How to Control Costs as Utility Rates Rise By Emily Landes

How to Control Costs as Utility Rates Rise

BY EMILY LANDES

Property owners nationwide should anticipate across-the-board utility increases in 2021, with some jurisdictions expected to see double-digit rate hikes. Yet there are proactive steps owners can take now to hedge against these additional expenses.

Why Rates Will Rise

According to a survey from the U.S. Energy Information Administration, the residential electricity price nationwide will increase 1.6 percent in 2021 and 1.5 percent in 2022, continuing an upward trend. Rates have gone up six out of the last eight years, according to the EIA. The EIA also shows that while commercial and industrial electricity use in 2020 was down by 12 percent and 9 percent, respectively, residential use was up 3 percent.

Over the past decade, the country’s reliance on coal has decreased substantially while natural gas has played a larger and larger role in power generation. Unfortunately, natural gas prices are also expected to rise, with international markets willing to pay a higher rate for this U.S.-produced energy source. Domestic demand is also expected to increase, with those areas most impacted by climate change increasing their need for heating and cooling. In fact, cooling devices like fans and air conditioners comprise the largest percentage of residential energy use.

The EIA predicts that the price of natural gas delivered to electricity generators will rise 44 percent in 2021, from an average of $2.40/MMBtu in 2020 to $3.46/MMBtu in 2021. This may result in a drop in natural gas use for the first time in years. The EIA expects the share of U.S. electric power generated with natural gas will average 36 percent in 2021 and 35 percent in 2022, which is down from 39 percent in 2020. The good news is that electricity generation from renewable energy sources may make up some of the difference. Renewables are predicted to rise from 20 percent of U.S. electricity generation in 2020 to 21 percent in 2021 and to 23 percent in 2022, according to the EIA. At the same time, the nuclear share of U.S. generation is expected to decline from 21 percent in 2020 to 20 percent in 2021 and 19 percent in 2022.

Taking Action

Looking at these upward trends can be overwhelming, especially when many property owners are still responsible for paying for their tenants’ usage. In order to combat these rising costs, some proactive property owners are considering ratio utility billing systems (RUBS) as an inexpensive and easy way to make tenants financially responsible for their usage and incentivize conservation. These software solutions do not require an onerous submetering system, and easily, legally and affordably allow owners to shed much of the expense of ever-rising utility costs. (Make sure to check with a lawyer about legality in your jurisdiction.)

Although RUBS have many benefits, owners are often concerned about how to best institute the program in their buildings, especially given the need to be sensitive to tenants currently in economic crisis. It has never been more important to have a clear communication strategy that explains the goals of the program to residents and gets their buy-in to start conserving.

The idea is to make residents aware of the costs of water, power and other precious natural resources and also provide some incentives to conserve. Additionally, clarification should be made that the program passes through the costs of the utilities actually used by residents. It is not a profit center for a landlord.

Plus, owners can bill back as much— or as little — as they want to during these uncertain times. That could mean a temporary “goodwill deduction” for struggling residents. Even tenants who are charged a small percentage of the overall bill tend to lower their utility usage. In fact, simply being aware of how much tenants are using, even if they aren’t charged for any of it, can actually lower usage and point out problem areas for owners.

It’s clear that many housing providers could be — and should be — taking a more significant step now to fight against rising rates in the future.

About the Author: Emily Landes is the content director for Livable. For over a decade, Livable has been helping multifamily owners recover utility costs and increase the value of their investments through conservation. For more information, check out livable.com.