Streamlining Public Housing Maintenance and Operation Rules

SUMMARY: This final rule amends HUD's regulations in 24 CFR part 965 on

public housing maintenance and operations to streamline and simplify

necessary requirements and to eliminate unnecessary requirements. This

final rule takes into consideration comments received on the September

25, 1995 proposed rule.

EFFECTIVE DATE: April 29, 1996.

FOR FURTHER INFORMATION CONTACT: William C. Thorson, Director,

Administration and Maintenance Division, Office of Public Housing

Management, Room 4214, U.S. Department of Housing and Urban

Development, 451 Seventh Street, SW, Washington, DC 20410. Telephone

(202) 708-4703; Hearing- or speech-impaired persons may use the

Telecommunications Devices for the Deaf (TDD) by contacting the Federal

Information Relay Service on 1-800-877-TDDY (1-800-877-8339) or (202)

708-9300. (Other than the ``800'' TDD number, the telephone numbers are

not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

In accordance with President Clinton's regulatory reinvention

efforts and Executive Order 12866 (Regulatory Planning and Review)

issued by President Clinton on September 30, 1993, HUD commenced a

comprehensive review of all of its regulations to determine which

regulations could be eliminated and streamlined. One such review was

with respect to 24 CFR 965, PHA-Owned or Leased Projects-Maintenance

and Operation.

HUD published a proposed rule on September 25, 1995 (60 FR 49480)

announcing its intention to (1) eliminate one subpart F--Modernization

of Oil Fired Heating Plants, (2) simplify and revise subpart C--Energy

Audits and Energy Conservation Measures, subpart D--Individual Metering

of Utilities for Existing PHA-Owned Projects, and subpart E--Tenant

Allowances for Utilities, (3) consolidate two subparts, subpart A--

Preemption of State Prevailing Wage Requirements With Respect to

Maintenance and Operation and subpart H--Lead- Based Paint Poisoning

Prevention, applicable to other housing programs in a new ``general''

part that will be applicable to all programs, (4) revise subpart I--

Fire Safety at a later date to reflect new statutory requirements and

(5) make only a minor technical change to subpart B--Required Insurance

Coverage.

II. Differences Between This Final Rule and September 25, 1995 Proposed

Rule

Intervening events have changed the need for some of these changes.

Subpart F was removed by another rulemaking that eliminated obsolete

provisions, 61 FR 47263. Subpart A is being amended by a pending

rulemaking that focuses primarily on streamlining public and Indian

housing modernization regulations. Therefore, this final rule focuses

on making the changes to simplify subparts C, D, and E.

Four changes were made at this final rule stage to the revisions

proposed in the rule published on September 25, 1995.

1. The Department has revised Sec. 965.407 to require that PHAs

with mastermeter systems must reevaluate these systems by making a

cost-benefit analysis at least every 5 years. The final rule changes

the period from 36 months to 5 years to be consistent with the energy

audit and the Comprehensive Grant Program five year plan.

2. The Department has revised Sec. 965.503 to streamline the

paragraph by eliminating the unnecessary language in the last sentence

which goes beyond the basic requirement.

3. The Department has revised Sec. 965.504(b) to streamline the

paragraph by eliminating unnecessary descriptive language beyond the

basic requirement.

4. The Department has revised Sec. 965.507(b) to clarify that

increases in utility allowances due to rate changes are not subject to

the 60-day notice requirement in Sec. 965.502(c).

III. Discussion of Public Comments on Proposed Rule

The Department received public comments from ten organizations

(seven public housing agencies (PHAs), one PHA trade organization and

two labor organizations) in response to the September 25, 1995 proposed

rule. One PHA commended HUD's efforts in simplifying part 965,

recommending no revisions. The following discussion summarizes the

remaining comments and provides HUD's responses to those comments.

Subpart A--Preemption of State Prevailing Wage Requirements With

Respect to Maintenance and Operation of Projects

Comment: While two PHAs concurred with the decision to retain this

subpart, two labor organizations strongly objected. Both organizations

cited their opposition to the rule when it was originally issued in

1988. They contended that lower rates do not equate to lower project

costs and that the capacity of the U.S. Department of Labor to produce

timely and accurate wage reports is questionable because of budget

cuts. One organization also suggested that the rule creates an unfunded

mandate upon the States.

Response: The Department appreciates the positions of the two labor

organizations. However, the Department points out that this issue was

the subject of considerable debate at the time the proposed and final

rules were issued in 1987/1988. It was also, as one of the

organizations correctly pointed out, challenged in the courts. The

court found in favor of the Department. The Department continues to

believe that the rule is in the best interest of the program and

declines to eliminate this subpart.

Subpart C--Energy Audits and Energy Conservation Measures

Comment: One PHA and a PHA trade organization suggested that HUD

should not require all PHAs, regardless of size or performance, to

conduct energy audits and undertake energy conservation measures. The

commenter suggested that standard and high performing PHAs and PHAs

with fewer than 250 units should be exempt unless there is evidence

that intervention by HUD is required on energy conservation issues.

Alternatively, it was recommended that if HUD requires all PHAs to

conduct the described activities, it should guarantee funding. Another

PHA raised similar concerns about funding of audits.

Response: First, it should be noted that HUD pays operating

subsidies through the Performance Funding System (PFS) (24 CFR part

990) for HAs that are not able to cover all operating costs, including

utilities, through rents charged to residents. Currently, the utility

component of the operating subsidy now exceeds $1 billion annually. The

appropriation for operating subsidy for Fiscal Years 1994 and 1995 was

only sufficient to fund

[[Page 7967]]

PHAs at 95 and 96 percent, respectively, of their eligibility level. It

is not guaranteed that future appropriations will result in a higher

percentage funding. Hence, the Department must ensure that PHAs conduct

audits as one means of holding down operating costs, including the cost

of utilities, and ensuring that the limited funds available for

operations are used as efficiently as possible.

It is erroneous to assume that a designation as a standard or high

performer under the Public Housing Management Assessment Program

automatically equates to having a good energy management program. HUD's

Office of Inspector General (OIG) recently completed an Audit Report

entitled ``Review of Opportunities To Reduce Utility Costs At Public

Housing Authorities.'' The OIG report was based on visits to

approximately 63 PHAs, which manage 41 percent of the 1.3 million

public housing units nationally. The OIG indicated that despite past

efforts:

Opportunities for reducing utility costs continue to exist and

are cost effective in many instances due to ongoing improvements in

technology. Housing authority managers need to be aware of,

evaluate, and give maximum consideration to these ongoing and new

opportunities when managing their utility costs. Because of

improvements in technology, managing utilities is a continuous

process that requires an ongoing energy management program.

The purpose of an energy audit is to identify the types and costs

of energy use in order to understand how energy is being used and to

identify and analyze alternatives that could substantially reduce

costs. PHAs that are effectively managing their utility consumption are

going through a dynamic process--evaluating current usage, implementing

recommendations for energy cost savings, and monitoring the results. A

good energy audit process can provide a PHA with many benefits and

insights and does not have to be very complex. In fact, some utility

companies do energy audits for free.

The Department views a regularly scheduled audit to be an essential

tool in reducing operating costs for PHAs and the Federal government.

Since the Federal government is paying the cost of operations,

including the utility costs, and the technology is constantly evolving,

it is reasonable and cost effective to require periodic energy audits

by all PHAs, regardless of size or performance. The Department

considers five year intervals to be the maximum time between regularly

scheduled audits, given the continuous changes that are occurring in

the energy industry.

It should be further noted that the requirement to perform an audit

is not new. It has been in the existing regulation for more than a

decade. The existing regulation required an audit within 36 months from

the effective date of the regulation (which was published in 1980) and

prior to a PHA's application for Comprehensive Modernization. The

proposed rule simply updates the existing requirement for the audit to

establish regular intervals when audits must be done.

HUD has eliminated most of the process-oriented requirements (e.g.,

most of the requirements in the current Secs. 965.303 and 965.304) in

favor of a results-oriented requirement (e.g., an audit performed in

accordance with State requirements). HUD also has eliminated the

provision in Sec. 965.302 of the proposed rule involving HUD approval

of energy audit standards.

A PHA can, as one commenter recommended, do the energy audit in

conjunction with its five-year action plan which is required for the

Comprehensive Grant Program. The modernization regulations are being

amended to require the incorporation of the energy conservation

measures resulting from an audit performed under this subpart.

With regard to the funding of energy audits, the Department

believes that a sound energy management program is fundamental to good

property management and that energy audits are a cost of doing business

that should be included as a part of an agency's operating budget. For

that reason, the final rule, in keeping with the existing rule,

provides that the audit is to be paid out of operating funds to the

extent feasible, and, where operating funds are insufficient, the cost

of the audit is an eligible cost for inclusion in a modernization

program. The Department disagrees that this existing requirement

represents an unfunded mandate.

The Department recommends that PHAs give serious consideration to

Secs. 965.305(b) and 965.308 of this rule. These sections, and the

applicable sections of part 990, provide incentives for PHAs to

undertake energy improvements through energy performance contracts

using non-HUD financing. Under this arrangement, a PHA may contract

with an energy service company to do an audit of its properties and

submit a proposal for the installation of energy conservation measures

using non-HUD financing. If the proposal is approved by HUD, HUD will

freeze the three year rolling base in the utility component of the PFS

for the utilities involved. The PHA must use at least 50 percent of the

consumption savings to pay debt service on the non-HUD financing,

retaining any balance.

The PHA benefits three ways from such an arrangement: (1) It

generates additional income from the savings not used for debt service

payments; (2) energy improvements are shifted from the PHA's

modernization program to non-HUD financing, thus, enabling the PHA to

do more work with its limited modernization funds; and (3) the PHA is

able to provide a better environment for its residents. As pointed out

in the OIG report, ``energy efficiency can become a competitive

advantage for housing authorities who want to attract residents through

increased resident comfort and decreased operating costs.'' Effective

energy use becomes a more critical issue as the public housing

community faces drastic changes in the nature of how they are funded

and operate. More information regarding energy performance contracting

and incentives to reduce utility costs is contained in HUD Notice PIH

95-26, issued April 28, 1995.

Comment: The PHA trade organization suggested that if HUD continues

to require energy audits of all PHAs, it should not require that HUD

review and pre-approve all energy performance contracts, especially for

standard and high-performing PHAs. Instead, the organization suggests

that the review of such contracts should be part of the independent

public accountant (IPA) process, as the Department proposes for the

calculation of resident utility allowances.

Response: Energy performance contracting is relatively new in the

public housing community and involves a more sophisticated two-step

procurement process that most PHAs have not used and are not familiar

with. Further, HUD must agree that the proposed savings will

materialize and be sufficient to amortize the debt service in order to

commit the Department to freezing the utility component of the PFS for

periods of up to 12 years. This represents a significant financial

investment on the part of the government. For these reasons, the

Department is retaining the pre-approval of energy performance

contracts.

Comment: One PHA recommended that HUD should develop criteria to

determine which housing authorities are in need of an energy audit. HUD

should evaluate a housing authority's energy performance by comparing

consumption and cost to a standard. This evaluation would determine

which housing

[[Page 7968]]

authorities need to conduct an energy audit. The PHA contends that PHAs

send in so many reports and information to HUD that the energy

performance of a housing authority could be determined by HUD.

Response: As noted above, energy audits are an essential part of an

ongoing energy management system. Technology is constantly changing,

and it is necessary to have properties reevaluated on a regular basis.

The recommendation is to rely on HUD to make a determination after the

PHA has been determined to be energy inefficient. The Department does

not believe that this is an effective management approach, particularly

given dwindling resources for PHAs and HUD.

Further, the Department does receive consumption information for

PHAs in conjunction with the PFS. The information reflects gross

consumption and is not broken down by individual projects or buildings,

both of which can vary significantly. HUD also requests utility

information in conjunction with its routine monitoring. Such monitoring

is done only on a limited basis. As noted above, the Department does

not believe that it is a good management practice for PHAs to wait for

HUD to determine energy efficiency. Given the cost to the Department

for operations, including utilities, it will retain the audit

requirement which has been in effect since 1980.

Subpart D--Individual Metering of Utilities for Existing PHA-Owned

Projects

Comment: One PHA indicated that residents should be required to pay

for utilities and that the PHA should charge a modest rent based on the

number of bedrooms in the unit.

Response: The Department agrees that individual metering is an

important component of a complete energy management system for property

managers. However, conversions should only be mandatory if they are

cost effective, and this subpart is written accordingly. The payment of

rent by public housing residents is, by law, based on income and is not

addressed by this rule.

Comment: One PHA indicated that it agrees that individual metering

is advisable, but that PHAs are capable of implementing these steps

independent of HUD regulation. The PHA questions the change in the

requirement in the existing rule which advises the PHA to consult with

residents, whereas the proposed rule makes such consultation mandatory.

Response: The Department agrees that many PHAs are capable of

implementing the provisions contained in the rule. However, it is also

true that many PHAs are reluctant to do so to avoid confrontational

situations with the residents and the possibility of litigation which

has accompanied such conversions in the past. Also, HUD pays the

utility costs in these cases and needs to ensure that the conversions

are accomplished where it is cost effective to do so. Because of the

cost to the Federal government, the Department is retaining this

requirement. With regard to consultation, residents are both the PHA's

and the Department's ultimate customer. The Department believes the

conversion to individual metering, while a good management practice,

will nevertheless significantly impact the residents and, therefore,

they must be consulted.

Comment: One PHA noted the requirement in Sec. 965.407 for PHAs

with mastermeter systems to reevaluate these systems by making a cost-

benefit analysis at least every 36 months. The PHA recommends a five-

year cycle to be consistent with the energy audit and the Comprehensive

Grant Program five year plan.

Response: The Department agrees with this recommendation and has

made the revision in the final rule.

Subpart E--Resident Allowances for Utilities

Comment: One PHA noted that a HUD Field Office did a Utility Review

and made a finding because it was not surcharging residents for water

for a washing machine. The PHA indicates that it felt that it had a

right to determine what appliances required surcharges but notes that

the regulation does not specifically mention washing machines. The PHA

also recommended that we specifically exempt elderly high rises in the

South from the requirement to charge residents for the energy to use a

PHA-furnished air conditioner. In the instant case, the individual

units had heat pumps for each unit which provide heat and air

conditioning. The PHA did not think it was possible to establish fair

surcharges because some run the air conditioning all the time while

others only run the air conditioning occasionally.

Response: The Department agrees that if laundromats are not

available, washing machines in units are reasonable, but not without

limitation. As has been described above, the amount of operating

subsidies is limited. It is, therefore, essential that PHAs undertake

measures to conserve energy. One such way is to establish an allowance

``which reflects a reasonable consumption of utilities by an energy-

conservative household of modest circumstances * * *.'' If the utility

is paid by the PHA and the resident exceeds the allowance, the resident

must be surcharged for the excess consumption. The regulation provides

PHAs with considerable latitude in the development of allowances,

within the basic framework described above. The Department plans to

issue a guidebook in the near future to assist PHAs in developing

utility allowances.

There is considerable debate as to the extent to which air

conditioning should be considered an essential component. As noted

earlier, the cost of utilities is in excess of $1 billion annually.

Appropriations for the last two years have been, and for the

foreseeable future, will be, insufficient to fund PHAs at 100 percent

of their eligibility under the PFS. Including air conditioning in

utility allowances beyond what is already specifically authorized would

seriously and adversely impact the level of funding for other critical

services such as maintenance. This will affect all PHAs around the

nation, since it will reduce the overall amount of operating subsidy

which is fixed. The Department's approach to this difficult issue is to

allow the capital costs to be an eligible expense while requiring the

resident to pay the costs of the energy associated with its use. The

Department is retaining the language in Sec. 965.505(e) as described in

the proposed rule.

Comment: Two PHAs indicate that HUD's criteria for establishing

utility allowances as required in Sec. 965.505(d)(1) through (9) should

be simplified. One PHA indicated that the nine factors that must be

taken into account have intimidated many PHAs into commissioning

expensive engineering studies in an effort to comply. The PHA suggests

that the language be simplified to allow for the use of previous

consumption histories. Another PHA suggested that the factors be

advisory.

Response: As noted in Sec. 965.505(c), the Department leaves the

complexity and elaborateness of the methods for establishing utility

allowances to the discretion of the PHA. HUD believes that the choice

in methodology is best handled at the local level where the PHA can use

a procedure suitable to available data and local experience. As such,

the rule does not intend to require only the use of the engineering

method to establish allowances. While the Department believes that the

engineering method will more closely approximate the objective stated

in

[[Page 7969]]

Sec. 965.505(a), the consumption method is acceptable and may be

appropriate for some PHAs. The Department believes that the ``factors''

cited, which have been in effect for more than a decade, are reasonable

and necessary to be ``considered'' regardless of the methodology used

in order to meet the objective in Sec. 965.505(a).

Comment: One PHA indicated that Sec. 965.507 states that utility

allowances must be revised if the rate changes more than 10 percent

between annual reviews. Utility rates can be volatile, particularly if

a housing authority purchases a utility, such as natural gas, directly

from the well-head. This could necessitate changing utility allowances

several times during a twelve month period. The PHA recommends revision

only on an annual basis. This PHA, along with others, indicated that if

HUD wants PHAs to be competitive in the housing market, air

conditioning must be considered a legitimate cost and should be

included in the utility allowances.

Response: To the extent that the market is volatile, any savings/

cost should be passed along to the resident. The Department previously

discussed the financial impact of including air conditioning in utility

allowances. No changes are being made to this section.

Comment: One PHA noted an apparent inconsistency. Specifically,

Sec. 965.502(c) requires residents to receive a 60-day notice of any

change to the utility allowances. Section 965.507(b), on the other

hand, requires that in cases of increases in utility allowances due to

rate changes, adjustments shall be effective the first day of the month

following the month in which the last rate change taken into account in

such revision became effective. The PHA suggested that it appears that

increases due to rate changes are not subject to the 60-day notice

requirement contained in Sec. 965.502(c).

Response: The PHA is correct that revisions due to rate changes

pursuant to Sec. 965.507(b) are not subject to the 60 day notice

requirement. The Department has added clarifying language.

Other Matters

Environmental Impact

A Finding of No Significant Impact with respect to the environment

for this rule was made at the proposed rule stage in accordance with

HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of

the National Environmental Policy Act of 1969. The Finding of No

Significant Impact remains applicable to this final rule and is

available for public inspection between 7:30 a.m. and 5:30 p.m.

weekdays in the Office of the Rules Docket Clerk, Office of the General

Counsel, Department of Housing and Urban Development, Room 10276, 451

Seventh Street, SW., Washington, DC 20410.

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this rule before publication and by

approving it certifies that this rule would not have a significant

economic impact on a substantial number of small entities because the

rule reduces and streamlines existing requirements. PHAs will have

fewer mandatory requirements. No new additional requirements are being

imposed by this rule.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that this rule

does not have ``federalism implications'' because it does not have

substantial direct effect on the States (including their political

subdivisions), or on the distribution of power and responsibilities

among the various levels of government.

Executive Order 12606, The Family

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that the rule will not have a

significant impact on family formation, maintenance, and well being,

and, therefore, is not subject to review under the order. No

significant changes in existing HUD policies or programs will result

from promulgation of this rule as those policies and programs relate to

family concerns.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance Program number assigned

to this program is 14.850.

List of Subjects in 24 CFR Part 965

Energy conservation, Government procurement, Grant programs--

housing and community development, Lead poisoning, Loan programs--

housing and community development, Public housing, Reporting and

recordkeeping requirements, Utilities.

Accordingly, 24 CFR part 965 is amended as follows:

PART 965--PHA-OWNED OR LEASED PROJECTS--MAINTENANCE AND OPERATION

1. The authority citation for part 965 continues to read as

follows:

Authority: 42 U.S.C. 1437, 1437a, 1437d, 1437g, and 3535(d).

Subpart H is also issued under 42 U.S.C. 4821-4846.

Sec. 965.205 [Amended]

2. In subpart B, in Sec. 965.205, paragraph (a) is amended by

removing the parenthetical phrase ``(in section 305 of the ACC)'' from

the first sentence that immediately follows the paragraph heading.

3. Subpart C is revised to read as follows:

Subpart C--Energy Audits and Energy Conservation Measures

Sec.

965.301 Purpose and applicability.

965.302 Requirements for energy audits.

965.303 [Reserved].

965.304 Order of funding.

965.305 Funding.

965.306 Energy conservation equipment and practices.

965.307 Compliance schedule.

965.308 Energy performance contracts.

Subpart C--Energy Audits and Energy Conservation Measures

Sec. 965.301 Purpose and applicability.

(a) Purpose. The purpose of this subpart C is to implement HUD

policies in support of national energy conservation goals by requiring

PHAs to conduct energy audits and undertake certain cost-effective

energy conservation measures.

(b) Applicability. The provisions of this subpart apply to all PHAs

with PHA-owned housing, but they do not apply to Indian Housing

Authorities. (For similar provisions applicable to Indian housing, see

part 950 of this chapter.) No PHA-leased project or Section 8 Housing

Assistance Payments Program project, including a PHA-owned Section 8

project, is covered by this subpart.

Sec. 965.302 Requirements for energy audits.

All PHAs shall complete an energy audit for each PHA-owned project

under management, not less than once every five years. Standards for

energy audits shall be equivalent to State standards for energy audits.

Energy audits shall analyze all of the energy conservation measures,

and the payback period for these measures, that are pertinent to the

type of buildings and equipment operated by the PHA.

[[Page 7970]]

Sec. 965.303 [Reserved]

Sec. 965.304 Order of funding.

Within the funds available to a PHA, energy conservation measures

should be accomplished with the shortest pay-back periods funded first.

A PHA may make adjustments to this funding order because of

insufficient funds to accomplish high-cost energy conservation measures

(ECM) or where an ECM with a longer pay-back period can be more

efficiently installed in conjunction with other planned modernization.

A PHA may not install individual utility meters that measure the energy

or fuel used for space heating in dwelling units that need substantial

weatherization, when installation of meters would result in economic

hardship for residents. In these cases, the ECMs related to

weatherization shall be accomplished before the installation of

individual utility meters.

Sec. 965.305 Funding.

(a) The cost of accomplishing cost-effective energy conservation

measures, including the cost of performing energy audits, shall be

funded from operating funds of the PHA to the extent feasible. When

sufficient operating funds are not available for this purpose, such

costs are eligible for inclusion in a modernization program, for

funding from any available development funds in the case of projects

still in development, or for other available funds that HUD may

designate to be used for energy conservation.

(b) If a PHA finances energy conservation measures from sources

other than modernization or operating reserves, such as a loan from a

utility entity or a guaranteed savings agreement with a private energy

service company, HUD may agree to provide adjustments in its

calculation of the PHA's operating subsidy eligibility under the PFS

for the project and utility involved based on a determination that

payments can be funded from the reasonably anticipated energy cost

savings (See Sec. 990.107(g) of this chapter).

Sec. 965.306 Energy conservation equipment and practices.

In purchasing original or, when needed, replacement equipment, PHAs

shall acquire only equipment that meets or exceeds the minimum

efficiency requirements established by the U.S. Department of Energy.

In the operation of their facilities, PHAs shall follow operating

practices directed to maximum energy conservation.

Sec. 965.307 Compliance schedule.

All energy conservation measures determined by energy audits to be

cost effective shall be accomplished as funds are available.

Sec. 965.308 Energy performance contracts.

(a) Method of procurement. Energy performance contracting shall be

conducted using one of the following methods of procurement:

(1) Competitive proposals (see 24 CFR 85.36(d)(3)). In identifying

the evaluation factors and their relative importance, as required by

Sec. 85.36(d)(3)(i) of this title, the solicitation shall state that

technical factors are significantly more important than price (of the

energy audit); or

(2) If the services are available only from a single source,

noncompetitive proposals (see 24 CFR 85.36(d)(4)(i)(A)).

(b) HUD Review. Solicitations for energy performance contracting

shall be submitted to the HUD Field Office for review and approval

prior to issuance. Energy performance contracts shall be submitted to

the HUD Field Office for review and approval before award.

4. Subpart D is revised to read as follows:

Subpart D--Individual Metering of Utilities for Existing PHA-Owned

Projects

Sec.

965.401 Individually metered utilities.

965.402 Benefit/cost analysis.

965.403 Funding.

965.404 Order of conversion.

965.405 Actions affecting residents.

965.406 Benefit/cost analysis for similar projects.

965.407 Reevaluations of mastermeter systems.

Subpart D--Individual Metering of Utilities for Existing PHA-Owned

Projects

Sec. 965.401 Individually metered utilities.

(a) All utility service shall be individually metered to residents,

either through provision of retail service to the residents by the

utility supplier or through the use of checkmeters, unless:

(1) Individual metering is impractical, such as in the case of a

central heating system in an apartment building;

(2) Change from a mastermetering system to individual meters would

not be financially justified based upon a benefit/cost analysis; or

(3) Checkmetering is not permissible under State or local law, or

under the policies of the particular utility supplier or public service

commission.

(b) If checkmetering is not permissible, retail service shall be

considered. Where checkmetering is permissible, the type of individual

metering offering the most savings to the PHA shall be selected.

Sec. 965.402 Benefit/cost analysis.

(a) A benefit/cost analysis shall be made to determine whether a

change from a mastermetering system to individual meters will be cost

effective, except as otherwise provided in Sec. 965.405.

(b) Proposed installation of checkmeters shall be justified on the

basis that the cost of debt service (interest and amortization) of the

estimated installation costs plus the operating costs of the

checkmeters will be more than offset by reduction in future utilities

expenditures to the PHA under the mastermeter system.

(c) Proposed conversion to retail service shall be justified on the

basis of net savings to the PHA. This determination involves making a

comparison between the reduction in utility expense obtained through

eliminating the expense to the PHA for PHA-supplied utilities and the

resultant allowance for resident-supplied utilities, based on the cost

of utility service to the residents after conversion.

Sec. 965.403 Funding.

The cost to change mastermeter systems to individual metering of

resident consumption, including the costs of benefit/cost analysis and

complete installation of checkmeters, shall be funded from operating

funds of the PHA to the extent feasible. When sufficient operating

funds are not available for this purpose, such costs are eligible for

inclusion in a modernization project or for funding from any available

development funds.

Sec. 965.404 Order of conversion.

Conversions to individually metered utility service shall be

accomplished in the following order when a PHA has projects of two or

more of the designated categories, unless the PHA has a justifiable

reason to do otherwise, which shall be documented in its files.

(a) In projects for which retail service is provided by the utility

supplier and the PHA is paying all the individual utility bills, no

benefit/cost analysis is necessary, and residents shall be billed

directly after the PHA adopts revised payment schedules providing

appropriate allowances for resident-supplied utilities.

(b) In projects for which checkmeters have been installed but are

not being utilized as the basis for determining utility charges to the

residents, no benefit/cost analysis is necessary. The checkmeters shall

be used as the basis for utility charges, and residents shall be

surcharged for excess utility use.

(c) Projects for which meter loops have been installed for

utilization of

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checkmeters shall be analyzed both for the installation of checkmeters

and for conversion to retail service.

(d) Low- or medium-rise family units with a mastermeter system

should be analyzed for both checkmetering and conversion to retail

service, because of their large potential for energy savings.

(e) Low- or medium-rise housing for the elderly should next be

analyzed for both checkmetering and conversion to retail service, since

the potential for energy saving is less than for family units.

(f) Electric service under mastermeters for high-rise buildings,

including projects for the elderly, should be analyzed for both use of

retail service and of checkmeters.

Sec. 965.405 Actions affecting residents.

(a) Before making any conversion to retail service, the PHA shall

adopt revised payment schedules, providing appropriate allowances for

the resident-supplied utilities resulting from the conversion.

(b) Before implementing any modifications to utility services

arrangements with the residents or charges with respect thereto, the

PHA shall make the requisite changes in resident dwelling leases in

accordance with 24 CFR part 966.

(c) PHAs must work closely with resident organizations, to the

extent practicable, in making plans for conversion of utility service

to individual metering, explaining the national policy objectives of

energy conservation, the changes in charges and rent structure that

will result, and the goals of achieving an equitable structure that

will be advantageous to residents who conserve energy.

(d) A transition period of at least six months shall be provided in

the case of initiation of checkmeters, during which residents will be

advised of the charges but during which no surcharge will be made based

on the readings. This trial period will afford residents ample notice

of the effects the checkmetering system will have on their individual

utility charges and also afford a test period for the adequacy of the

utility allowances established.

(e) During and after the transition period, PHAs shall advise and

assist residents with high utility consumption on methods for reducing

their usage. This advice and assistance may include counseling,

installation of new energy conserving equipment or appliances, and

corrective maintenance.

Sec. 965.406 Benefit/cost analysis for similar projects.

PHAs with more than one project of similar design and utilities

service may prepare a benefit/cost analysis for a representative

project. A finding that a change in metering is not cost effective for

the representative project is sufficient reason for the PHA not to

perform a benefit/cost analysis on the remaining similar projects.

Sec. 965.407 Reevaluations of mastermeter systems.

Because of changes in the cost of utility services and the periodic

changes in utility regulations, PHAs with mastermeter systems are

required to reevaluate mastermeter systems without checkmeters by

making benefit/cost analyses at least every 5 years. These analyses may

be omitted under the conditions specified in Sec. 965.406.

5. Subpart E is revised to read as follows:

Subpart E--Resident Allowances for Utilities

Sec.

965.501 Applicability.

965.502 Establishment of utility allowances by PHAs.

965.503 Categories for establishment of allowances.

965.504 Period for which allowances aare established.

965.505 Standards for allowances for utilities.

965.506 Surcharges for excess consumption of PHA-furnished

utilities.

965.507 Review and revision of allowances.

965.508 Individual relief.

Subpart E--Resident Allowances for Utilities

Sec. 965.501 Applicability.

(a) This subpart E applies to public housing, including the Turnkey

III Homeownership Opportunities program. This subpart E also applies to

units assisted under sections 10(c) and 23 of the U. S. Housing Act of

1937 (42 U.S.C. 1437 et seq.) as in effect before amendment by the

Housing and Community Development Act of 1974 (12 U.S.C. 1706e) and to

which 24 CFR part 900 is not applicable. This subpart E does not apply

to Indian housing projects (see 24 CFR part 950).

(b) In rental units for which utilities are furnished by the PHA

but there are no checkmeters to measure the actual utilities

consumption of the individual units, residents shall be subject to

charges for consumption by resident-owned major appliances, or for

optional functions of PHA-furnished equipment, in accordance with

Sec. 965.502(e) and 965.506(b), but no utility allowance will be

established.

Sec. 965.502 Establishment of utility allowances by PHAs.

(a) PHAs shall establish allowances for PHA-furnished utilities for

all checkmetered utilities and allowances for resident-purchased

utilities for all utilities purchased directly by residents from the

utilities suppliers.

(b) The PHA shall maintain a record that documents the basis on

which allowances and scheduled surcharges, and revisions thereof, are

established and revised. Such record shall be available for inspection

by residents.

(c) The PHA shall give notice to all residents of proposed

allowances, scheduled surcharges, and revisions thereof. Such notice

shall be given, in the manner provided in the lease or homebuyer

agreement, not less than 60 days before the proposed effective date of

the allowances or scheduled surcharges or revisions; shall describe

with reasonable particularity the basis for determination of the

allowances, scheduled surcharges, or revisions, including a statement

of the specific items of equipment and function whose utility

consumption requirements were included in determining the amounts of

the allowances or scheduled surcharges; shall notify residents of the

place where the PHA's record maintained in accordance with paragraph

(b) of this section is available for inspection; and shall provide all

residents an opportunity to submit written comments during a period

expiring not less than 30 days before the proposed effective date of

the allowances or scheduled surcharges or revisions. Such written

comments shall be retained by the PHA and shall be available for

inspection by residents.

(d) Schedules of allowances and scheduled surcharges shall not be

subject to approval by HUD before becoming effective, but will be

reviewed in the course of audits or reviews of PHA operations.

(e) The PHA's determinations of allowances, scheduled surcharges,

and revisions thereof shall be final and valid unless found to be

arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with the law.

Sec. 965.503 Categories for establishment of allowances.

Separate allowances shall be established for each utility and for

each category of dwelling units determined by the PHA to be reasonably

comparable as to factors affecting utility usage.

Sec. 965.504 Period for which allowances are established.

(a) PHA-furnished utilities. Allowances will normally be

established on a quarterly basis; however, residents may be surcharged

on a monthly basis. The allowances

[[Page 7972]]

established may provide for seasonal variations.

(b) Resident-purchased utilities. Monthly allowances shall be

established. The allowances established may provide for seasonal

variations.

Sec. 965.505 Standards for allowances for utilities.

(a) The objective of a PHA in designing methods of establishing

utility allowances for each dwelling unit category and unit size shall

be to approximate a reasonable consumption of utilities by an energy-

conservative household of modest circumstances consistent with the

requirements of a safe, sanitary, and healthful living environment.

(b) Allowances for both PHA-furnished and resident-purchased

utilities shall be designed to include such reasonable consumption for

major equipment or for utility functions furnished by the PHA for all

residents (e.g., heating furnace, hot water heater), for essential

equipment whether or not furnished by the PHA (e.g., range and

refrigerator), and for minor items of equipment (such as toasters and

radios) furnished by residents.

(c) The complexity and elaborateness of the methods chosen by the

PHA, in its discretion, to achieve the foregoing objective will depend

upon the nature of the housing stock, data available to the PHA and the

extent of the administrative resources reasonably available to the PHA

to be devoted to the collection of such data, the formulation of

methods of calculation, and actual calculation and monitoring of the

allowances.

(d) In establishing allowances, the PHA shall take into account

relevant factors affecting consumption requirements, including:

(1) The equipment and functions intended to be covered by the

allowance for which the utility will be used. For instance, natural gas

may be used for cooking, heating domestic water, or space heating, or

any combination of the three;

(2) The climatic location of the housing projects;

(3) The size of the dwelling units and the number of occupants per

dwelling unit;

(4) Type of construction and design of the housing project;

(5) The energy efficiency of PHA-supplied appliances and equipment;

(6) The utility consumption requirements of appliances and

equipment whose reasonable consumption is intended to be covered by the

total resident payment;

(7) The physical condition, including insulation and

weatherization, of the housing project;

(8) Temperature levels intended to be maintained in the unit during

the day and at night, and in cold and warm weather; and

(9) Temperature of domestic hot water.

(e) If a PHA installs air conditioning, it shall provide, to the

maximum extent economically feasible, systems that give residents the

option of choosing to use air conditioning in their units. The design

of systems that offer each resident the option to choose air

conditioning shall include retail meters or checkmeters, and residents

shall pay for the energy used in its operation. For systems that offer

residents the option to choose air conditioning, the PHA shall not

include air conditioning in the utility allowances. For systems that

offer residents the option to choose air conditioning but cannot be

checkmetered, residents are to be surcharged in accordance with

Sec. 965.506. If an air conditioning system does not provide for

resident option, residents are not to be charged, and these systems

should be avoided whenever possible.

Sec. 965.506 Surcharges for excess consumption of PHA-furnished

utilities.

(a) For dwelling units subject to allowances for PHA-furnished

utilities where checkmeters have been installed, the PHA shall

establish surcharges for utility consumption in excess of the

allowances. Surcharges may be computed on a straight per unit of

purchase basis (e.g., cents per kilowatt hour of electricity) or for

stated blocks of excess consumption, and shall be based on the PHA's

average utility rate. The basis for calculating such surcharges shall

be described in the PHA's schedule of allowances. Changes in the dollar

amounts of surcharges based directly on changes in the PHA's average

utility rate shall not be subject to the advance notice requirements of

this section.

(b) For dwelling units served by PHA-furnished utilities where

checkmeters have not been installed, the PHA shall establish schedules

of surcharges indicating additional dollar amounts residents will be

required to pay by reason of estimated utility consumption attributable

to resident-owned major appliances or to optional functions of PHA-

furnished equipment. Such surcharge schedules shall state the resident-

owned equipment (or functions of PHA-furnished equipment) for which

surcharges shall be made and the amounts of such charges, which shall

be based on the cost to the PHA of the utility consumption estimated to

be attributable to reasonable usage of such equipment.

Sec. 965.507 Review and revision of allowances.

(a) Annual review. The PHA shall review at least annually the basis

on which utility allowances have been established and, if reasonably

required in order to continue adherence to the standards stated in

Sec. 965.505, shall establish revised allowances. The review shall

include all changes in circumstances (including completion of

modernization and/or other energy conservation measures implemented by

the PHA) indicating probability of a significant change in reasonable

consumption requirements and changes in utility rates.

(b) Revision as a result of rate changes. The PHA may revise its

allowances for resident-purchased utilities between annual reviews if

there is a rate change (including fuel adjustments) and shall be

required to do so if such change, by itself or together with prior rate

changes not adjusted for, results in a change of 10 percent or more

from the rates on which such allowances were based. Adjustments to

resident payments as a result of such changes shall be retroactive to

the first day of the month following the month in which the last rate

change taken into account in such revision became effective. Such rate

changes shall not be subject to the 60 day notice requirement of

Sec. 965.502(c).

Sec. 965.508 Individual relief.

Requests for relief from surcharges for excess consumption of PHA-

purchased utilities, or from payment of utility supplier billings in

excess of the allowances for resident-purchased utilities, may be

granted by the PHA on reasonable grounds, such as special needs of

elderly, ill or disabled residents, or special factors affecting

utility usage not within the control of the resident, as the PHA shall

deem appropriate. The PHA's criteria for granting such relief, and

procedures for requesting such relief, shall be adopted at the time the

PHA adopts the methods and procedures for determining utility

allowances. Notice of the availability of such procedures (including

identification of the PHA representative with whom initial contact may

be made by residents), and the PHA's criteria for granting such relief,

shall be included in each notice to residents given in accordance with

Sec. 965.502(c) and in the information given to new residents upon

admission.

[[Page 7973]]

Dated: February 22, 1996.

MaryAnn Russ,

Acting Assistant Secretary for Public and Indian Housing.

[FR Doc. 96-4679 Filed 2-28-96; 8:45 am]

BILLING CODE 4210-33-P