Communications regarding current Utility Allowance calculation methods
The program regulations for utility allowances guidance regarding utility allowance calculations and methods can be found in the Code of Federal Regulations:
Guidance can also be found in OHCS’ LIHTC and HOME Compliance Manuals.
Each property building must meet one of these approved methods. If a building has multiple layered federal programs, the owner will want to use a method that applies to both types of funding to comply with any regulatory restrictions. In some cases, the owner will be required to use a required method such as Rural Housing Service (RHS) for Rural Development or HUD provided utility allowance for Project-Based Rental Assistance (PBRA) properties. The different types of methods and restrictions will be detailed in this memorandum.
OHCS cannot allow and/or approve additional methods of utility allowance (UA) calculations beyond what HUD and the Internal Revenue Services (IRS) have approved. Annual UA updates for existing approved UA methods do not need to be approved each year by OHCS, but the agency will review them at least once annually and acknowledge that the owner has complied with the annual update requirement. There are specific requirements for owner/agents with
the LIHTC program who use an Engineered-Modeling Method (ECM), HUD Utility Schedule Model (HUSM), or Utility Company Estimate (UCE) method, and for any property who wants to change their existing UA method. These are explained in the guide for the user.
It is the owners’ responsibility to ensure the utility allowances and tenant rents are staying in compliance.
Here are the types of utility allowance methods with regulation details that are approved by OHCS.
-
Rural Housing Service Properties (Rural Development or RD):Buildings receiving assistance from RHS must use the allowances provided or approved by RHS for all rent restricted units in the building.
-
HUD Regulated Properties (project/building/unit based rental assistance):Buildings that receive HUD rental assistance that contain a unit/units that are required to have rents and utility allowances reviewed annually by HUD must use the HUD provided utility allowance for all rent restricted (this includes LIHTC and HOME) units in that building (regardless of the number of HUD assisted units in the building). If buildings are restricted by both RHS and HUD, the RHS numbers must be used for those buildings.
-
Tenants Receiving HUD Rental Assistance (tenant based): Units housing tenants receiving HUD tenant based rental assistance (HCV) must use the applicable Public Housing Authority utility allowance established for the Section 8 existing housing program.
-
Public Housing Authority (PHA) Utility Allowance:This is the most common utility estimate method used by properties that are not regulated by RHS or HUD. Most PHA allowances are published by the housing authority for each county on at least an annual basis. If multiple local PHA’s serve one area, owners must choose the PHA that serves the property location. Each PHA is required to review and update utility allowance information on an annual basis and publish new calculations if there has been a 10% or more (either higher or lower) change since the utility schedule was last revised. When submitting proof of the documented PHA UA to OHCS, circle and total the items in the utility allowance(s) that apply to the units and calculation for the property.
Note: On April 20, 2025, the HOME Final Rule now allows HOME units to use the PHA utility allowance method. See 24 CFR 92.252 (b).
-
Utility Company Estimates (UCE): If the utility company is willing, the owner/agent may obtain a utility company estimate in writing from the local utility provider for the property. This method requires written documentation from the utility company stating that the specific rates indicated are “estimates for this specific property.” For this method the utility company provides the estimated cost of the utility for units of similar size and construction for the geographic area that the property is located in. In deregulated areas the IRS regulation requires that the written local estimate must include all component deregulated charges for providing the utility service. A utility company estimate must come from a provider that offers utility services to the building. A copy of the utility company estimate, and backup documentation must be provided and retained by the owner of the building. The estimate must be documented on the utility company’s letterhead. Utility companies typically base their estimate on actual consumption and require signed authorizations of release of information from each tenant living at the property.
-
Agency estimates: Currently, OHCS does not offer the service of providing agency utility allowance estimates to owners.
-
HUD Utility Schedule Model (HUSM): A building owner may calculate a utility estimate using
the HUD Utility Schedule Model (HUSM) Revised Model posted on August 23, 2016. The Office of Policy Development and Research (PD&R) developed the HUD Utility Schedule Model to provide a consistent basis for calculating utility schedules. The current HUSM is a web application that uses correlations and regression techniques to calculate allowances for end-uses, as specified on form HUD-52667 (Allowances for Tenant-Furnished Utilities and Other Services). This version of the model is primarily based on the 2009 Residential Energy Consumption Survey (RECS) dataset that is published by the Energy Information Administration (EIA) of the Department of Energy (DOE). Owners using this model must maintain and provide documentation providing the source and content of all factors entered into the model spreadsheet. Rates input must not be older than the rates in place 60 days prior to the date the utility allowance will change. To learn more, see the
HUD Utility Schedule Model (HUSM) Instructions.
-
Energy Consumption Model (ECM): A building owner may calculate utility estimates using an energy, water, and sewage consumption and analysis model (energy consumption model). The energy consumption model must, at a minimum, take into account specific factors including, but not limited to unit size, building orientation, design and materials, mechanical systems, appliances, characteristics of the building location, and available historical data. Utility rates used for the energy consumption model must be no older than the rates in place 60 days prior to the beginning of the 90-day period. Owners using this modeling method must maintain and provide documentation providing the source and content of all factors considered when computing the utility allowance calculation. The utility consumption estimates must be calculated by a properly licensed engineer or other qualified professional. The qualified professional and the building owner must not be related.
Energy Modeling Consultants that are not licensed engineers used by owners/agents must be preapproved by OHCS. The list of OHCS qualified and approved calculators can be found below. Requests from energy consulting firms and utility consumption analysts are considered for approval by OHCS on an individual basis. To qualify for the OHCS referral/ approved consultant list for such services the energy professional must submit a current resume demonstrating education and experience, an energy modeling sample, and proof of licensing to work in the State of Oregon (more information may be requested upon review). Upon request those with successful submissions will be placed on the approved list of energy modeling consultants from which organizations seeking UA calculators may select.
Licensed Engineers do not have to be pre-approved by OHCS. However, they must be properly licensed to work in Oregon and must be able to demonstrate that they are familiar with modeling LIHTC, HOME, HTF (other federal programs) building UA modeling and calculations. Further, regardless of the type of the qualified professional/licensed engineer, OHCS may approve or disapprove of the energy consumption model proposed and/or require information before permitting its use.
-
Sub-Metering and Ratio Utility Billing Ratio Systems (RUBS) (RUBS is not allowed) LIHTC only: LIHTC is the only program currently that allows the submetering method. Per IRS Notice 2009-44 Sub-Metered Utilities are acceptable to be used when calculating a utility allowance as long as the individual unit is metered and the utility costs paid by the tenant are based on actual consumption. A submetering system typically includes a master meter owned or controlled by a utility company, with overall utility consumption billed to a building owner. A building owner in turn uses residential unit-based meters to measure utility consumption and bill each unit based on actual consumption. Consequently, tenants are in effect paying for their actual utility consumption to the utility company.
If submetering is used with energy directly acquired from a renewable source without the intervention of a utility company, a building owner’s energy charges to tenants must not exceed the rates the utility company would charge tenants. The IRS has stated that utility costs paid by a tenant and based on actual consumption are to be treated as paid directly by the tenant. Utility rates charged to the tenant in a sub-metered unit must be limited to the utility company rates incurred by the manager or owner. Sewage fees based on the tenants’ actual water consumption determined with a sub-metering system yet listed on combined water and sewage bill are treated as being paid directly by the tenant and can also be included when determining the utility allowance. If an owner charges an administrative fee, the fee is not considered gross rent unless the aggregate amount of monthly fees for all of a unit’s utilities under submetering exceeds the greater of $5 per month, an amount designated in an Internal Revenue Bulletin (IRB), or the lesser of either a dollar amount specifically prescribed under a state or local law or a maximum amount designated by an IRB publication.
If installing an actual meter is difficult because of plumbing or wiring configurations, or the owner chooses not to install individual meters, the RUBS method is sometimes used. The RUBS method is based on an allocation formula which takes into consideration the number of occupants, unit square footage, number of bathrooms, and number of water heaters.
The RUBS method is not acceptable by the IRS for determining a utility allowance as the allocation method is not based on tenant actual consumption. Buildings that use the RUBS method must consider the cost paid by the tenant as a nonoptional fee and the fee must be included in the maximum allowable rent calculation.
Cost of estimates
The building owner is responsible for the costs incurred in obtaining the utility allowance calculations. The building owner must also pay the cost of notification to the tenants and OHCS.
Owner responsibilities
Utility allowances must be reviewed annually to ensure that the allowances used are comparable to what the tenant is paying. Owners may choose to review allowances more than once per year, however, each time a review is completed, whether a mandated annual review, or a self-imposed review, owners and agents have a maximum of 90 days after the new allowances are determined to implement them into the maximum allowable rent computation.
The 90-day implementation period beginnings
-
PHA: When the PHA makes the revision available
-
Utility Company Estimates (UCE): Receipt date of the new information
-
HUD Utility Schedule Model (HUSM): Date entered as the form date on the HUD form 52667. Utility rates used must be no older than the rates in place 60 days prior to the beginning of the 90-day period.
-
Energy Consumption Model (ECM): Existing Properties: Utility rates used for the energy consumption model must be no older than the rates in place 60 days prior to the beginning of the 90-day period.
-
Energy Consumption Model- New Development/Rehab: After the initial preapproval from OHCS, the building owner is not required to review the utility allowances, or implement new utility allowance, until the building has achieved 90% occupancy for a period of 90 consecutive days or at the end of the first year of the credit period, whichever is “earlier.”
Each year when the allowances are reviewed, the owner or agent must retain any supporting documentation or data collected that is used to calculate the utility allowance. This information must be kept on file in order to provide proof of compliance during the entire credit and compliance period and made available to the IRS or OHCS on request. Owners or agents must submit the utility allowance documentation paperwork to OHCS each year with the annual CCPCs, and at inspection, and when requested. The information must be made available to all tenants at the beginning of the 90-day period before the new utility allowance can be used to calculate rent.
Proof of resident notification must also be kept on file for OHCS review.
Notification requirements
-
Obtained UA from PHA: If the owner obtained a utility allowance from the PHA the owner must make the utility allowance calculation notification available to all tenants at the beginning of the 90-day period.
-
Obtained UA from UCE, HUSM, or ECM
-
For LIHTC: The owner must submit copies of the annual utility calculations with the supporting documentation to OHCS for review and make the calculation available to all tenants in the building at the beginning of the 90-day period. OHCS may require additional documentation from the owner. Annual submissions are sent using OHCS’ Utility Allowance Notification form.
-
For HOME, HTF, LIFT, etc.: Must make the calculation available to all tenants in the building and save a copy in their records for OHCS at the beginning of the 90-day period.
Changing methods: All program types (HOME, HTF, LIHTC, LIFT, etc.)
Owners are not prohibited from changing utility allowance methods used for calculating a utility allowance to most accurately calculate the utility allowance. However, OHCS must be notified in advance (beginning of the 90-day period) of the change per the notification requirements for any type of changed method. Please submit the Changing Utility Allowance Method form to notify OHCS. Changing methods without notification to OHCS can result in the property being designated as “in noncompliance”.
Common causes of utility allowance noncompliance
- The appropriate utility allowance is not used.
- The utility allowance is not calculated properly.
- Rents are not reduced when the tenant is paying for the utility.
- Owner/agent did not review the basis on which the utility allowance was established at least once during the calendar year.
- Owner failed to update rents for a UA change within the 90-day period.
- Owner failed to maintain adequate documentation regarding the computation of utility allowances. Without proof of the UA or how it was calculated, there is no way to correctly calculate rents.
Severe consequence of noncompliance for not reducing rents
-
For LIHTC: Once a unit is determined to be out of compliance with the rent limits and it is determined that a tenant has overpaid rent for even one month, the unit ceases to be a low-income unit for the remainder of the owners’ tax year. An owner cannot avoid the disallowance of the LIHTC by rebating the excess rent or fees to the affected tenants. OHCS will require that the overcharged rent is refunded; however, this will not bring the unit back into compliance and the required 8823 form will be filed with the IRS as applicable.
-
For HOME and HTF (other programs):If the residents are overcharged rents due to a miscalculated utility allowance being used, the full amount of the over-charged rents must be returned to each resident affected.
Tips to remain in compliance
- Check, calculate, and change utility allowances at least once per calendar year as applicable.
- Make sure that the utility allowance is a method approved by OHCS and the IRS.
- Reduce rents within the time frame allowed if applicable.
- Consider maintaining a “buffer” below maximum rents so that a change in utility allowance does not put the property out of compliance.
- Maintain all documentation required to show proof of compliance.
- Submit required documentation to OHCS as explained in this notice.
- Notify tenants of utility calculations when required.
- Know the difference between actual sub-metering and RUBS.
- Notify OHCS when changing utility allowance methods at the beginning of the 90-day period.
- Know the requirements involved for all funding sources of the property.
- When using the ECM method be sure that you are using a qualified professional licensed engineer, or a UA Calculator that has been approved by OHCS before modeling the property.
- Do not obtain an ECM for any unit that contains one or more project-based units.
- If utility costs decrease, the rents should not automatically increase. OHCS approval must be received before raising rents.
Approved UA Calculator Contact List
If you have a vendor you would like to hire to conduct an ECM utility allowance study that is not on our approved calculator list, please email OHCS at
arh.portfolio@hcs.oregon.gov to request an approval.