In the energy industry, Retail Electric Providers (REP’s) and natural gas suppliers alike are creating innovative, new products for different industries while continuing to advance the products already in place. Because of the unique nature of the apartment industry, owners and management teams have new ways to procure energy and set up the products that go along with it.
There are an overwhelming amount of choices for apartment owners and management teams when it comes to energy procurement. Some owners or management teams stay with one energy supplier for years. Others, use a third-party energy consulting firm, or broker, to manage their portfolios. These consultants shop the energy market to get the best possible rate and terms on behalf of the management team. Thirdly, there are those owners and teams who handle each situation separately, on a community-by-community basis. Regardless of your situation or approach, there are three things you should know about before making an energy related decisions.
Construction Costs for Temporary Service
When it comes to construction, some energy suppliers use the temporary service as an opportunity to increase rates, include pass-through charges and add numerous meter fees. These seemingly minimal fees over an extended period of time (especially if the project takes a year or more) can significantly increase operating costs. When you start a new construction project, not all construction companies monitor power costs closely.
Make sure you have an internal dedicated resource responsible for managing power and meters. Alternatively, you can partner with a third party energy firm that will handle energy maters for you and ensure meter installations are properly scheduled. Doing so will not only be cost-effective, but you can leverage their knowledge of available products needed at each stage of development.
Common Supplier Agreements
The Common Area Agreement (CAA) refers to the power agreement includes all sites/meters that will always be in the ownership and/or management’s name. Examples of areas in the CAA include the pool, club house, and garage.
The Continuous Service Agreement (CSA) refers to the power agreement that include all units that will be vacant or leased to prospective tenants.
The Marketing Agreement (MA) refers to the agreement an energy supplier is willing to pay apartment owners or management teams for the tenants that use their service.
Each supplier has their own pricing standard, product nomenclature, and contract language. Some suppliers offer a bundled rate for a CSA agreement, a flat fee for a MA agreement, and an unbundled rate for a CAA agreement. A bundled rate or semi-bundled rate may include “wire fees” that your local utility charges.
For example, you could be offered a bundled rate of $0.0512 per kilowatt-hour for your CAA and a rate of $0.082 per kilowatt-hour for your CSA. While it can be hard to figure out exactly what is in the rate, an energy consultant can help you navigate these waters to determine exactly what is being offered and what the financial benefit of each is.
Meter Fees – Make it $0
Always, always ask for $0 meter fees, and make this a key negotiation point. You may not think meter fees matter, specifically regarding your CSA contracts, but they add up. Meter fees are a standard fee you pay every single time time a unit is billed. While there is a slight premium added to the fixed energy rate to remove meter fees from your contract, it will cost you significantly less in the long term as compared to the meter fees that adds up quickly. This is especially important for new developments. New developments will go months with vacant units while construction continues and units are being pre-leased. With that in mind, those vacant units will be hit with a multitude of fees, some from CenterPoint and unavoidable, but many can be avoided through your REP upon request should you have the insight.
Can you imagine having a 300 unit community with only 50 units leased and (6) months left before the next units are released from construction? 250 units with a $2.95 fee = $737.50 each month on top of your energy usage!Familiarizing yourself with these three items can result in expense reduction and ensure an efficient procurement processes. Energy expenses and issues with energy management are all determined by how involved you are in the process. For some teams, it can be difficult and seam nearly impossible to take the time out of their busy schedules to manage the energy procurement process in its entirety.
It’s been my experience that people consider energy as a cruel necessity - something no one enjoys dealing with. However, the retail market, combined with current regional conditions in areas such as Houston, Texas, is prime for optionality in regards to major decisions involving energy and energy management in the multifamily industry.
Texas is one of the most aggressive states in terms of energy, and the energy suppliers in turn must continue to stay aggressive with innovation – innovation for you. It’s an exciting time to be in the multifamily space. Hopefully writing to you will shine some light on how energy management can become a much easier process but also why it is extremely important to know the energy sector or find a consultant that can help navigate these muddy waters with you (I know a guy if you’re interested).