Utilities: Are You Paying Too Much?
According to the U.S. Department of Energy, a utility audit is a formal review of a house’s energy use that provides recommendations for energy-efficiency measures such as weather-striping, caulking and insulation. But a different type of utility audit examines your utility use and whether you are being overcharged for your utilities. The first question to ask yourself is: Are you paying too much for utilities? Here are answers to some of the most commonly asked questions about utility audits.
Doesn’t a Utility Audit Create More Work for the Manger or Management Company?
Yes, in the short term, since you will need to gather copies of the last 4 – 6 months of all common-area utility bills, or provide us with the usernames and passwords for all utility accounts. In the long run, however, the utility audit benefits the association and the manager because money put into the reserve accounts – either through refunds, credits or reduced utility bills – can be used year-round for maintenance, special projects or lower monthly homeowner dues. Also, the board of directors will look with approval on the manager for putting money into their reserve accounts and reducing their annual utility budget, which is usually one of the largest annual expenses for any association! Are You Paying Too Much For Utilities?
Don’t Utility Companies Provide a Utility Audit Service at No Charge?
No. The utility audit provided by utility companies is actually an energy audit designed to help customers reduce their electrical, water or gas consumption. This is usually accomplished through the purchase of energy-saving equipment or changing the way that the current equipment is used. The utility audit company also receives federal money for the installation of LED lights, solar panels, new boilers, etc. so it is in their best interest to ‘sell’ these programs to their customers. In contract, a utility audit company analyzes the association’s utility bills and conducts an on-site inspection of the association property to find utility errors or lower utility rate schedules available through the association’s current utility providers. This can result in refunds, credit adjustments or lower utility rates for the association. The idea is to reduce the per-unit cost of the utilities, not reduce the consumption of the utilities!
What Happens When an Error is Found and the Utility Company Will Not Issue a Refund for the Overcharges?
The good news is that utility billing errors are found quite frequently. The utility companies agree that they did overcharge and they immediately correct the billing error. The bad news is that the utility companies will rarely refund any prior overcharges to their customers without a fight. They will claim that their rules, regulations, policies and procedures, etc. prohibit them from issuing customer refunds. Worse, they will simply correct many billing errors without even telling their customers that there had been an error! A utility audit company uses its legal expertise, experience and knowledge to obtain refunds from the utility companies for their clients.
What Kind of Savings Can an Association Expect from a Utility Audit?
Here are some examples:
- An association received 15 gas utility bills every month for various pool/spa recreation areas and hot water heaters for the condominiums. While there were no utility billing errors with regard to these gas bills, there were many alternative gas rates available from their utility company. Even if the association became aware of these alternative gas rates, they would not know which one would be the least expensive for each of these 15 gas accounts! It is not the responsibility of the utility companies to inform their customers of all available rate schedules or tell them which one is the least expensive rate available for their customers! When a utility customer opens utility accounts, the customer is simply placed on the “standard” rate for the customer’s classification. (I.e. residential, commercial or industrial) It is the customer’s responsibility to know all of the rate schedules available to them and then select the one(s) they want to be billed on! Ninety percent of the time, there are less expensive rates available to the customer that would reduce their bills by 20%!!! In this example, simply placing this association’s 15 gas accounts on alternative gas rates available through their current utility provider, they reduced their annual gas utility expenses by $35,000.00!
- Another association has been charged for several phantom telephone lines that were originally installed by the developer, but when the construction office was removed, the line destination jacks were removed, but the lines still rang to the pull box. Nobody knew about many of these telephone lines because the monthly service charges were one part of a “summary monthly service charge”. This association saved $550.00 each month by disconnecting these phantom telephone lines!
- Another association receives a monthly electric bill with a ‘multiplier’ or ‘constant’ of 30, stamped on the electric meter. However, the electric bill showed a ‘multiplier’ or ‘constant’ of 60, which meant that all of the electric utility bills for this electric meter had been twice the amount of kilowatt hours than they should have been! This association received a refund of $32,345.00 and reduced their future electric expenses by $6,000.00 per year!
- Another association with 50 condominiums and five laundry rooms, located in five buildings, had been billed water and sewer charges based on 55 condominiums, because their utility company was counting the five laundry rooms as condominiums. This association received a refund of $12,485.00 and reduced their future water and sewer expenses by $2,850.00 per year!
In each of these examples, a utility audit identified the utility billing mistakes through an on-site inspection and analysis of the utility bills, obtained a refund for past overcharges, and corrected future utility bills, resulting in reduced utility expenses! If the utility company had discovered any of these billing mistakes, it would have simply made a correction in its computer system and proceeded to bill the association each month thereafter, with nobody the wiser…
How is a Utility Audit Company Paid for its Services?
Typically, a utility audit company receives fifty percent of any refunds or credit adjustments and/or fifty percent of any actual monthly utility savings for a future period of time. Future savings are the actual reduction of the cost of any utility expenses as a direct result of a utility audit. Keep in mind that if the association had not had a utility audit, these billing mistakes would have probably continued forever and the association would have continued to overpay for its utilities.
How are these Future Savings Calculated so that they can be Verified?
The utility audit company recalculates the association’s utility bill or bills at the old rate schedule(s) or old billing method(s) and then compares that each month to the actual bill or bills on the new rate schedule(s) or new billing method(s). The difference is the actual, not estimated, utility expense savings realized for each month, based on real-time rate schedules and actual meter readings.
Why Should We Do a Utility Audit?
Any responsible business person knows that reducing annual expenses increases disposable income, which in turn increases profits and reserves. Since utility expenses are generally the top three association budget items, it is in the best interest of all associations to make sure that these expenses are minimized. A utility audit, like a reserve audit, should be done every two years. You have nothing to lose and everything to gain from a utility audit!