New York's Cooperative and Condominium Community

Habitat Magazine October 2020 free digital issue

HABITAT

BRICKS & BUCKS

BUILDING PROJECTS IN NYC CO-OPS/CONDOS

Crafting a Zero-Based Energy Budget

Alexander Zafran in Bricks & Bucks on September 2, 2020

New York City

Zero-based energy budgeting, co-ops and condos, supply and delivery, COVID-19.
Sept. 2, 2020

Budget season is almost here for co-op and condo boards and their managers. Preparing an operating budget based on hard numbers rather than wishful thinking is never easy, and the task can be especially daunting for nuanced line items like a building’s energy usage. It’s tempting to take prior expenses, apply a blanket percentage increase, and be done with the process. But proper energy budgeting isn’t quite so simple.

A co-op or condo board’s first step is to consider the property’s explicit energy uses. Aside from the essentials of lighting and heat, think about such daily needs as hot water, elevators, in-unit cooking, and common areas and amenities. Even if a building relies on the same commodity for multiple functions, each purpose has a unique consumption profile and therefore is classified (and priced) differently by the utility. For instance, while gas usage for heating peaks in the winter and has a cheaper delivery rate (because of higher volumes), cooking gas usage remains level throughout the year and has a higher per-unit price. Adding this layer of granularity leaves less room for unwanted surprises later.

Once you have a handle on your commodities and their purposes, the next step is to break out the underlying cost components. Electricity and natural gas accounts are charged for supply and delivery, each of which is priced differently based on season and market conditions. Expenses during times of peak usage can far exceed those from the rest of the year. Instead of forecasting an arbitrary increase to annual spending, a zero-based budget requires justification of where every single dollar goes, month by month. The end product is a far more precise and transparent budget. Here is how to build a zero-based electricity budget for January 2021:

First and most importantly, begin with a “base” cost of zero. Every dollar of expenses that is allocated to January will have an explicit purpose for the month, such as heating the common areas, illuminating the parking lot, or running the elevators.

Second, estimate your monthly electricity consumption (usually represented as an average of usage from a series of prior Januarys).

Third, add in line items that represent your supply cost, energy delivery cost and all applicable taxes. (If your account is served by an independent energy supply company, or ESCO, the supply and delivery portions of cost should be parsed out as separate line items.)

Fourth, calculate your total anticipated energy expense for January. Apply footnotes to explain the methodology and calculations as needed.

And fifth, your January energy allocation should match your actual energy spending. Even if January expenses are higher or lower than anticipated, the variance will not affect your budgeted costs for February. Instead, February’s budget, like every other month’s, will begin at a base of zero and be structured independently.

A new uncertainty looms over this year’s budgeting process: the future impact of COVID-19. In some co-op and condo buildings, an exodus of residents, either temporarily or permanently, has led to drastic reductions in 2020 energy usage; in others, a significant proportion of residents working from home has led to a rise in electricity usage. Keep in mind that regardless of occupancy levels, energy costs for common areas and centralized heating and cooling will fluctuate far less.

To maximize the accuracy of your energy forecasts, you need to ask the right questions. Consult with your on-site staff to assess the status of building systems and determine which equipment might need upgrades or repairs. Gauge expected occupancy levels over the coming year. Talk to the finance team about the degree of conservatism they wish to see when estimating next year’s costs. Above all, rely on hard numbers – not wishful thinking – when budgeting for energy and other operating costs.

Alexander Zafran is a senior consultant and business development lead at Aurora Energy Advisors. If you’re interested in learning more about energy budgeting for your building, he can be contacted at azafran@aeadvisorsllc.com.

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