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California Local Governments
Lead the Way to Saving Energy by Offering A Utility Allowance Category
for Energy Efficient Projects and Projects with Photovoltaic/Solar Energy
Systems
Recognizing that utility allowances which are established based
on the costs of utilities in older rental properties, will have
no correlation with the energy costs in newer or rehabilitated
energy efficient properties, California
Housing Authorities and
local governments are adding a utility allowance category for dwellings
that more accurately reflects the lower energy costs associated
with energy efficiency.
The designation of a utility allowance category that reflects
energy efficiency is necessary because of certain provisions within
IRS regulations that require housing developers to use applicable
PHA Standard Utility Allowances for Section 8 program for buildings
occupied by one or more tenants receiving HUD rental assistance
(Tenant Based Assistance). The same requirement also allies to
HUD-regulated buildings if tax credits are used for acquisition
and rehabilitation. The IRS' expectation in both cases is that
utility allowances required by HUD reasonably reflect utility costs.
Under HUD's guidelines for calculating utility allowances, the "first
step in establishing allowances using an engineering-based methodology
is to develop allowance categories that group dwelling units according
to factors that affect consumption requirements." HUD's standard
for setting utility allowance in public housing also recognize
relevant factors such as the type of construction and design of
the housing project and the energy efficiency of appliances and
equipment. The utility allowances under this category would also
follow the usual course of accounting for unit type and size, as
required by HUD's regulation 24 CFR 982.
Many new affordable housing projects that are funded through Low
Income Housing Tax Credits or Tax Exempt Bond Financing are required
to exceed state minimum energy efficiency requirements. For example,
in California, they need to be at least 15% more efficient than
California's energy code. In some California PHA jurisdictions,
projects may now qualify for an energy efficiency-based utility
allowance (EEBUA). By better aligning the utility allowance with
the cost of utilities, more of the tenants' housing burden is applied
to rent, providing the property owner with a mechanism to pay back
the additional costs of reaching this level of energy efficiency.
In some jurisdictions, existing projects that undergo rehabilitation
efforts, improving efficiency by at least 20% over existing conditions,
may also qualify for a lowered utility allowance category. In all
cases, the burden of proof is on the owner-developer to provide
independent third-party verification that the project meets the
PHA's energy efficiency requirements and that, in fact, the efficiency
measures are installed. Many developers qualifying for utility
company incentive programs are already required to provide a Homes
Energy Rating System (HERS) report before receiving their rebate.
Housing Authorities have concluded that newly constructed properties
built to a standard equivalent to EPA's Energy Star rating, or
substantially rehabilitated properties that improve existing energy
consumption by 20 percent or more, constitute a distinctive category
of buildings with factors that affect energy consumption and that
can be reasonably measured and verified. Also, more developers
are installing on-site generation, such as photovoltaic (PV) systems
that substantially reduce the electric energy consumption. If appropriately
designed and sized, PV systems can eliminate most of the electric
energy use.
To respond to the need for a new utility allowance category, the
California
Public Utilities Commission (CPUC) funded a third party
program called Designed for Comfort: Efficient
Affordable Housing (EAH). The primary focus of this program
is to develop an Energy Efficiency-Based Utility Allowance (EEBUA)
schedule based
on each housing authority's Standard Utility Allowance schedule
and provide assistance in adopting and implementing the new category
of utility allowance.
The goal of adopting an EEBUA is to encourage more investment
in efficiency and comfort by allowing owners and developers to
recover their investment in energy efficiency in rehabilitation
and new construction projects. An EEBUA works on the principle
that if a project is energy efficient, the utility costs to the
tenants will be lower and the utility allowance should also be
lower. Without increasing the total amount a tenant pays (the housing
burden), an EEBUA allows some of the monthly utility cost
savings to be added to the rent, increasing project cash flow and
enhancing the economic viability of affordable housing projects.
While the EEBUA model is based on a specific level of energy efficiency,
the model also includes a safety factor ensuring that part
of the cash benefit of the energy efficiency improvements will
accrue to the tenants. This results in positive economic benefits
for both the tenant and the property owner, and increased comfort
for the tenant.
Out of this effort, some housing authorities asked EAH staff to
take it a step further by helping them to create an On-Site Generation
Utility Allowance Schedule (OGUA). If an owner-developer provides
on-site generation, such as a photovoltaic system that covers all
or part of the tenants' electrical needs, the electric portion
of the bills could also be reduced accordingly. Like the EEBUA,
this provides a payback to the owner on the investment (the cost
of the on-site generation system). In this case, any adverse impact
on the tenants can be avoided by the owner-developer agreeing to
pay the electricity bill for any electricity usage not met by the
site-generation.
While each owner-developer's and housing authority's needs are
different, California housing authorities are starting a trend
to reward owners and developers for investing in saving energy
and building more comfortable homes.
Pioneering housing authorities that adopted an Energy Efficiency-Based
Utility Allowance in 2003 include: The Housing Authority of the
County of Riverside (HACR), Housing Authority of the City of Norwalk,
and the Housing Authority of the City of Anaheim. HUD highlighted
the HACR implementation of an EEBUA and indicated that it deems
adopting the Energy Efficiency-Based Utility Allowance schedule
to be a "best practice." They story appears in their March-April
2004 edition of the online newsletter: "Public Housing
Energy Conservation Clearinghouse News." In the newsletter,
HUD recognized the Housing Authority of the County of Riverside
as a leader.
In 2004, several other housing authorities took the following
steps to encourage energy efficiency in affordable housing:
- The Housing Authority of the County of Monterey offers both
an EEBUA schedule as well as an OGUA schedule. According to one
County of Monterey Housing Authority Board Member "by adopting
this new category of utility allowance, we are creating an incentive
for owner-developers to invest in saving energy." The
Monterey PHA is hosting an owner-developer workshop on February
10, 2005 to announce the program to local developers and provide
training on how to qualify.
- San Diego County Department of Housing and Community Development
also adopted both an EEBUA and an OGUA. "Our Board has consistently
sought new ways to increase affordable housing, while maintaining
practices that enhance its chances for success. For tenant and
owner alike, utility costs can be an insurmountable burden that
can lead to the failure of the project or the homelessness of
the tenant," says County Supervisor, Bill Horn. "By utilizing
this program, we will help increase the economic viability of
affordable housing projects, while at the same time working toward
our Board's goal of energy independence for our region by promoting
energy efficiency and use of solar energy systems," says County
Supervisor, Ron Roberts. Supervisor Roberts goes on to state, "This
policy demonstrates our County's commitment to reduce the region's
reliance on outside energy sources, and an understanding of the
correlation between energy savings, home affordability, and comfort."
- In a move corresponding to the City of San Diego Affordable
Housing Task Force' recommendation to "explore energy
efficiency incentives that can help the developer to build
a more efficient project," the San Diego [City] Housing Commission
(SDHC) is also offering both an EEBUA and an OGUA to qualifying
projects funded through their Notice of Funding Availability
(NOFA) for Construction, Acquisition, and Operation of Affordable
Rental Housing. This will help ensure that affordable housing
owner-developers effectively improve the energy efficiency
of projects located within the SDHC's jurisdiction, and allow
them to recover their investments in energy efficiency.
- Contra Costa County Housing Authority and Yolo County Housing
Authority also each adopted an EEBUA in 2004. EAH program staff
is assisting several other PHAs to explore the advantages that
an EEBUA might offer developers and tenants in their jurisdictions,
and many more adoptions are expected in California during 2005.
Non-profit affordable housing associations endorse this utility
allowance category. "Essentially, an EEBUA changes the economic
equation for energy efficiency in affordable housing by lowering
the utility allowance of projects that are energy efficient. A
lowered utility allowance recognizes that these units will have
lower energy bills and allows the owner-developer to receive a
quicker payback on the investment in energy efficiency without
raising the total housing costs to the tenant. In the end, the
tenant benefits from a more comfortable and energy efficient home.
Since a safety factor is built into the EEBUA schedule, tenants'
energy bills are lowered more than their rent is raised. Everyone
wins," says Tom Scott, Executive Director of the San Diego Housing
Federation.
According to Doug Shoemaker, Director of Policy & Programs
at the Non-Profit Housing
Association of Northern California (NPH) "The
Energy Efficiency-Based Utility Allowance schedule is the most
cost-effective way to make affordable housing owner-developers
serious about energy efficiency."
The program that assisted these local jurisdictions to adopt an
EEBUA, Designed for Comfort, Efficient Affordable Housing or EAH,
is funded by California utility ratepayers under the auspices of
the CPUC. According to
HUD's Regional Energy Advisor, Wayne Waite, "The program is certainly
one of the most innovative market-based means available for attracting
investments in high value energy improvement."
The California housing authorities that have adopted an EEBUA
are doing what's most important, encouraging projects to be energy
efficient to lower utility bills and make homes more affordable – and
comfortable.
For more information about this program, please contact Julieann
Summerford at Summerford@h-m-g.com
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