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Mar. 11, 2011

Advancements in Utility Cost Recovery

By Erika Schnitzer, Managing Editor

Recalling the days when utility cost recovery, and its benefits, was met with a large degree of skepticism, Michael Radice, CEO and president of NWP Services Corp., believes the industry has reached a seminal point.

“With rising utility costs, I think the industry has crossed over to a point where if you’re not doing utility cost recovery, you’re at a decided disadvantage in terms of the profitability of your property,” he says.

While the ratio utility billing system, or RUBS, has been a popular method for the apartment industry, a 2004 report, entitled “National Multiple Family Submetering and Allocation Billing Program Study,” found that water usage in submetered apartments decreased 15.3 percent over non-submetered apartments, while residents billed via RUBS used the same or more water than those that had water included in their rent. This finding has not only helped to propel the industry forward in regards to submetering, but it has also pushed states toward adopting various  legislation concerning conservation.

The greatest benefit of submetering versus RUBS is the ability to identify high users, says Marc Treitler, general counsel and vice president of regulatory affairs at Conservice and a member of the board of the Utility Conservation Coalition.

Meanwhile, payback on the equipment is generally between nine and 15 months, depending on the location and the corresponding water expenses,  according to Inovonics President Mark Jarman.

In addition, financing for a property today may depend on how efficient it is. Some lenders, for example, have “taken a more aggressive posture toward potential borrowers disclosing what their energy practices and policies are,” notes Radice.“[They think that] if you can’t get your utility costs under control, the likelihood of profitable property operations declines.”

Meanwhile, studies show that water conservation can incentivize between a 19 percent and 27 percent reduction in expenses, points out Radice. “There is … a non-conservation inflation built into the utility charge if it’s not being monitored and paid for by the resident,” he adds.

But it’s not just water that should be metered. Studies from CB Richard Ellis, NYSERDA (New York State Energy Research and Development Authority) and the EPA (U.S. Environmental Protection Agency) show that submetering energy usage may result in between a 10 percent and a 26 percent reduction in that utility’s consumption.

“By holding tenants accountable for their energy usage, you ultimately reduce the amount of energy consumed,” notes E-Mon President Don Millstein. In addition, he points out, property managers can market their properties at a lower base rent.

“It’s easier for the resident to see a comparable of what [he is] paying in rent and utilities … allowing [him] to make a better comparison of what [his] rent charges alone are,” notes Jarman.

And, as Treitler points out, resident satisfaction tends to increase with submetering. “Tenants that … can control their bills are a lot happier than [those who use] the RUBS system, where they might do their best to conserve water but … the bill still goes up. When [they] control [their] own bills down to the penny, your tenants are a lot happier.”

Being able to visualize their usage is also helpful for residents, Millstein believes. To that extent, E-Mon’s Web-Mon tool provides a carbon footprint analysis, whose dashboard (pictured) shows kilowatt hours used and provides users with a visualization; for example, the dashboard might equate usage to the number of miles driven or the number of trees needed to absorb the
carbon output.

Vacant usage utility monitoring is also important, Treitler notes. With this tool in place, managers can identify leaks in vacant units, as well as determine whether a maintenance tech accidentally left an air conditioning unit on, for example.

Furthermore, some submetering companies send out high-usage notifications to residents before the end of their billing period to alert them of spikes in use. “It’s better accountability and better information about where leaks and high usage might be abused,” says Treitler.

Future advances

The industry continues to observe a heightened interest not just in utility cost recovery, but also in utility management.

“The emphasis is shifting toward the types of benchmarking and analytics that allow companies to take a proactive position, says Radice, “not only on conservation and green orientation, but how to become more aggressive and more fluent on decisions for programs that can reduce their utility spend.”

The problem, he adds, has been a lack of a benchmarking standard for the industry that would relate to energy conservation programs. The industry, says Radice, lacks a database “that would allow it to do comparative studies—based on geography and building type.” Through its UtilitySmart tool, NWP is working to support this effort by creating an analytics database of its clients for water invoice comparison and analysis.

Meanwhile, from a hardware standpoint, remote and/or wireless meter-reading systems are becoming more prevalent, making it easier not only to install a meter inside each apartment, but also for the meters to communicate with the data collector without having to run wires throughout a community.

“Wire is extensive from an installation standpoint,” notes Jarman. “To run a wire to every unit is labor- and material-intensive, and over time it doesn’t sustain performance-wise.”

While this may correlate to a slightly higher upfront cost, such installations are often more cost-effective because a technician doesn’t have to enter each apartment and run wires throughout the building, points out E-Mon’s Millstein. What’s more, wireless meters are easier to install in retrofits.

These systems encompass 900 megahertz of power, strong enough to penetrate multiple floors, and may use repeaters to cover the entire property, explains Jarman.

At the same time, some systems utilize a wireless mesh, which “allows each meter to talk to one another and create its own network within the building,” explains Millstein. “The advantage there is you don’t need repeaters, so it lowers the cost.”

On the horizon, some see an increase in smart meters, particularly in the water sector, that will monitor time-of-day usage, similar to what’s already being seen in the energy sector, where rates change according to the time of day or during drought periods.

Radice predicts the popularity of such meters will explode in the next year and a half, and that they’ll be used “in a way that will allow residents and municipalities to be collaborative on when you can [use water] and how much water you should be using.”

Gathering interval data will also come into play, predicts Millstein. “As utility rates around the country start looking at real-time pricing, energy conservation or smart grid-type activity … it’s the interval data you start collecting that helps you participate in those programs. You see at what time of day you had the most energy usage; from there, utilities can start creating rate structures to create an incentive for the tenant to save energy.”

Legislative issues

Many states and municipalities have begun to promote and/or mandate submetering “as a solution for conservation,” says Treitler.

Last summer, for example, Georgia became the first state to require water submetering of multifamily, commercial and industrial buildings when Governor Sonny Perdue signed the Water Stewardship Act of 2010, which will require all new multifamily and commercial units to submeter beginning July 2012.

Meanwhile, other localities are following suit. A 2010 San Diego ordinance, for example, requires water submeters to be installed in new-construction multi-housing developments with three or more units, as well as on existing projects with three or more units only “where the entire interior potable water supply piping is being replaced.”

The ordinance does not apply to existing projects “whose individual units are served by more than one cold water riser and one hot water riser system,” nor does it apply to units designated as affordable housing. In addition, the ordinance states that the “primary indicator or remote reader [must] be easily accessed and read by the occupant of the dwelling unit, and read by the owner or manager of the multiple dwelling unit without entering the dwelling unit.”

While owners of existing buildings are not yet required to install meters, due to the expense, Radice says there might be some “grandfathering” in of such a mandate. “That [would] put a capital demand on the owners and that capital demand [would] eventually … translate into expenses associated with rents or a continuation of the program of residents paying for their own utility costs,” he points out. Some utilities, such as in Santa Clara, Calif., therefore promote submeter rebate programs.

Millstein predicts that these city-based mandates will move into regulations on a nation-wide basis in the near future. While LEED certification may be “cool now, [it’s] moving to code,” he says, pointing out that these standards require buildings to meet certain energy-efficient standards by utilizing measurement verification.

Millstein points to EPACT (the Energy Policy Act of 2005) as an example of this trend. (The legislation required all federal facilities to be submetered by the year 2012.) “When you see that at a federal level, it’s really a precursor; if we can do this at the federal level and reduce our energy load 10 percent to 30 percent, why can’t we start mandating that for commercial properties?” he asks.

“There are so many forces all coming together,” adds Millstein, “[but] the best force is the individual tenant saying, ‘I want to be environmentally and fiscally responsible. To do that, I need to save energy and lower my carbon footprint. Let’s get some metering to help me figure that out.’”

To comment on this story,  e-mail  Erika Schnitzer at eschnitzer@multi-housingnews.com

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