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.
“Although state and local governments are relaxing stay-at-home orders, social distancing guidelines will likely result in Americans spending more time at home than usual,” according to an EIA report. “In addition, many people that had worked in offices are now working from home, shifting electricity demand from the commercial sector to the residential sector.” While the EIA expects that commercial and industrial use will likely increase as the economy gets rolling again in 2021, it also anticipates another 2.7 percent increase in residential use, leading to an increase in overall power usage moving forward.
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.
Outside of power rates, other utilities are also likely to be on the rise. Water rates vary enormously depending on the area, with typical water and sewer rates under $50 a month in cities like Memphis and Phoenix, and over $200 a month in Seattle and San Francisco. But no matter the municipality, over the long term rates are up substantially from an average of $39 a month in 2001 to $100 in 2018.
Interestingly, demand for water has actually dropped significantly since an all-time high in the 1980s, according to the U.S. Geological Survey. But the aging water and wastewater infrastructure, and the increasing capital and operational costs that drove these rates higher over the last two decades, are unlikely to change in the years ahead. That means we can expect to see water rates climb into 2021 and beyond.
Much like water, the underlying issues driving rates up in the waste removal industry are likely to keep them high moving forward. The biggest issue is that China is no longer interested in purchasing much of our scrap, turning a former profit center into an increasingly expensive endeavor.
With recycling stacking up, there are higher employment costs since more people are needed to separate the dwindling percentage of still-valuable reusable materials from the rest. This while the waste industry is seeing an active labor shortage, which means waste haulers need to provide higher pay and better benefits to bring in drivers and other staff. As these expenses rise at the same time that recyclable profits plummet, expect waste rates to rise with more fees and higher prices for recycling in particular.
Looking at these upwards 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 sub-metering 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. Utility data provider Urjanet has seen firsthand how real-time energy data can help its industrial clients save money. “We have customers that are surprised when they identify areas of inefficiency and up to 30 percent in savings by using our data,” said Urjanet CEO Sanjoy Malik.
For example, Arconic, a global engineering and manufacturing company with 157 locations, used Urjanet data to be alerted almost immediately to any changes in energy usage levels. “This enabled the team to have a more proactive strategy that helped them save money and avoid penalties for going over established volumes,” Malik explained. “At one facility, just by setting up alerts to warn them when the site was nearing its gas overage limit, the team was able to make adjustments mid-month and save over $13,000.” Other clients were able to take a deeper dive into their energy spending and find lower rates with different providers, which led to the detection of thousands of dollars in savings.
Not everyone has the option of finding different power providers, of course. But 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.