Consultants Help Boards Navigate Treacherous Energy Markets

Navigating the markets for the best deals on electricity and heating fuel can be more treacherous than many co-op and condo boards realize. Hiring an energy management firm or consultant can potentially reduce what are often some of the biggest line items in the budget. The firms act as both advisers and brokers, working as the middlemen between the clients seeking energy and the hundreds of energy service companies, or ESCOs, that act as alternative energy suppliers in the deregulated markets in and around New York.

“There’s a cottage industry of ESCOs and energy procurement brokers,” says Mitchell Ingerman, founder of Aurora Energy Advisors. “They’re all pitching: ‘I can save you money.’ Boards should have an expert in between them and the ESCOs.”

Ron Spechler, the founder and chief executive of The Energy Alliance, which specializes in electricity and natural gas procurement, agrees. “The process is very much consultative in that we make recommendations and discuss strategies with our end-users,” he says. “It’s more than just finding the best price.”

Energy consultants are just one of numerous strategies for keeping energy expenses on budget. Often brought in by a building’s property manager, the consultant starts by reviewing the building’s demand patterns going back at least a year, and whether, based on that usage and the building’s systems, it’s in the best rate class with the utility. The consultant must also pinpoint what the board and/or property manager want to accomplish, Spechler explains. Is it a fixed price that will give them budget predictability? Or are they more focused on trying to maximize savings, in which case they might want an indexed rate?

Since utility prices fluctuate, co-ops and condos frequently move to a fixed-price agreement so they’re less affected by weather extremes, says Daniel Levin, the vice president for energy markets at Bright Power, an energy management firm that works primarily with multifamily housing.

When it comes time to look for price quotes, the firm sends out a “request for pricing” to a selection of ESCOs. Ingerman says his company has a vetted stable of about a dozen reputable and ethical firms. The request usually asks for pricing for different contract lengths at both fixed and indexed rates. The consultant will also look at how the contract deals with over-usage. If there is a particularly steamy summer and usage soars, will there be a penalty?

After all bids have been reviewed, the consultant goes back to the property manager or board with a recommendation as to which, if any, offers to accept. Ingerman usually recommends a one-year contract for co-ops and condos because it offers flexibility should conditions change, and it doesn’t tie the hands of future board members. However, some boards prefer to choose longer terms for budget-planning purposes.

The fee paid to the management firm or consultant is typically built into the price. Suppliers are told what that fee is when they receive the request for pricing so it’s already baked into their offer. “The supplier serves as a conduit for the fee – they collect it every month and turn it over to Aurora,” Ingerman says.

After the power agreement is signed, the consultant’s work isn’t necessarily done. Aurora, for example, monitors customer billings and meter readings throughout the year, keeping an eye out for any irregularities. The firm will also ensure that buildings are in compliance with New York’s annual benchmarking requirements, and it reviews engineering proposals for energy improvements, such as cogeneration systems. “Boards should want full services,” Ingerman says, “not someone who’s going to put them in a contract and disappear.”