HUD gives PHAs wide latitude in how they develop utility allowances for their public housing units. Although the federal regulations state the various factors that should be taken into account, they do not require that any particular methodology be used to calculate allowances. Instead, it is left to the PHA to decide which methodology to use in establishing allowances.

There are two basic ways to calculate allowances:

• Engineering-Based Methodology. Allowances are based on engineering calculations, standardized consumption tables, and/or in-house information; or
• Consumption-Based Methodology. Allowances are developed using actual consumption data from dwelling units in the PHA's portfolio.

This section describes these two methodologies and discusses the advantages and disadvantages of each. The most appropriate methodology to choose depends on a PHA's particular characteristics and resources. The information here is intended only to familiarize you with these methodologies. For more guidance in determining which approach may be most suitable for your particular PHA, see HUD’s Utility Allowance Guidebook. More information on this publication is available in the Resources section.

Engineering-Based Methodology

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.  

Consumption-Based Methodology

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.