On the Money: Keeping Your Building's Energy Bill at Budget
How can you ensure your building's energy bill comes in at budget? Lock in a price with your supplier for the next year right now. That's bold but confident advice from Jeff Cohn, president of Boro Energy, a Brooklyn company that has supplied energy to New York City buildings since 1929. Cohn says current prices are so low the only way is up. That means management companies and boards should take advantage of market prices and ink in budgets today. "It is a great time right now to lock in a fixed rate for oil and gas," says Cohn, whose grandfather founded Boro Energy, bought by Approved Oil in late 2012. "The low rates do not have anything to do with summer. It is just where prices are."
Energy prices fluctuate because of many reasons. Political events in the Middle East can affect oil prices for a New York City condo, just as electricity consumption on a hot day in California can cause a price bump for Brooklyn residents. Most energy suppliers, however, offer customers different ways to structure their bills. Smart decisions and a little energy market foresight can translate into long-term savings in your oil, natural gas, and electricity costs.
Pay as you go. Customers pay for what they use each month or quarter at whatever the market rate is. "The market rate can go up and down," explains Cohn. "This is a straight variable price."
Fixed price. This is an agreed price for the duration of a contract, usually between 9 and 12 months. "You will pay this assigned price for the fixed term of your contract," says Cohn. "Most fixed-price contracts are for the winter heating months."
Capped rate. "When you buy a cap rate, you are buying insurance," explains Cohn. "You are protecting yourself from the high rates. The capped rate is usually set higher than the fixed rate — usually 20 to 30 cents higher than the fixed price. You continue to pay your market rate for the commodity until you reach that cap."
Which payment method best suits your building? Cohn believes New York City co-op and condo customers are currently better served by agreeing to a fixed price.
"I would tell people right now that they are not going to get hurt if they buy at a fixed price," he says. "If the prices do fall, boo-hoo. At least you know you have created a budget for what your expenses are going to be and you are going to stay within budget."
Cohn cites 2005's record-breaking hurricane season as an example of unpredictable weather affecting energy prices across the country.
"The day they found out that Hurricane Rita [which struck the Caribbean and Gulf Coast] was going toward the Gulf of Mexico the spot price of natural gas doubled in 24 hours," Cohn says. "That shows you the volatility of the market.
"If you are a property manager or you sit on a board, you set a budget and the idea is to stay on budget. Nobody can control the weather but if you can control your price somewhat you have done very well. The trick is to limit exposure to market volatility."