New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

Power Arrangers

On September 11, when the World Trade Center towers tumbled into history and thousands of nearby lower Manhattan offices were temporarily shuttered, power usage dropped accordingly by an estimated two to three percent of the city's total capacity. That reduction in demand was just one of several factors bringing down the day-to-day price of electricity to a point where some co-op and condo boards that had placed a bet on rising prices are paying more today for their long-term energy contracts than they would have if they were still buying electricity month-to-month at market rates.

Eugene Gardner, general manager of the 1,037-unit Bay Club condominium in Bayside, Queens, however, still believes that a decision made by the board was correct. That was its choice to switch from Con Edison to AES New Energy, one of a number of new Energy Service Companies (ESCOs) created by New York State to deregulate the energy market three years ago.

Using an ESCO for your building's electricity needs — as an alternative to continuing to purchase electricity from the familiar Consolidated Edison company — means that a co-op or condo can take advantage of market pricing to buy a long-term contract for electricity or gas that may cost less over the long-term. Some ESCOs actually generate power at plants; other do not, but are simply financial entities that buy and sell generating capacity and the "rental" for use of already existing transmission lines. Those lines are still maintained and owned by Con Ed — which gives them the right to continue to charge you "transmission and delivery" (T&D) fees, even when you choose to buy your energy from someone else.

"At the time we contracted with AES New Energy," Gardner says, "rates from Con Ed had gone up considerably, there were additional surcharges, and the fluctuations on a month-to-month basis — between 11 and 17 cents per kilowatt — were making it very difficult to project annual figures. The term of the agreement was negotiable: the longer the term, the better rates offered. Since this was a relatively new program for us, the board was reluctant to lock into an agreement on a longer term than 18 months at 12.4 cents per kilowatt."

Brian Curry, business development manager at AES New Energy and the principal in charge of the Bay Club's account, says that another incentive for co-ops and condos to leave Con Ed — besides the ability to lock in prices for long-term contracts — is the tax savings built into using an ESCO, offered by New York State as an incentive to try the new deregulated suppliers. For each year, retroactive to 2000, the sales tax portion of utility bills serviced by the ESCOs drops by 25 percent of the local tax base.

This actual savings is reflected in lower T&D charges — a smaller bill that still continues to arrive each month from the local utility. The bill from the ESCO is for the energy itself — not for the upkeep of the pipes and wires that carry it to your home. And if there's a problem in those pipes and wires, the utility — Con Ed, for electricity, or a provider, such as KeySpan, for gas — is responsible for fixing it. The ESCO has nothing to do with the mechanical transmission of the energy, just for its purchase and routing to you. The amount of tax savings when the tax credit is fully phased in will be about three percent of your utility bill — not an insignificant amount when you're a large co-op.

Even though ESCOs like AES New Energy are in business to make money and will charge what the market will bear, the theory is that because they are in a competitive environment, this will work to lower prices to consumers. But if long-term contracts (AES offers ones for as long as five years) turn out to be more expensive than the month-to-month price you pay Con Ed, you're on the losing end of the deal.
Where do you go for information? The website www.poweryourway.com lists both "business ESCOs" and "residential ESCOs." The best website for an overall picture of energy deregulation is New York State's Public Service Commission, at http://www.dps.state.ny.us/.

The difference between residential and business ESCOs is the size of the accounts. If you are a co-op or condo board, and your building is master-metered, you're in a position to deal with a business ESCO for your power needs. Along with AES New Energy, business ESCOs include — among others — First Rochdale Cooperative Group, a customer-owed energy cooperative, KeySpan Energy Resources (the former Brooklyn Union Gas), and Con Edison Solutions, an ESCO spin-off of good old Con Ed.

First Rochdale, which has no relationship to Rochdale Village, was formed out of the co-op movement and is not set up to make a profit "We accept any customer that wants to be a member of First Rochdale," says the cooperative's vice president of marketing, Gil Cruz, First Rochdale's power comes from a variety of sources, but they hope to be able to supply "green" electricity — which comes exclusively from renewable energy sources — to customers in the near future.

"We typically offer fixed prices," says First Rochdale's vice president and chief operating officer, Greg Wortham. "But in a year where it's cool in the summer and hot in the winter, our price may be higher than the market, so any 12-month savings is just a snapshot of where the market goes in that 12 months."

One Brooklyn co-op owner and board member recently had his Con Ed service switched over to power supplied by a residential ESCO called Smart Energy, which promised 12 months of electrical power at a level rate of 12 cents per kilowatt hour, less than Con Ed's current billing rate of 13.144 cents, according to January's bill. The switchover took place on January 14. For on-line account review, he can log on to Smart Energy's website at www.smartenergy.com, or call a 24-hour-a-day toll-free number.

The theory behind the deregulation of utilities is that encouraging this new marketplace will lower prices more than was possible under the regulated monopoly of Consolidated Edison. But it also creates a number of new companies and makes possible the trading of energy contracts or "derivatives" which figured in the downfall of Enron.

Energy can now be generated by anyone with a plant capable of producing at least 100 kilowatts. The owner of this plant can apply to the state's public service commission and sell power into a regional grid. In theory, every large building, apartment complex, or hospital could be firing up its own gas-fired turbines and hooking them up to the regional power grid. (North Central Bronx hospital, for instance, has an experimental fuel cell providing its electrical power). Buildings which produce high-pressure steam for heating can also use it to power electrical generators. The arrival of these new power producers onto the regional power grid has also had a part in reducing prices to where they are today.

If you remain with Con Ed, the utility acts as a power broker for you, using its long-term contracts combined with spot power purchases which are decreed by demand to arrive at your monthly price per kilowatt. Many of those long-term contracts are with power plants that either use hydroelectric power or coal power, still the cheapest sources of electrical energy.

The New York Independent System Operator (ISO; www.nyiso.com) is a broker for power throughout the state. They're the entity that actually tells electrical power generators that their power is needed at the cost they are willing to charge. On the ISO's website, in addition to information about the various ESCOs, is a regularly updated figure for the region's "real time load" — the power being used at the moment you log on to the site. On a recent warm Friday night, that figure was 15,613 megawatts.

Buying power through the ESCO of your choice is an option which building managers and boards should examine carefully, bearing in mind that pricing in this new marketplace is sensitive not only to extremes of weather, but to plant-generating capacity and the ability of the purchaser to choose — for the first time — the type of electrical generating company with which they want to do business.

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