Heating Cost Allocation: Centrally Heated Rental Housing, Energy Conservation Potential and Standard

PRISM analysis of nine Minnesota buildings in which heating cost allocation was implemented showed an average savings of 16% of normalized annual gas consumption (NAC). Economic analysis showed that the owners could achieve a one year payback while increasing tenants’ total average costs by only five dollars per month. Owners reported generally positive tenant reactions and no long term increase in turnover or vacancy.

These findings suggest a role for heat metering in energy conservation, but regulation may be needed to protect tenants and the public interest. No U.S. jurisdiction currently has a comprehensive policy on heating cost allocation, but litigation is beginning to emerge. The Minneapolis Energy Office has been working to develop a draft policy. Combining our own experience with an in-depth review of standards from European countries where heat metering is widespread, we have identified five key areas that must be addressed. The first is to require that the buildings meet an energy code, since otherwise allocation may decrease owners' incentive to make conservation improvements. Any policy must also regulate the metering equipment itself. European standards offer valuable guidance in this area, covering types of equipment allowed for various applications, required accuracy of measurements, procedures for conversion from the measurement value to estimated heat consumption, tamper-proofing, and a host of other issues. Since uses not monitored by the allocation equipment often comprise up to 60% of the total fuel bill, standards for the equitable distribution of non-metered costs are a third critical issue recognized by European countries (and some U.S. monitoring firms). In our test buildings, such standards reduce the maximum annual variation between units within a building from 40 to 1 for metered hours, clearly an unrealistic spread, to 4 to 1 for billed energy charges. The policy should also require owners to disclose past bills to prospective tenants and to provide clear information on how the allocation system works and how they can reduce their energy expenses. Finally, billing provisions should prohibit profit from resale and should require owners to offer budget billing. January bills in the test buildings were typically 7 to 10 times summer bills and were frequently in excess of $80.

A national effort is needed to develop standards using centralized resources, so that individual jurisdictions do not have to face litigation and policy questions unassisted. In the meantime, standards which address the above five issues, even if somewhat bare of technical details, can provide a framework for interaction among governments, landlords, tenants and monitoring companies.

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Heating Cost Allocation in Centrally Heated Rental Housing, Energy Conservation Potential and Standards Issues

Heating Cost Allocation: Supplement on Implementation Issues