months occupancy is required for the sample); or
- Is receiving a flat utility rate as part of a low-income rate assistance utility program.
- Determine the average utility cost for each bedroom size. The highest or lowest utility cost household may not be removed from the sample.
- Recommend this amount to the Contract Administrator (CA) for approval.
A sample format for submissions in contained as Attachment A to the Notice, as is a sample tenant release form.
Properties with contract anniversary dates within 180-days of publication of the Notice (12/19/15) can choose to perform the upcoming annual utility analysis using either the existing methodology or the method outlined in the Notice. If the existing methodology is used, a baseline analysis must be used at the next contract anniversary date.
Properties with contract anniversary dates after December 19, 2015, must perform the upcoming utility analysis using the methodology outlined in the Notice.
Factor-Based Utility Analysis
For the two-years after the baseline allowance 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 may be found on the HUDUser website.
O/As should compare the adjusted utility allowance to their paid utilities over the previous 12-months. If, in the O/As determination, the results indicate a significant disparity between the two, the O/A should complete a baseline analysis to help ensure that the allowances provided are accurate. This part of the Notice appears to indicate that while the factor-based allowance may be used, owners are expected to obtain actual usage information every year.
Utility Allowance Changes Outside of the Contract Rent Adjustment Schedule
Owners are required to submit documentation and 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 allowance. When the owner requests an increase in an allowance, 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.
Only when a rate change results in a change in the full utility allowance (not just one utility) of 10 percent or more must the owner request the increase.
Utility Allowance Decreases
An owner must follow the 24 CFR Part 245.405(a) and 245.410 requirements relative to tenant notice whenever there is a decrease in the allowance.
If the utility allowance decrease that results from the initial application of this Notice would exceed 15 percent of the most recent utility allowance and that decrease is equal to or greater than $10, the decrease must be phased in. No decrease in any one year may be greater than 15%. If the decrease is less than $10, there will be no phase-in of the decrease.
Utility Allowance Sample Size
The sample size has been set by HUD based on the number of units of each bedroom size. The Notice outlines the required sample sizes, which range from all units being included when the number of units per bedroom size is 1 -20, to 29 units if the number of units per bedroom size is 389 or more. The Notice provides the specifics of the sample size.
Allowances for New Construction or Substantial Rehabilitation
Properties undergoing new construction or substantial rehabilitation may establish initial utility allowances based on the methodology outlined by the IRS for the establishment of allowances for the Low-Income Housing Tax Credit program. The analysis must be completed at underwriting through an energy consumption model, including a State HFA approved utility allowance calculator. These estimates must be calculated by either (1) a properly licensed engineer or (2) a qualified professional approved by HUD. The owner must furnish a copy of the estimates derived from the energy consumption model to HUD or the CA and make copies available to all tenants in the building.
When the property is occupied and the owner can obtain 12 months of actual consumption data, the owner must establish a baseline estimate using the methodology outlined in the Notice.
Requirements for Tenant Households
An owner may require a tenant to sign a release for utility data in certain circumstances, such a when a utility company requires a tenant release prior to providing data. If a tenant release is necessary, the owner will request and the tenant is required to sign a release (this is a requirement under the HUD Model Lease for Subsidized Projects). A sample tenant utility release form is included in the HUD Notice.
Households are also required to provide utility data and documentation if requested, and the request does not have to correspond to the household’s recertification.
Households are required to disclose whether they are receiving utility assistance from sources other than HUD. O/As must ask this question at a tenant’s annual recertification of income and family composition, because these assistance payments are a source of income that are included in the determination of annual income and the calculation of tenant rent.
Tenants who fail to comply with these requirements are in violation of the lease and are subject to termination of tenancy.
This is an important Notice and guidance for owners involved in any of the programs noted above, and all affected owners and management agents should obtain a copy of the Notice.