Public Housing Authorities (PHA) are autonomous agencies chartered by State Governments for low-income tenants. PHA housing is built and subsidized by the Department of Housing and Urban Development (HUD). Because rents are capped at affordable levels for low-income tenants. The subsidy is determined by the Operating Fund Formula (OFF), which forecasts needs for utilities, and non-utility expenses minus the income.
The utility portion of the OFF is determined by averaging the last three years actual consumption multiplied by the current utility rate. At the end of the year the PHA is rewarded or penalized if consumption is lower or higher than forecasted. Actual degree days are used to account for warmer or colder than average weather. The PHA gets to keep 75 percent of all savings achieved through lower use, but has to absorb 25 percent of all increases.
In 1987, PHA’s were authorized to borrow money and enter into 12-year performance contracts with Energy and Water Service companies to make energy or water use efficiency improvements. Under such a contract, the base line for utility consumption is frozen for the period of the contract. No allowance is provided for increased consumption demands due to increased computer or other household devices, nor for changes in overall population. However, the PHA is allowed to retain all of the savings from utility portion of the HUD subsidy. The PHA must use at least 50 percent of the savings to amortize the investment.
As a second option, the PHA may elect to request an “add-on” to its operating subsidy to pay for the loan. Under this scenario, the PHA retains the 75 percent of the savings for three years and HUD totally reimburses PHAs for loans.
HUD has regulations allowing PHA's to fund these programs in two main ways:
1. Freezing the Rolling Base – Separate utilities or all utilities consumption levels may be frozen for up to a twelve-year period during a Performance Contract. This incentive applies if payments by the PHA to a WASCO (Water Services Company), ESCO (Energy Services Company) or third party financier are dependent on the amount of utility cost savings realized.
2. Additional Operating Subsidy – A PHA can request an additional subsidy as an “add-on” to its total operating subsidy. This additional amount would be applied to amortizing payments for a loan concentrated to finance the utility systems improvements. Under this incentive, the three-year rolling base period stays in place.
Only a small fraction of PHA’s have taken advantage of private sector WASCO’s, ESCO’s and engineering firms that have the expertise and experience to design and implement these programs. Those that have, experience dramatic savings on their water and energy bills.
