by Chris Oates in Untagged (via Multifamily Insiders)
It is very likely that you or someone at your company has been approached by a firm conducting rate audits. Rate audits should absolutely be a part of an energy management program. In fact, overtime, they should be conducted again and again. However, not all rate audits are the same and you should avoid the firms offering this service if it does not meet your needs (hint: the recommendations below).
If you’ve worked in multifamily for some time then you know that there are many special nuisances we must deal with. This definitely applies to utility accounts at multifamily properties. Apartment communities have lots of accounts – more on average than many other business types. We have residential accounts for models, leasing offices, and maintenance shops. There are commercial accounts for buildings, pools, elevators, community centers, and private area lights. There are lots of classifications thus possible rate schedules thus possible opportunities to reduce costs.
In the old days before computers, imagine what it was like for utility companies to keep track of all the data related to billing their customers. Utility companies are not small – they have thousands and thousands of names, addresses, meters, readings, service periods, rate schedules, etc. Before computers, it was common for utilities to make mistakes. When computers came along, they substantially improved the situation as that is what computers do – accurately manage lots of data. Computers aren’t perfect nor are the representatives that you’ve dealt with that take and enter the information into the utility’s computer. There can absolutely be mistakes, problems, or (more importantly) opportunities. Your goal with a rate audit is to fine the discrepancies that leads to less utility expense.
First, beware of any binding contracts where the contractor acts as an agent, receives refunds, and establishes rights to future savings on all your properties and/or accounts. Avoid contractors asking for a large percentage of savings.
You need to understand precisely what your rate auditor is looking for. You need to know what utility companies your rate auditor works with. Utility companies are very different. Some can easily provide historical data and others can’t. Some rate auditors work with some but not all utility companies. Restrict your contract specifically to the accounts or the utility companies in which the auditor intends to analyze.
Some of the utility billing mistakes that are found in rate audits cause your bill to be higher than what it should. The converse of that is true, too! They do make mistakes that cause your bill to be lower. And some mistakes really won’t make a difference at all. The purpose of a rate audit is to fine the opportunities that lead to a decrease in your bill amount. No point in wasting time or resources looking for utility billing mistake that don’t yield any savings.
There are many anomalies that occur in utility billing. Some rate audit contractors simply look to exploit one or a few of these anomalies. This is great if there is an opportunity that you can take advantage of, but what about any other opportunities? For example, several jurisdictions provide for multifamily properties to be exempt from sales tax for various common area uses. That is significant and certainly an opportunity you must pursue. However, if that is all the contractor checks for you might very well be missing other, possibly better, opportunities. You aren’t looking for a rate auditor that simply checks to see if you are paying sales tax that you shouldn’t, tell you that you shouldn’t, and then take 50% of the savings that brings for term of the contract. If sales tax is 5% and the auditor takes half or 2.5%, they are essentially taking 2.5% of your utility bill for the term of their contract. Pretty good return for that auditor for minimal work and they really didn’t provide the full rate audit service you were expecting.
Some rate auditors are simply looking for deregulated energy buying opportunities. Not a good idea to lock up your properties with a contractor that is simply looking for commodity opportunities under the disguise of a rate audit. And worse, you definitely don’t want your rate auditor to have stake or claim to any savings created from other energy brokers/suppliers you may wish to choose.
Your bill amount is essentially the utility rate times your usage. Therefore, one area we want to look for problems would be where the usage you are billed being is overstated. Doing that involves trending and benchmarking the account’s usage history. Of course you need to be able to do this for lots of utility historical usage data – as much as possible. And, you need to know how to benchmark. In benchmarking, for example, you would want compare electric meters serving very similar buildings’ hallway lighting. Of course you need to ensure there are no problems or additional equipment in the buildings. We are looking for the outliers – the accounts that have more usage then the bulk of the population of accounts. With regards to a rate audit, a potential problem could be that the meter multiplier or the unit of measure the utility uses for a meter is incorrect. For example, the utility may have recorded that one of the meters has a meter multiplier of 10 whereas the others have a 1 or there is a water meter measuring in CCF versus gallons. So, for similar account types of the example, respectively, we would see one account that has about 10 times the usage of the other accounts or 748 times the usage of the other accounts. You can probably reason that there aren’t too many of these situations that do not go unnoticed.
The other area to investigate is the rate(s) charged by the utility company. All sorts of things can cause the rate you are charged to be too much. Like with usage, we will want to trend and benchmark the rate to other like kind accounts but also with accounts that use the same amount of energy/water. So, for example, let’s say we have 20 electric meters for a couple properties. We would want to compare the rates for each of these meters to no another. If 17 of the meters had rates between $.122 and $.128 but 3 had a rates from $.183 to $.196 we only want to look into the 3.
There are many (way too many) utility rate schedules in this country. Some of the rate schedules have a penalizing tier structure. Meaning the more you use the more you pay. Since the idea behind a rate audit is to find opportunities where you are paying too much, very often analysis results identify accounts in the higher tiers. So, great, you make the rate schedule change and save real money. But, why was the account at the higher tier anyways? Did something change with the consumption to put it there? Has the account always been in the higher rate tiers? Maybe something changed with the consumption that should be addressed. Simply changing the rate schedule doesn’t solve the problem.
Utility rate schedules are applied to accounts based on several criteria items. An account usually gets classified into a rate schedule based on what it services (residential, large commercial, time of use, private area lights, etc.) and how much the account consumes. There can certainly be situations where an account is incorrectly classified. Sometimes, accounts can be placed in a more expensive rate classes but then consumption changes (result of some sort of conservation or equipment replacement initiative) and the utility does not change the rate schedule to a lower cost schedule – thus depriving the conservation project its total value.
Also, utilities can be required to refund any overages that were incorrectly billed. So, not only would you get the savings going forward, you may be able to get a refund on previous bills. Keep in mind, there are often limitations set that govern how far back the utility must pay refunds.
There is a lot of analysis that can be done to check rates. We can often find ourselves in situations of diminishing returns – more detailed and time consuming analysis doesn’t yield returns worth the additional work. I am a big believer in the best bang for your buck. If your company has lots and lots of accounts, don’t get wrapped up in checking everything to precision. You will find that your greatest opportunities are the true outliers – the ones that really stand out. Address the accounts that really stand out first, make the changes, and check the results. Repeat. However, keep in mind the most effective means of a rate audit is checking every bill every month – use a system. Utility rate schedules change frequently as can the usage of an account which further substantiates the need of a reoccurring rate audit. If you are with a management company that has many properties, you will have many accounts. Trying to obtain data from all the utility companies when rate audits are done as a project versus being done in practice makes the analysis much more difficult.