Burn, Baby, Burn

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Caught in the middle, the co-op board president acted swiftly. A notice had gone out announcing an informational meeting to be held about submetering, a technology installed in a building with one electric meter that can track each apartment’s electrical usage. On the heels of this announcement, a shareholder sent a letter to all the residents saying that her electrician had reported that all the wires in the building were “mixed up like spaghetti,” and that the building was completely cross-wired.

“One of my neighbors, a supporter of submetering, said I [had] better cancel the informational meeting because we [would] lose the vote [unless we did] some kind of a diagnostic study to find out if this [claim was] correct,” said the president, whom we will call Jim. “Everyone was instantly talking about this. Everyone was suddenly seeing lights dim.”

Energy experts agree that when residents learn how much it costs to leave lights on, a building’s total electrical consumption can be reduced by 20 to 25 percent. By taking on this technology, the co-op hoped to change the basic economics and energy usage of all the residents.

But there couldn’t be a more difficult and contentious project.

Jim, now in his second year at the building’s helm, had spent many hours reading the minutes from the beginning of his building’s incorporation in an attempt to understand the historical issues his co-op had faced. That’s where he found that submetering had been discussed numerous times over the past three decades. Motivated, in part, by his “green” leanings and his time serving on the trash and recycling committee, he decided it was time to consider it again.

What he didn’t know, though, was that his quest to change the energy habits of his building’s residents and to reduce his building’s carbon footprint would be a journey fraught with co-op politics and dissension. Once – and if – the proposal survived this challenge, it would face a gauntlet of rules and regulations required by the state. That’s a lot of tsouris for the chance to conserve energy and reduce his building’s carbon footprint.

But It’s Not Fair

As any parent who tries to get her kids to turn off the lights when leaving their rooms knows, changing energy habits is not easy. One way to do it is to make people pay for the energy they use. Once they learn how much it costs to leave lights on, or run air conditioners when they are not home, they tend to be more careful with the “on” switch.

That’s what submetering is all about. There are roughly 400,000 apartment units in New York where people live and are oblivious to watts used. They don’t see an electric bill for their monthly use because they live in buildings with one electrical meter (called a master meter). Master-metered buildings get a break on the electric rate they pay, which is about 25 percent cheaper than a directly metered rate (anyone who gets a bill from the utility company is billed at a direct rate). Because there is one electric bill, though, everyone’s usage is lumped together so that those who are energy hogs ride on the backs of those who conserve.

In New York State, a building can’t change from being master-metered to submetered on a whim. It has to deal with the Public Service Commission (PSC), the governmental body that oversees submetering activity. Charged with dual roles of providing consumer protection and promoting energy efficiency, the department has more than once been caught in the cross hairs of resident protests.

As you can imagine, people get very cranky when these energy rules change, and the most controversial case of crankiness was at Roosevelt Landing, a rental apartment complex on Roosevelt Island. Three years ago the landlord, Urban American, applied to the Public Service Commission to submeter. Urban American won PSC approval, and shortly thereafter, a huge brouhaha erupted. That’s because the poorly insulated buildings were constructed out of cinder blocks, and the apartments were heated by electric baseboards, the windows leaked air, and the non-Energy Star appliances wasted energy. Low-income residents who were paying a couple of hundred dollars for rent were now paying a thousand dollars to light and heat their apartments. The landlord had shifted the cost of heat and electricity to the tenants, who became hostages to a building where energy conservation was well nigh impossible.

Soon, tenants had organized, politicians took to their pulpits, and the press had a field day. The PSC, with egg on its face, rescinded approval.

The Roosevelt Landing incident thrust the PSC into the the hot spot between consumer protection and energy conservation. Many believe that the PSC never wants to find itself at this crossroads again, and those in the know say it is tightening up its requirements so that submetering, a practically foolproof way of reducing energy consumption, is dying a slow death. And co-ops and condos, trying to conserve energy by taking this path, are finding themselves in their own personal hell.

Back to Main Street

Meanwhile, back at Jim’s co-op, the decision to submeter had been accepted, and the co-op took the next logical step: it sought out a vendor for the installation. The board obtained recommendations from its energy consultant and managing agent, met with several vendors, and chose one. A contract was submitted from the vendor, and the board formed a committee of lawyers to negotiate the contract.

As negotiations continued, Jim made a submetering presentation at the co-op’s annual meeting. “I think that a lot of people were ready to go because of my enthusiasm, and people were impressed,” he said recently. “Unfortunately, contract negotiations took a year. I’m sure that it at least doubled in size – not the scope, but the number of words. Probably if we were building the West Side Highway, the agreement that we’ve gotten would cover us.”

With the contract finally finished, the board began planning how to roll the project out. For the second time, Jim made a presentation at the annual meeting about submetering, including the remark that the contract had been signed but that PSC regulations made it contingent upon a successful shareholder vote.

“A shareholder stood up at the meeting and said, ‘Why do we have to sign the contract before the vote?’ I explained that [that point] was irrelevant because if the vote fails, there is no deal. That’s when the opposition first became manifest.”

Shortly thereafter, a notice went out announcing an informational meeting to be held about submetering, which was a precursor to the shareholder vote. On the heels of this announcement, one of the shareholders sent out the previously mentioned letter saying that her electrician had told her that the building was completely cross-wired.

The informational meeting was canceled. Despite the appearance of a conflict of interest, the co-op asked its submetering vendor to perform a diagnostic at a cost of $8,000, two-thirds less than another vendor would have charged.

“Conflict of interest is real, but not every apparent conflict of interest is real conflict. In an instance like this, they would actually have to be outright crooked to lie about their results,” Jim said recently. Since this vendor would have to deal with the post-installation headaches, the board felt the likelihood of fraud was minimal, and certainly worth the savings to the building.

The report found no instances of cross-wiring, but the test personnel couldn’t gain access to or were turned away from about five percent of the units. Also, not every electrical plug in a given line was tested, and heavy furniture was not moved to test plugs behind it. Unfortunately, these omissions left open the possibility of an untested plug that could be hiding crossed wires. Not surprisingly, Jim said that the opposition pointed to untested plugs as “that which bespeaks the cancer in the building.”

Submeter Pocketbook

There are two pocketbooks that can help pay for submetering projects. One is your own, and the other is that of the New York State Energy Research and Development Authority (NYSERDA). NYSERDA launched its Energy Reduction in Master Metered Multifamily Buildings Program in March. With $9.8 million to spend through 2015 on submetering, NYSERDA is now open for business. That is, a certain type of business. Unfortunately, as a result of Roosevelt Landing, not all types of business.

The NYSERDA program won’t fund your building if it’s a Mitchell-Lama, although most of these buildings have only one electrical meter. They were built in the 1950s and 1960s (when the cost of electricity was cheap) as affordable rental and cooperative housing for moderate- and middle-income families. There are about 169,000 apartments in this universe, and they make up a significant portion of master-metered buildings. Perhaps as a reaction to Roosevelt Landing, which had been a Mitchell-Lama before leaving the program, the PSC now regards all Mitchell-Lama residents as low-income.

Nor will you get NYSERDA support if residents in your building receive rental housing assistance under Section 8 of the United States Housing Act of 1937, which pretty much knocks out the 200,000 New York City Housing Authority units.

There is one fairly large group of buildings left for NYSERDA to tap, and that’s the co-ops founded with mortgage guarantees under Section 13 of the federal housing act – commonly referred to as “Section 213s.” There are about 200 buildings, or 250,000 apartments, that were built as middle-income housing with one master meter. But as a group, they are generally not interested in submetering. Philosophically, many Section 213s believe that the value of their apartments is enhanced because everyone is treated equally. This thinking flies in the face of energy conservation, but it’s prevalent in Queens and Brooklyn, where most of the the 213s are.

All in all, combine Mitchell-Lama buildings with low-income ones and the prevalent Section 213 mindset against submetering, and you’re left with… well, not a very big universe to submeter. In fact, at a maximum incentive of $250 per submeter, NYSERDA has to find about 39,000 apartment units willing to make the switch within the next four years. To complicate NYSERDA’s job, as of early September, there has been only one type of submeter approved to get incentive funding, even though there are many on the market.

The Battle Continues

“All the challenges that my submetering opposition has presented has caused me to think this through in ways that I wouldn’t have done otherwise,” Jim reflected in late summer. “It’s given me a much better understanding of what’s involved, and a really interesting understanding of building dynamics and politics.”

Jim faces an informational meeting and shareholder vote on the submetering issue this fall. His board has scrutinized the finances with a fine-tooth comb and done a sophisticated and informative analysis that will be presented to the shareholders. The board says that in 2011 the cost of electricity was 6.2 percent of total expenses, or $450,000 for the building. Of this amount, 84 percent is attributable to apartment usage. The board plans to spend $140,000 on meter installation, and reducing maintenance over two years. This plan recoups the cost of installation and at the same time passes along the building’s energy savings. At the end of the two-year plan, apartment owners will have gotten a five percent maintenance reduction, which will help to offset the expense of the new electric bills they will be receiving.

Sounds eminently reasonable, yet there’s still more. “I have to be able to reconcile the existing regulations before I can proceed,” says Jim, and one of the wrinkles is that the building has a couple of rent-regulated apartments left. In the submetering world, rent-regulated tenants are a protected class, so how, or even if, their units can be switched from having their electricity included in their rent as a flat fee to getting an actual bill has to be worked out.

“This is a really hard question,” he says. “You know, one possibility is to remove them from the electrical grid in the building and give them their electricity for free. All the rest of us simply eat that charge.” The PSC doesn’t recognize these kinds of deals, but it’s an open secret in the submetering world that deals get worked out to protect rental tenants so that they don’t end up protesting to the PSC.

Will Jim’s co-op be successful in its quest to submeter? That remains to be seen. His board has spent nearly two years juggling financial planning, legal contracts, political opposition – and still has to deal with the Public Service Commission. In an era of dwindling energy resources, the PSC seems headed in the wrong direction. Instead of shrinking the submetering pool, the PSC should be figuring out ways to expand it. Perhaps in their zeal to protect consumers, and perhaps themselves, PSC members are abandoning the really tough issue of how to do it fairly.

It would be so much simpler for everyone if we could just yell, “Turn the lights off, NOW!”