Heating Season Outlook

Higher and higher. Along with inflation, energy costs are proving to be a budgetary nightmare. Joseph Weitz, director of energy management at Aurora Energy Advisors, pointed to increases in 2022: total costs for gas, oil and electricity increased 25% to 30% in 2022 from the previous year. Oil, which he says, is most susceptible to price swings, increased 50%. “For 2023, prices don’t look good,” predicts Weitz. “We’re projecting oil will increase up to 20% above 2022 prices, while gas and electricity will increase between 10% to 20%.” How to pay for more expensive energy is a question many boards grapple with, and two methods are common: raising monthly common charges or maintenance, or imposing monthly surcharges. 

The flexibility advantage. Orsid New York manages several co-op clients that are instituting a fuel surcharge, which is ranging from 2% to 4% of the total maintenance or common charges. “The surcharge will be reevaluated at the end of the 2023 heating season,” explains Benjamin Hawkins, the controller and vice president at Orsid. “In the best case scenario, energy prices will come down and the surcharge can then be stopped. In the worst case scenario, prices will stay the same or even increase, and the surcharge will be rolled into the 2024 maintenance. That flexibility is the benefit of doing a separate surcharge.”

Do the math. While having flexibility is well and good, Michael Wolfe, the president at FirstService Residential, warns boards not to “make the mistake of approving less than what’s forecasted and hope things will be better.” He manages a 400-unit garden apartment co-op that’s facing a 10% maintenance increase for 2023, 3% of which is for energy costs. “The board is debating doing a 7% hike and a 3% energy surcharge, but I’d like to see them do a flat 10% increase. It’s the same amount coming from the shareholders’ pockets, and if energy costs go down, it would be nice to have the extra money. It can go into the reserves, or the board may end up needing a smaller maintenance increase for 2024.”

Locking it in. Some properties have locked in rates for fuel, gas and electricity. “It’s all based on budget and people’s tolerance,” says Robert Ferrara, the president of the Ferrara Management Group. “Previous years’ locking seemed to do well and most boards made out significantly better. We actually locked in number two oil at $1.89 about a year ago. Now we’re looking at locking in rates of over $4.00 a gallon.” Even with locked in rates, Ferrara says, boards may still have to impose a surcharge or increase monthly fees, but “there’s a little more certainty about what you’re paying.”