Mitchell Ingerman can tell one eye-opening story after another about the unnecessarily high energy prices many co-ops and condos unwittingly pay. The founder of Aurora Energy Advisors, Ingerman recalls informing the board at one 224-unit condo in Manhattan that the energy services company (ESCO) it was using was charging $100,000 a year over the market price for electricity.
Then there was that massive 1,100-unit complex in Harlem. It was paying hundreds of thousands more than necessary for heat because the board didn’t realize that the co-op was eligible for a special subcategory Con Edison’s cheaper “interruptible” gas rate. And there was that 95-unit co-op in Manhattan that had been adhering to interruptible switchover requirements for years – only to be told by Aurora that it wasn’t even in that rate class because it wasn’t big enough. “It turned out that when the boiler mechanic was installing the dual-burner 15 years ago, he told the super on hand that any time it gets really cold, they’ve got to switch,” Ingerman recalls. “So for 15 years they were buying expensive oil that they didn’t need to buy because the mechanic didn’t understand the rate class.”
Hunting for Power
Navigating the markets for electricity and heating fuel can be more complicated than boards realize. Hiring an energy management firm or consultant to help with that task can potentially reduce what are often some of the biggest line items in the budget. The firms act as both advisers and brokers, working as the middlemen between the clients seeking energy and the hundreds of ESCOs that act as alternative energy suppliers in the deregulated markets in and around New York.
Often brought in by a building’s property management company, the firms typically do a thorough analysis of whether and how a building can get cheaper energy. Aurora works with about 1,800 co-ops and condos in the five boroughs, and what sets the company apart from other energy brokers, according to Ingerman, is its high level of expertise, plus services that range beyond simply selling.
“There’s a cottage industry of ESCOs and energy procurement brokers,” Ingerman explains. “They’re all pitching: ‘I can save you money.’ Boards should have an expert in between them and the ESCOs.” Ron Spechler agrees. The founder and chief executive of The Energy Alliance, which specializes in electricity and natural gas procurement, he says his company’s approach is less about selling than advising. “The process is very much consultative in that we make recommendations and discuss strategies with our end-users,” he says. “It’s more than just finding the best price.”
Reviewing the Situation
The process starts with a review of the property’s existing energy cost structure. Clients are often unaware of the terms, Ingerman says. “We’ll ask, ‘Are you in a contract with an ESCO?’ and they’ll say, ‘No.’ And then we find out someone put them in a supply contract four years ago, and they’re stuck paying a very high floating rate.”
The review considers the building’s demand patterns going back at least a year, and whether, based on that usage and the building’s systems, it’s in the best rate class with the utility. The consultant must also pinpoint what the board and/or property manager want to accomplish, Spechler explains. Is it a fixed price that will give them budget predictability? Or are they more focused on trying to maximize savings, in which case they might want an indexed rate?
If it’s savings that are foremost, the consultant has to consider the timing of the purchase.“There’s a natural cycle to energy prices – they rise and fall,” Spechler says. “We take a macroeconomic look at where the energy market is in its cycle.” Since utility prices fluctuate, co-ops and condos frequently move to a fixed-price agreement so they’re less affected by weather extremes, says Daniel Levin, the vice president for energy markets at Bright Power, an energy management firm that works primarily with portfolios of multifamily housing. “If you’re with the utility, and there is extreme weather, the unit price can swing wildly and blow your budget,” he notes. “We had that happen in the polar vortex winter [of 2014]; lots of buildings got totally killed budget-wise.”
When it comes time to look for price quotes, the firm sends out a “request for pricing” to a selection of ESCOs. Ingerman says his company has a vetted stable of about a dozen reputable and ethical firms. The request usually asks for pricing for different contract lengths – a year, two years, sometimes longer – at both fixed and indexed rates. His suppliers also know what Ingerman wants in the contract to protect his clients. “Less reputable suppliers have clauses that may allow them to adjust the price for different reasons during the term of the contract,” he says.
The consultant will also look at how the contract deals with over-usage. If the power agreement is priced based on a projected annual usage of 100,000 kilowatt hours (kwh), explains Spechler, will there be a penalty if there is a particularly steamy summer and usage soars to 130,000 kwh?
After all bids have been reviewed, the consultant goes back to the property manager or board with a recommendation as to which, if any, offers to accept, based on past usage and energy market projections. Ingerman usually recommends a one-year contract for co-ops and condos because it offers flexibility should conditions change, and it doesn’t tie the hands of future board members. However, some boards prefer to choose longer terms for budget-planning purposes.
The fee paid to the management firm or consultant is typically built into the price, at a few cents per therm or tenths of a penny (called “mills”) per kilowatt hour. Suppliers are told what that fee is when they receive the request for pricing so it’s already baked into their offer. “The supplier serves as a conduit for the fee – they collect it every month and turn it over to Aurora,” Ingerman says. While it might seem counterintuitive, the fee is usually not tied to a promise of energy savings. Energy markets are too unpredictable for that. Levin, of Bright Power, uses last winter’s particularly mild conditions as an example of what can happen. “People used so much less natural gas for heating, it gave us a giant surplus, and prices dropped,” he says. “It was totally unexpected. Anybody who was in a fixed-priced [arrangement] ended up paying more than the utility price.”
After the power agreement is signed, the consultant’s work isn’t necessarily done. Aurora, for example, monitors customer billings and meter readings throughout the year, keeping an eye out for any irregularities. The firm will also ensure that buildings are in compliance with New York’s annual benchmarking requirements, and it reviews engineering proposals for energy improvements, such as cogeneration systems. “Boards should want full services,” Ingerman says, “not someone who’s going to put them in a contract and disappear.”