Journal of Utility · years, compactors were awesome. However, by 1989, consumers began to demand...

Journal of

Utilitym a n a g e m e n t

Election 2012:Groundhog Day

THE LATEST RESEARCH AND MODELS ONOPTIMIZING UTILITY USAGE IN MULTIFAMILYVOL. 2, ISSUE 2 • WINTER 2012

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4 JOURNAL OF UTILITY MANAGEMENT WINTER 2012 WWW.UTILITYSMARTPRO.COM

8 COVERElection 2012—Groundhog DayIt may be status quo on Capitol Hillafter the election, but a number ofgovernmental agencies are working atneck-break speed to affect changethrough new rules and regulations;many of which will have a directimpact on multifamily operations.

6 Flashdance and the compactorWe thought those days would neverend. Alas, recycling is here to stay, andregulation is heading our way to makecertain it leaves a lasting impression.But don’t throw the compactor out withthe legwarmers just yet.

7 Targeting utility use in apartmentsWith 114,567,000 of the country’spopulation living in multihousingcommunities, the sector ripe for energy-efficiency. (source: NMHC)

to energy efficiency

15 The true cost of water

10 Is it too easy beinggreen?

12 Counting the cost

14 Just do something... to start

15 Utilities turn focus

Journal of


TABLE OF CONTENTS

The Environmental Protection Agency(EPA) is fast at work. In the past 90 days, reg-ulations.gov has added 6,125 regulations andnotices. Just one example addresses exteriorpaint, and its volatile organic compound emis-sions, a ruling certain likely to affect multifamilyoperations: “We are approving a local rule thatregulates these emission sources under theClean Air Act,” the EPA states.


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PUBLISHER Utility Management Advisory

UMA DIRECTORS Mary Nitschke, UMA presidentSr Ancillary Services ManagerPrometheus RE Group

Mark Copeland, COOWestCorp Management

Tom SpanglerMultifamily Utility Consultant

Tim HaddonDirector, Ancillary ServicesAssociated Estates Realty Corp.

Kent McDonaldVP, Ancillary ServicesAIMCO

EDITORS Michael [email protected]

Jim [email protected]

BUSINESS EDITOR Tim [email protected]

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No doubt, our nation’s energy is in a state offlux. Never before have we seen such anonslaught of federal, state and local regula-tion, sometimes in direct contradiction. It’sfurther confounded by differing charters ofthought, political environments, and evenActs of God.

Last month, super storm Sandy knockedout power to over 8.5 million customers in21 states; many apartment dwellers. Asmany remain without utilities even today,Governor Andrew Cuomo of New York,convened a commission to investigate whathe called a “labyrinth” of regulatory agen-cies and utilities to investigate their failureto prepare. As Cuomo looks to overhaul thesystem, it won’t be hard to garner support asmost agree that the country’s infrastructureis in serious need of updating; the complex-ity of delivering services is only confoundedby a growing maze of federal, state and localprocesses.

Such complexity continues to expand onthe federal front; the number of governmentregulators has increased by 13 percent,while widening its operations budget to over$54 billion.

In recent months, the EPA devised scoresof new rules ranging from tougher waterguidelines, to restrictions on greenhouse gasemissions, delaying the effective dates of saidrules until after the election. Just recently, aU.S. Senate Committee projected that themajority of looming EPA rules would signifi-cantly impact gas prices, home energy costs,and the overall cost of doing business, leav-ing property owners perplexed at how to bestprepare for the impending changes.

Rising energy prices tend to have a lag-ging economic impact, says James D.Hamilton, professor of economics at theU.C., San Diego. “Unless income alsorises—which isn’t happening for many peo-ple now—higher fuel costs will eventually

FROM THE EDITOR

An ounce of preparation

Michael [email protected]

OUR MISSIONThe Utility Management Advisory is a forum to leverage multifamily owners’ real-worldexperiences and perspectives into information that will drive education to policy makers andproperty owners, and dispense tangible, actionable recommendations. This alliance willimprove multifamily owners’ and managers’ ability to: conserve, save money, serve residents,while protecting and enhancing their fiscal bottom lines and property values, and staying aheadof emerging policies and requirements.

UtilityManagement

Advis y SM

displace other expenditures.”Property owners may be best advised to

shore up to avoid exposure and mitigaterisks in times such as these, versus the natu-ral inclination to cut dollars and processes.

Still, there remain some certainties onthe road ahead. We will face renters whoshare the same concerns as their landlordswith regard to the impact of energy costs ontheir income. How we, as owners and man-agers, derive new and innovative processesand methods to combat these rising costswill be that which shapes our outcome. Source Annual “Regulator’s Budget” compiled in2011 by George Washington University andWashington University in St. Louis. EPA Impactstudy is derived from the U.S. Senate Committeeon Environments and Public Works MinorityCommittee.


Times have changed, and the IRR of a com-pactor has changed, even doubled in somemarkets. Additionally, when completingyour analysis, be sure to look at the electri-cal load of your compactor; typically com-pactors run on 240 volts, and are motion-triggered. If you are in a region with highelectricity rates, you could be in for a shock.

You should also consider the lower main-tenance requirements of bins, when com-pared to compactors; there is no grease(from the trash bins themselves), and theydo not require the same routine mainte-nance. Additionally there are cosmetic dif-ferences between bins and compactors. Byremoving the compactors, you eliminate thejuice that is squeezed out when the com-pactor crushes its contents.

Remember Han Solo, Luke Skywalkerand Princess Leah in the compactor on theDeath Star in the Empire Strikes Back?Remember the black, murky sludge inwhich our heroes waded? We’ll call thatjuice. In space, that goo can simply be jetti-soned into the vast emptiness, with norepercussions. In our communities’ trashrooms and enclosures, it delivers a memo-rable odor, and possibly afford us a super-sized rat colony to boot.

Please don’t get the impression that leg-warmers and compactors no longer havepurpose. I love them both. I just believe thatnow, 30 years later, we must be smarterabout our application. If your property is ina city like New York or San Francisco, yourbuilding may not offer open space for multi-ple bins, and may require a compactor tomaintain a sanitary environment. If youhave a building where you have both recy-cling and trash enclosures, you might beable to achieve a simple pay-back on yourcompactor. The right application matters.

Tread cautiously—if you have a giant gar-den-style community with loads of tinytrash enclosures, and you are still using com-pactors, as a friend, I am obliged to tell youthat you might be wearing legwarmers overyour jeans.

Author Mary Nitschke ispassionate about utilities,and should, perhaps,switch to decaf. She is thefirst president of the UtilityManagement AdvisoryBoard, holds an EnergyResource ManagementCertificate from UC Davis,two BAs from UCBerkeley and is senior

ancillary services manager for Prometheus RealEstate Group, Inc. Nitschke has the first law of ther-modynamics posted by her office door, and a 1970Lincoln Mark III, with over 400 bhp, in her drive.

When evaluating trash enclosures, configu-ration, and community requirements,remember the movie, Flashdance. Not asmuch for the pressure washing of JenniferBeals, as for the film’s powerful and innova-tive use of legwarmers. Remember legwarm-ers? They were iconic in the 80s.

Like legwarmers, compactors were iconicmultifamily trash enclosures. In the 1970sand early 80s, as per-pick-up trash costsincreased, owners and managers looked formeaningful ways to reduce the number ofpick-ups at communities; enter compactors.We saved thousands of dollars, annually, bysquishing our waste, and reducing the num-ber of pick-ups. It did not matter whetherthe community was a stand-alone building,or a palatial garden-style community, com-pacters made sense.

During the 80s, the Internal Rate ofReturn (IRR) on a compactor could be lessthan four years in some markets. Since com-pactors have a useful life of about 15 to 20years, compactors were awesome.

However, by 1989, consumers began todemand recycling. Recycling did to com-pactors what grunge did to legwarmers.

As residents became environmentally-

aware, demand for trash options outside“squish it,” became more common. Andwith consumer adoption of recycling, camelaws, like AB 939 requiring property ownersto maintain certain percentages of recycle-versus-trash. Currently, trash providers reg-ularly audit to determine if communities offive-units, or more, have appropriate trash-versus-recycle ratios. If we do not meetthose requirements, we may be penalized.The need for trash, and recycling bins in theenclosures became prevalent.

What was wrong with compacting? In agarden style-community, where the trashenclosures are not large enough to containboth a compactor for trash, and bins forrecycling, the compactor represents a costcenter. Since the cost-per-pick-up on acompactor is typically more than thatdumpster, and you can reduce your costs byadding recycling bins while decreasing thenumber of trash bin pickups, then yourcompactor might have reached functionalobsolesce, making it cost-effective toremove the compactor. In many instances,the compactor itself is recyclable. A recyclermay remove it at no cost to you, or actuallypay you for the scrap metal.


Flashdance andthe compactor

CRUNCH DOWN MEMORY LANE


KEY ALLIANCES

WINTER 2012 JOURNAL OF UTILITY MANAGEMENT 7WWW.UTILITYSMARTPRO.COM

The goal of the project is to expand thenumber of utilities offering multifamilyenergy-efficiency programs, and increaseutility spending and savings for these pro-grams by at least 25 percent by the end of2015. The project will encourage the cre-ation and expansion of comprehensivebuilding upgrade programs for market-rate,and affordable, multifamily housing throughpartnerships between utilities, and the hous-ing community. ACEEE is partnering withCNT Energy to actively engage utilities andhousing groups; facilitate peer-to-peer learn-ing; and provide resources to utilities, regu-lators, and housing stakeholders.

Multifamily buildings present a tremendousopportunity for improving energy-efficiency.CNT Energy and ACEEE recently completeda report, funded by the MacArthurFoundation, entitled Engaging as Partners inEnergy Efficiency: Multifamily Housing and

Utilities, which highlights the opportunity toimprove the efficiency of multifamily build-ings. Current programs have shown that com-prehensive retrofits can cost-effectivelyimprove the efficiency of multifamily build-ings by 30 percent for natural gas, and 15 per-cent for electricity. Nationwide, at 2010national average energy prices, this level ofsavings would translate into annual utility billcost savings of almost $3.4 billion for the mul-tifamily sector.

Utility programs provide significant fund-ing, $7 billion in 2011, for energy efficiencyimprovements. This spending could increaseto $16.8 billion by 2025, representing a signif-icant opportunity to leverage utility resourcesto expand programs targeted toward multi-family buildings. The variety of utility pro-grams. and the policies that govern them,means that no single policy will address mul-tifamily buildings nationwide.

The American Council for Energy-Efficient Economy(ACEEE), with the support of the John D. and Catherine T.MacArthur Foundation, is undertaking a multi-year project toimprove and expand utility programs to improve the energyefficiency of multifamily housing.

But in a utility program environment,where very few programs are designed specifi-cally to serve multifamily buildings, there ismuch room for improvement across the coun-try. Diverse and complex ownership struc-tures, and utility bill payment responsibilitiesfor market-rate and affordable multifamilyhousing, mean the multifamily market hasunique program needs, requiring utilities towork with multifamily building owners todevelop programs that match. By partneringwith building owners and other multifamilystakeholders and policymakers, electric andgas utilities can create improved programs formultifamily buildings and achieve greatercost-effective energy savings.

This project combines outreach, research,peer-to-peer exchanges, and technical assis-tance to encourage and assist utilities to offerquality multifamily programs. Key compo-nents include a working group of electric andgas utilities that are interested in implement-ing comprehensive programs to reduce energyuse in multifamily buildings within their serv-ice areas. With participation from multifamilyhousing experts, this group serves as a peer-to-peer support and learning network.

Resources for utilities, housing, communitygroups, and others to help them pursue multi-family energy efficiency programs. Theseresources include:

• A baseline assessment of the existingmultifamily utility programs in themetropolitan areas with the largestnumber of multifamily apartmentunits;

• A primer on the multifamily housingsector written for utility programmanagers;

• Case studies detailing existing exem-plary multifamily utility programsand providing program planners withinformation on program design, costsand savings, participation rates, andlessons learned;

• Resources to assist housing groups,and utilities, in effectively partner-ing, and more.

For more information go to aceee.org/multifamily-project. The American Council for Energy EfficientEconomy conducts in-depth technical and policyanalyses, advising policymakers, collaborates withbusinesses, government officials, and public inter-est groups. ACEEE was founded in 1980 by leadingresearchers in the energy field. Projects include:energy policy (primarily federal and state), research(including programs on buildings and equipment,utilities, economic and social analysis. ACEEE isAmerica’s leading center of expertise on energy effi-ciency with a reputation for quality, credibility, and abipartisan approach. ACEEE’s technical work iswidely relied upon by policymakers, business andindustry decision-makers, consumers, the media,and other energy professionals.

Targeting utilityuse in apartments


With the counting finished, the Americanpopulace seemingly voted for the politicalstatus quo in what many pundits believedwould be a “change” election. PresidentBarack Obama won four more years afterdefeating his Republican challenger, MittRomney, by an electoral vote tally of 332—206. In securing victory, Obama carried theimportant swing states of Virginia, Florida,Ohio, Colorado, New Hampshire andWisconsin, albeit by smaller margins thanhe carried them in 2008. While Democratsclaimed a mandate for their vision and poli-cies as a result of Obama’s reelection, as wellas their hold of the Senate, Republicanleaders pointed to the successful defense of


their majority in the House ofRepresentatives as evidence that the coun-try is not ready for tax increases and increasein governmental regulations.

In short, none of the branches of govern-ment changed hands on election night, withthe Democrats holding the presidency andadding two seats to their Senate majoritywhile Republicans held serve in the House.For a country reportedly weary of partisangridlock in Washington, voters may have cho-sen more of the same. The election leftDemocrats five seats shy of sixty in theSenate, meaning the Republican filibusterremains alive and well. And while eightHouse races are too-close-to-call, Republicans

With the counting finished, theAmerican populace seemingly votedfor the political status quo in whatmany pundits believed would be a“change” election.

have won at least 233 seats, fifteen more thanneeded to retain control of that chamber.

The most pressing question for businessowners and multifamily professionals is this:what does a continued, divided governmentmean for the future of the fiscal cliff, envi-ronmental regulations, taxation, DoddFrank, and the health care law?

On January 1, the country will fall overwhat economists, and financial observers,call the “fiscal cliff,” unless the current lameduck Congress, and president, come to adeal to extend the tax cuts that are set toexpire, and prevent the deep spendingreductions known as sequestration.

The Congressional Budget Office (CBO)estimates that if the cuts in spending and taxincreases become a reality, the financialshock to the American economy would bemore than $500 billion. CBO calculates thatgross domestic product would be slashed byfour points, sending the country back into arecession. Unemployment would rise by apercentage point with the loss of two millionjobs. Among the taxes set to expire are the“Bush” tax cuts and the payroll tax holidaysigned into law by Obama. Many of thespending cuts would affect the defenseindustry, and have a heavy negative impacton employment in the Washington, D.C.metro area, including southern Marylandand Northern Virginia. Apartment ownersin these jurisdictions, pay attention. If noaction is taken before the New Year, it is pos-

Election 2012—Groundhog Day

ON THE LEGAL HORIZON


ON THE LEGAL HORIZON


sible that the new government couldretroactively fix the problem.

As with every important issue inWashington, Republicans and Democratsare divided on how to handle the impend-ing crisis. Democrats and Obama have sig-naled that they want spending reductionson entitlements limited, and to raise taxeson wealthy Americans; Obama defineswealthy as individuals making more than$200,000 per year, and couples filing jointlyearning more than $250,000 per year.

Republicans maintain that taxes shouldnot be raised on anyone in a weak economy.Instead, they hold that America’s burgeon-ing budget gap should be closed by decreas-ing corporate tax rates on businesses to spurgrowth, and ending tax loop holes, and sub-sidies, to create more revenue.

On the night of the election, JohnBoehner, Speaker of the House ofRepresentatives, stated that the Republicanvictory in the House meant the country hadvoted against tax increases. Democratsargued that their wins in the Senate andPresident Obama’s reelection meantAmericans wanted a more balancedapproach to the crisis with spending cutsand tax increases on the wealthiest.

In the days after the election, both sidesare, at least, feigning the possibility of acompromise in the lame duck session.Obama has invited congressional leaders tothe White House for talks. Boehner hasacknowledged that the country wants thetwo sides to work together. If this soundsfamiliar, it is. Obama invited Republicanleaders to the White House in his first term,and neither side was able to resolve thebudget problem. In the end, look for thepoliticians to enact non-permanent stop-gap measures to be resolved later in 2013.This will mean continued uncertainty andweak growth as businesses continue to oper-ate in a cloudy regulatory environment.

Maintaining the status quo of the House,Senate and presidency, does mean ananswer to the question of whether or notthe Affordable Care Act will be implement-ed—it will. Republican challenger MittRomney promised, on the campaign trail, torepeal the most unpopular portions of thelaw, and many Republican House andSenate candidates ran on pledges of repeal.Now, with Democrats in control of theSenate and presidency there is no chancethe law will be repealed. The SupremeCourt ruled, in June 2012, that the insur-ance mandate requiring most people to pur-chase health insurance, or pay a penalty, wasconstitutional, upheld by the tax and spendclause afforded to Congress.

Some state governments may not elect toexpand Medicaid, or to set up the insuranceexchanges provided for in the Act—arguingthat the law does not compel them to do so.

Businesses have begun to react to therequirements to provide insurance, or paypenalties, by cutting back on the number offull-time employees on staff. For example,Darden Restaurants, which owns OliveGarden, Long Horn Steaks, and RedLobster, is reportedly testing a new businessmodel that limits the hours of on-siteemployees to below full-time employmentin anticipation of higher healthcare-relatedcosts. If other companies elect this strategy,watch in the short-term for the U-3 rate ofunemployment to continue to fall, but forwages and earnings of individuals to declineas more people are forced to accept part-time, rather than full-time work.

Like the Affordable Care Act, the DoddFrank Wall Street Reform, and ConsumerProtection Act, will be the law of the landfor the foreseeable future. The law wassigned by President Obama in the wake ofthe Great Recession, and regulates financialinstitutions and other entities engaged intransacting financial business with con-sumers. Like many complex pieces of feder-al legislation, the law delegates much of theactual rule-making power to the federaladministrative agencies controlled by theexecutive branch. The regulations are farfrom complete at this time, and are stillbeing written. Critics of the law have com-plained that regulators will subject the

financial industry to overly burdensome reg-ulations that do little for consumers and willmake credit more difficult to obtain.

Apartment owners and managers shouldbe aware that though the focus of the lawwas Wall Street and consumer credit insti-tutions, the regulations are being writtenvery broadly, and could affect multifamilyresidential companies transacting businesswith residents (consumers). Areas to watchare credit reporting, and the resident appli-cation process, debt/past-due rent collec-tion, and utility payments.

Owners and managers should have attor-neys periodically review their operations inthese areas for compliance with federal andstate laws, and make sure to work with sup-pliers that are legally compliant, as well.

President Obama’s reelection will alsomean that the Environmental ProtectionAgency (EPA) will continue to place anemphasis on green technology and regula-tion. Apartment owners and managers havealready reported more audits for lead-basedpaint compliance at subject properties; thiswill continue. Moreover, watch for EPA andother federal agencies to attempt to bench-mark “appropriate” levels of use for energy,and other commodities like water at com-mercial and multifamily residential proper-ties. While no federal mandate retrofittingproperties to comply with green regulationsis on the horizon, benchmarking the utilityoutput of properties could be the first step inthat direction.

With respect to the budget crisis and fis-cal cliff, the divided federal government willcontinue to kick the can down the road,opting for short-term solutions instead ofcomprehensive reform. As such, morefinancial burden will be felt at the state andlocal levels, causing these jurisdictions toseek new, and creative sources, of revenue.Higher fees and usage taxes on businesseswill rise as a result.

Apartment owners and managers shouldbe aware of this trend, and retain counsel toadvise them of the ever-increasing list of newfederal, state and local rules. Multifamilycompanies are best served to work with rep-utable suppliers that employ, or retain theirown legal professionals to ensure compliancewith expanding regulations.

Author Michael Semko isdeputy general counsel forNWP Services Corp., andadvises the company oncorporate and regulatoryissues. Prior to NWP, hewas VP and legal counselto the National ApartmentAssociation (NAA) fornearly a decade.

Heads up: Operationaltouch points your multifamily operation may want to review in the months ahead:

CREDIT REPORTING

RESIDENT APPLICATION PROCESS

RENT COLLECTION

UTILITY PAYMENTS


The council has certified 13,500 commer-cial buildings in the U.S. as green, and hasbecome one of the most influential forces inbuilding design by helping persuade publicofficials, and private builders to follow itsrating system known as LEED.

More than 200 state, city and federalagencies require LEED certification for newpublic buildings, even though they havedone little independent, or meaningful,research into its effectiveness. LEED can addmillions to construction costs while promis-ing to cut utility bills and other expenses.

Los Angeles, Miami, Boston, San

Francisco, Baltimore, Washington, androughly 85 other cities require some privatecommercial buildings to follow LEED. Andnearly 200 jurisdictions give LEED builderstax breaks, and other incentives.

LEED, or Leadership in Energy andEnvironmental Design, awards buildingspoints for features that aim to minimizeemissions, water use, waste and indoor pollu-tants. A new commercial building needs 40out of a possible 100 points for certification.

Most design teams has won a point forincluding someone who has passed a LEEDexam. Thousands more have won points for

Across the U.S., the Green Building Council hashelped thousands of developers win tax breaksand grants, charge higher rents, exceed localbuilding restrictions and get expedited permittingby certifying them as “green” under a systemthat often rewards minor, low-cost steps thathave little, or no, proven environmental benefit.

giving office workers their own light switch-es, views of the outdoors, or temperature-control mechanisms, which can includeoperable windows or desk fans. More than6,000 buildings received credit for usingstructural steel or concrete, common build-ing materials considered green because theyare made from recycled material.

“People have a tendency to buy points—they buy that bike rack even though there’sno value in it,” said Kansas City, Mo., archi-tect Bob Berkebile, who helped create LEEDin the 1990s and remains a strong propo-nent. “It’s unfortunate. That’s just where weare at this time.”

Yet environmentalists and experts widelypraise LEED for sparking environmentalismin the building industry.

“LEED put this on the agenda single-handedly, and rallied a mass of people inter-ested in green buildings who didn’t have aframework,” said University of Californiaengineer Arpad Horvath, whose 2006 studycriticized LEED for not considering the life-time effect of its various points.

LEED also expanded green practices suchas energy modeling of buildings, and ofgreen products such as low-flush toilets, low-emitting paints and materials made fromwood that is sustainably harvested.

Is it too easybeing green?


Green roof gardens and certain water featuresare just a couple of the features that earn LEEDcredits.

TRADE SECRETS


“LEED has been one of the most signifi-cant drivers of forest conservation in histo-ry,” said Corey Brinkema, president of theForest Stewardship Council U.S., whichpromotes sustainable forestry.

LEED’s growth has been driven partly bythe building council itself, a 13,000-membernon-profit chiefly run by architects, buildersand building suppliers. Many specialize in—and profit from—the type of design thecouncil certifies and promotes. The councilcollects up to $35,000 in fees for each LEEDcertification.

Building council members have boostedtheir own LEED-related businesses by help-ing persuade officials to require or rewardLEED certification. LEED also helps devel-opers market buildings to tenants andinvestors, and collect higher rents and salesprices, University of California economistNils Kok said.

“A lot of the fuel for LEED is marketingadvantage,” said Bill Walsh, executivedirector of the Healthy Building Network,which promotes non-toxic building materi-als. “People are interested in how they getthe (LEED) credits, not in thinking deeplyabout it.”

But LEED does not require designers totake specific steps beyond meeting mini-mum standards in water and energy conser-vation, recycling and indoor air quality.Designers chart their own course to certifi-cation, choosing from roughly 50 optionsthat range from minimizing light pollution,and storm water runoff, to maximizing inte-rior daylight and ventilation. More optionsbring higher certification levels—fromSilver to Gold to Platinum—and sometimesbigger tax benefits.

The most popular LEED option—earnedin 99.7 percent of buildings—has no directenvironmental benefit, but generates mil-lions of dollars for the building council bygiving one point if a design team has aLEED expert. People become experts bypassing a LEED course and paying $550 to$800 to a non-profit that the building coun-cil created in 2007.

More than 90 percent of the buildings gotpoints for using indoor paints, adhesives andflooring that aim to protect occupants’health by emitting fewer contaminants.Widely-used, the materials add little cost,and have no impact outside the building.

Another easy point, earned by 91 percentof the buildings, is for using building materi-als with recycled content. That includessteel and concrete, standard building mate-rials that usually yield a point for beingmade within 500 miles of a building site.

At the other extreme, only 14 percent of

TRADE SECRETS


buildings generate renewable energy, and 12percent include major water-reduction stepssuch as using waterless urinals or treatingsewage on site.

The Tower Companies, a Marylanddeveloper, got a $1 million windfall byadding last-minute features to an officetower near Washington, D.C. Aiming forGold certification when construction beganin 2007, company officials realized whenthe building was nearly finished that theywere close to reaching Platinum. Theyadded preferred parking spots for hybrid carsand a system that channels cooling-systemwater to outdoors landscaping—and turneda $530,000 property-tax break for Gold,into $1.6 million for Platinum.

The money was not the goal, said DavidBorchardt, Tower’s chief sustainability offi-cer. But the extra incentive for Platinumcertification “more than made up for thecost” of the two extra features, he added.

In 2009, responding to criticism, thebuilding council revised LEED to put moreemphasis on energy conservation.

But the revision increased the uncertain-ty about LEED and highlights a centralproblem: LEED certification is awardedbefore occupancy. Points for minimizingenergy and water use are based on projec-tions, not on actual energy and water use.

“That’s like the ranking of football teamsbefore the season starts,” said OberlinCollege energy expert John Scofield, whotestified before Congress in May.

Designers can earn up to 19 points forprojecting lower-than-average energy use.The projections come from computer mod-els that analyze hundreds of features such asinsulation and sun exposure. Such modelsare good at comparing designs to showwhich would use less energy. But they arebad at quantifying actual energy use, whichdepends largely on how a building is usedand maintained.

“Buildings have a poor track record forperforming as predicted during design,” thecouncil itself reported in 2007. “Most build-ings do not perform as well as design metricsindicate.”

The Environmental Protection Agencysays “it is a common misconception thatnew buildings, even so-called ‘green’ build-ings are energy-efficient.” The EPA’s volun-tary EnergyStar program certifies only build-ings that prove energy efficiency over a yearof occupancy, and rates buildings every year.

A little-noticed study of Navy buildingsshowed that four of 11 LEED-certifiedbuildings used more energy than a non-LEED counterpart. Of the seven others, fourwere better than their counterparts by 9

percent, a level of improvement that isinsufficient to earn any LEED points.

LEED tries to address the problem byoffering one point for buildings that meas-ure actual energy use. Only 23 percent ofthe LEED-certified buildings have takenthat option.

Building council SVP Scot Horst has longpushed to require LEED-certified buildingsto report their energy use, but faces resist-ance. “A lot of people don’t want to disclosethat information—they feel like somehowtheir energy data is like dirty laundry andshows they haven’t connected their abilityto use energy wisely,” he said.

A new version of LEED, likely to becomemandatory in mid-2015, will require build-ing operators to write a plan for running abuilding efficiently, and to tell the council abuilding’s energy, and water use, for fiveyears. In recent years, the council has start-ed to review energy and water use for LEEDbuildings that volunteer the information,and tells owners how they are doing com-pared to projections.

The new version requires low-emittingpaints, and other items to pass lab tests, andLEED-friendly materials to demonstrate awide range of environmental benefits.

Some officials shun LEED or requirebuilders only to follow its guidelines withoutgetting certification. Kentucky law urgesschool districts to get new buildings certi-fied by LEED, or by the EPA. The over-whelming number opt for the EPA becauseit’s free and requires energy efficiency.

Governors, mayors, state legislators, andfederal administrators, have been forcefulLEED advocates who helped it flourishnationwide. About 26 percent of LEED-cer-tified buildings are government-owned.

But officials have embraced LEED andsimilar standards “often without fully under-standing their benefits, trade-offs and costs,”says a 2009 study by the National Instituteof Building Sciences, a research group.

The federal General ServicesAdministration (GSA), which owns andleases 9,600 buildings, gave crucial supportin 2003 when it began requiring LEED cer-tification for its new and substantially-reno-vated buildings. Every federal departmentnow follows green building practices alongwith 35 states. Roughly 170 cities giveLEED builders tax breaks, grants, expeditedpermitting or waivers allowing them to con-struct larger buildings than local law allows.Roughly 2,000 developments, buildings,and homes, have received $500 million intax breaks nationwide. Excerpt Thomas Frank, Christopher Schnaars,Hannah Morgan, USA Today.


Case in point: One owner who used a utilitybilling provider to bill residents, decided tobring the function in-house to save money.While on it’s face it may have seemed like agreat way to trim costs, the owner didn’t takeinto account that we are entering the mostheightened regulatory environment in thehistory of our country. As well, cost recoveryhas truly become a complicated field.

What could go wrong with doing it your-self? Here are just a few ways that a good util-ity billing provider, that is, one with a knowl-edgeable and experienced team, can actuallysave you money:

Regulation and complianceRegulatory requirements vary by jurisdiction,and utility billing may be regulated by multi-ple levels of government, depending on theproperty’s location. Regulations are complex,vastly different by region, community type,and service provided, and will effect howutilities are billed, bill content, reporting,and much more.

Owners who bring billing in-house, oftenfollow the same “simpler is better” logic inmodifying their utility bills. For example,implementing a flat fee, whereby an ownerdiscerns a set amount to charge residentseach month, is a frequent mistake.

After all, it’s not illogical to think theowner could effectively control costs on theback-end, and that by normalizing theamount paid by residents each month, resi-dent satisfaction will increase.

However, the owner is likely opening theasset to large-scale exposure, as well as leav-ing recovery dollars on the table by issuing aflat fee, particularly in such a highly-fluctuat-ing market.

Further, if the flat fee is too high on a per-unit-basis, it may result in collecting morefrom residents for a billing period than wasbilled by the utility. This “profit” is a gigan-tic red flag. Such revenue can result in theowner being regulated as a public utility(time and cost prohibitive for owners).

Conversely, an owner who sets too low aflat fee may be giving away the shop, and

WHAT’S NEW

missing potential recovery. To make mattersworse, flat fees may not be authorized in yourjurisdiction, even prohibited. One example:flat fees are not an authorized billingmethodology in the State of Texas.

Pass-through fees such as administrativecosts, associated with billing are anotherpotential landmine owners face. This trav-erses multiple levels of regulation dependingon the location of the property, and may beallowed or prohibited depending on a num-ber of factors. Such fees may be used to deter-mine whether a profit is realized, or not. Inorder to effectively mitigate liability, an in-house billing team must appropriately calcu-late, generate and transmit bills, while accu-rately passing the costs through to residents.Otherwise, utility billing fees expose owners,not only to regulatory issues, but to consumerprotection issues, as well as other liability.

Most state and local jurisdictions also haveregulated what must appear on resident bills,the timing of bill delivery, and the termgiven to the resident to remit.

An in-house billing team may make everyeffort to provide a bill that is simple-to-understand, but fails to comply with legalrequirements, such as inclusion of consumerprotection information. Such errors can leadto big problems.

A matter of practicalityOne man’s (owner’s) simplifying, is anotherman’s (government or watchdog) cuttingcorners. An in-house billing team must alsoconsider the time it takes to properly andquickly handle resident billing disputes, on-going compliance, such as quarterly reportsand annual registrations, all while assuringthat bills are accurate.

Proper time must be allotted to review theproperty’s master-metered utility bills andresearch new line items, fees, charges andrates, to determine whether said charges andrates may be allocated to residents.

Failure to properly include new charges,fees, or rate increases, can easily result inunder-recovery. Conversely, wrongfullyincluding a fee, or charge, in violation of a


statute, rule, or regulation, creates legalexposure. Owners may wish to include addi-tional utility charges, or other commodities(such as trash and recycling), on residentbills. Aside from the regulatory issuesinvolved in determining whether thesecharges can be allowed, an owner mustmanage lease language, resident notifica-tion, and resident complaints. The list goeson, as does the asset exposure, and potentialfor loss of revenue.

What are the stakes?The stakes for getting in-house billing wrongvary by jurisdiction. Some jurisdictions donot have set penalties for violations, or evenguidance to advise owners how to comply.Yet, owners are just as culpable when utilitybilling is incompliant. And the deck isstacked against landlords as residents canalso turn to consumer protection statuteswhen they feel wronged.

In a very public battle in 2006, disgruntledresidents filed a complaint against one ownerregarding their utility bills. All things con-sidered, the owner decided to cooperate withthe District Attorney, even though no formallaw, statute or regulation, prohibited theirbilling practice. In order to avoid litigation,the owner paid over $600,000 in fines andpenalties, and agreed to reimburse residentsamounts collected. The total fiscal impact tothe owner was in the millions.

Some jurisdictions are quite prescriptiveon penalties. With regard to water and sewerbilling in Texas, a violation can result inrepayment of three times the overcharge,compensation of one month’s rent, and pay-ment of court and other costs incurred by aresident in pursuing the owner. In Florida,the Miami Consumer Protection Divisioncan issue fines and penalties up to $2,500 perviolation.

While the road to hell is paved with goodintentions, according to a Chinese proverb,owners seeking more control, even simplici-ty, may be accomplishing exactly the oppo-site by bringing billing in-house. They mayalso pay for the privilege through less rev-enue recovery, as well as taking on significantexposure just as regulations climb. Reputablebilling providers deliver institutional knowl-edge and processes that maximize recoverywhile mitigating risk.

Owners may be better served to considertheir overarching objectives. If it’s to controlcosts, mitigate exposure, and place a level ofprotection around their asset, a billing part-ner is the only choice. Author Michael Foote, is regulatory and corpo-rate counsel for NWP Services Corp.

Counting the cost

Current economic conditions are compelling multifamilyoperators to control costs more than ever. However, theunintended consequences of cutting certain services mayactually be more costly, even detrimental, in the long-run.


Heating 20%

How is energy spent in a typical community?

Electronic 7%Ventilation 2%

Water heating 9%Refrigeration 5%

Computers 3%Cooking 2%

Other 28%

Lighting 14%

Cooling 10%

Regulations matteryour attorney says so

NWP’s compliance team is the industry’s go-to on national, regional and local regulations as related to the apartment utility billing.

With NWP’s industry-leading experience and our deep knowledge of the regulatory environment we can show you how to take full advantage of what is permissable.

Utilities typically run about 15% of a property’s operating cost, so transferring the cost of water, sewer, trash, gas and other utilities to the residents who use them only makes sense for today’s apartment operator looking to boost their bottom line.

The challenge is the mass of regulations and legal requirements related to utility billing.

Don’t guess. NWP’s Reg Expert provides ongoing peace of mind on your property’s regulatory compliance because regulatory compliance is not a one-time event.

Are you billing your community legally? Are you maximizing what you can bill? It matters.

®

Smart Solutions:Lower Operating and Utility Costs

888.695.6389www.nwpsc.com

ExpertExpertSM

R E G

water, sewer, trash, gas and other utilities to the residents who use them only makes sense for today’s apartment operator looking to boost their bottom line.

The challenge is the mass of regulations and legal requirements related to utility billing.

Don’t guess. NWP’s Reg Expert provides ongoing peace of mind on your property’s regulatory compliance because regulatory compliance is not a one-time event.

®





With regard to conservation, the theme of“just do something” seemed to resonatefrom the sessions I attended. As I thoughtabout that concept, I wondered if just doingsomething is enough.

How do you figure out what that some-thing should be? How do you know if it’sworking, or if you spent dollars in the rightplace? In the sea of dual flush flappers, low-flow toilets, lighting retrofits, and powercogeneration, where do you start?

Over the past years, we have implement-ed a number of green initiatives across ourportfolio. For example, our corporate officehas a recycling program, as do many of ourcommunities. We’ve installed CFL lighting,and water conservation devices. And, we aremigrating to an entirely paperless workplaceat our communities, and corporate office.

If you subscribe to the “just do some-thing” philosophy, you could argue thatthese programs are successful without fur-ther review of the projects. Taking the nextstep, and measuring your progress and

Just do something...to start

results, does not have to be complicated.I’m not one who suffers from paralysis by

analysis, but I do like to know when myefforts have real impact. To show how faryou have moved the needle, planning andanalysis are necessary.

Level the playing field and start with consumptionHere’s one way to get started: I group myapartment communities by type, in order tocompare like communities. I derived fourgroups: garden, garden + townhome, town-home, and mid-rise.

Next, determine the unit of measure. Idecided to base my review, and selectionprocess on consumption. Focusing on con-sumption takes the rate variable out of theequation. If consumption has decreased,cost will decrease. Depending on your avail-able tools, determining which of your com-munities are the largest users of gas, water,and electricity could be a daunting task.Fortunately, I have access to all of my utili-

ty payment, and consumption information,online through my convergent billing ven-dor.

Don’t have this option? All is not lost.There may be others in your company whotrack this information. Check with youraccounting staff, as they may track consump-tion, along with monthly expense informa-tion. Check with the person, or team, incharge of your budgets; they may track thisfor utility budgeting purposes.

A simple spreadsheet can bring the picture into focusPlace the aggregated community consump-tion information into a single spreadsheet.In the spreadsheet, create separate tabs forgas, water and electric. Sort by communitytype, and consumption, and the largestenergy consumers become evident.

As you might imagine, being a predomi-nantly garden/midrise company, we don’thave any real utility hogs, but this quickanalysis does spotlight a few communities.To dial the analysis in a little further, factorin unit count to see who is consuming themost, on a per-unit basis. The communitiesusing the most of each commodity should

become your target forimprovement.

The next naturalstep is to take a deepdive into the targetcommunities touncover why theirconsumption is sohigh.

Author Timothy Haddon is director of ancil-lary services with Associated Estates.

I’ve been to a few multifamily eventsthis year dealing with utility managementand conservation. It is great to see ourindustry embrace the efforts to be moreenvironmentally friendly.

UTILITY METRICS


The team traced water from its source to thetaps of average American households andback again. The study focused on eachaspect of water delivery, including pumpingfrom natural sources, building and main-taining reservoirs, treating the water forsafety and then pumping it to individual res-idences, and businesses, including those in

The true cost of water

the industrial sector.At its end, the study found that water

treatment and delivery is one of the mostexpensive public endeavors in the U.S.,requiring an amount of annual energyequivalent to the annual consumption of 40million Americans. The sheer expense ofmaintaining and delivering fresh water

Northwest power utilities have been push-ing for energy conservation. It’s a way theycan keep up with their customers’ futuredemand for electricity. There are plenty ofincentives if you buy an energy efficientappliance. But these days, utilities are findingmore inventive ways to promote awareness.

Keith McIndoo and ten of his familymembers recently enjoyed a Saturday nightin style. They were chosen from amongthousands of contestants to get free food,drinks, and an RV complete with four bigscreen TVs for one night. A furnished tail-gate party for McIndoo to watch his favoriteteam—the Boise State Broncos.

“I was pleasantly surprised because I’m abig BSU fan,” McIndoo says.

All the free stuff came from a contest bythe Northwest Energy Efficiency Alliance.It represents energy producers and utilitiesthat want customers to save electricity.

The alliance got McIndoo and others inthe Northwest to “like” it on Facebookwhen they entered the giveaway contest.That gives the utilities access to thousandsof people they can reach with tips andencouragement to save energy.

You might wonder why power companieswant to sell less electricity. It’s becausereducing demand may be the only way forutilities to meet their customers’ energyneeds twenty years from now.

Ty Stober represents the Alliance. He

A team of researchers from the University of Texasat Austin released a report on the level of energy usein water delivery to citizens of the U.S., finding thatno less than 12.6 percent of the nation’s total annualenergy consumption is devoted to the task.

WHAT’S AHEAD


serves to underscore just how precious thatcommodity is, potentially leading govern-ment policy toward saving water in thename of saving energy.

“Energy and water security are achievable,and with careful planning, we can greatlyreduce the amount of water used to produceenergy, and the amount of energy used toprovide and use water,” said Michael E.Webber, associate professor of mechanicalengineering at the U of T at Austin, anddirector of the project. “In particular, ourreport shows that because there is so muchenergy embedded in water, saving watermight be a cost-effective way to save energy.”

The data used in the study was obtainedfrom the U.S. Energy Information Agency,the U.S. Department of Energy and severalprivate sources.

puts the importance of energy savings intoperspective.

“If we were able to switch all of the tele-visions in the Northwest to the most energyefficient models available today,” Stobersays, “we would save enough energy topower 290,000 homes in the Northwest.”

Stober’s group isn’t the only one turningto social media and contests to encourageconsumers to cut back on electricity. InWashington state this year, the ChelanPublic Utility ran an energy-saving contest.It is awarding a prize to the customer whocan save the most energy.

The Environmental Protection Agency isalso using social media to promote a contestto accelerate energy efficiency. Its Battle ofthe Buildings competition is using socialmedia tools like Flickr and Twitter toencourage landlords to update their apart-ments and commercial buildings with ener-gy-efficient toilets and solar panels.

That’s also the approach behind aNorthwest contest called the “KilowattCrackdown.” Commercial building ownersin Portland and Boise that take part can useonline tools to compare their energy use.

Utilities are convinced these efforts canpay off by helping them avoid the need fornew power plants.

Mark Stokes is a manager at Idaho’sPower’s energy planning team. Idaho Powerserves nearly 500,000 customers in Idaho

and eastern Oregon.“So, to the degree we can use those

kind of programs and implement thosemore cost effectively than going out and

building new physical generation resourcesthey are a good deal,” Stokes says.

Idaho Power just finished a 300Megawatt gas fired power plant this pastsummer. The utility’s 20-year plan calls forjust one more plant to be constructed. Thatwould be finished by 2025.

But Idaho Power doesn’t have any otherlarge power generation in its plan to meetelectricity demand for the next 20 years. Thatmight be surprising, considering that itexpects demand to nearly double in that time.

Idaho Power has looked at the costs andchallenges that come with generating moreelectricity by burning coal or gas, harnessingnuclear power, or capturing the naturalenergy of wind, the sun, the earth or hydro-power. And it’s looked at the benefits ofconservation.

Idaho Power is not alone. Says Stober:“Energy efficiency is a great way for us tomake sure that we’ve got power resourcescovered going into the future.”

But are the utilities’ contests and socialmedia messages working?

McIndoo, the tailgate party prize winnerfrom Idaho, says he just bought a new ener-gy efficient TV. Not because he was urged tobut because it just made sense financially.

“Just with the economy the way it is—anything you can save these days is a bless-ing you know,” McIndoo says. “A pennysaved is a penny earned.”

Now there’s an idea that may pay off forindividual customers and big utilities alike:saving on the power bill. Author Aaron Kunz, Idaho News

Utilities turn focusto energy efficiency


Building great real estatebusiness matters

Multifamily is a local business, unique to location, demographic and type. Optimizing profitability takes individual review and customized planning to deliver top performance.

SmartSource is a one-of-a-kind platform, customized to your specific community and built with one objective: deliver profitability.

SmartSource optimizes your multifamily operations within a single platform of products and services to generate NOI. By targeting and reducing the highest expenses on your multifamily property, SmartSource delivers the greatest impact and sustainable fiscal result.

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