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Habitat Magazine Business of Management 2021

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ARCHIVE ARTICLE

Unplugged: The Death Knell of the Submetering Incentive

The board of directors at the North Queensview Homes was getting desperate. Electricity bills at the 364-unit co-op were staggering, and there seemed to be little that the board could do because the property was a “master-metered” complex, where electricity usage passed through one meter and residents were billed a proportionate amount, based not on usage but on their apartment size.  “Because you didn’t pay for what you used, there was no incentive to conserve,” says board president Anthony Gigantiello. “Some people were using electricity indiscriminately, which wasn’t just wasteful – they were being subsidized by the rest of the building. It wasn’t fair.”

But North Queensview found a solution. In 2015, the board had submeters installed in each unit so that residents would be billed for what they actually used. Besides the potential future savings in electricity, the board got a break on installation costs, thanks to an incentive program by the New York State Energy Research and Development Authority (NYSERDA), which covered half the cost of the devices.

The co-op reaped big dividends from its modest investment. “Having residents be responsible for their electric bills was a huge line item off our budget and allowed us to reduce monthly maintenance by an average of $50 per apartment right away,” says Gigantiello. Because they were charged for what they used, “people stopped leaving lights on all night and their ACs on 24/7. They feel good about conserving. Everybody is very happy.”

Bye, Bye Happiness

But such happy endings may be a thing of the past. Last January, NYSERDA terminated its Advanced Submetering Program (ASP), which had offered reimbursements of up to $250 of the average $500 submeter purchase price per apartment for multifamily residential dwellings with more than 50 units. At the same time, the New York State Public Service Commission (PSC), which regulates and oversees public utilities, imposed a new regulation requiring buildings installing submeters to incorporate a “disconnect capability,” which enables building owners or boards to shut off an apartment’s electricity for non-payment, in accordance with the Home Energy Fair Practices Act.

Dean Zias, NYSERDA’s project manager for New York City, says the changes are part of Governor Andrew Cuomo’s “Reforming the Energy Vision” strategy, which began this year. Aimed at reducing greenhouse gases by 80 percent over the next 33 years, the plan is designed to make the state’s electrical system cleaner and more affordable. “Rather than encouraging conservation by offering government cash incentives, there’s a bigger focus now on getting private companies involved in energy efficiency and encouraging market competition to bring costs down,” Zias says. “Programs like ASP don’t fit in with the new plan.”

The immediate effect, however, could be painful for co-op and condo boards looking to reduce energy bills. “For the vast majority of master-metered buildings, the disconnect capability requirement will more than double the cost of submetering,” says energy consultant and engineer Herbert Hirschfeld. “NYSERDA still offers an incentive through another program that would be roughly $15 per apartment, which basically amounts to nothing. The combination of the drastic NYSERDA cuts and the PSC requirement essentially marks the end of submetering in the existing residential building marketplace.”

Is Submetering Dead?

The board members at North Queensview consider themselves lucky to have gotten in under the wire. They had been considering submetering since 1991, when Hirschfeld did a feasibility study that indicated that 10 percent of residents were consuming 25 percent of the co-op’s electricity. At the time, the PSC required approval by a majority of the shareholders to switch to submetering before it would permit a building to proceed. “But we couldn’t get even half that number because many of the shareholders didn’t vote,” says board president Gigantiello. The board held another vote in 2001, again to no avail. “After that, we put in energy-saving lighting, instantaneous water heaters, and thermostatic valves that controlled heat in every unit – anything we could to offset an increase in operating costs that would force us to impose a maintenance hike,” Gigantiello says. “But it was never enough to keep up with the rising price of electricity.”

In 2015, however, a window of opportunity opened. The PSC lifted the voting approval requirement and began permitting co-op and condo boards to make the decision to submeter. The PSC would approve submetering as long as boards followed PSC guidelines, including discussing their plans with shareholders and unit-owners, and giving them time to notify the PSC of any objections. The board held an energy fair for Queensview’s residents and laid out the numbers. “Since 25 percent of our energy costs were for common-area usage, and the rest was for people’s apartments, we explained that we would be able to give back 75 percent of what we were paying the electric company to residents in the form of a maintenance reduction,” says Gigantiello. “On top of that, we’d also distribute the money we’d been receiving from the annual fees we charged to residents with ACs, dishwashers, and washer/dryers, which easily came to $500 per unit a year.”

With no protests from Queensview’s shareholders, the nine-member board voted unanimously to proceed. “We submitted our papers to the PSC that summer, and got approved within four months,” says Gigantiello. “The installation last April went really smoothly. You just drill two holes next to your circuit breaker box and screw in the device, which is the size of a room thermostat, and the job is done in ten minutes.”

The total cost for the meters, consultant, and contractor came to $240,000, and Queensview promptly received a $101,500 check from NYSERDA. “Energy use has gone way down since we switched,” says Donna Digilio-Arruffat, the co-op’s on-site property manager. “Last May, our total usage was 146,000 kilowatts, compared to about 185,000 in previous years. And in July, which was really hot, we used only 247,000 kilowatts, down from nearly 300,000 the summer before. That’s an 18 percent reduction, which is huge. And now NYSERDA is throwing this incentive away? It’s a shame.”

No Sale

That’s certainly the sentiment at Brightwater Towers, a 734-unit complex at 501 Surf Avenue, across the street from the New York Aquarium in Coney Island. A Mitchell-Lama cooperative that was converted into a condominium in 1992, the 24-story dwelling, like all of the state housing program’s buildings, is notoriously energy-inefficient. Brightwater’s electricity bills are astronomical.

“We’re paying about $1 million a year,” says board president Pavel Moreff. “We became interested in submetering about a year ago because we knew it was the only way to change people’s behavior and make them consume less. But we faced a big obstacle because our bylaws clearly state that the board of directors must supply electricity to unit owners.” In the interim, the board took steps to curb electricity costs, including changing hundreds of fixtures to more energy-efficient ones. “But there were a lot of other major items on the agenda that were more urgent, like plumbing jobs and exterior repairs,” says Nicholas Dubovici of FirstService Residential, the property’s general manager. “It was overwhelming to add submetering to the mix, so the discussion was tabled.”

The board finally met with Hirschfeld in March, only to learn about the NYSERDA incentive cuts. “Even that didn’t kill our interest at first,” says Dubovici. But once they were informed about the disconnect capability requirement, board members voted unanimously against proceeding. “The cost of submetering has simply become...prohibitive,” says Dubovici. Brightwater, he adds, has since started turning off half the bulbs in the lobby overnight in an attempt to power down.

Another Dead End

Recently the board of directors in a New York City cooperative may have hit a similar dead end. This cooperative, comprised of two high-rise buildings, faces a unique dilemma: one of its buildings was constructed as a submetered dwelling in 1968, while the other, built in 1972, remains master-metered – a split that has engendered a civil war of sorts among the nine-member board.

“They first considered submetering ten years ago, and you can imagine how the lines were drawn,” says FirstService Residential property manager Aubrey Phillibert. “Board members in the submetered building wanted to submeter the second building in order to create a level playing field. The other side argued that the payback is too long, especially at a time when the co-op is already dealing with rising operating costs.”

Phillibert was all in favor of change, having previously overseen an energy-saving project at Park City Estates in Flushing, a 1,000-unit co-op that immediately slashed its electricity bills and reduced maintenance charges by 15 percent after switching to submetering and installing LED lighting. “I lobbied hard for submetering, but the board was always at an impasse,” he says. “Then they got too busy with other capital projects, including a boiler conversion, façade restoration, and renovating the lobbies.”

Those are finally winding down, and the board, while not unanimous, is now leaning toward submetering even in the wake of the NYSERDA cuts. “They believe it’s the right thing to do, in terms of both fairness and conservation,” says Phillibert. “But the new PSC disconnect requirement is a big monkey wrench that throws our costs out of whack.” As a last resort, board members are now hoping the PSC will grant them a waiver in light of the property’s unusual situation. “If the PSC does that, there’s a good chance the board will approve submetering,” he says. “If not, it’s dead in the water.”

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