Over the past several months, Multifamily Housing has received several requests from state and local governments about how they interpret community solar credits and when these credits can be excluded from income and utility allowance calculations. The MF Community Solar Credits Memo reflects how they have approached these requests to date and may be helpful to state and local government and owners as they consider also these issues.

The purpose of the notice is to provide guidance to HUD Multifamily Housing (MFH) field staff, owners, and management agents on the treatment of on-bill virtual net energy metering credits that commonly result from a resident's participation in a community solar program. This only applies in the case of tenant-paid electricity and where the solar credit appears as a negative amount on the electricity bill. This guidance does not apply to residents of master-metered multifamily buildings. In addition, this guidance does not change existing rules for utility allowance baseline analyses or income calculations; rather, it provides guidance for how to treat community solar credits within existing rules.

Determination of Treatment of Solar Credits in Utility Allowance and Annual Income Calculation

The following two-step process may be used to determine whether the community solar credits should be included/excluded from the utility allowance baseline analysis or included/excluded from a family's annual income for purposes of rent calculation and/or eligibility determination.

Step One: Determine if Community Solar Credits Affect Utility Allowance Calculation

Step One is a test for determining the community solar credit's relationship to the utility allowance calculation. To understand the effect of a community solar credit on a unit's utility allowance calculation, you will need a copy of the tenant's electricity bill (this can be accessed by the utility company if it is not already available). Per this guidance, you will not need any additional information as the solar credit will appear as a negative amount on the tenant's electricity bill.

If the credit reduces the cost of energy consumption by lowering actual utility rates, then the owner is required to submit a new baseline analysis in accordance with Housing Notice 2015-04, regardless of when the last analysis was submitted to HUD/Contract Administrator for approval.

Factors for determining whether the credit is tied to the cost of consumption:

1. Is the credit a third-party payment (e.g., not from the electricity provider) on behalf of the tenant rather than a reduction in the cost of utilities?
a. Yes -Credit is not considered to reduce the cost of energy consumption as the cost for the utility provider to provide the consumed energy does not change. The owner is not required to submit a new utility allowance baseline analysis.
b. No -Credit may be tied to the cost of consumption. Proceed to question #2 below.

2. Does the credit amount fluctuate every month and/or does the electric bill show a lowered utility rate per kilowatt-hour?
a. Yes - Credit is tied to the cost of utility consumption. The owner is required to submit a new utility allowance baseline analysis.
b. No - Credit is not tied to the cost of utility consumption. The owner is not required to submit a new utility allowance baseline analysis.

Example bills with solar credits not tied to consumption can be found in the Appendix of the memo.

Step Two: Determine if Community Solar Credits Should be Considered Annual Income for Rent Calculation or Determining Eligibility for HUD-assisted Multifamily Programs

The second step is to determine if the credits fall within HUD's definition of annual income. In all foreseeable instances as of the date of the memo, if the solar credit is tied to the cost of consumption (i.e., utility allowance is affected) (addressed in Step One), then credit will not count towards income.

If a community solar benefit appears on a household's electricity bill as an amount credited from the total cost of the bill, HUD has determined that the credit should be treated as a discount or coupon to achieve a lower energy bill (rather than a cash payment or cash-equivalent payment being made available to a resident). In this case, the credit will not be counted towards income as discounts on items purchased by a tenant are not viewed as "annual income" to the family. Generally, income is not generated when a family purchases something at a cheaper rate than it otherwise would.

Note that if the credits are found to be third-party payments based on Step One, there may be instances when the credits are not mere discounts and must be treated as income. For instance, a recurring monthly utility payment made on behalf of the family by an individual outside of the household is not considered a discount but is considered annual income to the family.

For more information, you are encouraged to read the MF Community Solar Credits Memo in it's entirety.