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.
The rapid evolution of technological advances in energy and utility metering and billing platforms is constantly surpassing the current regulatory arena causing most companies to turn a blind eye. From new software-based HVAC systems to touchscreen metering devices, in-house legal and compliance departments are encountering difficulties in advising their clients appropriately considering legislation is light years behind.
In looking at the Texas market, many companies are selling smarter technology to multifamily building owners at low costs with enhanced energy efficiency, guaranteed savings and cost-recovery for utility usage. Simultaneously, the Substantive Rules governing electric, water, and HVAC metering of multifamily properties in Texas remain steadfast with requirements to use only watt-hour or volumetric sub-meters or choose to allocate energy and utility charges by subpar standards, such as by square footage or number of occupants.1 Such outdated regulations limit owners from using smarter technology that may provide a more accurate measurement of energy and utility usage.
That being said, every new technology doesn’t necessarily warrant new legislation; however, outdated legislation can create havoc for regulatory and compliance teams. For example, attempting to accurately determine whether use of energy efficient systems that provide Green Building Certifications is within compliance may set up companies for potential risks against future regulatory violations and litigation.
Allocation: Is it Really Fair?
The multifamily industry needs to remain aware of the currently regulatory landscape and its limits in allowing property owners and consumers to potentially benefit from smarter technology.
Specifically, in Texas, tenants may be billed for water and electric usage based solely on the square footage and/or occupancy of their apartment unit. This type of current legislation may cause tenants to pay for energy usage not used solely by the tenant.
You may have one tenant occupying an 800-square foot apartment unit and three
tenants occupying a similar 800-square foot apartment unit while both units are billed for the same amount of energy usage. By adding smarter technology solutions as an option under current regulations, property owners may be able to more accurately measure usage by applying additional factors, such as thermostat set points, valve position and timing, as well as individual unit energy load (demand) for a more accurate assessment of energy usage.
The scenario above is common. In Texas alone, the Public Utility Commission of Texas lists 6,970 submetered and allocated properties. Of that 6,970, only 24% are submetered, with the remaining 75% allocated.
The following provides a high-level overview of some compliance issues with the use of smarter technology for measurement of energy and utility consumption:
Key Focal Points with Technology and the Resulting Issues
Why Regulatory Change is Critical
The primary reason for regulatory change is to meet the demands of property owners who are seeking more energy efficient systems to accurately assess energy charges to their residents. In turn, consumers are seeking more accurate billing methods for energy consumption. Property owners benefit from smarter technology due to the design/installation flexibility, lower installation and maintenance expense, long-term energy cost savings and green building certifications. In addition, consumers also benefit from smarter technology with more accurate measurement devices/software, energy savings due to efficiency, and lower costs allocated as a result of an owner’s savings realized overall.
So where lies the disconnect between regulatory agencies and the industry? Due to the literal meaning of the regulations and lack of regulatory action in the past years, property owners are limited in their use of smarter technology since such use will prevent recovery of energy and utility charges from their residents. In addition, property owners are entrusting the sellers of the smarter technology to provide the due diligence that will allow implementation and use of the technology in this current regulatory arena. Unfortunately; however, property owners are stuck with an enormous project that is of no use after proper review of regulations. Meanwhile, residents continue to be billed charges based on the most inaccurate methodologies of square footage and occupancy or outdated metering systems.
To avoid these issues and take advantage of the smarter technology, consider the following steps to avoid future compliance issues:
Steps to Consider to Help Avoid Compliance Issues
- Prior to purchase of smart technology systems, complete due diligence in (1) regulatory research (i.e., regulatory landscape, intent, need for approvals, etc.), (2) manufacturer studies, specifications, testing, actual use, and (3) review of seller’s references.
- Search for third-party billing providers willing to work with you through the regulatory approval procedures, if necessary.
- Conduct proper training of leasing staff to keep residents well-informed.
- Ensure lease language incorporates new technology/billing methodologies with simple summary notices for ease of reference by residents.
While the current regulatory landscape does not incentivize owners to incorporate smarter technology and more energy efficient products within their properties, there are a few methods available that may allow owners to take advantage of energy savings. Until legislation catches up, owners may have to take the extra, but necessary, steps to ensuring proper implementation of these smarter systems for measurement of energy and utility consumption.
Kimberly Godsey, Esq.
Attorney, Director of Legal Affairs
Kimberly has a wealth of experience in regulatory review and compliance. She led the development of Minol’s internal regulatory database that covers all fifty states and contains third-party utility billing compliance information from the utility provider requirements through state regulations. She has facilitated seminars for multifamily property owners in Texas and Massachusetts discussing utility billing compliance. She is a member of the Utility Management and Conservation Association.
She is a graduate of Texas Wesleyan School of Law (currently Texas A&M University School of Law) and is a licensed attorney in the state of Texas.
(1) See P.U.C. Subst. R. § 25.142, § 25.142, and 30 TAC § 291.121-127.
THE INFORMATION CONTAINED HEREIN IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD NOT BE CONSTRUED AS LEGAL ADVICE NOR RELIED ON AS LEGAL AUTHORITY. PLEASE CONSULT LEGAL COUNSEL TO DETERMINE SUITABILITY FOR YOUR SPECIFIC PROPERTY.
Preparing for a New Construction Submetering Installation
I travel quite a bit for my job and it’s a rarity when I look out the cab window on my way to a client meeting that I don’t see dirt being moved. The construction market is hot for multifamily, university and affordable housing. While some markets are seeing a slight slowdown, particularly those heavily driven by the energy industry, most are still in boom mode.
Multifamily Executive still projects 2015 new construction to rise 76 percent above the historical average to 211,000 units. This would represent the highest level of new completions in a calendar year since the 1990’s. To put it in perspective, in 2012 new completions totaled just 79,000 units.
With so many projects and tight deadlines, submetering is often overlooked in the initial planning process – even in states that require submetering on new construction such as Texas, Georgia and California. Planning early not only saves time and money but headaches for your Project Management team.
If you are a contractor, your goal is to complete the project on time and on budget. If you are an owner or management company, your goal is to recover utility expenses that otherwise hit your bottom line. With rising water costs and shortages nationwide, water meters are becoming a standard fixture in new construction. One of the biggest pitfalls for not planning that impacts both parties is the costs involved when the plumber has to go back and install tubes and couplings in each unit after he’s already completed the initial work.
Best Practices for a Seamless and Cost Effective Submetering Project
Don’t wait until the building is framed. The best case scenario is to include the request for submeters in the architectural plans. Also, make sure to identify which contract the submetering installation will be under – General Contractor, Mechanical Engineer or Plumber contract. You will then want to work closely with them to select the best meters for your project.
When selecting meters, make sure they are designed for horizontal installation. Work with your project team to insure sufficient room has been provided for the meter so read accuracy is not effected. Another critical component is the AMR system. Always choose a non-proprietary AMR system to avoid technical and financial challenges as your system ages.
Central Boiler Systems
Are you installing a central boiler system? If yes, each unit must have a single entry point for both cold water and hot water with shut off valves. If you are not installing a central system, you will only need a single meter for each unit. Make sure the meter is easily accessible. Typically, next to or above the hot water tank is the best location for optimal performance.
If you are using gas to heat the boiler, make sure you meter everything so the owner can recapture gas costs associated with the water systems.
Valves must be in an accessible area. Preferably, valves are located outside the wall in an accessible area so the system can be maintained. If they are in the wall, access panels must be able to open. Otherwise, if valves are completely inaccessible, the building must be shut down to perform maintenance.
Tubes and Couplings
Don’t forget tubes and couplings need to be installed by a plumber during rough plumbing. These are sent by your submetering provider to the plumber or GC. It is their responsibility to install during rough in.
Timing is Everything
Do not put in a meter right before the plumber flushes out the lines. Lines get flushed when they are ready for their certificate of occupancy.
Hold the Phone
Make sure you have an Ethernet connection. Analog phone lines are being phased out and you don’t want to find yourself with an outdated connection.
Start Planning for Submetering Early in the Project
The sooner you plan, the better chances for a seamless installation. There is no financial benefit to having your plumber install a submeter versus your submetering provider. It is best to have your submetering provider manage the installation since they will need to install the transmitter and calibrate each meter to the appropriate transmitter. Properly commissioning the system to insure the transmitter is connected to the assigned unit is imperative to make sure the owner is billing the correct unit.
Be prepared to bring in reliable partners to help you select the highest quality and most cost effective submetering solution. They will also determine the best configuration for your building type. The payoff is well worth the effort – greatly increasing revenue and property value while also encouraging conservation.
National Director of Multifamily Solutions
Phil Neeves, a 20-year veteran of the submetering industry, is regarded as one of the leading industry experts in heating and cooling cost allocation systems.
Prior to joining Minol, Neeves served as Vice President of Central Region for ista North America. His experience includes 16 years in the submetering industry and 14 years as an owner/partner of a full-service real estate company specializing in syndicating multifamily apartment communities nationwide. Neeves extensive expertise in submetering and energy allocation has allowed him to successfully guide clients through utility metering conversions for both conventional financed and HUD insured properties. He served three years on the Board of Directors for the National Submetering and Utility Allocation Association (NSUAA) and is a Lifetime Member of the America’s Registry of Outstanding Professionals.