Tag Archives: Kate Forsyth

Electric Bills Shouldn’t Keep You in the Dark

Rubber stamping electric bills is a secret no one wants to talk about; not you, not the company you work for and certainly not the utility company who bills you!

Electric bills can seem mind boggling when your area of expertise is managing buildings versus kWh and demand fees. You need answers now and utility companies are usually as illuminating as a blown generator. Understanding the anatomy of a bill sheds visibility on why your expenses are in or out of line with your budget.

First, there are four basic types of charges:

  • A Service Charge is a catch-all fee that’s charged on every bill for operational costs such as printing, overhead, customer service and maintenance.
  • The Energy Charge is a standard measure of a unit or kilowatt hour (kWh). The kWh = the measure of electricity you use x the length of time you use it.
  • A Power/Fuel Cost Adjustment is a way for utility companies to charge back operational expenses that fall out of budget. Example, if the expense of running a power plant is more than budgeted, your bill will be adjusted upwards by a proportional share to cover those expenses.
  • Demand Charges can be a large part of your electrical bill. A demand charge is based on when you use your energy and whether you’re using it during a ‘peak’ demand time. If you have a bill related to a piece of equipment that requires significant energy during specific periods of ‘peak’ time, this could adversely impact your bill.  Whereas, if your equipment uses relatively equal energy all the time, your bill would be less impacted. Peak demand use = big bills.

The last critical piece to understand is the rate structure and whether it’s correct or the best option available. There are seasonal rates, tiered rates, time of use rates, and now “real time” rates on smart meters. In addition, there are commercial rates and residential rates. By finding your rate type on your bill and reading the utility provider’s rate structure you can better understand what you’re paying and why:

  • A seasonal rate goes up or down based on the time of year. For example: A utility may charge a higher electrical rate in summer versus winter.
  • Tiered rates generally charge customers more if they use more and less if they use less.
  • A flat rate is simple; it won’t fluctuate based on usage and time. It always stays the same.
  • Time of use does fluctuate depending on when you use it. For example, a utility provider may charge more for residential clients in the mornings and evenings when most people are home and using the most electricity. Or, a commercial client may be charged a higher rate from 9 AM to 5 PM when office equipment is at its peak use.
  • “Real time” rates on smart meters are based on the actual time you use the electricity against the actual cost a utility spends at that same time to generate the electricity.

Armed with basic knowledge you can better dissect your bill. You may even find that you qualify for a lesser rate, such as a commercial or residential rate based on your usage patterns. Maybe you can adjust a high energy consuming piece of equipment to run at a cheaper time without impacting performance? Aim a strong light at your next big electric bill and see if there’s an opportunity to take power over your utility expenses.


 

Advertisements

New Construction Utility Expense Management

Getting Your Asset Off to a Good Start from the Ground Up

What if on Day One of the earth moving on your new community you didn’t have to touch the utility aspect of the site?  And, if you wanted to understand what accounts have been created you only need to go to one place to see everything – from what utilities are set up to your current spend? And, what if you could outsource doing everything from powering up the accounts for the trailer right down to installing the last meter needed at the lowest, possible rate available?

Introducing an Energy Manager to the construction team mix in the planning stages will help establish a strong utility expense management structures that carries throughout the life of the investment.

Finding the right person requires a basic understanding of the scope of work and practical benefits. They must have the knowledge to educate you on technology options, as well as the fine details associated with this complex service.

Anyone involved with new construction has experienced the hazards, frustrations, and hair pulling while trying to understand utility bills.

Benefits of Employing an Energy Manager from Day One: 

  • A controlled set up of utility accounts at the right time with the correct, lowest rate available is obviously the best case scenario. Let’s face it, construction companies have the accounts set up at the last minute, rarely worrying about whether the rate is correct. This is a temporary gig for them. You will manage or own the asset long term. An Energy Manager can handle set up based on the construction schedule, on time, at the right rate. No frantic phone calls and unnecessary delays to the project. And, if an issue arises, the Energy Manager sits on the phone with the utility company – not you.
  • The centralization and accessibility of data in an energy management software system is imperative. Imagine no more digging through piles of paper bills trying to find the one number you need. Also, with data being captured correctly and in detail, the ease of accessing it for monthly variance analysis and annual budgets is a breeze. Reports on usage, rates, expenses and exceptions is possible. And, so is making data-driven decisions.
  • Streamlining of A/P processes and the alleviation of work for the accounting and construction, teams, i.e., the rubber stamping of bills versus skilled, audit reviews before payment. For example, the initial paperwork to create accounts, important continuous service agreements and the creation of a standardized process with one point of contact for construction and management can all be handled by an experienced energy manager.

A central point of contact smooths the transition from construction to management with business rules dictating the allocation of bills to be paid based on certificate of occupancy acceptance:

  • Once operational, the Energy Manager continues to add value by eliminating work load for management and expertly handling all your utility needs:
  • Continuous bill auditing using defined metrics. Utility providers never stop making mistakes and rate errors or leaks left unnoticed will cost you big if undetected. Issue resolution on behalf of management is also a critical component. Early detection of problems, such as leaks, and quick resolution are vital to quality utility bill management.
  • Negotiation of procurement contracts is more than just calling brokers and looking for the lowest price. There are dangerous pitfalls of low kWh/high extra fees. A seasoned Energy Manager is crucial to avoiding costly mistakes. Important steps will include reviewing historical usage patterns for your portfolio, aggregating load to gain maximum deal, determining hedging options, scrutinizing hidden fees, finding reputable brokers to contact, manage and negotiate the proposal process, and ultimately present the best options for your consideration. Once a provider is chosen, the Energy Manager maintains and manages the contracts going forward.
  • Failure to connect management and billing. This shouldn’t be a manual process completed on site. Management teams are busy and will miss opportunities to capture all failures to connect problems. An Energy Manager uses a software program designed to capture all failures to connect based on rent roll data versus bill service periods. These would then become exceptions and billed out with an additional penalty fee where allowable by law.
  • If the data is centralized, a budget should be created at an account level based on historical usage patterns, current rate and researched increases triggered to occur in the month forward when actually taking place. Further, anomalies from the previous year, such as leaks, credits or true ups should be scrubbed so the next year’s budget isn’t skewed. This is not the common practice of last year’s expense plus 3-5% increases. It takes a seasoned energy management veteran’s depth of knowledge in utilities to create a realistic budget.

In conclusion, efficient and effective utility bill management is a reality. An Energy Manager will make sure your management associates never open another utility bill envelope.  They will save you time and money and likely make you even more money. Paying a utility bill can cost you upwards of $15 per bill to process. Considering that utilities comprises 16% of your expenses, finding a good energy management program should be a top initiative and not an afterthought.

How to Calculate and Increase the Cap Rate on Your Multifamily Asset

The financial market has changed in the past decade with an emphasis on less speculative valuing of investment properties and more reliance on hard numbers. Investors evaluating multifamily assets are far more conservative in valuing a potential purchase for income growth in both the short and long term.  As a result, it is critical to understand a property’s net value and continually look for areas to improve cash flow.

While market location and prospective neighborhood improvements are enticing, today’s buyer is more interested in the capitalization rate (Cap Rate) as a true measure of worth. Cap Rate is defined as the ratio of a property’s net income to its purchase price. The obvious first step in understanding a property’s value is to calculate the Cap Rate.

Let’s take this example:

A property of 300 rental apartments with a gross annual rent of $300,000

According to a 2013 NAAHQ survey, a master metered community spends about 46% of its income on operating costs. Of that amount, 13% is utilities. Conversely, a submetered or individual metered property spends about 53% of its income on operation costs with a cost of 6.2% for utilities.

A master metered property with an income of $300,000 will spend $138,000 in
operating expenses

A submetered property with an income of $300,000 will spend $158,000 in
operating expenses

The value of a property is calculated using a Gross Rent Multiplier or GRM.  If the property is in a good neighborhood with good occupancy, take the Annual Income x a Range of 9-11 multipliers to get what the property value should be.

GMR = $300,000 x 11 = $3.3 million

Now put it all together to get your Cap Rate:

Master Metered Property with a Net Operating Income of $138,000/$3,300,000 valued asset
= 4.27% Cap Rate
Or
Submetered Property with a Net Operating Income of $158,000/$3,300,000 valued asset
= 4.8% Cap Rate

8 Tips to Increase a Property’s Income and Reduce Expenses to Improve the Cap Rate:

  1. Never underestimate relentless collection actions – For example, if your residents know you will begin to call, email and send letters 5 days after the rent was due, they will know you mean business.
  2. Carefully screen all residents through a proven application process to avoid delinquent payers and property damage.
  3. Additional income opportunities, with little to no investment, such as coin operated laundry machines, paid parking for premium spots, storage, pet deposits and premium apartment locations are easy to implement on new move-ins and renewals.
  4. Utility recovery can be done two ways where allowed by law: submetering and allocation. A 300 unit community with a cost of $397 annually per unit and a $35,100 investment will recoup about $31,266 the first year, $85,737 year two and $97,387 year three assuming a 2.5% turnover and a 15% common area expense. Simply put, submetering requires an investment and measures each apartment’s utility use, allowing the owner to bill the resident back. A typical payback is 12-13 months. Allocation has no investment and is a billing method that assigns a portion of the utility expense to each apartment based on a number of possible calculations: by occupant count, square feet, number of bathrooms, etc. All residents signed up at move in and renewal would result in net income.
  5. Conservation of common areas in the area of lighting, building envelope, insulation and central system upgrades can greatly reduce utility expenses. Each likely upgrade would need to be carefully vetted to determine the payback so you would know exactly when to expect an increase in income.
  6. Reduce vacancy. Keep in mind that every day an apartment sits vacant on a rent of $1,000 per month, you are losing approximately $33. At a 5% vacant rate, that’s $495 a week and $14,850 a month. Make sure your leasing staff is dedicated, skilled and focused on leasing as a top priority. To borrow a hospitality phrase – “Heads in beds!” – is what the daily goal should be.
  7. Raise rents annually so residents expect an increase and are prepared for it. A lower, consistent annual increase is better than trying to increase rents drastically and losing residents.
  8. Property improvements: If there is an improvement you can make that you can charge for and show a payback within a reasonable period, consider it.

It’s worth taking the time to determine and understand your Cap Rate. Once you do, you can review your options for increasing income. Each property has the potential to increase its Cap Rate. The question is how will you make it happen and what’s the best way to do it?

Illuminate Your Lighting Efficiency

Shedding the Light on Energy Savings

The EIA says 50-75% of your utility expenses are for electricity and of that, approximately   21% is just lighting. If you spend an average of $100,000 annually on one building that adds up to $21,000 just to keep the lights on! By simply making your lighting 25-50% more efficient, you could save up to $10,500 each year.

It sounds easy and it is. Below are some steps to get you started:

Step 1:   Determine how much you are using and spending

It’s critical to know what you are doing now so you can assess opportunities for energy savings later.  You will need 12 months of common area bills that include the building’s interior lighting.  This should include all account numbers, billing date cycles, number of days in each bill, usage in kWh and demand kW, and expense. At the end of each month, calculate the rate by dividing expense by usage. This will give you a base analysis for where you are now versus when you initiate your lighting cost avoidance program. If possible, include a hyperlink to actual bill images to be referenced later as needed.

Step 2Complete a building lighting audit

You need to know what type of lighting you have, how often it’s in use and where it’s located.  A building diagram with notes is very helpful.  It is best to do the audit both during and after business hours. Below are some examples of questions to answer:

  • Are lights off in unoccupied spaces? (Stairwells, parking levels, fitness centers, business centers, party rooms, offices, basements).  There may be opportunities for reduced or sensor lighting.
  • Are lights in the models on sensors or timers to be off when unoccupied?
  • What are the model, types, and usages for your lighting fixtures in the main hallways and business areas?
  • What are the hours when lighting is used in business areas, hallways, basements, storage, garage, fitness, and business rooms?
  • Are you installing energy efficient lighting in vacants when turned?
  • Do you have the number of fixtures, number of lamps per fixture, type/number of lamps per ballast, wattage?
  • What dates were fixtures installed and what is their condition?
  • What is the daylight availability (windows near lighting)?
  • Are the tasks performed in the space (critical or secondary)?

Step 3: Low hanging fruit: Consider where you can change lighting hours, add motion sensors, timers, light reducers and use energy saving lamp bulbs.

This is the easiest, least expensive step you can make.  You know you can’t rely on people to remember to turn off lights but for a small expense you can make sure lights not used are off or energy reduced during day light hours or evening hours. Sensors, light reducers or timers in models, business centers, fitness facilities, basements and storage areas are key energy savers.  Even in the garage and stairways, you can usually install light reducing devices that will use half the energy when not in use without violating any safety requirements. Make sure you rid every lamp of incandescent light bulbs – these not only use more energy to light the space, they put off 2-3 times the heat and last a fraction of the life of an energy efficient bulb.

Step 4Hallway lighting

Hallway lighting can easily account for a large chunk of your common area electrical bill.  By choosing the best lighting for the task you can reduce your usage by 20-50%. If the fixtures are well-maintained, it may be worthwhile to research your options for replacement bulbs that would fit and be more energy efficient. If it’s time for replacement, you may pay for the new fixtures in energy savings within a reasonable time. A simple pay back analysis can help you determine what your best option might be:

To calculate a simple payback on your investment, divide the cost of the new fixtures by the annual cost savings using current rates. You have already determined your annual usage and rates in Step 1.  Now, you can apply the energy savings by installing the new equipment to the usage once

you have that number divided by the cost of the investment.  Easy Tip: Hallways and ceilings painted in light reflective colors increase the light glow and help reduce energy usage.

Finally, once you’ve completed Steps 1-3, it’s recommended to consult with lighting experts on your findings and determine the most efficient next steps toward energy savings. You and your budget will be glad you shed some light on your energy expense!

________________________________________________________________________________________________________

Top 10 EASY Ways to Save Energy in Common Areas

Preparing for another winter is not something we want to think about while basking in the last days of summer, but it pays to plan! The Farmer’s Almanac forecast was spot on last winter and it looks like a cold winter is in store for many of us in 2014. Preparing for colder temperatures is essential to avoid budget busting utility bills for your common areas such as hallways, gyms, lobbies and business centers.

  1.  Sealing the building envelope (windows, doors, entrance ways and ceilings) is essential to energy and cost savings. Lack of proper insulation is a significant factor in common area heating and cooling loss. winter-outlookAn easy thing to overlook is proper insulation. This can often be done in-house very inexpensively by rolling out new insulation in ceiling spaces. Proper ceiling insulation can save as much as 20% on your heating and cooling bills.
  2. Maintaining central systems is critical. Because heating and cooling accounts for up to 56% of your building’s energy cost, make sure the HVAC is running at peak form BEFORE winter hits. Even if you need to pay an expert to do a winter checkup, it will be well worth the expense in energy savings and verifying your system can handle the upcoming chill. Tips for HVAC preventative maintenance.
  3. The Environmental Protection Agency (EPA) estimates that windows account for up to 25% of a building’s energy loss. The proper use of awnings, blinds, insulated curtains, UV window tinting in southern exposures with large expanses of glass, as well as the sealing of air gaps can have a significant impact on energy loss through windows. While windows with an Energy Star rating is ideal and can have a huge impact on your bills, it is often cost prohibitive for properties without proper budgeting.
  4. The Energy Information Administration (EPI) estimates that 21% of electric bills are related to lighting. Upgrading lighting to energy efficient bulbs is something to consider before the darker days of winter are here. There are many ways to do this inexpensively without resorting to a “capital improvement” level expense. Tips for maximizing lighting efficiency.
  5. Motion sensors are probably the lowest cost and easiest, instant energy saver in common area spaces. Why leave a light on in the model unit, gym or storage areas if no one is in there? Investing just a few hundred dollars in these devices can give you a rapid return on investment.
  6. Resealing doors with new weather stripping and capping unused power outlets are another way to stop the cold from sneaking in. Another place to address in common areas is any vent that central fans or unused air conditioning vents that meet the exterior of the building. When closing the vent is not enough, install shutter seals on the inside of the vent and make a note to remove them in spring.
  7. Phantom power or vampire load refers to energy used by equipment and appliances that are idle. Large appliances, office equipment rarely used and computers left plugged in overnight can account for as much 10% of your electric use. Conservation-TipSimply unplug rarely used items. You cannot find an easier, cheaper way to save energy!
  8. Replace appliances in common areas and offices that are more than 5 years old with Energy Star rated products. That old refrigerator may still work but it is costing you more in electricity annually than a newer, more efficient model. The same holds true for that gargantuan office copier from the 90’s in your leasing office.
  9. Programmable thermostats are AMAZING! These Wi-Fi thermostats can be easily installed, set up and programmed from anywhere. Program them to turn down the heat or A/C during evening hours. You can save as much as 10% or more in HVAC usage.
  10. Water conservation/leak detection is a commonly overlooked opportunity to save as much as 25% or more in water waste.  For example, after 5 years a toilet that was a 1.6 gallon per flush creeps to a 2+ gallon flush!  Have an experienced technician or plumber recalibrate the flush mechanisms. Also, faulty/cheap toilet flappers degrade quickly and leak over time. Replace them at least annually and use a better grade of product.  Lastly, replace old faucet washers that cause drips and aerators with low flow devices.

By taking time out this fall to do this energy savings work you may have a different conversation with your owners when it’s time to review the financial statement.  Instead of facing the heat of “Why are you over budget in utilities”? You will have the opportunity to explain how you achieved such great savings. And that would be a far cooler conversation by far!

Practical Tips for Writing a New Construction Budget

Let’s face it, writing a utility budget for the first time can seem like throwing darts in a dark room hoping you hit the target. You may get close to the bull’s eye but chances are you’ll miss.  Writing a utility budget for a multifamily community is complex but starting with the essentials is a step toward success.

Below is key information you need to begin building an accurate utility budget:

  • Property fundamentals:  Number of units, floor plan mix, common area features such as pool, clubhouse and other significant water features.
  • A current rate schedule from the water provider (which is typically available online). Call and ask the provider what rate would apply to your size community. This will vary by provider so don’t assume and make sure you verify. You will also be noting any fixed charges not based on consumption such as monthly maintenance fees, sewer capacity charges and meter size charges that may apply. Note the frequency of fixed charges which may vary from the provider consumption based charges and adjust formulas accordingly.
  • Find out if there are sewer taxes in addition to your sewer charges on the provider bill.  Check both state and county tax bills. Look for hidden sewer charges, storm water, bay fees, etc.  Again, address frequency as these may hit on a different schedule than other charges.

Click here for the complete article which includes a sample budget template.

By Kate Forsyth, Director of Energy Management for Minol

Why Degree Days Matter

When Electric Bills Give You the Third Degree
The Scene: Your financials were just distributed. Ten minutes later your email box is blowing up with ALL CAPS emails asking why your electricity expense is 23% higher than what was
budgeted. You look at the bills and the rate is the same but the usage is excessively high
compared to last year and the year before. What happened?

Unless you’re allowing a department store to hook up to your power line, it is likely due to a
change in the weather. Sounds like a good explanation but how do you explain that to your
supervisor or deliver that message to an owner that has unmistakable credibility?  Understanding the impact of degree days is critical.

Explaining Degree Days: Degree days is a measurement that explains the difference between
the average daily mean temperature and what it will take to heat or cool a building or facility to meet the desired building point temperature (BPT).

For example, if the average outside temperature per day is 59 degrees Fahrenheit for a month and your BPT is 65 degrees, than the heating degree days (HDD) = 65-59 X the number of days in a month or period of heating degree days.

Heating degree season begins:  July 1
Cooling degree day season begins:  January 1

65F-59F= 6 HDD x 31 days in the period = 186 HDD in the period

Consequently, if last year the average temperature was 62 degrees for the same period, the
number of heating degree days was less:

65F-62F= 3 x 31 days in the period = 93 HDD in the period

Or, a 50% increase in HDD year over year for the same period.

The same concept applies for cooling degree days (CDD). If the average temperature is above
65F then there will be additional cooling degree days.

75F – 65F = 10 x 31 days in the period = 310 CDD in the period

The prior year, same period;

70F – 65F = 5 x 31 in the period = 155 CDD in the prior year

Or, a 50% increase in CDD year over year for the same period.

For the full article, click here: http://www.minolusa.com/pdf/Why-Degree-Days-Matter.pdf