Energy Strategy: Why You Need it Even More Today

According to the U.S. Energy Information Administration (EIA), the average retail residential electricity price increased by 4.3% in 2021 to 13.72 cents per kilowatt hour (kWh), the steepest rate increase since 2008. The hard part is the situation is not going to reverse. 

Tough Post-COVID Economy

The global pandemic triggered millions of job losses and the ability for people to pay for day-to-day expenses, prompting provinces/states to freeze rents and utility charges. Even with rent relief incentives from governments, landlords know it may be a long road to bounce back and have tenants get back on track while they find employment again. True COVID was disruptive, but it is not the only influence on higher prices. As a property owner, or as a property manager, one must realize that the ability to increase rents or management fees is not simple and at times it does not happen fast enough. Therefore, having an energy strategy will play a crucial role in recovering the loss of revenue and meeting increasing utility costs.

Rising Utility Costs

Environmental regulation may be a contributor, according to Barron's between 2005 and 2020, the U.S. became significantly more dependent on natural gas for power generation; recognizing that environmentalist policies have made us more reliant on natural gas, and made natural gas the most important natural resource in the U.S. representing up to 40% of electricity generation countrywide.  According to the U.S. Energy Information Administration, in its Short Term Energy Outlook the agency forecast continued increases in the cost of energy.  

It is clear that implementing an energy strategy is key to successfully managing properties.

Here are four key steps that will make the biggest impact on the bottom line:

1. Benchmark Utility Efficiency

Comparing performance metrics amongst different properties can yield valuable insights. A comprehensive utility benchmarking program helps drive costs down. Now, the quality of that benchmarking exercise depends on the quality of the information available. Tracking detailed consumption reports, by unit type, by averages, and comparing these reports to similar properties, can identify opportunities to conserve and improve energy utilization. Benchmarks can also be used to determine which efficiency upgrades and retrofits have produced the best results. 

2. Optimize Consumption

Minimizing property utility consumption requires more than just looking at efficient building systems, newer equipment, and modern appliances. Identifying outliers in consumption makes incentivizing the right residents deliver the biggest bang for your buck, and it plays a huge role in reducing your energy bills. Identifying when and where consumption takes place is also fundamental to reducing costs, this is particularly true in jurisdictions with Time-Of-Use rates, in buildings that pay demand charges to the utility, and also in buildings that do not have a high level of automation on the equipment and services available to residents.

3. Streamline Utility Accounting

What processes associated with utility accounts payable result in wasteful spending? How can you streamline processes to reduce waste and increase efficiency? These are great questions to pose to your team. At times there is a disconnect between the accounts payable (utilities) person and the rent receivables person within the same organization. Explore combining rent and utilities in one person so that it actually balances the income with the expenses, and gets more transparency into the operations. Consider centralizing your utility accounts payable within your organization or through an outsourced utility expense partner.

4. Maximize Utility Expense Recovery

Utilities are one of the largest budget line items for property managers, without water they may represent up to 6% of the overall annual budget. How can you ensure that you’re recouping the maximum allowable utility cost from your tenants each month? The most accurate utility cost allocation is achieved with sub-metering. With individual meters, utility sub-metering allows management to bill tenants for actual energy and water consumption per unit. Utility recovery helps conservation efforts. Over time you will see as much as a 20% reduction in costs.