Heating Cost Allocation: An Update on Activities in the U.S. and Europe

In 1986, the Minneapolis Energy Office completed a study of heating cost allocation in centrally heated rental housing. Heating cost allocation systems (HCA systems) are combinations of monitoring devices and accounting procedures designed to allow the energy costs in centrally heated multifamily buildings to be divided among the individual apartments on the basis of use.

From a policy perspective, HCA has several potential benefits. First, it provides the user of energy with a direct incentive not to waste it. Heating cost allocation has been shown in the 1986 study (Hewett et al, 1986) and other studies (McClelland, 1983) to result in savings of about 15% of the total annual gas bill. Second, it is probably preferable to installing individual heating systems in each unit, particularly if these are electric resistance systems with high operating costs for tenants and intensive use of source energy.

These findings suggest a role for HCA in energy conservation, but there are at least two public policy concerns. The first of these is that in transferring the energy bills to the tenant, HCA removes the building owner's incentive to make the building energy efficient. The second is the equitability with which these systems allocate costs on the basis of use. No U.S. jurisdiction currently has a comprehensive policy on HCA. The 1986 paper discussed in detail five key areas that must be addressed in such a policy and called for a national model code. The five key areas, based on a review of European regulations and our own analysis, include:

  1. building energy codes
  2. equipment and installation
  3. allocation of non-metered uses
  4. disclosure and tenant education
  5. billing and meter reading.

The present study supplements the 1986 work, rather than superceding it, and readers are encouraged to refer to the earlier paper for a systematic discussion of these important issues.

Subsequent to our initial inquiries, we continued to receive and follow up on further leads for materials from European countries. The experience of European countries is valuable because they have gone much further down the road to HCA than we have in the U.S., and we can learn from what has happened there. We also continued to follow lawsuits in Seattle that comprised the first major legal tests of HCA in the U.S. The main objective of the present paper is to provide a detailed and well documented discussion of this real world experience, to make it available to others who are pursuing this issue and, it is hoped, reduce the time they might, have to spend in gathering pertinent documents from far-flung sources. 

Full Report (PDF)
Heating Cost Allocation: An Update on Activities in the U.S. and Europe